Acciona Infrastructure Projects Australia Pty Ltd v EnerMech Pty Ltd

The "First Determination"

1. On 25 July 2022, EnerMech served on Acciona Payment Claim 26 pursuant to s 13 of the Act.
2. By that claim, EnerMech claimed it had carried out works under the Contract to the value of $102,581,165.44. [1] Taking into account previous payments, EnerMech claimed $9,900,457.99.
3. On 8 August 2022, Acciona served a Payment Schedule pursuant to s 14 of the Act in respect of Payment Claim 26, assessing that no amount was due by it to EnerMech and that, on the contrary, an amount of $2,266,819.03 was due by EnerMech to Acciona.
4. EnerMech and Acciona made an Adjudication Application and an Adjudication Response, under ss 17 and 20 of the Act, on 22 and 30 August 2022 respectively.
5. On 26 September 2022, an Adjudicator gave a determination under the Act. The parties referred to this as the "First Determination".
6. Acciona did not challenge the First Determination. It is common ground that it was valid under the Act.
7. In the First Determination, the Adjudicator rejected, relevantly, a contention by Acciona that it was entitled to deduct from the amount payable to EnerMech a sum of $563,994.48 for the cost of new fibre optic cables allegedly purchased to rectify damage allegedly caused by EnerMech.
8. Following correction under the slip rule, [2] the First Determination was that EnerMech was entitled to $5,629,935.01. [3]
9. Acciona paid that amount.

The "Second Determination"

1. On 4 October 2022, EnerMech served on Acciona Payment Claim 28. By that claim, EnerMech claimed that it had carried out works under the Contract to the value of $139,282,278.15. Taking into account previous payments, EnerMech claimed $41,483,447.96.
2. On 18 October 2022, Acciona served a Payment Schedule in respect of Payment Claim 28, assessing that no amount was due to EnerMech and that $7,177,517.89 was due by EnerMech to Acciona.
3. EnerMech and Acciona made an Adjudication Application and an Adjudication Response on 1 and 9 November 2022 respectively.
4. On 19 December 2022, the same Adjudicator made what the parties have referred to as the "Second Determination".
5. Again, Acciona did not challenge the Second Determination. It is common ground that it was valid under the Act.
6. In the Second Determination, the Adjudicator: 1. accepted a claim by EnerMech that it was entitled to extensions of time under the Contract; 2. rejected a contention by Acciona that it was entitled to deduct $2,171,859.19 due to alleged wastage associated with lengths of final circuit cables and submain cables; and 3. rejected a contention by Acciona that it was entitled to deduct $615,336.66 due to alleged excess ordering by EnerMech of lengths of cable ladders and associated fixings.
7. The Adjudicator of the Second Determination determined (after accounting for slips) that $9,124,042.23 was payable by Acciona to EnerMech.
8. Acciona paid the adjudicated amount.
9. Clause 42.1 of the Contract, which dealt with "Payment Claims, Payment Schedules and Payment", provided for EnerMech to submit a "payment claim", and Acciona's Representative to issue a "payment schedule" and then for Acciona to pay EnerMech an amount not less than the amount in that payment schedule.
10. The payment claims and payment schedules required by cl 42.1 also operated as payment claims and schedules under the Act, giving rise to the possibility that an adjudicator under the Act might come to a different conclusion than Acciona's Representative under the Contract.
11. So it happened.
12. Thus, the position determined by the Adjudicator in the First and Second Determinations differed from the position for which Acciona contended (as assessed by Acciona's Representative under the Contract). According to the position as determined by Acciona's Representative, EnerMech was obliged to repay $7,177,517.89 because, it was said, the total amount due to EnerMech under the Contract was $90,621,312.20.

Acciona's call on the Security

1. As I have said, [4] on 26 May 2023, Acciona called on the Security. Acciona did not give EnerMech notice of its intention to make the call, nor give reasons for calling on the Security at the time. Acciona was not obliged under the Contract to do either of these things. HSBC paid Acciona the value of the Security.

The "Third Determination"

1. On 8 June 2023, EnerMech served on Acciona Payment Claim 29. By that claim, EnerMech claimed it had carried out works under the Contract to the value of $106,941,484.09. Taking into account previous payments, EnerMech claimed that $9,318,675.33 was due to it under the Contract.
2. Acciona's case concerning Question 1 is that the Third Determination was made without jurisdiction and is liable to be quashed because Payment Claim 29 was not, in truth, a "payment claim" for the purpose of s 13 of the Act. That is because, Acciona submits, it was not a claim for construction work but was, rather, a claim for a credit in relation to the Security Amount paid by HSBC to Acciona following service of the Demand.
3. Accordingly, it is necessary to examine, with some care, the form of Payment Claim 29.

