1 September, 2016
The Court of Appeal of Western Australia has clarified the law around when an adjudicator's determination can be quashed for jurisdictional error and has confined the basis upon which determinations may be reviewed. An application for leave to enforce is not an opportunity to undertake a de facto review of the determination.
Background
The dispute arose out of a subcontract entered into on 21 February 2014 between Samsung C & T Corporation (Samsung) and Laing O'Rourke Australia Construction Pty Ltd (LORAC) (the Subcontract).
Under the Subcontract, LORAC was engaged by Samsung to undertake landside port construction work on the Roy Hill iron ore project in the Pilbara region of Western Australia.
On 27 January 2015, LORAC submitted a monthly progress claim under the relevant payment provisions of the Subcontract for an amount of AUD 43,443,517 (January Progress Claim). Samsung issued a draft Progress Certificate which certified certain portions of the January Progress Claim but left others 'to be confirmed'. Samsung never issued its final Progress Certificate, which was due on 10 February 2015.
Instead, on 10 February 2015, Samsung exercised its right to terminate the Subcontract for convenience.
On 21 February 2015, Samsung and LORAC entered into an 'Interim Deed' to facilitate the transition of the Subcontract Works. As part of that process, Samsung was required to pay LORAC AUD 45 million on account.
On 25 February 2015, LORAC submitted a claim under the relevant compensation provisions (which were enlivened upon termination for convenience) for an amount of AUD 54,713,156.47 (February Progress Claim). Samsung disputed the February Progress Claim in its entirety.
LORAC subsequently applied to have the payment disputes arising in respect of the January and February Progress Claims adjudicated under the Construction Contracts Act 2004 (WA) (CC Act). The adjudicator determined that Samsung pay LORAC:
- AUD 20,965,076 in respect of the January Progress Claim (January Determination); and
- AUD 23,175,442.01 in respect of the February Progress Claim (February Determination).
- Applications to the Supreme Court
- LORAC applied to the Supreme Court of Western Australia for leave to enforce the January and February Determinations (the primary decision). At the same time, Samsung lodged corresponding applications for judicial review of the two determinations.
The applications were heard together by Mitchell J, who held that:
- the January and February Determinations should both be quashed as the adjudicator misapprehended the nature of the function he was to perform under the CC Act by failing to determine the relevant payment disputes by reference to the terms of the Subcontract; and
- leave to enforce the determinations should be refused because they were invalid or, alternatively, because the payments on account required by the determinations had already been made by Samsung under the Interim Deed.
Grounds of appeal
LORAC appealed Mitchell J's decision to the Court of Appeal on the grounds that his Honour:
- erred in fact and in law by quashing the January Determination and February Determination, as a misconstruction of the Subcontract or error in respect of its operation does not constitute jurisdictional error;
- made errors of fact in relation to the application of the terms of the Subcontract by the adjudicator in the February Determination; and
- misconstrued the Interim Deed (or alternatively failed to find jurisdictional error in respect of the adjudicator's findings in relation to the Interim Deed) and therefore erred in refusing to grant leave to enforce the two determinations.
In addition, Samsung filed a notice of contention claiming, among other things, that his Honour should have found that the adjudicator's determinations were infected with jurisdictional error on the additional ground that they were manifestly unreasonable.
The prior approach
Prior to Mitchell J's decision, while there was some uncertainty as to the outer bounds of jurisdictional error in the context of the CC Act, the principles to be applied in determining whether an error was jurisdictional were tolerably clear.
- It was generally accepted that the "pay now, argue later" system of quick, informal and inexpensive adjudications provided for by the CC Act meant that an adjudicator's determination could not, generally speaking, be quashed for errors of law. The view was that under the CC Act, an adjudicator effectively had some jurisdiction 'to go wrong,' for example, by not correctly applying the terms of the relevant contract or by an error in the application of its terms to the facts found.
However, in the primary decision, Mitchell J held that, in the particular circumstances, the misidentification and misapplication of the terms of the relevant contract involved errors from which it could be said the adjudicator exceeded the jurisdiction conferred by the CC Act. The decision at first instance, appeared to broaden the kinds of errors considered to be jurisdictional in the context of the CC Act and, in turn, the scope of the Court's ability to intervene in the adjudication process.
