Acciona Infrastructure Projects Australia Pty Ltd v EnerMech Pty Ltd

1. [1]

   The plaintiffs, Acciona Infrastructure Projects Australia Pty Ltd, Samsung C&T Corporation and Bouygues Construction Australia Pty Ltd, comprise an unincorporated joint venture formed to construct the WestConnex M4-M5 Link. I will refer to the plaintiffs, together, as “Acciona”. The M4-M5 Link comprises twin 7.5 kilometre 4-lane tunnels that link the M4 tunnel at Haberfield to the M5 motorway at St Peters.

2. [2]

   On 3 June 2020, Acciona entered into a subcontract (the “Contract”) with the defendant, EnerMech Pty Ltd, to perform electrical installation works associated with the M4-M5 Link for an adjustable contract sum in the order of some $75.6 million.

3. [3]

   Under the Contract, EnerMech was obliged to provide security. Pursuant to that obligation, EnerMech procured the issue of an Unconditional Undertaking (the “Security”) from Hong Kong and Shanghai Banking Corporation Limited (“HSBC”) in the sum of $9,230,157.40 (the “Security Amount”).

4. [4]

   On 26 May 2023, Acciona made a demand on HSBC for the Security Amount (the “Demand”). There was no dispute before me as to Acciona’s entitlement to make the Demand. HSBC paid Acciona the Security Amount.

5. [5]

   On 8 June 2023, EnerMech served on Acciona a document called “Payment Claim PPC 29” (“Payment Claim 29”) purporting to be a payment claim for the purpose of s 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the “Act”). On 7 July 2023, EnerMech made what purported to be an adjudication application, based on Payment Claim 29, under s 17 of the Act.

6. [6]

   On 25 July 2023, an adjudicator made a determination in favour of EnerMech in the sum of $10,180,582.60. For reasons that will emerge below, I will refer to this as the “Third Determination”.

7. [7]

   The determined amount has now been paid into Court.

8. [8]

   On 9 November 2023, Ball J ordered that five questions be determined separately to and in advance of any other questions in the proceedings. It is common ground that determination of the answers to these questions will, for all practical purposes, resolve all issues between the parties, other than as to costs.

9. [9]

   The questions are, in substance:

   1. (1)

      was the Third Determination affected by jurisdictional error and thus liable to be quashed;

   2. (2)

      was the Contract void by reason of s 34 of the Act to the extent that it authorised Acciona to have recourse to the Security;

   3. (3)

      if the answer to (2) is “yes”, should the Court nonetheless refuse to grant EnerMech declaratory relief to that effect;

   4. (4)

      should any relief granted to EnerMech be subject to a condition that EnerMech provide security in the sum of $9,230,157.40; and

   5. (5)

      assuming the answer to questions (1) and (2) is “yes”, should the Court nonetheless decline to grant Acciona relief?

The course of events

1. [10]

   On 25 July 2022, EnerMech served on Acciona Payment Claim 26 pursuant to s 13 of the Act.

2. [11]

   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. [12]

   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. [13]

   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. [14]

   On 26 September 2022, an Adjudicator gave a determination under the Act. The parties referred to this as the “First Determination”.

6. [15]

   Acciona did not challenge the First Determination. It is common ground that it was valid under the Act.

7. [16]

   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. [17]

   Following correction under the slip rule, [2] the First Determination was that EnerMech was entitled to $5,629,935.01. [3]

9. [18]

   Acciona paid that amount.

10. [19]

    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.

11. [20]

    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.

12. [21]

    EnerMech and Acciona made an Adjudication Application and an Adjudication Response on 1 and 9 November 2022 respectively.

13. [22]

    On 19 December 2022, the same Adjudicator made what the parties have referred to as the “Second Determination”.

14. [23]

    Again, Acciona did not challenge the Second Determination. It is common ground that it was valid under the Act.

15. [24]

    In the Second Determination, the Adjudicator:

16. [25]

    The Adjudicator of the Second Determination determined (after accounting for slips) that $9,124,042.23 was payable by Acciona to EnerMech.

17. [26]

    Acciona paid the adjudicated amount.

18. [27]

    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.

19. [28]

    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.

20. [29]

    So it happened.

21. [30]

    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.

22. [31]

    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.

23. [32]

    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.

24. [33]

    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.

25. [34]

    Accordingly, it is necessary to examine, with some care, the form of Payment Claim 29.

26. [35]

    A copy of the Cover Sheet of Payment Claim 29 is attached to these reasons. Annexure A - Cover Sheet of Payment Claim 29

27. [36]

    The amount claimed by EnerMech was the “Total Amount of Payment to be Made by the Contractor” of $10,180,582.60. [5]

28. [37]

    That sum was the difference between:

29. [38]

    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.

30. [39]

    The difference between those two figures is $18,611.67. That figure is the sum of:

31. [40]

    That emerges from an attachment to Payment Claim 29, a copy of which is attached. [6] Annexure B - Attachment to Payment Claim 29

32. [41]

    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.

33. [42]

    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.

34. [43]

    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

35. [44]

    That shows, critically to Question 1, that the credit allowed by EnerMech in Payment Claim 29 is comprised of:

36. [45]

    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.

37. [46]

    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.

38. [47]

    I return to this below.

39. [48]

    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:

40. [49]

    The latter paragraph comprised the only basis advanced by Acciona to that point as its reason for making the Demand on HSBC.

41. [50]

    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”.