Payment Claim 29

1. A copy of the Cover Sheet of Payment Claim 29 is attached to these reasons. Annexure A - Cover Sheet of Payment Claim 29
2. The amount claimed by EnerMech was the "Total Amount of Payment to be Made by the Contractor" of $10,180,582.60. [5]
3. That sum was the difference between: 1. the "Gross Total" of the "Current Subcontractor's Claim" of $106,941,484.09, which was itself the sum of the nine amounts relating to the nine listed claim categories (contract works, variations, credits and the like); and 2. the "Less Net Certified/Paid To Date" figure of $97,622,808.76, to which GST was added and a sum subtracted on account of an earlier slip ruling.
4. The sum of $106,941,484.09 referred to at [37(a)] is to be contrasted with the figure of $106,922,872.42 under the heading "Adjudicator's Previous Determinations". The latter sum represents amounts previously certified by Acciona's Representative as payable to EnerMech, or determined as payable by previous adjudicators.
5. The difference between those two figures is $18,611.67. That figure is the sum of: 1. $15,371.18 being "Variation Claim for Additional Barrier Strip"; and 2. $3,240.49 for "Interest on amount owing from Slip Rule".
6. That emerges from an attachment to Payment Claim 29, a copy of which is attached. [6] Annexure B - Attachment to Payment Claim 29
7. What this shows is that the only item of "construction work" within the meaning of s 5 of the Act claimed by EnerMech in Payment Claim 29 is the $15,371.18 for the identified variation, plus, perhaps, the interest claim of $3,240.49.
8. This is confirmed by the fact that, otherwise, each line item under the headings "Current Subcontractor's Claim" and "Adjudicator's Previous Determination" add up to the same amount.
9. The manner in which the "Less Net Certified/Paid To Date" figure of $97,622,808.76 is calculated was set out in Schedule 5 to Payment Claim 29, a copy of which is attached to these reasons. Annexure C - Schedule 5 to Payment Claim 29
10. That shows, critically to Question 1, that the credit allowed by EnerMech in Payment Claim 29 is comprised of: 1. 28 identified "Progress Payments to Date", about which there are no disputes; less 2. $9,230,157.40: an amount equal to the Security Amount paid by HSBC to Acciona following the making of the Demand.
11. It is Acciona's case that this shows that Payment Claim 29 was not a claim for payment on account of construction work, but rather a claim for a credit in relation to the Security Amount paid by HSBC to Acciona.
12. EnerMech disputes this, but accepts that Payment Claim 29 thus "took into account the difference in the cash position between the parties because of the recourse to the Security"; to adopt the language of Mr Hughes, who appeared for EnerMech.
13. I return to this below.

Events thereafter

1. In response to Payment Claim 29, Acciona provided a payment schedule. Included in that payment schedule was a letter dated 23 June 2023 from Acciona to EnerMech stating: "The amount of $9,230,157.40 deducted by [EnerMech] from the paid to date amount is not a deduction made by [Acciona], but correlates to [Acciona's] recourse to the bank guarantees and is neither for construction work nor the supply of related goods or services as required under section 13(2)(a) of the Act. Accordingly, the Act is not engaged and an adjudicator does not have jurisdiction to determine [EnerMech's] claim for a deduction to the paid to date amount. … [Acciona] notes that it has bona fide claims against [EnerMech] (including liquidated damages) well in excess of $9,230,157.40. Accordingly, [Acciona's] right to have recourse to the bank guarantees arises from this clause 5.5(a)(iii) of the Subcontract. [EnerMech's] attempt to recover the amount of $9,230,157.40 falls outside the remit of the Act."
2. The latter paragraph comprised the only basis advanced by Acciona to that point as its reason for making the Demand on HSBC.
3. EnerMech then made an Adjudication Application under s 17 of the Act on 7 July 2023. In its Adjudication Application, EnerMech advanced arguments referring to the decisions of Darke J in Illawarra Retirement Trust v Denham Constructions Pty Ltd, [7] and of Ball J in Grocon (Belgrave St) Developer Pty Ltd v Construction Profile Pty Ltd, [8] as well as a number of other authorities to which I return below. EnerMech submitted that the Adjudicator should determine that Acciona "is liable to pay EnerMech the amount of $9,230,157.40".
4. On 14 July 2023, Acciona provided an Adjudication Response.
5. In the Adjudication Response, Acciona provided a further explanation for making the Demand on the Security: "[Acciona] is entitled to have recourse to the Security where it: a. has become entitled to exercise a right under the [Contract] in respect of the Security; b. claims reimbursement of any monies paid or to be paid to others under or in connection with the [Contract]; or c. to the extent to which [Acciona] has or may have a bona fide Claim against the Claimant under, arising out of or in any connection with the [Contract] (clause 5.5(a))."
6. That makes clear that Acciona was asserting that its entitlement to make the Demand arose under cl 5.5(a) of the Contract which provided: "5.5 Recourse to Security (a) [Acciona] may have recourse to the Security provided in accordance with this clause 5 where [Acciona]: (i) has become entitled to exercise a right under this [Contract] in respect of the security; (ii) claims reimbursement of any monies paid to or to be paid to others under or in connection with this [Contract]; or (iii) to the extent to which [Acciona] has or may have a bona fide Claim against [EnerMech] under, arising out or in any way in connection with this [Contract]."
7. Clause 42.11 also makes provision for "Recourse of Unpaid Monies". I return to this below.
8. The Adjudication Response continued: "There is no requirement under the [Contract] that [Acciona] has to notify [EnerMech] before having recourse to the Security. Notwithstanding that, [Acciona] submits that it relies on the following claims to have recourse to the Security: a. claims that have been made against [EnerMech] (including but not limited to defects, damage to cable, etc) in excess of $18 million (See Payment Schedule (TAB 2.02) which sets out the 'CONTRACT VALUE (ADJUSTED)' at $88,814,580.81 and the 'SUBCONTRACTOR'S CLAIM (CUMULATIVE) at $106,922,872.43. The difference between the two amounts being $18,108,291.62.); b. liquidated damages in excess of $6 million. Details of the bona fide claims are set out in the Jouille Statement …"
9. The "Jouille Statement" referred to in this passage was a statement by Mr Alexandre Jouille, a Commercial Manager at Acciona, who stated, in terms, that Acciona made the Demand pursuant to cl 5.5(a) of the Contract.
10. Indeed, consistently with the Demand having been so made, he deposed that: "It is my honest belief that [Acciona] has bona fide claims against [EnerMech], namely: a. claims that have been made against [EnerMech] (including but not limited to defects, damage to cable, etc) in excess of $18 million; and b. liquidated damages in excess of $6 million."
11. I return to the significance of this below.
12. On 25 July 2023, an Adjudicator (not the adjudicator who made the First and Second Determinations) made the Third Determination.
13. The Adjudicator considered the parties' competing contentions as to whether Payment Claim 29 was a claim for construction work and concluded: "97. … The payment claim included contract work items that had not been previously claimed. While they are relatively modest in the context of the overall value of the claimed amount, the value claimed came about by the comparison of the amount identified as previously paid. 98. The payment claim does not include a claim item or items for the recovery of the security amounts. … 99. I note that the payment claim identifies the amount paid to date as $97,622,808.76, compared to [Acciona's] submitted amount, excluding payments made on 23 June 2023 ($88,877.95), of $106,852,966.05. The difference being $9,230,157.40, which corresponds to the combined value of the bank guarantees called on by [Acciona]. 100. … I am satisfied that [EnerMech] was able to adjust the amount previously paid to reflect the security amount called on by [Acciona]. I will further consider the Cash Position in Section 5.4.5 of this determination."
14. I will return to these passages from the Third Determination when considering Mr Hughes's submission that the Adjudicator had jurisdiction to determine whether Payment Claim 29 was a "payment claim" for the purpose of the Act.

