SAMSUNG C&T CORPORATION -v- LOOTS [2016] WASC 330 | Case summary

Supreme Court of WA|2016-10-24|Before: Beech J

Other Party : Mr S K Dharmananda SC & Mr T J Porter

1 Samsung C&T Corporation (Samsung) is the head contractor for the Roy Hill Iron Ore Project. Samsung and Duro Felguera Australia Pty Ltd (Duro) are parties to a subcontract with a price of just over $500 million. From late last year, Duro has made monthly progress claims for payment under the subcontract, and Samsung has not paid those claims.

2 These proceedings concern five adjudication determinations under the Construction Contracts Act 2004 (WA), made on Duro's application, determining that Samsung pay Duro amounts totalling more than $60 million. Samsung seeks orders to set aside each of the adjudication determinations for jurisdictional error. Duro seeks leave to enforce each of the adjudication determinations.

3 In broad summary, I have reached the following conclusions:

(a) I would set aside the second determination on the ground that the adjudicator's reasons for refusing to give credit to Samsung for a payment on account of more than $6.66 million reveal jurisdictional error.

(b) I would set aside the third determination on the ground that jurisdictional error is revealed by the adjudicator's reasons relating to Samsung's submission to the adjudicator that a substantial element of Duro's claim, exceeding $32 million, was fatally flawed.

(d) I would grant Duro leave to enforce those other determinations, being the first, fourth and fifth determinations.

(5) The grounds of Samsung's applications [37] [41].

(6) Reasons for allowing Samsung's amendment application [42] [77].

(8) Judicial review of determinations under the Act: legal principles [103] [115].

(9) Ground (d): adjudicators' findings that there were no new milestones [116] [140].

(10) Grounds (e) and (f): the third adjudicator's reasoning regarding the $32.4 million 'certified but setoff' [141] [228].

(11) Ground (g): did the first adjudicator fail to consider Samsung's setoff for its payment on account? [229] [259].

(12) Ground (h): did the second adjudicator exceed his jurisdiction in refusing to give Samsung credit for its payment on account? [260] [285].

(13) Ground (i): no payment claim because claim for payment not confined to construction work [286] [412].

(15) Should leave be given to enforce the determinations? [430] [462].

2. Contractual context 2.1 The Project and the Head Contract

5 Samsung is the head contractor with Roy Hill Holdings Pty Ltd for the Roy Hill Iron Ore Project (the Project).

(1) The Project is a 55 million tonne per annum iron ore open cut mining, processing, rail and port project being developed in the Pilbara.[1]

(2) The Project involves the establishment of a new iron ore mine at the Roy Hill deposit about 277 kms south of Port Hedland, a mine process plant, a heavy haul railway system from mine to port and new port facilities.[2]

(3) There are four packages of works under the head contract, termed 'Package 1 - the Mine Process Plant Works'; 'Package 2 - the Rail Works'; 'Package 3 - the Port Landside Works'; and 'Package 4 - the Port Marine Works'. Package 2 concerns the construction of the rail line connecting the mine site with the port from which processed ore would be despatched to customers.[3]

(4) The details of the works to be done, including the various packages and their interfaces, are set out in the document entitled 'Contract Scope of Work for 55 NTPA Integrated Mine Process, Rail and Port Facility' (the Scope of Work) which is an attachment to the '[Project] Subcontract for engineering, procurement, construction and commissioning of mining process plant (Package 1) Subcontract No ROYSCTS009' dated 30 August 2016 (the Original Subcontract).[4] The details of Package 1 are set out in part 4 of the Scope of Work, the details of Package 3 are set out in part 6, and the details of Package 4 are set out in part 7.

7 The Original Subcontract was entered into between Samsung as contractor and Duro and Forge Group Construction Pty Ltd (Forge) (together, the Consortium) as subcontractor.

8 Mr Northcott of Samsung says that, as initially executed, the Original Subcontract concerned only Package 1 and was for a fixed price of $1,327,500,000.[5] After execution, the price was increased to $1.472 billion as a result of two variations. Variation Order 001, dated 13 September 2013, incorporated the supply of equipment for Package 3 and Package 4 under a contract with a company referred to as DHHI. Variation Order 002, dated 20 January 2014, directed the Consortium to perform additional works and services in connection with contracts with DHHI and a company then referred to as TAKRAF.[6]

9 As will be seen, the Original Subcontract contemplated the work the subject of Variation Order 001.

10 There is, broadly, agreement as to the contract sum for the Original Subcontract as varied. Mr Rodriguez of Duro states in his affidavit[7] that the price of the Original Subcontract was $1,471,500,000.

11 Mr Northcott says that, apart from the work in Variation Order 001, the Original Subcontract concerned only Package 1 works.[8] This is borne out by consideration of the Special Conditions of Contractor's Project Requirements (the Special Conditions).[9]

12 It appears to be common ground that the scope of the Consortium's obligations under the Original Subcontract was identified primarily in the Special Conditions and the Scope of Work.[10] By cl 1 of the Special Conditions, the Consortium was obliged to perform engineering procurement, construction and commissioning works for the Mine Process Plant Works (Package 1) as described in the Scope of Work.

13 Clause 7 of the Special Conditions provided that Samsung would as soon as possible direct the Consortium to perform additional works under cl 36 of the General Conditions and that the value of the variation would be $144 million. Thus, the Original Subcontract contemplated Variation Order 001.

14 Under the Original Subcontract, the works were split between the members of the Consortium. Forge performed the engineering, construction and commissioning activities, and Duro performed the procurement (in other words, Duro supplied the major equipment).

