Sedgman South Africa (Pty) Limited & Ors v Discovery Copper Botswana

[1] The applicants contracted to design and construct for the respondent parts of the Boseto Copper Project in Botswana. The parties agreed, with some variations, in terms of the general conditions of contract published by the International Federation of Consulting Engineers[1] for "EPC/Turnkey Projects, 1st Edition 1999". They expressly agreed that their contract would be governed by the law of Queensland.

[2] The applicants claim to be entitled under the contract to an interim payment in the sum of USD$20,027,470.07. In August 2012, they sought payment of that sum under a term which required a response within seven days, notifying them whether any, and if so which, parts of their claim were disputed. But there was no response until about 14 days had passed from the receipt of their claim. From this, the applicants contend that upon the proper interpretation of the contract, they are entitled to this interim payment.

[3] The respondent denies that the applicants' claim, and the absence of a response within seven days, had this effect. It says that the claim was not served in the way which was stipulated by the contract. Alternatively, the respondent says that according to the proper interpretation of the contract, the absence of a specific dispute by it to the claim, within seven days of its receipt, does not of itself entitle the applicants to the amount claimed. Rather, the applicants must establish that by other provisions of the contract and other events and circumstances, the sum claimed has become due for payment, which the applicants have not sought to do. Thirdly, the respondent argues that these proceedings ought to be stayed, so that the dispute here (together with related disputes) can be determined by the dispute resolution mechanism which is contained in the contract, which includes the ultimate determination of a dispute by an arbitrator. The respondent cross applies for a stay, either pursuant to s 7(2) of the International Arbitration Act 1974 (Cth) or (if that is inapplicable) pursuant to the Court's jurisdiction to prevent the use of its process by the applicants so as to bypass the dispute resolution process to which they agreed in the contract.

[4] The applicants say that there should be no stay of the proceedings because, in effect, it is so clear that they are entitled to the relief which they claim, being a judgment for the amount demanded as an interim payment. In that respect, they seem to go so far as to say that there could be no genuine dispute (and therefore no dispute) about their claim. To assess that submission it is of course necessary to consider the merits of the respective arguments about the proper interpretation of the contract.

[5] In considering the respective arguments, I have concluded that not only is there a genuine dispute of the applicants' claim, which is apt for determination under the dispute resolution provisions, but also that the respondent's interpretation of the contract is the correct one. This contract did not entitle the applicants to be paid the sum which they now claim, simply from the fact that there was no response to their interim claim within the period of seven days stipulated in the contract. It follows that the applicants' claim should be dismissed rather than stayed.

[6] The contract was made originally between the respondent and the first applicant in May 2010. In about August 2010, the contract was varied to provide for a new "Contract Price" and a schedule for the payment of that price progressively in certain amounts on certain dates. It is common ground that this became the "Schedule of Payments" as referred to in the general conditions of the contract.

[7] In June 2011 the second and third applicants became, together with the first applicant, "the Contractor" as referred to in the contract.

[8] Clause 10 of the general conditions provided for the "taking over" by the respondent (described in the contract as "the Employer") when the works had been completed in accordance with the Contract and "a Taking-Over Certificate of the Works" had been issued by the Employer. It is common ground that this certificate was issued by the respondent on 29 May 2012.[2]

[9] Clause 14 of the general conditions contained a series of provisions governing claims for amounts under the contract. Clause 14.3 provided for applications (meaning claims) for interim payments. Clause 14.4 provided for the effect to be given to the Schedule of Payments to which I have already referred. Clause 14.6 further provided for interim payments and the timing of such payments was according to clause 14.7. Clause 14.9 dealt with the payment of Retention Money. An application for the Final Payment was to be made according to clause 14.11.

[10] Clause 14 also made specific provision for the present context, that is to say where the Employer had issued the Taking-Over Certificate for the Works. It provided as follows:

Within 84 days after receiving the Taking-Over Certificate for the Works, the Contractor shall submit to the Employer one hard copy and electronically on one CD/DVD of a Statement at completion with supporting documents, in accordance with Sub-Clause 14.3 [Application for Interim Payments], showing:

(a) the value of the work done in accordance with the Contract up to the date stated in the Taking-Over Certificate for the Works,

(b) any further sums which the Contractor considers to be due, and

(c) an estimate of any other amounts which the Contractor considers will become due to him under the Contract. Estimated amounts shall be shown separately in this Statement at completion.