Question 1

1. I turn now to the five questions.
2. Question 1 is: "Was the adjudicator's determination of 26 July 2023 affected by jurisdictional error for one or more of the reasons identified at paragraphs C12-C18 of the Amended List Statement?"
3. It is agreed that if the answer to this question is "no", I should dismiss Acciona's Amended Summons and order that the determined amount paid into Court be paid to EnerMech.
4. It is not necessary to set out the reasons specified in pars C12-C18 of the Amended List Statement.
5. Acciona's case was put succinctly by Mr Robertson SC and Mr Keene, who appeared for Acciona, in their written submissions as follows: "… in substance, [Payment Claim 29] includes a claim for the payment to EnerMech of the amount obtained by [Acciona] from HSBC by making the Demands. That is plainly not a claim for or on account of 'construction work' or 'related goods and services'. It is thus not a claim that can be made by way of a payment claim under s 13(1) of the Act." (Emphasis in original.)
6. Section 13(1) of the Act provides: "A person referred to in section 8 who is or who claims to be entitled to a progress payment ('the claimant') may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment." (Emphasis in original.)
7. The term "progress payment" is defined in s 4 of the Act: "[P]rogress payment means a payment to which a person is entitled under section 8, and includes (without affecting any such entitlement) - (a) the final payment for construction work carried out (or for related goods and services supplied) under a construction contract, or (b) a single or one-off payment for carrying out construction work (or for supplying related goods and services) under a construction contract, or (c) a payment that is based on an event or date (known in the building and construction industry as a 'milestone payment')." (Bold emphasis in original; italics emphasis in (a) and (b) added.)
8. Section 8 of the Act provides: "Right to progress payments A person who, under a construction contract, has undertaken to carry out construction work or to supply related goods and services is entitled to receive a progress payment." (Emphasis in original.)
9. Section 9 of the Act provides: "Amount of progress payment The amount of a progress payment to which a person is entitled in respect of a construction contract is to be - (a) the amount calculated in accordance with the terms of the contract, or (b) if the contract makes no express provision with respect to the matter, the amount calculated on the basis of the value of construction work carried out or undertaken to be carried out by the person (or of related goods and services supplied or undertaken to be supplied by the person) under the contract." (Emphasis in original.)
10. Although the definition of "progress payment" in s 4 of the Act gives, as examples, a final payment "for construction work", or a single or one-off payment "for carrying out construction work", the Act does not provide, in terms, that a payment claim must be "for" construction work.
11. However, the High Court has held that: "The repeated references in s 8, and in the extended definition of progress payment, to payment 'for' work carried out or to be carried out (or goods and services supplied or to be supplied) 'under' a construction contract nevertheless point to an important limitation that is implicit in the overall design of the Act, and that has been so from the time of its original enactment. That limitation is that the Act is concerned to provide a statutory mechanism for securing payment of an amount claimed to be payable in partial or total discharge of an obligation to pay for work (or for goods and services supplied) imposed by the contractual force of a construction contract. The Act is not concerned to provide security for payment of an amount claimed by way of damages for breach of a construction contract. Nor is the Act concerned to provide security for payment of an amount which, according to prevailing authority, [9] might be claimed as an alternative to damages by way of restitution for work carried out (or goods and services supplied) in the event of the construction contract terminating on acceptance of repudiation." [10]

Was Payment Claim 29 a claim for construction work?

