Fundamental change to the operation of bank guarantees
EnerMech Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd [2024] NSWCA 162 has changed the operation of bank guarantees fundamentally in New South Wales. The case represents a significant decision from an intermediate appellate court concerning the intricate dynamics between bank guarantees and the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act).
According to Brett Vincent, Vincent Young Founder & Partner Construction: ‘This case is significant as it marks a fundamental shift in the operation of bank guarantees in NSW. It dramatically changes the legal landscape and a contractor’s ability to recover a pulled bank guarantee. This will change the risk profile for principals and contractors who pull bank guarantees from contractors and subcontractors respectively.”
Vincent Young was instrumental in the case and represented the successful Appellant, EnerMech Pty Ltd.
The case concerned the validity of a payment claim under the Act.
The appellant issued a payment claim on the respondents which sought to recover two bank guarantees. In response, the respondents served a payment schedule asserting that there was no amount payable. Subsequently, the appellant made an application for adjudication. The adjudicator was to determine whether the drawn-down bank guarantees were payable under the payment claim. The adjudicator ultimately decided that the credit for the bank guarantees should indeed be paid – a decision impacting the ability and rights of the principal to call upon such bank guarantees.
Initially, the primary judge determined that the Appellant’s payment claim was invalid because it sought to reverse the call on two bank guarantees and contravened the Act in which a payment claim must be “for construction work”.
On 10 July 2024, the Court of Appeal delivered its judgment. The Court of Appeal agreed with the Appellant’s contention that a payment claim’s validity did not hinge on it being specifically “for” construction work. Further, the Court of Appeal emphasised that it is the role of the adjudicator to determine the amount payable under a payment claim.
Link to the case: https://www.caselaw.nsw.gov.au/decision/19091011d8699da3effa0818