The Employer shall then give notice to the Contractor in accordance with Sub-Clause 14. 6 [Interim Payments] and make payment in accordance with Sub-Clause 14.7 [Timing of Payments]."

[11] The applicants presented to the respondent what, apart from the issue of service, is now conceded to have been a "Statement at completion" in accordance with clause 14.10. The applicants did not serve that statement by delivering "one hard copy and electronically on one CD/DVD". Neither a hard copy nor CD/DVD was provided to the respondent. Instead the applicants sent part of the extensive material, which together constituted this Statement, by an email which also identified the balance of the Statement as accessible to the respondent from a File Transfer Protocol to which the Statement had been uploaded. This was all done by 21 August 2012 and therefore within 84 days from the receipt of the Taking-Over Certificate. By this means the Statement was able to be read by the respondent. But clearly it was not served according to clause 14.10.

[12] In response to this service argument, the applicants made two submissions. The first was that the service of the Statement was governed by another provision, being clause 1.3 of the general conditions, which permitted service by email of any "approvals, certificates, consents, determinations, notices and requests" for which the general conditions provided. That submission was unpersuasive because it would negate the specific service requirement of clause 14.10 and also because it is far from clear that a "Statement at completion" would be within that description in clause 1.3.

[13] Secondly, the applicants argued that the respondent was estopped from relying upon the service requirement within clause 14.10, because each claim for an interim payment had been served only electronically. In effect, it was said that there had developed a common assumption as to the effect of the contract in its requirements for the service of claims for payment, although, of course, there had been no previous claim under clause 14.10 and nor had the interim payment claims been made with the use of the File Transfer Protocol. It is unnecessary to now determine this question, which in any event probably required more of an examination of the relevant facts than was presented at this hearing. Should it matter, I was satisfied at least that there was a genuine dispute as to the operation or otherwise of the alleged estoppel and therefore as to the efficacy or otherwise of the service of the Statement. That dispute is one which is within the scope of disputes which the parties agreed should be resolved under the dispute resolution provisions of clause 20, which provided (ultimately) for an arbitration. The applicants accepted that if the Statement was not served according to the Contract, or with the benefit of the alleged estoppel, their claim would fail.

[14] If the Statement at completion is taken to have been duly given under clause 14.10, consideration must then be given to clauses 14.3, 14.6 and 14.7 which it is necessary to set out in full:

The Contractor shall submit a Statement as one hard copy and electronically as one CD/DVD to the Employer after the end of the period of payment stated in the Contract (if not stated, after the end of each month), in a form approved by the Employer, showing in detail the amounts to which the Contractor considers himself to be entitled, together with supporting documents which shall include the relevant report on progress in accordance with Sub-Clause 4.21 [Progress Reports].

The Statement shall include the following items, as applicable, which shall be expressed in the various currencies in which the Contract Price is payable, in the sequence listed:

(a) the estimated contract value of the Works executed and the Contractor's Documents produced up to the end of the month (including Variations but excluding items described in sub-paragraphs (b) to (f) below);

(b) any amounts to be added and deducted for changes in legislation and changes in cost, in accordance with Sub-Clause 13. 7 [Adjustments for Changes in Legislation] and Sub-Clause 13.8 [Adjustments for Changes in Cost];

(c) An amount for retention is to be deducted from all payments at the rate of 10% until the sum of all retentions equals 5% of the Contract Price;

(d) any amounts to be added and deducted for the advance payment and repayments in accordance with Sub-Clause 14.2 [Advance Payment]; [Note that this clause is inapplicable as clause 14.2 has been deleted in its entirety]

(e) any other additions or deductions which may have become due under the Contract or otherwise, including those under Clause 20 [Claims, Disputes and Arbitration]; and

(f) the deduction of amounts included in previous Statements

No amount will be paid until the Employer has received and approved the Performance Security. Thereafter, the Employer shall within 7 days after receiving a Statement and supporting documents, give to the Contractor notice of any items in the Statement with which the Employer disagrees, with supporting particulars. Payments due shall not be withheld, except that:

(a) if any thing supplied or work done by the Contractor is not in accordance with the Contract, the cost of rectification or replacement may be withheld until rectification or replacement has been completed; and/or

(b) if the Contractor was or is failing to perform any work or obligation in accordance with the Contract, and had been so notified by the Employer, the value of this work or obligation may be withheld until the work or obligation has been performed.