1. There is no dispute that the Contract is a "construction contract" within the meaning of the Act. Nor is there a dispute that, to the extent that Payment Claim 29 included a claim for the $15,371.18 for "Variation Claim for Additional Barrier Strip" referred to at [39] above and, perhaps, the further amount of $3,240.49 for "Interest on amount owing from Slip Rule", it included a claim for construction work.
2. Mr Robertson submitted that, nonetheless, in substance and in form, Payment Claim 29 was a claim for a credit corresponding to the Security Amount and was thus not a claim for construction work; and that the inclusion of a de minimis claim for construction work did not alter that conclusion. Mr Robertson relied, in that regard, on a passage from the decision of Ball J in Grocon (Belgrave St) Developer Pty Ltd v Construction Profile Pty Ltd [11] to which I will return.
3. Mr Hughes submitted that because Payment Claim 29 identified "the works that make up EnerMech's claim for $106,941,484.09", being the nine items to which I have referred at [37(a)] above, and because the work in each of those nine items was construction work, that it followed that "fundamentally … EnerMech claimed payment because it had carried out these works". [12]
4. Mr Hughes submitted that: "This is a sufficient answer to [Acciona's] complaint. The claim was unambiguously for construction work". [13]
5. The matter is not as simple as that.
6. EnerMech did not claim the payment of $10,180,582.60 because it had performed the construction work set out in the nine items, save for $18,611.67, but because of an asserted entitlement to claim as a credit, in the calculation of the amount to which it was entitled: an amount equal to the Security Amount.
7. Alternatively, Mr Hughes submitted that the effect of the identified clauses in the Contract was that "the cash position between the two parties during the pendency of the works" was in the nature of a "running account".
8. Mr Hughes drew attention to the statement in Airservices Australia v Ferrier, [14] by Dawson, Gaudron and McHugh JJ that: "The essential feature of a running account is that it predicates a continuing relationship of debtor and creditor with an expectation that further debits and credits will be recorded. Ordinarily, a payment, although often matching an earlier debit, is credited against the balance owing in the account." [15]
9. This submission requires consideration of the terms of the Contract to which Mr Hughes referred.