15 It is common ground that the subcontract sum of $1.472 billion was split between Duro and Forge, with $642.138 million allocated to Duro and the remaining $830 million allocated to Forge.[11]

16 On 21 February 2014, the Original Subcontract was terminated by Samsung after Forge was placed in administration. In broad terms, Samsung then took over Forge's scope of work, and engaged Duro under a new contract to complete Duro's work under the Original Subcontract.

17 The new contract is referred to as the Interim Subcontract, and was made on 21 February 2014. It comprises a Term Sheet, with schedules, and the terms of the Original Subcontract as modified by the Term Sheet and its schedules. It is for the performance of what are referred to as the Duro Works.

18 The Interim Subcontract is referred to as the Interim Subcontract because, although it is legally binding on the parties, they intended to execute a substitute subcontract that would incorporate the terms and conditions of the Original Subcontract as modified by the Term Sheet and its schedules, together with any other related terms and conditions that Samsung and Duro considered reasonable or necessary (the Substitute Subcontract).

19 The parties did not agree upon the terms to be included in the Substitute Subcontract, and it was never executed.

20 I will set out the detailed provisions of the Interim Subcontract when I deal with ground (d) of Samsung's applications.

3. The adjudication determinations 3.1 The First Determination

21 The first determination concerned Duro's November 2015 progress claim under cl 37 of the Interim Subcontract General Conditions. In response to that progress claim, on 10 December 2015, Samsung issued a progress certificate certifying a negative amount of just under $6.5 million. On 24 December 2015, Duro made an adjudication application.

22 On 20 January 2016, Mr Loots published his determination (the First Determination) of Duro's claim. He determined that the adjudicated amount was a sum just over $9 million, excluding GST, to be paid by Samsung to Duro.

23 The second determination concerns Duro's November 2015 progress claim relating to certain novated contracts.

24 By email of 14 December 2015, Duro made a progress claim for payment of monies comprising four tax invoices for works it claimed were carried out under the novated contracts. On 18 December 2015 Samsung sent an email, attaching a letter dated 17 December 2015 rejecting that claim.

25 On 14 January 2016, Duro made an application for an adjudication. On 10 February 2016, the adjudicator, Mr Machell, published a determination (the Second Determination) that Samsung was to pay Duro $333,199, €182,690.45 and CNY11,617,671.01, plus GST.

26 The third determination concerned Duro's December 2015 progress claim. That claim was made on 31 December 2015 for payment of an amount in excess of $64 million. In response, Samsung issued a progress certificate on 11 January 2016 under which no money was payable to Duro. The terms and effect of this progress certificate are relevant to grounds (e) and (f) of Samsung's application. I will refer to it in detail in the context of dealing with those grounds.

27 On 5 February 2016, Duro applied for an adjudication determination, claiming payment of an amount of $49,642,958.72, plus GST. By his determination published on 3 March 2016 (the Third Determination), the adjudicator, Mr Loots, determined that Samsung was to pay that amount to Duro by 24 March 2016.

28 The fourth determination concerned Duro's progress claim, issued on 29 January 2016, for a sum of just under $60 million, plus GST. Samsung responded to this claim by a progress certificate on 10 February 2016. Samsung did not make any payment in respect of the January 2016 progress claim.

29 On 4 March 2016, Duro made an adjudication application claiming three components of the January 2016 progress claim totalling just over $6.8 million.

30 By a determination published on 8 April 2016 (the Fourth Determination), the adjudicator, Mr Fisher, determined that Samsung was to pay Duro the sum of $2,338,020.05, plus GST.

31 The fifth determination concerned Duro's February 2016 progress claim, made on 29 February 2016. That claim was for a total of just over $614,000.

32 By a progress certificate dated 10 March 2016, Samsung denied that it was liable to make any payment. It did not pay any amount in respect of the February 2016 progress claim.

33 By a determination published on 4 May 2016 (the Fifth Determination), the adjudicator, Mr Chidambara Raj, determined that Samsung was to pay to Duro the sum of $576,284.33, exclusive of GST.

34 There are 10 applications before the court. Five are Samsung's applications to quash the determinations. The other five are Duro's applications for leave to enforce the determinations.

35 All of these applications were programmed to be heard together. One reason for this was that Samsung advanced certain grounds, referred to below as grounds (a) (c), that were common to all of the determinations. Ultimately, at the hearing, Samsung abandoned grounds (a) (c).

36 I will deal with Samsung's applications first, before coming to Duro's applications for leave to enforce.

37 Each of Samsung's applications stated its grounds. It is not necessary for me to detail those grounds, because Samsung set out its grounds in its primary written submissions dated 26 May 2016. It was evident from Samsung's submissions that their statement of the grounds was intended to encapsulate and supersede the grounds stated in the five applications, although in large measure it reflected them. Insofar as the grounds listed in the written submissions went beyond the grounds in the applications, the parties' written and oral submissions dealt with the grounds as formulated in Samsung's submissions (as well, in the case of Duro, as the grounds as formulated in the applications).

38 Samsung's written submissions set out the following eight review grounds:

(a) The relevant adjudicator fell into jurisdictional error by acting on an incorrect view as to the meaning of the term 'construction contract' and thereby misunderstood the limits on the extent of his powers to adjudicate.

(b) The relevant adjudicator lacked jurisdiction because as a matter of objective fact the Interim Subcontract is not a construction contract for the purposes of the Act.

(c) Alternatively to (b), the relevant adjudicator did not form a reasonable state of satisfaction that the contract concerned was a construction contract and therefore the adjudicator had no jurisdiction to make the determination.

