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Payment Claims: whether a claim seeking payment of amounts ‘paid’ under calls upon bank guarantees was for construction work – dualing with payment claims ||| MTECC News 20.08

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Payment Claims: whether a claim seeking payment of amounts ‘paid’ under calls upon bank guarantees was for construction work – dualing with payment claims

In Grocon (Belgrave St) Developer Pty Ltd v Construction Profile Pty Ltd [2020] NSWSC 409, the Supreme Court of New South Wales decided that a payment claim which included amounts ‘paid’ under bank guarantees was void and of no effect under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act). The adjudicator had included the amounts in the determination because of a finding by the adjudicator that the contractor was entitled to extensions of time which had the effect of setting off the amount claimed by the Principal for liquidated damages.

Under the contract Grocon (Belgrave St) Developer Pty Ltd (Grocon) as Principal and Construction Profile Pty Ltd (CP) as Contractor, agreed for CP to construct a major multi-storey apartment building in Manly.  The proceedings arose following a sequence of combative payment and other claims.

On 10 January 2020 CP served PC No 032 for $3,220,377.56.  On 23 January 2020 Grocon served a payment schedule stating the amount due was $1,360.397.40, and the scheduled amount was nil.

The scheduled amount included $295,332.60 (inc GST) as the value of the work under the claim and deducted $1,655.640.00 for liquidated damages.  Also on 23 January 2020 Grocon served a tax invoice for the amount claimed for liquidated damages.  On 12 February 2020 CP served a notice of dispute as to the liquidated damages.  Grocon re-issued the claim for liquidated damages on 27 February 2020.

The contract provided for two bank guarantees of $498,911.10 as security for performance by CP. The contract also provided that Grocon was entitled to draw on the bank guarantees if the contractor was in ‘debt’ and that Grocon remained unpaid for more than 5 days.

The Adjudicator’s determination was delivered on 3 March 2020 for the amount of $1,124,238.07 inc GST.  The determination allowed extensions of time which in effect meant that the liquidated damages were nil.  On 6 March 2020 Grocon, in reliance upon the invoice of 27 February 2020, called on the guarantees.  On 11 March 2020 Grocon paid the amount determined by the adjudicator.  

CP had not challenged the right of Grocon to call on the bank guarantees however on 17 March 2020 CP issued PC 033 claiming $1,054.386.38.  The payment claim set out the total amount claimed under the contract, the total amount paid including the amount for PC 032.  The claim also included two negative amounts of $498,911.10 which were described as amounts “to cover LDs under the contract”.

The Court considered sections 8 and 13 of the Act and observed that the right to payments was expressed to apply only to payments for “construction work” or “related goods and services” which are narrowly defined under sections 5 and 6 respectively.

The possibly troubling aspect is that the determination of the adjudicator on 3 March 2020 has not been challenged and includes findings that CP was delayed in reaching practical completion and was entitled to extensions of time which had the consequence that Grocon’s entitlement to liquidated damages was nil.  It is probable that there will be more to come!

Ian Bailey AM SC

Liability limited by a scheme approved under Professional Standards Legislation.


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