The provisions in the Contract concerning payment

1. Clause 42.1(a) of the Contract entitled EnerMech to make a payment claim on each "Reference Date" and on the "Final Payment Claim Reference Date".
2. Clause 42.1(e) provided for Acciona's Representative to issue a payment schedule stating the payment which, in the opinion of Acciona's Representative, was to be made by Acciona to EnerMech.
3. Clauses 42.1(h) and (i) provided: "(h) By the Due Date for Payment, [Acciona] must pay to [EnerMech] or [EnerMech] must pay to [Acciona] (as the case may be) an amount not less than the amount shown in the payment schedule as due to [EnerMech] or to [Acciona]. A payment made pursuant to this clause 42.1(h) is on account only and will not prejudice the right of either party to dispute under clause 47 whether the amount so paid is the amount properly due and payable under this [Contract]. If, as a result of a determination (whether under clause 47 or as otherwise agreed), the amount determined to be properly due and payable is different to the amounts paid pursuant to this clause 42.1(h), [Acciona] or [EnerMech], as the case may be, shall be liable to pay the difference between the amount of such payment and the amount so properly due and payable. (i) Payment of monies will not be evidence of the value of work or an admission of liability or evidence that work has been executed satisfactorily but will be a payment on account only, except as provided by clause 42.8(e)." (Emphasis added.)
4. Clause 42.8(e), referred to in cl 42.1(i), provided for a "Final Payment Schedule" following receipt of EnerMech's "Final Payment Claim".
5. Mr Hughes's submission concerning the existence of a "running account" was based on the provision in both cll 42.1(h) and (i) that I have emphasised, that payments made by Acciona to EnerMech pursuant to the regime established by cl 42.1 were "on account only" and, looking at cl 42.1(h), without prejudice to the rights of either party to invoke the dispute resolution provisions in cl 47.
6. Clause 47 made provision for disputes to be resolved by negotiation in good faith, expert determination and, ultimately, litigation.
7. Clause 42.1(h) drew distinction between payments on account and amounts "determined to be properly due and payable", whether under cl 47 of the Contract or otherwise.
8. Mr Hughes submitted that the interaction between the Security provided under cl 5 of the Contract and the "running account established by cl 42.1" was "governed" by cl 42.11.
9. Clause 42.11, "Recourse of Unpaid Monies", provided: "Where, within the time provided by this [Contract], [EnerMech] fails to pay [Acciona] an amount due and payable under this [Contract], [Acciona] may have recourse to the security under this [Contract] and any deficiency remaining may be recovered by [Acciona] as a debt due and payable."
10. Clause 42.11 provided for recourse by Acciona to the Security and provided a basis for additional recourse to that set out in cl 5.5, to which I have referred at [53] above.
11. It will be recalled that cl 5.5 enabled Acciona to have recourse to the Security if it became "entitled to exercise a right" under the Contract in respect of the Security and, relevantly, when it considered that it had or may have a "bona fide claim" against EnerMech "under, arising out or in any way in connection with" the Contract.
12. On the other hand, cl 42.11 provided a right of recourse by Acciona to the Security if EnerMech failed to pay Acciona "an amount due and payable" under the Contract.
13. As I have set out above, when Acciona called on the Security, it purported to rely on cl 5.5, rather than cl 42.11. [16]
14. In particular, in the statement annexed to Acciona's Adjudication Response, Mr Jouille referred in terms to the Demand having been made under cl 5.5(a) and deposed to having the belief that Acciona had a bona fide claim against EnerMech contemplated by cl 5.5(a)(iii). [17]
15. Nonetheless, argument before me proceeded upon the basis that Acciona had an entitlement to call on the Security under both cll 5.5 and 42.11. Indeed, the facts that the parties agreed to assume, for the purpose of Question 2, included Acciona's entitlement under both clauses.
16. The significance of Mr Hughes's submission that the "interaction" between the Security provided under cl 5 and the "running account" said to be established by cl 42.1 lay in the concluding words of cl 42.11 that "any deficiency remaining [after a call on the Security] may be recovered by [Acciona] as a debt due and payable". Those words do not appear in cl 5.5(a).
17. Mr Hughes submitted that those words showed that if Acciona called on the Security the amount owing by EnerMech to Acciona would be reduced and that: "In this way, the value of the Security is brought to account against the running account to reduce [EnerMech's] indebtedness to [Acciona]." [18]
18. But the language used by the parties shows that cl 42.11 is concerned with a circumstance where there is an amount "due and payable" by EnerMech to Acciona, reflecting the distinction drawn in cl 42.1(h) between payments "on account only" and amounts determined to be "properly due and payable". [19]
19. Thus, were Acciona to invoke cl 42.11 to call on the Security in relation to an amount "due and payable" by EnerMech, Acciona could recover any deficiency following the call also "as a debt due and payable".
20. Thus, the amount of any Security recovered by Acciona following a call under cl 42.11 would not be received by it "on account only" but rather as an amount "due and payable". I cannot see how, in those circumstances, it could be said that recovery by Acciona of the amount of the Security could somehow result in EnerMech being given a credit for the construction work it had performed or having the effect of reducing the amount payable by Acciona to EnerMech for that construction work.
21. Payment claims constructed in a manner similar to Payment Claim 29 have been considered at first instance by judges of this Court in two cases, to which I will now turn.
22. The first is the decision of Darke J in Illawarra Retirement Trust v Denham Constructions to which I referred at [50] above.
23. In that case, the principal called on security provided under the relevant construction contract and was paid an amount of $876,080.
24. The contractor submitted a progress claim of $3,783,899.71 which included an item described as "cash held" in the sum of $876,080: the amount of the security recovered by the principal.
25. Darke J held that the $876,080 was not "stated to be claimed in respect of" construction work but that: "Rather, it is tolerably clear that the $876,080 is treated as an amount that is to be included in the accounting exercise that must be undertaken in determining any amount to be paid to the [contractor] pursuant to its claim. … So understood, the inclusion of the 'cash held' item in the payment claim does not in my view invalidate it, either in whole or to that extent. It is merely an item that forms part of the actual monetary position between the [principal] and the [contractor] which may be taken into account in the determination of the amount (if any) that should be paid to the [contractor] in respect of its claim." [20]
26. Taken out of context, Darke J's observations appear to support EnerMech's case that the inclusion by EnerMech of the amount of the Security in Payment Claim 29 did not have the effect of rendering it ineffective as a payment claim for the purpose of the Act.
27. However, as Mr Robertson has pointed out, it is clear from Darke J's reasoning that the submission that Mr Robertson has put in this case, that Payment Claim 29 was not a claim "for construction work", was not put to Darke J.
28. Rather, the principal in that case submitted that the payment claim was invalid because the amount of $876,080 was not related to any identified construction work for the purpose of s 13(2) of the Act, and that: "… a claim for return of the amount of security taken by a principal calling on unconditional bonds put in place by a contractor does not fall within s 13(3)(b) of the Act [21] is not otherwise a claim that may form part of a payment claim under the Act." [22]
29. In any event, Darke J's decision in Illawarra Retirement Trust v Denham Constructions cannot be reconciled with the decision of Ball J in Grocon (Belgrave St) Developer v Construction Profile. [23]
30. In that case, the contractor agreed to provide two bank guarantees, each of $498,911.10. The principal called on the guarantees.
31. The contractor sent a payment claim which claimed a credit equal to the amount paid under the call; in effect, as in this case, seeking to recover the amount paid under the guarantees.
32. The principal put to Ball J the same argument that Mr Robertson has put in this case. Thus, his Honour said: "[The principal's] claim is simple. It says that, insofar as Payment Claim No 033 claims amounts paid under the guarantees, the claim is not one for construction work or related goods or services undertaken to be carried out or supplied under a construction contract. Consequently, it is not one that can be the subject of an adjudication under the Act." [24]
33. Ball J concluded: "… I do not see how it could be said that the 'claim' for the two amounts of $498,911.10 could be described as a claim for construction work or for related goods and services. Rather, in substance and in form it is a claim for a credit of those two amounts against the amounts that [the principal] claimed under the bank guarantees for liquidated damages. The fact that the payment claim is for the whole of the work done less the amount paid does not alter the character of the two amounts in question. Even if the basis of the claim for a credit in respect of those two amounts is contractual, it is plainly not a claim for construction work performed by [the contractor] or for related goods and services. There may be a question whether the other amounts claimed in Payment Claim No 033 have that character. But those amounts are small compared to the amounts claimed in respect of the guarantees. They do not provide a sufficient basis for refusing the relief sought by [the principal] if it otherwise should be granted." [25] (Emphasis added.)
34. Ball J's conclusions are precisely on point.
35. I agree with them.
36. In substance, and in form, Payment Claim 29 was not a claim for construction work. It was thus not a "payment claim" for the purpose of the Act.
37. It follows from the passage in Ball J's reasoning I have emphasised that even if (contrary to my finding) EnerMech had a contractual entitlement to claim a credit for an amount equal to the Security Amount, Payment Claim 29 is nonetheless not a claim for construction work.
38. Mr Hughes relied upon a statement that Ball J made later in Grocon, in the course of considering an argument that a clause in the relevant construction contract permitting the principal to certify amounts due against amounts payable to the contractor was rendered void by s 34 of the Act. [26]
39. Ball J considered some observations made by White J (as his Honour then was) in Patterson Building Group Pty Ltd v Holroyd City Council. [27] White J was dealing with an application by a contractor for an injunction to restrain a principal from calling on a bank guarantee issued under a construction contract.
40. In Patterson, White J said: "If the [principal] calls on the bank guarantees then the evidence indicates that it [28] would be required to put its bank in funds. In substance it would be in the same position as if it had provided security in the form of cash. The [principal's] security would have been reduced but the plaintiff would still have secured the benefit of the adjudication determination under the Act. If on the final determination of the parties' contractual rights the plaintiff succeeds it would be entitled to have the security restored to it. The position can also be tested by considering what the position would have been if, for example, the [principal] had recourse to the security to meet its claim to be owed money on account of liquidated damages before there was a reference to adjudication. There would be nothing I think in the [Act] that could preclude the [principal] from having recourse to the security in those circumstances and it does not appear to me that the plaintiff could undo the effect of the [principal's] having recourse to the security by recourse to the procedures in the Act." [29]
41. Referring to what White J had said in the second quoted passage, Ball J said: "… it is not clear why an adjudicator could not make an adjustment in his or her determination to take account of amounts recovered by the principal as a consequence of an exercise of a right to call on a guarantee." [30]
42. Ball J was here speaking of what adjustment an adjudicator might be entitled to make in a determination in circumstances where the principal had recourse to the security before reference to an adjudication. His Honour was not speaking of what could permissibly be included in a payment claim and, obviously, was not seeking to contradict what he had earlier written in the passage to which I have referred at [114] above.