(d) The relevant adjudicator ignored the terms of the Interim Subcontract or so fundamentally misconstrued the terms of the Interim Subcontract by adopting reasoning as to the meaning of the contract that was unreasonable, illogical or irrational, such that the adjudications were made without regard to the terms of the construction contract and therefore in excess of jurisdiction.

(e) In dealing with the effect of the progress certificate in the third adjudication, the relevant adjudicator did not consider and provide reasons as to substantial matters raised by Samsung and thereby failed to comply with the Act and failed to afford procedural fairness.

(f) Further and alternatively to (e), the adjudicator in the third adjudication made a decision concerning the effect of a progress certificate that was so unreasonable that it was not the type of determination that the adjudicator was authorised by the Act to make and therefore was in excess of jurisdiction.

(g) In the first adjudication, the adjudicator failed to consider and provide reasons as to whether Samsung was entitled to set off an advance payment on account which had been certified as payable by Duro to Samsung.

(h) In the second adjudication, the adjudicator purported to bring to account a claim for an advance payment that was outside his jurisdiction.

39 On 27 July 2016, the first day of the hearing of the applications, Samsung applied to add a new ground, relating to all of the determinations except the fourth, in the following terms:

The Adjudicator fell into jurisdictional error by determining that each of the Determined Items were in respect of construction work which could be the subject of a payment claim that could be adjudicated under the Act, when the Determined Items included substantial work the subject of the mining exclusion, and the Adjudicator lacked jurisdiction to determine payment claims in respect of work the subject of the Mining Exclusion.

40 On 2 August 2016, I granted leave to Samsung to amend in those terms. The reasons for that decision are set out in the next section of these reasons. I will refer to the additional ground as ground (i).

41 On the second day of the hearing, Samsung abandoned grounds (a) (c).[12]

6. Reasons for allowing Samsung's amendment application 6.1 Introduction

42 As I have said, in the course of the hearing of these applications, Samsung applied to amend to add a new ground of review which I have called ground (i). Duro opposed the application.

43 At the conclusion of the hearing on 28 July 2016, I reserved my decision on the application. At that time I indicated that I was mindful of time passing while my decision on the application was reserved, and would inform the parties of my decision as soon as possible, with reasons to be published later, as part of the reasons on the substantive applications.[13]

44 On 2 August 2016, I informed the parties that leave to amend was granted, on terms that Duro have leave to file submissions and affidavits in response to the new ground by a date to be fixed. I fixed the time for the filing of submissions and any affidavits as 26 August 2016 in accordance with Duro's request. My reasons for my decision to grant leave are as follows.

45 The First Determination was made in January 2016. The proceedings seeking judicial review of the First Determination (CIV 1185 of 2016) and the proceedings seeking leave to enforce it (CIV 1255 of 2016) were commenced in February 2016. In the same month, the Second Determination was made and the proceedings seeking judicial review of it (CIV 1284 of 2016) and the proceedings seeking leave to enforce it (CIV 1257 of 2016) were commenced. The Third Determination was made in March 2016 and the Fourth Determination in April 2016. The judicial review proceedings in relation to these determinations (CIV 1719 of 2016 and CIV 1809 of 2016 respectively) were commenced in May 2016. The proceedings seeking leave to enforce the Third Determination (CIV 1596 of 2016) were commenced in April 2016. Enforcement proceedings in relation to the Fourth Determination (CIV 1773 of 2016) were commenced in May 2016. The Fifth Determination was made in the same month, and the judicial review proceedings (CIV 1905 of 2016) and enforcement proceedings (CIV 1899 of 2016) in respect of it were commenced on 1 June 2016.

46 In February 2016, directions were made for the filing of submissions and evidence in respect of the first and second determinations.

47 In May 2016, the existing programme was adjusted and directions were made in relation to Samsung's application in respect of the Third Determination.

48 Samsung's submissions in respect of the first three determinations were filed by the end of May 2016.

49 On 2 June 2016, orders were made that the applications relating to the fourth and fifth determinations be heard with the earlier applications. Directions were made for Duro to file its outline of submissions and for Samsung to file its submissions in reply by 4 July 2016.

50 Submissions were filed in accordance with those orders.

51 As I have said, Samsung's primary written submissions distilled the grounds of the various applications into eight paragraphs, denoted as (a) (h). Paragraphs (a) to (c) were essentially concerned with whether the Interim Subcontract was a construction contract.

52 Duro's submissions of 22 June 2016 pointed out, correctly, that Samsung's grounds for the applications did not raise any issue regarding the existence of a payment claim or a payment dispute.[14]

53 On 2 June 2016, the hearing of these ten applications was listed for two days, commencing on 27 July 2016.

54 Late in the morning on the first day of the hearing, Senior Counsel for Samsung foreshadowed an application to amend, but did not have the proposed amendment in writing. Immediately after the lunch adjournment, Samsung provided to Duro and to the court a minute of the draft ground of review the subject of the amendment application.

55 In order to allow for an informed assessment of whether leave to amend should be granted, Samsung made its submissions in support of the proposed ground on a provisional basis, subject to the question of whether leave would be granted. I will outline Samsung's submissions in support of ground (i) later in these reasons in dealing with its merits.

56 The next morning, on 28 July 2016, Samsung provided the court and Duro with a further version of the proposed ground of review, incorporating additional detail in respect of several determinations, and adding the fifth determination as part of the subject matter of the ground. I have set out the terms of the proposed ground in section 5 of these reasons.

57 Samsung did not file an affidavit explaining its delay in bringing the amendment application, but the question was addressed in some detail by Senior Counsel for Samsung.