42. [51]

    On 14 July 2023, Acciona provided an Adjudication Response.

43. [52]

    In the Adjudication Response, Acciona provided a further explanation for making the Demand on the Security:

44. [53]

    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:

45. [54]

    Clause 42.11 also makes provision for “Recourse of Unpaid Monies”. I return to this below.

46. [55]

    The Adjudication Response continued:

47. [56]

    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.

48. [57]

    Indeed, consistently with the Demand having been so made, he deposed that:

49. [58]

    I return to the significance of this below.

50. [59]

    On 25 July 2023, an Adjudicator (not the adjudicator who made the First and Second Determinations) made the Third Determination.

51. [60]

    The Adjudicator considered the parties’ competing contentions as to whether Payment Claim 29 was a claim for construction work and concluded:

52. [61]

    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. [62]

   I turn now to the five questions.

2. [63]

   Question 1 is:

3. [64]

   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. [65]

   It is not necessary to set out the reasons specified in pars C12-C18 of the Amended List Statement.

5. [66]

   Acciona’s case was put succinctly by Mr Robertson SC and Mr Keene, who appeared for Acciona, in their written submissions as follows:

6. [67]

   Section 13(1) of the Act provides:

7. [68]

   The term “progress payment” is defined in s 4 of the Act:

8. [69]

   Section 8 of the Act provides:

9. [70]

   Section 9 of the Act provides:

10. [71]

    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. [72]

    However, the High Court has held that:

12. [73]

    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.

13. [74]

    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.

14. [75]

    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]

15. [76]

    Mr Hughes submitted that:

16. [77]

    The matter is not as simple as that.

17. [78]

    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.

18. [79]

    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”.

19. [80]

    Mr Hughes drew attention to the statement in Airservices Australia v Ferrier, [14] by Dawson, Gaudron and McHugh JJ that:

20. [81]

    This submission requires consideration of the terms of the Contract to which Mr Hughes referred.

21. [82]

    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”.

22. [83]

    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.

23. [84]

    Clauses 42.1(h) and (i) provided:

24. [85]

    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”.

25. [86]

    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.

26. [87]

    Clause 47 made provision for disputes to be resolved by negotiation in good faith, expert determination and, ultimately, litigation.

27. [88]

    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.

28. [89]

    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.

29. [90]

    Clause 42.11, “Recourse of Unpaid Monies”, provided:

30. [91]

    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.

31. [92]

    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.

32. [93]

    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.

33. [94]

    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]

34. [95]

    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]

35. [96]

    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.

36. [97]

    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).

37. [98]

    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:

38. [99]

    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]

39. [100]

    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”.

40. [101]

    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.

41. [102]

    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.

42. [103]

    The first is the decision of Darke J in Illawarra Retirement Trust v Denham Constructions to which I referred at [50] above.

43. [104]

    In that case, the principal called on security provided under the relevant construction contract and was paid an amount of $876,080.

44. [105]

    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.

45. [106]

    Darke J held that the $876,080 was not “stated to be claimed in respect of” construction work but that:

46. [107]

    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.

47. [108]

    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.

48. [109]

    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:

49. [110]

    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]

50. [111]

    In that case, the contractor agreed to provide two bank guarantees, each of $498,911.10. The principal called on the guarantees.

51. [112]

    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.

52. [113]

    The principal put to Ball J the same argument that Mr Robertson has put in this case. Thus, his Honour said:

53. [114]

    Ball J concluded:

54. [115]

    Ball J’s conclusions are precisely on point.

55. [116]

    I agree with them.

56. [117]

    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.

57. [118]

    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.

58. [119]

    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]

59. [120]

    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.

60. [121]

    In Patterson, White J said:

61. [122]

    Referring to what White J had said in the second quoted passage, Ball J said:

62. [123]

    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.

63. [124]

    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”.

64. [125]

    Payment Claim 29 was not a “payment claim” for the purpose of the Act. The Adjudicator had no jurisdiction to deal with the claim.

65. [126]

    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]

66. [127]

    Mr Hughes pointed to the fact that the Adjudicator had in fact considered that question and reached an affirmative conclusion. [32]

67. [128]

    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.

68. [129]

    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:

69. [130]

    Again, I agree.

70. [131]

    There is no “kompetenz-kompetenz” point available here.

71. [132]

    The answer to Question 1 is “yes”.

Question 2

1. [133]

   Question 2 is:

2. [134]

   Section 34 of the Act provides:

3. [135]

   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. [136]

   The “reasons identified” in EnerMech’s Amended Cross Claim Statement were, relevantly, that:

5. [137]

   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:

6. [138]

   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. [139]

   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. [140]

   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. [141]

   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. [142]

    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:

11. [143]

    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. [144]

    But the maxim only applies where two constructions are open after the ordinary principles of contractual construction have been applied. [38]

13. [145]

    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. [146]

    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. [147]

    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. [148]

    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. [149]

    The First and Second Determinations stand, and Acciona has complied with them. The Act has thus “operated” in accordance with its terms.

18. [150]

    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. [151]

    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. [152]

    Further, on the assumed facts, the conclusions in the Determinations were not correct.

21. [153]

    These conclusions are consistent with authority.

22. [154]

    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:

23. [155]

    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. [156]

    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:

25. [157]

    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.

26. [158]

    For these reasons, the answer to Question 2 is “no”.

Questions 3, 4 and 5

1. [159]

   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. [160]

   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. [161]

   The parties should now confer and agree on the orders required to give effect to these reasons.