Conclusion as to Payment Claim 29

1. For those reasons, and to repeat, my conclusion is that Payment Claim 29 cannot be seen as being a claim for construction work. I agree with Ball J that the question should be addressed as a matter of substance as well as form. The fact that EnerMech included in Payment Claim 29 its claim for $18,611.67, being some 0.18% of the total amount claimed, cannot convert what was in substance and in form a claim to recover an amount equal to the Security Amount, into a claim "for construction work".
2. Payment Claim 29 was not a "payment claim" for the purpose of the Act. The Adjudicator had no jurisdiction to deal with the claim.

Did the Adjudicator have jurisdiction to determine whether Payment Claim 29 was a "payment claim" for the purpose of the Act?

1. Mr Hughes also submitted that it was for the Adjudicator to determine whether Payment Claim 29 was a "payment claim" for the purpose of the Act, referring to the observations of Basten JA, with whom Meagher and Leeming JJA agreed, in Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd. [31]
2. Mr Hughes pointed to the fact that the Adjudicator had in fact considered that question and reached an affirmative conclusion. [32]
3. But Basten JA in Icon was considering the power of the Adjudicator to determine "the scope of the payment claim" and made the point that an adjudicator's erroneous conclusion as to the content or scope of the payment claim is not reviewable. [33] That is a different question to the question of whether a document purporting to be a "payment claim" in fact had that status.
4. In Grocon, Ball J rejected a submission made by the contractor to the effect of that made by Mr Hughes before me. Thus Ball J said: "As the High Court pointed out in Southern Han Breakfast Point Pty Ltd (In Liquidation) v Lewence Construction Pty Ltd [34] the jurisdiction of the adjudicator is determined by the Act; and it is ultimately a question for the Court, not the adjudicator, to determine whether the adjudicator has jurisdiction to determine a particular claim, although, of course, it may be necessary for an adjudicator to reach a decision on that question as part of the process of determining whether he or she should entertain an application under the Act in respect of the claim." [35]
5. Again, I agree.
6. There is no "kompetenz-kompetenz" point available here.