58 In short, Samsung says that the lateness of the application arose from a combination of the delivery by the Court of Appeal on 21 July 2016 of its decision in Laing O'Rourke Australia Construction Pty Ltd v Samsung C&T Corporation[15] and the fact that, in the very late stages of preparation for the hearing, the definition of 'obligations' in s 3 came to the attention of counsel for Samsung for the first time. When attention was directed to this definition, it became apparent that it had consequences for Samsung's then existing grounds (a) (c). Further, it led to the formulation of the new proposed ground.[16]

59 It can safely be inferred from Samsung's written submissions, including its reply submissions of 4 July 2016, that counsel for Samsung had not then adverted to the definition of 'obligations' and its significance. That inference is reinforced by the fact that, on the second day of the hearing, Samsung abandoned grounds (a) (c). The definition of 'obligations' removed or at least substantially diminished one of the central planks of Samsung's contention as to how the term 'construction contract' was to be construed.

60 While the question of the definition of 'obligations' came to counsel's attention only immediately before the hearing of these applications, the attention of Samsung's solicitors was directed to the definition, and its possible consequences in relation to excluded work, by an adjudication between the parties that occurred in June 2016.[17] It is to be inferred that Samsung's solicitors did not appreciate that a possible argument in relation to these applications might arise from analysis of that definition, and did not draw it to the attention of counsel for Samsung.

61 This is not a case where a party has, for tactical reasons, left raising a point until the last minute. The proposed new ground only occurred to those appearing for Samsung at the very last stages of preparation for the hearing.

62 The goal in O 1 r 4A of the Rules of the Supreme Court 1971 (WA) and the objects in O 1 r 4B(1) are to be sought in exercising the power to grant leave to amend.

63 In Aon Risk Services Australia Ltd v Australian National University,[18] the High Court made observations about the considerations relevant to the exercise of a discretionary power to allow or refuse an amendment to a pleading in the Australian Capital Territory. Notwithstanding some differences in the language of the relevant rules, their Honours' observations are of assistance in Western Australia, and have been applied by courts in Western Australia. Those observations include the following:

(a) The effect of an amendment on the court and on other litigants is relevant.

(b) There is no right to amend to introduce an arguable case, and it is wrong to say that only in extreme circumstances would a party be shut out from litigating an arguable case.

(c) Justice requires that parties have a proper opportunity to plead their case, but limits may be placed on repleading when delay and cost are taken into account.

(d) A just resolution does not mean that a party will always be permitted to raise any arguable case at any point in the proceedings on payment of costs, even indemnity costs.

(e) The inevitable strains of litigation must be taken into account in weighing the adverse consequences of delay (this applies to natural persons and other litigants).

(f) The nature and importance of the amendment to the amending party must be taken into account.

(g) Attention must be given to the extent of the delay, the costs associated with it, the prejudice which might reasonably be expected to follow from it, and any prejudice that is shown.

(h) The point in the litigation relative to the trial may be an important consideration.

(i) Where a party seeks to have a discretion exercised in their favour, they will generally need to explain the reason for their application and any delay in bringing it.

(j) The point can be reached where it may be properly concluded that a party has had a sufficient opportunity to put its case and that it is too late for a further amendment.[19]

6.6 Duro's submissions in opposition to the amendment application

64 Duro's submissions in opposition to the application included the following:

(1) The proposed new ground was fundamentally different in character from grounds (a) to (c), and from the other grounds. It was directed to the existence of payment claims and payment disputes, whereas grounds (a) to (c) were about the scope of the term 'construction contract'.

(2) The proposed ground gave rise to the need for considerable further legal and factual analysis.

(3) It could not be said that the evidence relating to whether the items the subject of the Duro Works were construction work would be sufficient to determine the questions that would arise under the proposed new ground. Duro emphasised the width of the words 'in relation to' that are found in the definition of 'payment claim' in the Act. Duro submitted that those words would give rise to wider questions, including as to the connection between the particular works the subject of the proposed ground and other parts of the works under the Interim Subcontract.

(4) Because there is or may be a different test to be applied to payment claims (as opposed to construction contracts) in relation to excluded work, the evidentiary matters raised by the proposed new ground should not be seen as simply involving a subset of the evidence about the extent to which all of the items in the Duro Works are construction work or excluded work.

(5) In any event, the new ground focused specifically on a number of particular items of the claim the subject of each determination. That was a much narrower focus than that required under grounds (a) (c), which involved consideration of all of the Duro Works. Given the critical significance of particular items in relation to the proposed ground, Duro would be entitled to adduce further evidence in respect of those items.

(6) The large amounts of the adjudications cut both ways. While clearly Samsung's applications for judicial review were significant to it, the amounts in question also underscored the significance for Duro of the determinations, and of a timely resolution of its enforcement applications.

(7) The process of adjudication under the Act is designed to produce a rapid outcome, and an amendment would further delay resolution of the parties' disputes.[20]

65 It is important to bear in mind the nature of these proceedings and their subject matter. They are concerned with applications for judicial review in respect of, and applications for leave to enforce, determinations made under the Construction Contracts Act. The essence of the scheme of the Act is to provide for a speedy and informal mechanism for interim payments, pending later determination of the parties' ultimate rights. In that context, the avoidance of delay has a heightened significance.

66 To some extent, as Duro submitted, the large amounts of the adjudications cut both ways.

67 Given the extreme lateness of this application, I was not satisfied that it could safely be assumed that the evidence relating to whether items of the Duro Works were construction work would be sufficient to determine the questions that would arise under the proposed new ground. In response to Duro's submission outlined at (4) above, Samsung submitted that, on a proper construction, that is not the effect of the relevant definitions.[21] However, given the timing of the application, Duro had not had any opportunity to develop its submissions in that respect and, as Samsung accepted,[22] the court was not in a position to determine this question of construction at the hearing or within a short time thereafter.

