In Sun Engineering (Qld) Pty Ltd v Ravenswood Gold Pty Ltd [2024] QSC 68, the Supreme Court of Queensland considered whether a principal was permitted to have recourse to a contractor’s bank guarantees to satisfy amounts it had allegedly overpaid the contractor for progress claims.

Ravenswood Gold Pty Ltd (Ravenswood) contracted with Sun Engineering (Qld) Pty Ltd (Sun) to undertake construction works to expand a gold mine. Sun was required to provide Ravenswood two guarantees to secure the performance of its obligations, the second of which was to be returned by Ravenswood within 10 business days of the expiry of the Defects Liability Period (DLP). Prior to the expiry of the DLP, Sun submitted further progress claims. In response Ravenswood:

• disputed Sun’s claimed entitlements on the basis that it had previously overpaid amounts which far exceeded Sun’s further progress claims;
• identified the overpayments (being the difference between what Ravenswood paid for the works and their assessed value); and
• demanded repayment of the overpayments as an amount payable under the contract.

Sun did not pay the amount demanded. Consequently, Ravenswood advised Sun that it would have recourse to the second guarantee in full to partially satisfy the amount. Sun sought orders restraining Ravenswood from doing so, compelling the return of the guarantees, and declaring notices given by Ravenswood under the contract and section 67J of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act) void.

A key issue in dispute was whether clause 10.4 of the contract, which allowed Ravenswood to call upon the guarantee ‘… at any time in respect of any amount payable under the Contract (including any Claim)’, extended to the overpayments claimed by Ravenswood (as a claim for restitution). ‘Claim’ was relevantly defined in the contract as including any ‘demand of any kind … [including] any claim for payment of money’:

• under, arising out of or in connection with the contract; or
• arising otherwise under law or in equity including for restitution.

Relatedly, clause 10.5 only required Ravenswood to release the guarantees if:

• Sun had paid in full ‘all sums of money owed by [Sun] or claimed by [Ravenswood] under or in connection with the contract’ (emphasis added); and
• all defects identified by Ravenswood before the end of the DLP had been rectified.

Sun argued recourse to the guarantee was not permitted because clause 10.4 was limited to claims of liquidated amounts owed as a debt and the amounts demanded by Ravenswood were no more than amounts in dispute or unliquidated set-off claims. Ravenswood argued it was entitled to have recourse to the guarantee as the contract permitted recourse in respect of any ‘Claim’, including in restitution for an overpaid amount.

The Court held that retention of and recourse to the guarantee was permitted by Ravenswood. It rejected Sun’s contention that ‘Claim’ should be narrowly interpreted as limited to a liquidated claim, finding that such an interpretation was neither reasonable nor business-like. Applegarth J considered that a purpose of clauses 10.4 and 10.5 was to allocate to Sun the risk of litigating a disputed claim (for unliquidated damages, restitution or other claims falling within the definition of ‘Claim’) so that Ravenswood would not be out of pocket in the event of a dispute and was protected against being unable to recover a successful claim against Sun.

Applegarth J also rejected Sun’s arguments that:

•  section 67J of the QBCC Act prevented Ravenswood from calling upon the guarantee because it did not give Sun notice of its intention to do so; and
• sections 67NA and 67NB required Ravenswood to release the guarantee because the contract did not provide for its release at the end of an ‘identifiable period’.

The Court found that:

• section 67J did not apply because the work performed by Sun was integral to Ravenswood’s mining operations so within the ‘construction work in mining’ exception to the notice provision. Even if it applied, it would not have required Ravenswood to give notice as its claim in restitution for the overpaid amounts was unliquidated and not a debt or ‘amount owed under the contract’ (as required by the Act); and
• the contract provided an identifiable period: 10 business days after the expiry of the DLP. The condition in clause 10.5 that Sun pay all sums of money owed by it or claimed by Ravenswood did not prevent a date for release being identified. Whether the security was to be released depended on Sun satisfying the condition.

The full decision can be found here.