Answer to Question 1

1. The answer to Question 1 is "yes".

Question 2

1. Question 2 is: "Assuming the correctness of the contentions at Attachment A to the Cross Claim Response filed 20 September 2023 (for the purpose of this question only), did s 34 of the [Act] render void the [Contract] to the extent that it authorised [Acciona] to have recourse to the security on 26 May 2023 for the reasons identified in [EnerMech's] Amended Cross Claim Statement [29]-[36] or [EnerMech's Reply to Acciona's Response to EnerMech's Cross Claim Statement] [4(a), (b)]?"
2. Section 34 of the Act provides: "34 No contracting out (1) The provisions of this Act have effect despite any provision to the contrary in any contract. (2) A provision of any agreement (whether in writing or not) - (a) under which the operation of this Act is, or is purported to be, excluded, modified or restricted (or that has the effect of excluding, modifying or restricting the operation of this Act), or (b) that may reasonably be construed as an attempt to deter a person from taking action under this Act, is void." (Emphasis in original.)
3. The contentions in "Attachment A" to Acciona's Cross Claim Response were to the effect that EnerMech had failed to achieve substantial completion by the dates for substantial completion in the Contract, had breached a number of terms of the Contract, and that Acciona was thereby entitled to recourse to the Security under both cll 5.5(a)(iii) and 42.11 of the Contract.
4. The "reasons identified" in EnerMech's Amended Cross Claim Statement were, relevantly, that: "31A. [Acciona] had recourse to the Security purportedly relying on clause 5.5(a)(iii) of the [Contract] (on the basis that it considered that it had bona fide claims against EnerMech, being the Claims) and for no other reason. … 33. In the premises, the substance of each of the Claims has been rejected by adjudicators lawfully appointed under the Act (Claim Rejections). 34. In the context of the Determinations and the Claim Rejections, the operation of the Act is that EnerMech is entitled to receive payments under the [Contract] on the basis that the Claims are rejected. 35. The Call has the effect of excluding, modifying or restricting the operation of the Act (within the meaning of section 34(2)(a) of the Act), because the result of the Call is that [Acciona] can recover from EnerMech monies which, by its operation, the Act requires [Acciona] pay to EnerMech. 36. In the premises, to the extent that the [Contract] authorised the Call based on the Claims: (a) the [Contract] had the effect of excluding, modifying or restricting the operation of the Act; (b) the [Contract] is void by reason of s 34 of the Act; (c) the Call was unauthorised under the [Contract] and ineffective; and (d) [Acciona] must account to EnerMech for the value of the Security." (Emphasis in original.)
5. The "reasons identified" in EnerMech's Reply to Acciona's Response to EnerMech's Statement of Cross Claim succinctly summarised EnerMech's position, namely that: "In reply … EnerMech says: (a) the matters contended for by [Acciona] in Attachment A to the [Cross Claim Response] are inconsistent with determinations of the First Adjudicator in the First Adjudication Determination and the Second Adjudication Determination, as summarised in Schedule A to this reply; (b) to the extent that the Demands were authorised by cl 42.11 of the [Contract] for the reasons articulated in Attachment A to the [Cross Claim Response]: (i) clause 42.11 of the [Contract] had the effect of authorising or enabling [Acciona] to have the benefit of the Security for reasons inconsistent with the First Adjudication Determination and the Second Adjudication Determination; and (ii) to that extent, clause 42.11 of the [Contract] had the effect of excluding, modifying or restricting the operation of the Act, and so was void by reason of s 34(2)(a) of the Act …" (Emphasis in original.)
6. Schedule A to EnerMech's Reply detailed the respects in which, in the First and Second Determinations, the 2022 Adjudicator had rejected claims that, in Attachment A to its Cross Claim Response, Acciona posits EnerMech's breaches of the Contract, namely the matters that I have set out at [16] and [24] above.
7. The "reasons identified" by EnerMech in its Amended Cross Claim Statement are directed to cl 5.5(a)(iii) of the Contract. The "reasons identified" in EnerMech's Reply are directed to cl 42.11.
8. Mr Hughes accepted that cll 5.5(a)(iii) and 42.11 were not and could not be void for all purposes by reason of s 34 of the Act.
9. Mr Hughes submitted that, rather, the provisions were void "to the extent" of authorising a call by Acciona on the Security in respect of claims that had already been rejected by a determination under the Act.
10. Thus, Mr Hughes submitted that, for example, cl 5.5(a)(i) should be construed so as to add the words I have emphasised parenthetically in italics: "(a) The Contractor may have recourse to the security provided in accordance with this clause 5 where the Contractor: (i) has become entitled to exercise a right [other than a right that an adjudicator has determined the Contractor does not have] under this [Contract] in respect of the security …"
11. It is a maxim of contractual construction that where two constructions are open but one renders the contract unlawful, the construction which renders the contract lawful will be preferred. [36] This is an aspect of the wider maxim where a document is reasonably open to more than one construction, the Court should prefer a construction that will preserve the validity of the transaction, rather than rendering it void or ineffective. [37]
12. But the maxim only applies where two constructions are open after the ordinary principles of contractual construction have been applied. [38]
13. I cannot see how ordinary processes of construction could lead to the conclusion that cl 5.5(a)(iv) be read in the manner set out at [142] above, which is to read into an unambiguous clause words that are simply not there.
14. Another difficulty with this argument is that, for the purpose of Question 2, I must assume the correctness of the contentions in Attachment A to Acciona's Cross Claim Response. That is, I must assume, contrary to the findings of the Adjudicator, that the breaches had occurred.
15. In any event, I see a wider problem and that is I cannot see how cll 5.5(a)(i) and 42.11 can be seen to exclude, modify or restrict the operation of the Act.
16. Acciona has exercised a contractual right under the Contract to make the Demand for the Security Amount. On the assumed facts, Acciona was entitled to exercise that contractual right. Acciona's exercise of that contractual right gave it a further right, independent of the Contract, against a third party, HSBC, to call on the Security. There is no question as to the existence and enforceability of that further right. Nor is there any question or suggestion that the Act could have any operation so as retrospectively to render ineffective Acciona's exercise of its right or relieve HSBC of its concomitant obligation to honour that right.
17. The First and Second Determinations stand, and Acciona has complied with them. The Act has thus "operated" in accordance with its terms.
18. It is true that following the making of the Demand and the payment to Acciona by HSBC of the Security Amount, the effect of those Determinations has, as a practical matter, been reversed. But that is a result of events occurring subsequent to the orderly operation of the Act, and in accordance with the Contract. It is not a result of any modification, or restriction, on the operation of the Act.
19. For the reasons set out above, those subsequent events did not enliven, in EnerMech's favour, a right under the Contract to claim an amount equal to the Security Amount in an assessment of the value of its construction work under the Contract.
20. Further, on the assumed facts, the conclusions in the Determinations were not correct.
21. These conclusions are consistent with authority.
22. Thus, in John Holland Pty Ltd v Roads and Traffic Authority of New South Wales [39] Giles JA, with whom Tobias and McColl JJA agreed, said: "It is not correct that retention of security 'undoes' an adjudicator's determination, or that a superintendent who in performing his contractual function comes to a determination negates a statutory right to retain an adjudicated amount. The adjudicator's determination remains, and brings payment of the adjudicated amount, but that is interim and subject to a different position being established in relation to payment for the relevant work or related goods and services, contractually or in proceedings. If in civil proceedings it is decided that the contractor was entitled to $10 or $30, rather than the $20 determined by the adjudicator, that does not undo the adjudicator's determination. It has done its work in ensuring 'prompt interim progress payment on account, pending final determination of all disputes' … So also if, in the manner earlier described, the contractual mechanisms result in a contractual obligation on the principal to pay the contractor or the contractor to pay the principal. The contractor's right under the Act is to receive the adjudicated amount, but subject to final determination, and if the final determination involves the superintendent determining that the contractor was entitled to $10 or $30, rather than the $20 determined by the adjudicator, the superintendent is not negating the contractor's statutory right. Section 34 of the Act requires that the contractual provision exclude, modify or restrict, or have the effect of excluding, modifying or restricting, 'the operation of this Act'. The Act operated to require that the [principal] pay the adjudicated amounts to John Holland, and it did so … There is no effect contrary to that operation of the Act if, in the final determination of the position between the parties, one party has to pay money to the other because the final arbiter takes a different view from that of the adjudicator. Section 32 of the Act preserves the final determination, by the contractual mechanism or by proceedings. Nor is there an effect contrary to that operation of the Act if security provided under the contract is retained, the contract on its proper construction and operation so permitting, to satisfy John Holland's obligation to pay money to the [principal] if that is the outcome of the final determination." [40]
23. This case is not relevantly different. In John Holland, the Court was concerned with the principal's right to retain security, rather than make a call on an unconditional guarantee. But that is not a relevant difference. [41] By reason of the Demands, Acciona was not put in a relevantly different position than it would have been had EnerMech provided security by way of cash retention, and had Acciona retained that retention. [42]
24. My attention was also drawn to the decision of Besanko J in Fabtech Australia Pty Ltd v Laing O'Rourke Australia Construction Pty Ltd [43] where his Honour observed, in relation to an argument similar to that put by Mr Hughes: "The difficulty for the [contractor] is to extract from the Act an 'effect' which prevents enforcement of the Bank Guarantees. The [contractor] does not argue that the [principal] cannot pursue its claims by way of proceedings in court or by way of arbitration and presumably, could not have recourse to the Bank Guarantees if it is successful. For what period then is the [contractor] [44] to be precluded from enforcing the guarantees? On what basis is one to infer that the [contractor] is to enjoy the fruits of the adjudicator's decision until a court or arbitrator decides to the contrary? The fact that the Act provides no answer to these questions means, I think, that recourse to the Bank Guarantees does not have the effect of excluding, modifying, restricting or otherwise changing the effect of a provision of the Act. Once the payment pursuant to the adjudicator's decision is made, the Act ceases to have any effect on events thereafter …" [45]
25. I see these observations as a further reason to conclude that neither cll 5.5(a) nor 42.11 is rendered void by reason of s 34 of the Act.