The Employer may, by any payment, make any correction or modification that should properly be made to any amount previously considered due. Payment shall not be deemed to indicate the Employer's acceptance, approval, consent or satisfaction.

Except as otherwise stated in Sub-Clause 2.5 [Employer's claims], the Employer shall pay to the Contractor the amount due in respect of a Statement as follows:

(a) where a Statement (and any relevant supporting documents) is submitted within the first 7 days of a month, payment will be made to the Contractor within 21 days of the commencement of that month;

(b) where a Statement (and any relevant supporting documents) is submitted after the 7th day of a month, payment will be made within 14 days of receipt of that Statement;

[15] It was clause 14.6 which required the Employer, within seven days after receiving this Statement purportedly provided on 22 August 2012, to give to the Contractor notice of any items in the Statement with which the Employer disagreed, with supporting particulars. The respondent did not give anything of that kind within seven days from 22 August 2012, but it did give notice of its disagreement with the Statement by a letter to the applicants dated 5 September 2012. It then disputed most of the components of the applicants' claim and asserted an entitlement to a contractual set-off against the balance.

[16] The applicants' case is that once seven days had passed from the respondent's receipt of the applicants' Statement, the respondent was precluded from disputing the Statement and was bound to pay the amount which it demanded. Under clause 14.7, that meant that payment had to be made within 14 days of 22 August. No amount has been paid by the respondent and therefore, it is contended, the applicants are entitled to judgment for the amount claimed.

[17] The applicants thereby suggest that according to the express terms of clause 14.6, an amount which may not otherwise be due to the Contractor would become due by the Employer's not giving a notice of disagreement within seven days of its receipt of the Statement. However, clause 14.6 does not express this consequence, at least directly. It does provide that "payments due shall not be withheld". But that is different from saying that a payment will become due if a notice of disagreement is not given, or if it is given, to the extent that it does not dispute the claim made by the Statement.

[18] The alternative view of clause 14.6 is that it does not make a payment due. Rather, it governs payments which, by the operation of another term or terms, have become due. There are several conditions of this kind which it is necessary to discuss.

[19] Before going to those provisions, it is convenient to discuss clause 3.5 of the general conditions which, with the amendments agreed by both parties, is as follows:

Whenever these Conditions provide that the Employer shall proceed in accordance with this Sub-Clause 3.5 to agree or determine any matter, the Employer shall consult with the Contractor in an endeavour to reach agreement. If agreement is not achieved, the Employer shall make a fair determination in accordance with Contract, taking due regard of all relevant circumstances.

The Employer shall give notice to the Contractor of each agreement or determination, with supporting particulars. Each Party shall give effect to each agreement or determination. If the Contractor is dissatisfied with the determination or does not agree with the terms of the agreement stated in the notice, the Contractor must give notice, to the Employer of his dissatisfaction or disagreement with 14 days of receiving the notice, failing which, the agreement or determination shall be deemed to have been unconditionally accepted by the Contractor.

Either party may then refer the dispute to the DAB in accordance with sub-clause 20.4 [Obtaining Dispute Adjudication Board's Decision]."

[20] The "DAB" (or "Dispute Adjudication Board") is defined to mean the person or persons appointed under clause 20.2 or clause 20.3 of the Conditions. Within clause 20, there is a detailed regime for the resolution of disputes by the DAB, acting as an expert or experts in making a determination. If either party rejects that determination, clause 20 further provides for the binding resolution of the dispute by an arbitrator.

[21] More specifically, clause 20.4 provides that:

"If a dispute (of any kind whatsoever) arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works, including any dispute as to any certificate, determination, instruction, opinion or valuation of the Employer, then after a DAB has been appointed ..., either Party may refer the dispute in writing to the DAB for its decision ..."