68 In its particulars, the new ground focuses specifically on a certain number of items of the claim the subject of each determination. I accepted Duro's submission that this is a much narrower focus than that required under grounds (a) (c), which involved consideration of all of the Duro Works. Accordingly, when I granted leave to amend I did so on terms that Duro had leave to adduce further evidence.

69 I also accepted Duro's submission that at the hearing on 28 July 2016 it was not in a position to make a properly informed assessment of what evidence it would adduce in response to the new ground, and thus how long it would need to prepare that evidence. In considering my decision on the application to amend in the days following the conclusion of the hearing, I made the best assessment I could of how long Duro would need, based upon my knowledge of the evidence already exchanged and the relationship between the proposed ground and the previously existing grounds. I formed the view that Duro would be unlikely to require a period of much more than a month.

70 The scope and number of the issues on the ten applications before me and the court's other commitments meant that, putting aside the proposed new ground, the decision on the applications would be reserved for significantly more than a month. The delay in delivery of the reasons arising from allowing the amendment would not equate to the full period that was allowed for Duro's submissions and affidavits. Thus, while the extent of the delay that would have been consequent upon the amendment was uncertain, this was not a case where the amendment would have led to a delay in the conclusion of the proceedings in the order of months.

71 During the hearing of the application I made it clear that, if leave to amend were granted, Samsung would be confined to its oral submissions on ground (i).[23]

72 The consequences for Samsung of the refusal of the application would have been substantial. It would have lost the opportunity to advance an arguable ground to impugn the validity of four determinations, worth approximately $60 million. That consideration weighed significantly in the exercise of the discretion.

73 In the end, the question was whether the extreme lateness of the application, viewed in the context of the nature and subject matter of the proceedings, their history, the explanation for Samsung's delay, the need to determine the proceedings expediently, and the need to ensure that Duro had a fair opportunity to respond to the proposed ground, meant that the application should be refused.

74 While the need to ensure that Duro had a fair opportunity to respond to the proposed ground, and the consequent delay of a somewhat uncertain duration, weighed against the grant of leave, on balance I was satisfied that the interests of justice favoured the grant of leave to enable Samsung to advance the claim the subject of the proposed ground.

75 At the time I reserved my decision on the application on 28 July 2016, I contemplated that I might allow Duro to put on submissions and affidavits in opposition to the amendment application, and as to the merits of the new ground, on the basis that I could take those into consideration in deciding whether to grant leave. On reflection, I determined that such an approach was not in the interests of justice or the efficient progression of the matter. If Duro's submissions and evidence on the merits were comprehensive, by the time they were received there would be little further delay involved in granting, and consequently little reason to refuse, the amendment application. If Duro's evidence was not comprehensive, such an approach was liable to produce further delay.

76 For those reasons, on 2 August 2016 I granted leave for Samsung to add the proposed new ground, as ground (i), on terms that Duro would have leave to file submissions and affidavits in response by 26 August 2016.

77 In the circumstances, my assessment of Samsung's case on ground (i) must be confined to the contentions put in oral submissions.

78 The Construction Contracts Act is, by its long title, intended to prohibit or modify certain provisions in construction contracts; imply provisions in construction contracts about certain matters; and provide a means for adjudicating payment disputes arising under construction contracts.

79 Part 2 div 1 of the Act makes various provisions in a construction contract ineffectual, or modifies their effect. Part 2 div 2 implies terms about various matters in a construction contract that does not have written provisions about those matters.

80 Part 3 provides a means for adjudicating payment disputes arising under construction contracts. It provides that a party to a construction contract can apply to have a payment dispute that arises under that contract adjudicated by an adjudicator,[24] who must either dismiss the application in prescribed circumstances or determine the liability of a party to the payment dispute to make a payment, the amount to be paid, and any interest payable on it.[25]

81 'Construction contract' is defined in s 3 of the Act as follows:

construction contract means a contract or other agreement, whether in writing or not, under which a person (the contractor) has one or more of these obligations -

(a) to carry out construction work;

(b) to supply to the site where construction work is being carried out any goods that are related to construction work by virtue of section 5(1);

(c) to provide, on or off the site where construction work is being carried out, professional services that are related to the construction work by virtue of section 5(2);

(d) to provide, on the site where construction work is being carried out, onsite services that are related to the construction work by virtue of section 5(3)(b).

82 Construction work is defined in s 4. Section 4(1) and (2) are detailed provisions that identify the ambit of construction work. One kind of construction work is constructing the whole or a part of any civil works, or a building or structure that forms or will form a part of land.[26] Civil works include a road, railway, harbour, port or marina.[27] Construction work also includes any work on a site in Western Australia that is preparatory to, necessary for, an integral part of, or for the completion of, these kinds of construction work.[28]

83 Section 4(3) excludes certain work from being construction work. It provides as follows:

(3) Despite subsection (2) construction work does not include any of the following work on a site in WA -

(a) drilling for the purposes of discovering or extracting oil or natural gas, whether on land or not;

(b) constructing a shaft, pit or quarry, or drilling, for the purposes of discovering or extracting any mineral bearing or other substance;

(c) constructing any plant for the purposes of extracting or processing oil, natural gas or any derivative of natural gas, or any mineral bearing or other substance;

(d) constructing, installing, altering, repairing, restoring, maintaining, extending, dismantling, demolishing, or removing, wholly artistic works, including sculptures, installations and murals;

(e) work prescribed by the regulations not to be construction work for the purposes of this Act.