Answer to Question 2

1. For these reasons, the answer to Question 2 is "no".

Questions 3, 4 and 5

1. As the answer to Question 1 is "yes", and the answer to Question 2 is "no", Questions 3, 4 and 5 do not arise.

Conclusion

1. Payment Claim 29 was not a valid payment claim for the purpose of the Act. The Third Determination should be quashed. EnerMech's Amended Cross Summons should be dismissed. The money paid into Court should be paid out to Acciona.
2. The parties should now confer and agree on the orders required to give effect to these reasons.

Endnotes

1. All figures exclude GST, unless otherwise stated.
2. Section 22(5) of the Act.
3. This amount includes GST.
4. At [4] above.
5. Inclusive of GST.
6. Under the heading "Value Claimed This Period".
7. [2015] NSWSC 823.
8. [2020] NSWSC 409.
9. Sopov v Kane Constructions Pty Ltd (No 2) (2009) 24 VR 510; [2009] VSCA 141 at [9]-[12] (Maxwell P, Kellam JA and Whelan AJA).
10. Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340; [2016] HCA 52 at [66] (Kiefel, Bell, Gageler, Keane and Gordon JJ).
11. Supra at [23].
12. Submissions at pars 74 and 75.
13. Submissions at par 77.
14. (1996) 185 CLR 483; [1996] HCA 54.
15. At 504-5.
16. See [52]-[57] above.
17. See [57] above.
18. Submissions at par 83.
19. See [88] above.
20. At [31] and [33].
21. Which provides that an amount claimed in a payment claim may include an amount "held under the construction contract" by the principal and that the "payment claims due for release": for example, retention money.
22. At [30].
23. Also referred to at [50] and [74] above.
24. At [17].
25. At [23].
26. Being an issue akin to that posed by Question 2 in this case.
27. [2013] NSWSC 1484.
28. His Honour was evidently referring to the contractor.
29. At [72]-[73].
30. At [32].
31. [2018] NSWCA 339.
32. See [60] above.
33. At [16].
34. Supra.
35. At [19].
36. Langley v Foster (1906) 4 CLR 167; [1906] HCA 28 at 180-181 (Griffiths CJ), 186 (Barton J) and 193 (O'Connor J); recently applied in Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd [2023] HCA 6 at [32] (Kiefel CJ, Gageler, Gordon, Gleeson and Jagot JJ).
37. See generally P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters) at [25.60]-[25.70]; K Lewison and D Hughes, The Interpretation of Contracts in Australia (2012, Thomson Reuters) at [7.10], and J W Carter, The Construction of Commercial Contracts (2013, Hart Publishing) at [16-28].
38. P Herzfeld and T Prince, Interpretation (supra) at [25.60].
39. [2007] NSWCA 140.
40. At [62]-[63].
41. As White J observed in Patterson Building Group Pty Ltd v Holroyd City Council (supra) at [67].
42. Consistently with the conclusion that White J drew in Patterson Building Group Pty Ltd v Holroyd City Council (supra) at [71] and [75].
43. [2015] FCA 1371.
44. His Honour appears to have intended to refer to the respondent/principal.
45. At [38], applied in VCON Pty Ltd v Oliver Hume Property Funds (Royal Parade) Parkville Pty Ltd [2020] VSC 767 at [90]-[92] (Stynes J); see also Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2016] WASC 119 at [48] (Le Miere J). DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 December 2023