The decision on appeal
The Court of Appeal (Martin CJ, McLure P and Newnes JA), upheld LORAC's appeal against Mitchell J's decision to quash the adjudicator's determinations. However, the Court of Appeal dismissed LORAC's appeal against Mitchell J's decision to refuse leave to enforce the determinations as judgments.
The Court of Appeal took the opportunity to clarify the position with respect to when an adjudicator's determination can be quashed. In doing so the Court of Appeal refocussed attention on the characterisation of the adjudication process as being a trade-off between a precise legal decision and the speed and efficiency that modern day construction projects require. Martin CJ stated that the relevant provisions of the CC Act read in context with its purpose and objectives "lead inexorably to the conclusion that an adjudicator will not exceed the jurisdiction to make a determination…merely because he or she misconstrues the contract or makes an error in the application of its terms to the facts found."
In clarifying when an adjudicator's determination can be quashed, the Court of Appeal discussed the distinction between a determination exceeding the jurisdiction conferred by the CC Act and an error of law, which was made within the bounds of the adjudicator's jurisdiction. In doing so, the Court of Appeal discussed the approaches to determining the bounds of a decision maker’s jurisdiction and concluded that, in light of the High Court's recent decisions, that the current approach focusses on identifying the boundaries through construction of the statute conferring the jurisdiction, and then assessing whether the acts of the decision-maker have gone beyond his or her jurisdiction.
In having regard to the objectives of the CC Act, the Court of Appeal made it clear that in adjudicating payment disputes fairly and quickly, an adjudicator may make an error in the construction or application of the construction contract in respect of which the payment dispute arose, without that error giving rise to a ground upon which the determination may be quashed. Martin CJ raised this in deciding whether the February Determination should be reinstated, noting that "even if the view taken by the Adjudicator was wrong, it was an error with respect to the determination of the facts to be applied to the resolution of LORAC's claim for acceleration.
An error of that kind could not have taken the Adjudicator beyond the jurisdiction conferred upon him by the Act."
The Court of Appeal also considered the construction of s 6(a) of the CC Act and the circumstances in which a payment dispute will arise. Martin CJ, in agreeing with Mitchell J's interpretation of the provision, said that LORAC's construction of when a payment dispute arises gives practical content to the words in the provision by logically allowing a dispute to arise if a claim has been rejected or disputed prior to the time for payment having arisen. LORAC's construction was also held to better achieve the purpose of the CC Act and that it would be inconsistent with this purpose to "force a contractor whose claim has been rejected or disputed to wait until payment is due before commencing the adjudication process."
While arriving at the same result as Martin CJ, McLure P put forward a different construction of s 6(a) of the CC Act. McLure P held that the use of the word 'due' in s 6(a) meant 'earned' an entitlement to lodge a payment claim under the CC Act given that "whether a contractor is entitled to payment of a payment claim is the very issue the adjudicator is required to determine".
In terms of enforcement, Martin CJ held that in construing the right to apply to have a determination enforced as a judgment, the court was not limited to a purely mechanical function of deciding whether a determination had been made. However, Martin CJ also said that an application for leave to enforce was not an opportunity to undertake a de-facto review of the determination. In the circumstances, the exact bounds of the Court’s jurisdiction or the ambit of the discretion available, will depend on the facts and circumstances of the particular case.
Whilst the Court of Appeal upheld LORAC's appeal against Mitchell J's decision to quash the adjudicator's determinations, the Court of Appeal dismissed its appeal against Mitchell J's refusal to grant leave to enforce the determinations. In substance, the Court of Appeal construed the Interim Deed, to the effect that Samsung had made payments under the deed, which satisfied its obligation to pay the amounts determined by the adjudicator.
The Court of Appeal's decision should come as a welcome relief to principals and contractors alike, as it has clarified the law in a number of meaningful ways. Arguably, the decision will provide a boost to contractors, as errors of the type canvassed in the primary decision are unlikely to be reviewable in the future. Further, the decision is consistent with the objects and purposes of the CC Act, as intended by the WA Parliament, a point which Martin CJ made when referring to the Minister's Second Reading Speech in support of the CC Act (as quoted by Murphy JA in Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217; (2011) 43 WAR 319).
For further information, please contact:
Beth Cubitt, Partner, Clyde & Co
beth.cubitt@clydeco.com
