Exit Distraction Free Reading Mode
- Selected for Reporting
[2024] QSC 68
This case concerned bank guarantees. The parties entered a contract under which the applicant performed construction work on the respondent’s gold mine. Under the contract, the applicant was to provide two bank guarantees. After the end of the defects liability period, the applicant sought the return of the guarantees in accordance with the contract. The respondent claimed that the contract entitled it to retain and have recourse to the guarantees because it had claimed amounts representing overpayments to the applicant. The Court found in favour of the respondent. In doing so the Court considered the proper construction of the contract and of “building contract” under the Queensland Building and Construction Commission Act 1991.
Applegarth J
30 April 2024
The applicant and the respondent entered into a contract under which the applicant was to perform construction work as part of an expansion to the respondent’s gold mine. [1]. The contract required the applicant to provide two bank guarantees, each in the amount of 2.5 per cent of the contract price. [3]. The second guarantee was to be returned within 10 business days of the end of the final defects liability period (“DLP”). [4]. The DLP ended on 2 August 2023. [5]. Under cl 10.5, the contract created an exception whereby the bank guarantee did not need to be returned unless “all sums of money owed by the [applicant] to the [respondent] or Claimed by the [respondent] under or in connection with the contract have been paid in full”. [16]. Under cl 10.4, the respondent was entitled to call on the guarantee at any time “in respect of any amount payable under the contract (including any claim)”. [14].
On 21 February 2023, the respondent provided “Payment Schedule 18” in response to a payment claim made by the applicant. [6]. That document asserted that the applicant was “liable” to the respondent for overpayments in the amount of $288,638.30. [6]. Payment Schedule 18 proceeded to an adjudication in which the adjudicator found that the applicant was entitled to $9,170,485.24. [7]. The respondent has applied to set aside the adjudicator’s decision but judgment is reserved. [7]. Pending the decision, the respondent paid the adjudicated amount into Court. [7].
On 21 September 2023, the respondent issued a letter headed “Notice of Dispute” in which it claimed that the applicant was liable to repay the amount overpaid by the respondent, being the amount paid into Court. [9].
Contractual Issues
Three issues related to the parties’ contract arose.
First, the applicant contended that under cl 10.4, the respondent could only have recourse to the guarantee in respect of a claim for a liquidated amount. [19]. “Claim” was defined under the contract as including an action, suit, proceeding, or “demand of any kind… under, [or] arising out of… the Contract”. [15]. Despite that broad definition, the applicant contended that a “Claim” under cl 10.4 was limited to a claim for a liquidated amount that was owed and payable as a debt. [32]. That was because in cl 10.4, the term “Claim” had to be read in the context of the preceding words “any amount payable under the Contract (including any Claim)”. [33]–[34].
The Court rejected that argument. [47]–[51]. Clause 10.5 allowed the respondent to retain the guarantees where there was an amount “Claimed”. [49]. In addition, the purpose of the guarantee was to allocate the risk of litigating a dispute to the applicant. [50]. The applicant’s narrow interpretation of the clause would not achieve this purpose. [50]. As such, the respondent was entitled to have recourse to the guarantee in respect of a Claim for overpayment. [51].
Second, the applicant contends that Payment Schedule 18 did not raise any claim, it was merely a notice given pursuant to the contract. [54]. The Court rejected this argument, as “neither the form nor contents” indicated that it merely disputed an invoice. [55]. It implicitly made a claim for payment, even though it did not state a period by which payment should be made. [55]–[56].
Third, the applicant contended that the respondent could not have recourse to the bank guarantee in respect of the claim raised on 21 September 2023 because that claim was raised after the expiry of the DLP. [61]. The Court found it unnecessary to resolve this point because it may depend on the outcome of the respondent’s application to set aside the adjudication, which was still pending. [73].
Statutory Issues
Under s 67J of the Queensland Building and Construction Commission Act 1991, a party to a building contract may use a security to obtain “an amount owed under the contract”. [27]. The applicant contended that this provision covered the field as to when a party is entitled to have recourse to security and because the amounts claimed by the respondent were not “owed under the contract” no recourse could be had to the guarantee. [28].
The respondent contended that s 67J did not apply because the contract was not a “building contract”. Under s 67AAA, a “building contract’ means a contract for carrying out building work. [97]. Schedule 2 of the Act defines “building work” by reference to various categories of work. [99]. However, the definition of “building work” does not include “work of a kind” excluded by the Queensland Building and Construction Commission Regulations 2018. Item 28 of the Regulation excludes “construction work in mining”.
The Court noted that for work to be “of a kind” described in the Regulation, it did not need to be precisely the work described by the Regulation. [118]. The exclusion should not be given an “unduly narrow construction”. [120]. As such, if the relevant work was “integral” to the relevant mining, the exclusion will apply. In addition, the term “mining” has no fixed meaning, but the process of winning gold is naturally referred to as “gold mining”. [125]. Here, the relevant work was conducted close to where ore was being won. [130]. It was to allow the respondent to separate gold from its natural state in rock. [130]. The Court held that this work was “integral” to the respondent’s mining operation. [144]. Without the works under the contract, the respondent would be simply extracting rock, not mining gold. [144]. As such, the work was not building work within the meaning of the Act, and s 67J did not apply.
In dicta, the Court addressed the applicant’s argument on s 67J. [157]–[158]. The Court held that s 67J assumed the contracting party’s right to have recourse to a security, and merely required notice to be given before doing so. [157]. It was not the source of a party’s power to have recourse to security. [157]. As such, the provision did not prevent recourse to security when the amount claimed was not an amount owed under the contract. [157].
L Inglis