Can you make a payment claim under the SOPA to recover the proceeds of a bank guarantee?

INTRODUCTION

Is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) which, in substance, purports to recover the proceeds of a bank guarantee valid for the purposes of the Act?

This question was considered by the Court of Appeal in the recent decision of EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd [2024] NSWCA 162.

Facts and background

On 3 June 2020, EnerMech Pty Ltd (EnerMech) entered into a contract (the Contract) with Acciona Infrastructure Projects Australia Pty Ltd, Samsung C&T Corporation and Bouygues Construction Australia Pty Ltd (Acciona) to undertake electrical works which were part of the WestConnex project.

Under the Contract, EnerMech was obliged to provide security. Pursuant to that obligation, EnerMech procured the issue of an unconditional undertaking from HSBC (the Security) in the sum of $9,230,157.40 (the Security Amount).

On 26 May 2023, Acciona made a demand on HSBC for the Security Amount.

On 8 June 2023 EnerMech served a payment claim on Acciona (the Payment Claim) in which it sought to recover, amongst other things, the Security Amount obtained by Acciona in exercise of its contractual entitlement to have recourse to the Security provided by EnerMech.

Acciona then issued a payment schedule in which it indicated that no amount was owing or payable. Included within that payment schedule was a letter from Acciona in which it stated that the claim made by EnerMech to recover the Security Amount was “neither for construction work nor the supply of related goods or services as required under section 13(2)(a) of the Act” and accordingly, the Act was not engaged.

On 7 July 2023 EnerMech submitted the payment claim for adjudication and was ultimately successful in obtaining an adjudication determination in its favour.

Subsequently, Acciona commenced proceedings in the Supreme Court of NSW alleging that the payment claim was invalid as it was not a claim for payment “for construction work”.

On 14 December 2023, Stevenson J made orders in favour of Acciona, holding that payment claims which, in substance, purport to recover the proceeds of a demand on a bank guarantee will not be valid for the purposes of the Act as such a claim would not be made in respect of construction work or related goods and services.

Appeal decision

On 13 February 2023 EnerMech filed a notice of appeal. The key issue to be determined by the Court of Appeal was whether a payment claim may be made only “for construction work”.

Ultimately, the Court held that a payment claim does not need to be a claim “for construction work” in order to be valid. In reaching this decision, the Court made the following findings:

There is no provision within the Act that requires a payment claim to be made “for construction work”.[1]
Grammatically, a payment claim is not “for construction work”; it is a claim for money owing on account of construction work (or related goods or services).[2]
There is no doubt that a payment claim must be for an amount of money, and the claim must assert that the amount is for work done, goods supplied or services rendered, under a construction contract.[3]
The scheme of the Act is to focus upon the construction contract, overlaid by a statutory entitlement to progress payments.[4]
There is little scope for implying unstated conditions as essential to the validity of a payment claim or a payment schedule.[5]

The Payment Claim issued by EnerMech stated that it was owed an amount for construction work undertaken under the construction contract, and therefore it was a valid payment claim under the Act.

Key takeaways

This decision from the Court of Appeal is significant as it expands the breadth of items that can be included in a payment claim made under the Act.

A claimant can now use a payment claim under the Act to recover monies that have been obtained by another party via recourse to security (be it a bank guarantee, insurance bond or other) under a construction contract.