84 Section 5 provides that in certain circumstances, goods, professional services and onsite services are related to construction work. It reads as follows:

Goods and services related to construction work

(1) For the purposes of this Act, goods are related to construction work if they are -

(a) materials or components (whether prefabricated or not) that will form part of any thing referred to in section 4(2)(b) or 4(2)(c) or of any fittings referred to in section 4(2)(d); or

(b) any fittings referred to in section 4(2)(d) (whether prefabricated or not); or

(c) plant or materials (whether supplied by sale, hire or otherwise) for use in connection with the carrying out of the construction work at the site of the construction work; or

(d) goods prescribed by the regulations to be related to construction work for the purposes of this Act.

(2) For the purposes of this Act, professional services are related to construction work if they are -

(a) services that are provided by a profession and that relate directly to construction work or to assessing its feasibility (whether or not it proceeds) -

(i) including surveying, planning, costing, testing, architectural, design, plan drafting, engineering, quantity surveying, and project management, services; but

(ii) not including accounting, financial, or legal, services;

(b) services that are provided by a profession that are prescribed by the regulations to be professional services related to construction work for the purposes of this Act.

(3) For the purposes of this Act, onsite services -

(a) are services other than professional services referred to in subsection (2); and

(b) are related to construction work if they are -

(i) services that relate directly to construction work, including the provision of labour to carry out construction work; or

(ii) services prescribed by the regulations to be onsite services related to construction work for the purposes of this Act.

(4) The regulations may prescribe goods, professional services or onsite services that are not related to construction work for the purposes of this Act.

85 A contract will be a construction contract if it obliges the contractor to supply to the site where construction work is being carried out materials or components that will form part of a building or structure that will form part of the land.[29] Further, a contract will be a construction contract if it obliges the contractor to provide, on the site where construction work is being carried out, onsite services that relate directly to construction work, including the provision of labour to carry out construction work.[30]

86 As I have said, pt 3 of the Act provides for the adjudication of payment disputes under construction contracts.

87 Section 25 provides that, if a payment dispute arises under a construction contract, any party to the contract may apply to have the dispute adjudicated under pt 3 (subject to two exceptions that are not presently relevant).

88 Section 6 provides as follows:

For the purposes of this Act, a payment dispute arises if -

(a) by the time when the amount claimed in a payment claim is due to be paid under the contract, the amount has not been paid in full, or the claim has been rejected or wholly or partly disputed;

(b) by the time when any money retained by a party under the contract is due to be paid under the contract, the money has not been paid; or

(c) by the time when any security held by a party under the contract is due to be returned under the contract, the security has not been returned.

89 Section 6 identifies three categories of payment dispute, each with a different foundation: (a) an unpaid, rejected or disputed payment claim; (b) retention monies that have not been repaid; and (c) a security that has not been returned. The first category, but not the other two, is founded on a payment claim.

90 'Payment claim' is defined in s 3 as follows:

payment claim means a claim made under a construction contract -

(a) by the contractor to the principal for payment of an amount in relation to the performance by the contractor of its obligations under the contract; or

(b) by the principal to the contractor for payment of an amount in relation to the performance or non performance by the contractor of its obligations under the contract.

91 Section 3 provides the following definition of 'obligations':

obligations, in relation to a contractor, means those of the obligations described in the definition of 'construction contract' that the contractor has under the construction contract.

92 Ground (i) concerns the proper construction of these definitions and s 4(2) and s 4(3), when inserted into s 31(2)(b), set out below, and when applied to the work the subject of the first, second, third and fifth determinations.

93 Section 31 of the Act sets out the powers and duties of an adjudicator. It provides as follows:

An appointed adjudicator must, within the prescribed time or any extension of it made under section 32(3)(a) -

(a) dismiss the application without making a determination of its merits if -

(i) the contract concerned is not a construction contract;

(ii) the application has not been prepared and served in accordance with section 26;

(iii) an arbitrator or other person or a court or other body dealing with a matter arising under a construction contract makes an order, judgment or other finding about the dispute that is the subject of the application; or

(iv) satisfied that it is not possible to fairly make a determination because of the complexity of the matter or the prescribed time or any extension of it is not sufficient for any other reason;

(b) otherwise, determine on the balance of probabilities whether any party to the payment dispute is liable to make a payment, or to return any security and, if so, determine -

(i) the amount to be paid or returned and any interest payable on it under section 33; and

(ii) the date on or before which the amount is to be paid, or the security is to be returned, as the case requires.

94 The object of the adjudication process is to determine the dispute fairly and as quickly, informally and inexpensively as possible.[31]

95 Section 31 prescribes a short timeframe (14 days) within which an adjudicator is required to make a determination. That timeframe can only be extended with the consent of the parties.[32]

96 Section 32 makes provision for matters of procedure. It provides, among other things, that appointed adjudicators must act informally; are not bound by the rules of evidence and may inform themselves as they see fit; may request further submissions or information from the parties; and may, unless all parties object, inspect any work or thing to which the payment dispute relates, or arranging testing or expert investigation of it.

97 If an appointed adjudicator either dismisses an application under s 31(2)(a) or makes a determination under s 31(2)(b), they must provide the parties with written reasons for doing so.[33] I will set out s 36, dealing with reasons, during my analysis of ground (g).

98 Division 4 of the Act, comprising s 38 to s 41, deals with the effect of determinations. By s 38 and s 39 a determination is binding on the parties to the construction contract, and a party liable to make a payment under a determination must do so by the date specified.

99 Division 5, comprising s 42 and s 43 of the Act, deals with the enforcement of determinations. Section 42 provides for a form of 'self help'. By that section, if a determination requires a principal to pay the contractor an amount, and the principal does not pay, the contractor may suspend the performance of its obligations pending payment without becoming liable for any loss or damage suffered by the principal and while retaining its rights under the contract. Section 43 provides for the curial enforcement of determinations, as a judgment or order of the court, if the court grants leave.