Clause 20.4 further provides that the parties are to promptly make available to the DAB all relevant information and other material which it may require and that the DAB should give its decision within 84 days of receipt of a reference. It provides that the decision of the DAB will be binding on the parties, who shall promptly give effect to it unless they agree otherwise or one of them refers the dispute to arbitration. And it further provides that if the DAB has given its decision as to a matter in dispute, and either party gives notice of its dissatisfaction with the decision with 28 days, "then the decision shall become final and binding upon both Parties".

[22] A number of terms of the general conditions provide for the engagement of clause 3.5. One of them is clause 2.5 which governs claims by the employer.

[23] Another such term is clause 11.4, which is headed "Failure to Remedy Defects". It provides that if the Contractor fails to remedy a notified defect or damage, then the Employer may, amongst other things, agree or determine a reasonable reduction in the Contract Price in accordance with sub-clause 3.5.

[24] Clause 13.3 is another such term. It prescribes the procedure for variations to the works, and for the assessment of any consequential adjustment to the Contract Price. Clause 13.3 provides, amongst other things, that:

"...Upon instructing or approving a Variation, the Employer shall proceed in accordance with Sub-Clause 3.5 ... to agree or determine adjustments to the Contract Price and the Schedule of Payments.

These adjustments ... shall take account of the Contractor's submissions ..."

[25] Clause 13.7 is headed "Adjustments for Changes in Legislation". It provides for an adjustment of the contract price, to take account of any increase or decease in cost resulting from certain changes to the law of the country in which the works are to be executed. It permits the Contractor to claim, by notice to the Employer, an extension of time and any cost to be added to the contract price, in consequence of such changes. It provides that after receiving such a notice, the Employer is to proceed in accordance with sub-clause 3.5 "to agree or determine these matters".

[26] Clause 14.4, which deals with the Schedule of Payments, has the potential to engage clause 3.5. It relevantly provides as follows:

"The Contract includes a Schedule of Payments, as set out in Table 6.2 of the FEED Cost Estimates report dated July 2010...

(a) the instalments quoted in the Schedule of Payments shall be the estimated contract values for the purposes of sub-paragraph (a) of Sub-Clause 14.3 [Application for Interim Payments]; and

(b) if these instalments are not defined by reference to the actual progress achieved in executing the Works or identified as advance payments for the purchase of plant, equipment or materials intended for the Works, and if actual progress is found to be less than that on which the Schedule of Payments was based, then the Employer may proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine revised instalments, which shall take account of the extent to which progress is less than that on which the Instalments were previously based."[3]

[27] I return to clause 14.6. It must be interpreted not simply having regard to the present context, which is its operation upon a Statement at completion under clause 14.10, but also more widely, particularly upon Statements claiming interim payments. An application (i.e. a claim) for an interim payment which is made according to clause 14.3 must include firstly "the estimated contract value of the Works executed ... including Variations". By clause 14.4, the "estimated contract value of the Works" is to correspond with the amount of the relevant instalment in the Schedule of Payments.

[28] Clause 14.4, as appears from the above, then had the possible consequence of engaging the process under clause 3.5, and in turn the process of dispute resolution under clause 20, if the Employer considered that the amount claimed did not correspond with the actual progress of the works.

[29] Under clause 14.3, the application for an interim payment had to include any amount to be added or deducted for changes under clause 13.7. It also had to include "any other additions or deductions which may have become due under the Contract or otherwise, including those under clause 20".

[30] Therefore it can be seen that the Contract contains several provisions by which one or more components of a claim for an interim payment were assessable as an amount due or otherwise. And in at least some of those cases, the relevant provisions by which the amount due would be determined would operate outside the specific context of a claim for an interim payment. For example, where a variation is instructed or approved, the Contract Price and the Schedule of Payments is to be adjusted by the Employer's determination under clause 3.5 (or perhaps under the dispute resolution mechanisms in clause 20) invariably before the amount for that variation could be included in a claim for an interim payment. The variation would not be valued and the Contract Price and Schedule of Payments would not be amended by the operation of clause 14.6. It would be by other provisions that a variation could affect the amount of the "payments due", which were referred to in clause 14.6.

