The impact of descoping on returning a contractor’s securities

May 13, 2019

In the recent decision of G&S Engineering Services Pty Ltd v MACH Energy Australia Pty Ltd [2019] NSWSC 407, the NSW Supreme Court considered whether to grant an interlocutory injunction seeking to restrain a call on a contractor’s securities.

 

G&S and MACH entered into a contract to carry out works relating to a coal handling and preparation plant and train load out facility in the Hunter Valley.

MACH alleged that G&S had failed to achieve ‘Functional Completion’ of the works by the applicable contractual dates and was therefore liable to pay MACH liquidated damages.  MACH issued two notices to G&S outlining its intention to have recourse to the securities under the terms of the contract for the accrued liquidated damages.

 

G&S disputed such entitlement and sought to restrain MACH from having recourse to its securities on a number of grounds.  Specifically, G&S contended that a term should be implied into the Contract requiring MACH to return G&S’ securities in circumstances where MACH had descoped part of the works under the Contract, which in turn impacted on G&S’ ability to achieve Functional Completion.  Relevantly, the achievement of Functional Completion was the trigger for the return of the securities under the Contract.  G&S argued that if such a term was not implied into the Contract, the Contract would operate such that upon any descoping of the works (as had occurred on the project), G&S would be prevented from having achieved Functional Completion, as defined in the contract.  The consequences of this would be that the trigger for MACH to release the securities would never arise.

 

Whilst Stevenson J did not make any finding on this point, his Honour agreed that there was a serious question to be tried.  His Honour also found that the balance of convenience favoured granting an injunction because of, amongst other things, questions surrounding MACH’s ability to continue as a going concern.

 

It will be interesting to see how the court finally determines this issue.

 

The full decision can be found here.

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