100 By s 45, an adjudication does not prevent the parties from instituting proceedings before an arbitrator or other person, or a court, and the adjudication will proceed despite the institution of proceedings unless the parties agree otherwise.

101 An adjudicated amount must be paid, but is on account only and is subject to a final determination of the parties' rights by a court or arbitrator.[34]

102 Section 46 provides for a limited right of review for a person who is aggrieved by a decision made under s 31(2)(a).

8. Judicial review of determinations under the Act: legal principles

103 A determination made pursuant to s 31(2)(a) or s 31(2)(b) of the Act can be challenged by proceedings for judicial review.[35] Section 46 does not preclude judicial review for jurisdictional error.[36]

104 Insofar as the distinction between an inferior court and an administrative tribunal has utility,[37] an adjudicator under the Act is more akin to an inferior court.[38] An adjudication determination is not susceptible to judicial review for a nonjurisdictional error, such as an error of law on the face of the record.[39]

105 When an application is made to have a dispute adjudicated under the Act, an adjudicator has two distinct and alternative functions. An adjudicator cannot proceed under s 31(2)(b) to determine an application on its merits if the application is one which must be summarily dismissed under s 31(2)(a). The power under s 31(2)(a) must be exercised 'in its own right'.[40] If an adjudicator were to proceed under s 31(2)(b) to determine an application which ought to have been dismissed under s 31(2)(a), they would be acting without power.[41]

106 In other words, the criteria in s 31(2)(a)(i) - (iv) are jurisdictional facts which must be established in order to enliven the adjudicator's power to make a determination under s 31(2)(b).[42] Whether the criteria in s 31(2)(a)(i) (iii) are jurisdictional facts in the broad or narrow sense is controversial. I will return to that question in determining ground (i).

107 An adjudicator's power to act under s 31(2)(b) also depends upon the existence of a payment dispute within the meaning of the Act.[43]

108 As I have said, an adjudicator's determination under s 31(2)(b) can be the subject of judicial review for jurisdictional error. The categories of jurisdictional error are not closed. It is not possible to make a comprehensive statement of the boundaries of jurisdictional error.[44] It can often be difficult to draw the distinction, in a given fact situation, between a jurisdictional error and an error in the exercise of jurisdiction.[45]

109 Some categories of jurisdictional error in respect of inferior courts and analogous bodies are well established:[46]

First, if an inferior court or an anomalous tribunal mistakenly asserts or denies the existence of jurisdiction. Second, if it misapprehends or disregards the nature or limits of its functions or powers in a case where it correctly recognises that jurisdiction does exist. Third, if it is an essential condition of the exercise of jurisdiction with respect to a particular matter that a certain event or requirement has in fact occurred or been satisfied (which I understand to be a reference to a jurisdictional 'fact') there will be jurisdictional error if the court or a tribunal purports to act in circumstances where that event has not in fact occurred or that requirement has not in fact been satisfied even though the matter is the kind of matter which the Court has jurisdiction to entertain. Fourth, jurisdictional error will occur where an inferior court disregards or takes account of some matter in circumstances where the statute establishing it and conferring its jurisdiction requires that that particular matter be taken into account or ignored as a precondition of the existence of any authority to make an order or decision in the circumstances of the case. Fifth, it will exceed its authority and fall into jurisdictional error if it misconstrues the statute establishing it and conferring jurisdiction and thereby misconceives the nature or the function which it is performing or the extent of its powers in the circumstances of the case.

110 Another wellestablished category of jurisdictional error is where a decision is made in breach of the requirements of procedural fairness.[47]

111 Often, the identification of a jurisdictional error is not assisted by applying descriptive verbal formulations or characterisations of what the decisionmaker did.[48] The preferable approach in the context of the Act is to identify precisely what the adjudicator did, and then, having construed the Act as a whole, to decide whether what the adjudicator did constitutes a determination of the kind for which the Act provides.[49]

112 In determining whether an error is of a kind which is within jurisdiction, or which exceeds jurisdiction, regard must be had to the statute as a whole. It is obvious from the scheme of the Act that it contemplates that adjudicators may make some errors without exceeding their jurisdiction. In that regard, relevant elements of the statutory scheme include the following:

(1) The adjudication process is intended to be a trade off between speed and contractual and legal precision.

(2) Determinations are not final - they are taken to be payments on account.

(4) An adjudicator is required to act informally, is not bound by the rules of evidence and is largely entitled to determine their own procedure.[50]

113 An adjudicator does not exceed their jurisdiction simply by misconstruing the construction contract, or by making an error in the application of the terms of the contract to the facts found.[51] Examples of errors of this kind, as errors within jurisdiction, may be found in Laing O'Rourke v Samsung [2016].[52] Obviously, the making of an error in a finding of fact does not in itself constitute jurisdictional error.

114 In proceedings for judicial review of a determination, the character of which includes the features outlined in (1) (4) of [112], a court must not scrutinise the reasons for the determination with an eye 'keenly attuned to the perception of error'.[53]

9. Ground (d): adjudicators' finding that there were no new milestones 9.1 Introduction

116 In the Second Determination and the Fourth Determination, Samsung claimed before each adjudicator that it was entitled to setoff liquidated damages for delay against claims made by Duro. Both adjudicators rejected Samsung's claim on the basis that under the Interim Subcontract there were no new milestones, so that liquidated damages did not apply.

117 By ground (d) Samsung claims that, in so finding, each adjudicator made a jurisdictional error in that they made their determination without regard to the Interim Subcontract, or because they adopted a construction of it that was outside reasonable bounds.