[31] By the interpretation for which the applicants contend, the operation of any of these various terms could be displaced by the operation of clause 14.6. For example, a variation might be valued, with a consequential amendment to the Contract Price and the Schedule of Payments, but subsequently the Contractor might make a claim under clause 14.6 which is inconsistent with that valuation. The applicants would say that if the Employer does not give a notice of disagreement within the seven days provided for in clause 14.6, then the outcome of what may have been an extensive process under clause 3.5 and clause 20 would be displaced by what was claimed in the Statement for the interim payment. Similarly, the operation of these extensive provisions for determination and dispute resolution within clauses 3.5 and 20, if under way at the time of a claim for an interim payment, could be made redundant by the Employer's not, yet again, putting what had been its case, within a timely notice under clause 14.6. As it happens, this was the case here, in relation to many components of the subject claim for payment.

[32] The statement of August 2012, claiming the amount of USD$20,027,470.07 for which the applicants now seek judgment, had a number of components. Most of them, in number and in value, had been claimed previously by the applicants and disputed by the respondent. According to the respondent's pleading, which in this respect is not put in issue by the applicants in their Reply,[4] over $19 million of the claim is in this category. Further, most (in value) of this Statement consisted of claims which the respondent pleads it "had already determined against the applicants".[5] And some of the components, again amounting to most of the amount claimed, are matters for which the applicants had issued a notice of dissatisfaction under clause 3.5 in respect of the respondent's determination, before this Statement was provided in August 2012.

[33] The applicants' case is that everything which had occurred between the parties about these components of the present claim was made irrelevant, once seven days passed from the purported service of this Statement without a notice from the respondent under clause 14.6. They say that the absence of such a notice made components, which had either been disallowed or which were then in controversy, debts which were then immediately due.

[34] In my conclusion, that is not the effect of clause 14.6. It does not state that amounts become due by the operation of clause 14.6 itself. Instead, it operates in respect of payments which are due by other terms of the contract, by providing that they are not to be withheld except in the circumstances which it defines.

[35] In my view, the evident purpose of the Employer's notice provision in clause 14.6 is to provide information to the Contractor of the amount (if any) likely to be paid in response to the Statement and the basis (if any) for the Employer's resistance to the payment of the whole of the amount claimed.

[36] The applicants argued that their interpretation of clause 14.6 was necessary to avoid an uncommercial operation of the Contract. It was suggested that if the Employer was permitted to do nothing in response to, for example, a claim for an interim payment, then it could arbitrarily keep the Contractor out of its money. But that does not follow from the proper interpretation of clause 14.6. The Contractor's entitlement would be to payment of the amount or amounts due, as determined by one or more other terms of the Contract and that entitlement would not depend upon the Employer's response to the Statement. Similarly, where the Employer does provide a timely notice under clause 14.6, the Employer cannot by that notice affect the position between the parties as to the amount or amounts which are then due for payment according to other provisions of the Contract.

[37] For these reasons, the applicants' contention as to the proper interpretation of clause 14.6 must be rejected. Its claim in these proceedings is entirely dependent upon that interpretation. It did not seek to prove that by the operation of other provisions of the Contract, all or part of the amount which it claims is due for payment.

[38] The respondent cross applied for a stay of these proceedings, upon arguments which included a reliance upon s 7(2) of the International Arbitration Act 1974 (Cth). Where that provision is engaged, it requires a court not only to stay the proceeding, but also to refer the dispute to arbitration. But in this case the steps which the parties agreed should precede an arbitration, particularly an adjudication by the DAB, have not occurred and it would seem that therefore this is not a case within s 7(2).[6] The respondent made full submissions on the merits of the dispute which have in substance been upheld. And it did not seek to have the dispute referred to arbitration immediately. Its cross application, although said to be partly based upon s 7(2), was effectively only for a stay.

[39] The originating application will be dismissed.

[1] Known as the FIDIC (Federation Internationale des Ingenieurs-Conseils)

[2] The respondent's pleading suggests that it was issued with some qualifications but those matters were not pursued in the respondent's ultimate argument.

[3] Clause 14.4 of the Standard General Conditions, as originally varied and then again varied in August 2010 when the parties included the Schedule of Payments.

[4] Amended Points of Defence and Counterclaim, para. 16; Reply and Answer, para. 3.

[5] Amended Points of Defence and Counterclaim, para. 16(c)(iii).

[6] See the discussion by Lord Mustill in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334, 354.