118 Samsung did not pursue a similar ground in the application relating to the Third Determination.[54]

119 In order to understand this ground, it is necessary to set out the provisions of the Interim Subcontract in some detail.

120 The recitals of the Term Sheet were as follows:

(a) Samsung, entered into a subcontract with Duro and Forge Group Construction Pty Limited (Forge) (Subcontract) in relation to the engineering, procurement and construction of certain works in respect of the Roy Hill iron ore mining project (Project).

(b) An administrator and receiver have been appointed to Forge. Forge has also committed other acts and omissions that constitute defaults of the Subcontract.

(c) Samsung terminated the Subcontract on 21 February 2014.

(d) This term sheet (Term Sheet) sets out the key terms and conditions (as set out in Schedule 1) that will form a replacement subcontract between Samsung and Duro (Substituted Subcontract).

(e) The parties agree to cooperate in good faith in the preparation of a Substitute Subcontract and any Substitute Subcontract will reflect the terms and conditions of this Term Sheet.

121 By cl 1, the parties acknowledged and agreed that the Term Sheet would take effect on and from the Start Date, 21 February 2014.

The parties agree and acknowledge that, on and from the Start Date, Duro will continue to perform the scope of works set out in Schedule 2 (Duro Works) under this Term Sheet which will become legally binding on the parties and will apply as a binding agreement between the parties (Interim Subcontract), and Duro shall in good faith continue to perform the Duro Works under the Interim Subcontract. The Interim Subcontract is on the same terms as the Subcontract as modified by the terms set out in this Term Sheet and its schedules for the performance of the Duro Works. The parties acknowledge and agree to negotiate in good faith and make such additional changes as are logically or practicably required considering the Duro Works and execute a Substitute Subcontract which is based on the terms of the Subcontract as modified in this Term Sheet, as soon as reasonably possible.

(a) The terms and conditions set out in Schedule 1 are made a part of this Term Sheet and the Interim Subcontract and shall apply from the Start Date.

(b) Subject to clause 2.1(a), if directed to in writing by Samsung, Duro undertakes to execute, as soon as reasonably practicable after receipt of that direction, a Substitute Subcontract that incorporates the terms and conditions of the Subcontract as modified by Schedules of this Term Sheet, together with any other terms and conditions that Samsung and Duro consider are reasonable or necessary that directly relate to the terms and conditions as set out in Schedules of this Terms Sheet.

(c) The Substitute Subcontract will, upon execution, supersede this Term Sheet and bind Samsung and Duro in relation to its subject matter.

124 Schedule 1 set out terms and conditions which, by cl 2.2(a), were made part of the Term Sheet and the Interim Subcontract. Schedule 1 relevantly included the following:

Duro will perform the works referred to in Schedule 2 (Duro Works).

Subcontract Sum
- The Subcontract Sum of the Duro Works for the purposes of the Substitute Subcontract shall be the fixed lump sum price of $505,951,983.73.
- Duro will be required to provide new Security in respect of the Interim Subcontract within 14 days of the Start Date. The amount of Duro's new Security will be 15% of the Subcontract Sum under the Substitute Subcontract.
  - Duro will procure a new Deed of Guarantee and Indemnity for the Substitute Subcontract on the same terms and from the same guarantor as was provided under the Subcontract.
- Duro's Security under the Subcontract will remain in place to cover any liability to Samsung under the Subcontract.
- Samsung will be entitled to deduct any Advance Payments outstanding under the Subcontract from monthly progress payments made to Duro under the Substitute Subcontract.
Payment

Samsung will pay Duro for performance of the Duro Works.

Milestones / Liquidated Damages
- New procurement Milestones and liquidated damages will apply to the Substitute Subcontract, as attached to this Term Sheet at Schedule 3.
- Extensions of time to the obligation to achieve milestones by the dates for milestone completion will be Duro's sole remedy and will only be granted in respect of any delay solely attributable to the acts or omissions of Samsung.

125 Schedule 2 was headed 'Duro Works', as referred to in cl 2.1(a). In fact, what followed in sch 2 were provisions for liquidated damages and milestones, the subject of sch 3. Contained in sch 3, but evidently intended to be the contents of sch 2, was a spreadsheet setting out the Duro Works. For convenience and consistency with the Term Sheet, I will refer to the schedules as if their contents were correct.

126 In broad summary, both adjudicators accepted Duro's submission that the new procurement milestones set out in sch 3 were, by item 4 of sch 1, applicable to the Substitute Subcontract, but not the Interim Subcontract.

127 In the Second Determination, Mr Machell addressed the proper construction of the Interim Subcontract at pages 19 to 21 of his reasons. He found that the Interim Subcontract does two things. First, it expresses the contractual relationship between the parties. Secondly, it expresses their intention to enter into a subsequent Substitute Subcontract, and indicates some of the terms that they intended to incorporate into that Substitute Subcontract.[55]

128 Mr Machell set out recitals (d) and (e) of the Term Sheet, as well as cl 2.1(a) and cl 2.2(a). He then set out parts of sch 1 items 1 4. He emphasised that these items referred to the Substitute Subcontract, not the Interim Subcontract.[56]

129 The adjudicator found that, as the only reference to a contract sum in the Interim Subcontract was to the sum that would be included in the Substitute Subcontract, the parties had not agreed a contract sum for the Interim Subcontract in writing.[57]

SAMSUNG C&T CORPORATION -v- LOOTS [2016] WASC 330 (14 October 2016)

At a glance

Court

Decision date

Before

Source

Judgment (1001 paragraphs)

13.3.2. Samsung's fourth and fifth propositions

Legislation Cited (4)

Cases Cited (23)