5 September, 2016
Laing O'Rourke Australia Construction Pty Ltd v Samsung C&T Corporation [2016] WASCA 130
What you need to know
- A payment dispute for the purposes of the Construction Contracts Act 2004 (WA) (CCA) will arise as soon as a payment claim is rejected or disputed, regardless of whether this occurs prior to the time for payment.
- An adjudication cannot be challenged on the ground of jurisdictional error where an adjudicator has merely made an error in the construction of the contract or in the application of the contract to the facts.
- The role of the court in an application to enforce a determination is not "purely mechanical" and requires the court to consider all of the circumstances of the case as well as the purpose of the CCA in assessing whether the determination should be enforced.
What you need to do
- When contemplating a preliminary or partial response to a payment claim, carefully consider whether such a response, which may not contain any express rejection of the remainder of the claim, could give rise to a payment dispute and start the clock running on the commencement of an adjudication.
- In the case of a challenge to an adjudication on the ground of jurisdictional error, consider whether the real complaint is an error by the adjudicator in construing or applying the contract.
The Western Australia Court of Appeal has clarified when a payment dispute arises for the purposes of the Construction Contracts Act 2004 (WA), the circumstances where an adjudicator makes a jurisdictional error and the role of the court in an application for leave to enforce a determination.
Australia
Background
In February 2014, Samsung C&T Corporation (Samsung) entered into a subcontract with Laing O'Rourke Australia Construction Pty Ltd (LORAC) for landside works in connection with the port for the Roy Hill iron ore project in the Pilbara region of Western Australia (Contract).
On 27 January 2015, LORAC submitted a monthly progress claim under the Contract for $43,443,517 (January Progress Claim). Samsung issued a draft progress certificate which certified only $16,954,744 of the progress claim. Then on 10 February 2015, the date on which the final progress certificate for the January Progress Claim was due, Samsung exercised its right under the Contract to terminate for convenience.
On 21 February 2015, Samsung and LORAC entered into an "Interim Deed" which, among other things, required Samsung to pay LORAC $45 million in three instalments. The amounts were not described as being in respect of the January Progress Claim, and were instead said to be in respect of steps to be taken by LORAC to novate and transfer subcontracts and other agreements and purchase orders relating to the works. Samsung paid the $45 million by 20 March 2015.
On 25 February 2015, LORAC submitted a further claim in the amount of $54,713,156.41 for works performed prior to the termination of the Contract (February Claim).
LORAC subsequently applied in March and April 2015 for adjudication of the January Progress Claim and the February Claim pursuant to the CCA. The adjudicator determined that Samsung was required to pay LORAC:
(a) $20,965,076 with respect to the January Progress Claim (First Determination); and
(b) $23,175,442.01 with respect to the February Claim (Second Determination).
Samsung did not make the payments required by the First Determination or the Second Determination (together, the Determinations).
Decision at first instance
LORAC commenced proceedings in the Supreme Court of Western Australia under section 43 of the CCA to
enforce the Determinations. Samsung commenced its own proceedings seeking judicial review of the Determinations and for orders to quash the Determinations. All of the applications were heard together .
At first instance, Mitchell J held that:
(a) the adjudicator had failed to determine the disputes by reference to the terms of the Contract and had exceeded the jurisdiction conferred by the CCA, and the Determinations should therefore be quashed; and
(b) leave to enforce the Determinations should be refused as the Determinations had been set aside, and also because the $45 million that Samsung had paid to LORAC pursuant to the Interim Deed could be appropriated against, and extinguished Samsung's obligations to pay, the amounts determined by the adjudicator .
The appeal
LORAC commenced an appeal against each of the decisions at first instance upholding the judicial review applications and against each of the decisions refusing leave to enforce the Determinations. Each of the four appeals were consolidated into a single appeal.
Issues considered on appeal
The appeal raised the following issues:
At what point does a "payment dispute" arise under the CCA?
Did the adjudicator exceed the jurisdiction conferred by the CCA?
What is the role of the Court in an application for leave to enforce a determination?
1. At what point does a "payment dispute" arise?
This issue only applied to the First Determination.
Section 6(a) of the CCA relevantly provides that a payment dispute arises if "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".
Samsung argued that:
(a) on a proper construction of section 6(a) of the CCA, no payment dispute could arise prior to the time at which the amount claimed in a payment claim was due to be paid pursuant to the terms of the contract;
(b) as at the date of commencement of the first adjudication (3 March 2015), the payments in relation to the January Progress Claim were not due as the contractual right to receive those payments by the end of February 2015 had not survived the termination of the Contract on 10 February 2015, and any payments in relation to the February Claim would not have been due until 26 March 2015; and
(c) asaresult,therewasnopaymentdisputeto enliven the jurisdiction of the adjudicator under the CCA and the First Determination was therefore invalid.
LORAC on the other hand argued that a payment dispute arises for the purposes of the CCA if the amount claimed has not been paid in full by the time payment is due, or if the claim has been rejected or disputed prior to the time for payment.
The majority of Martin CJ and Newnes JA accepted LORAC's construction of section 6(a) on the basis that it gave practical effect to all of the words in the section, and better achieved the purpose of the legislation which is to facilitate the speedy resolution of disputes and the flow of funds to subcontractors.
By contrast, the majority held that Samsung's argument would mean that the words "or the claim has been rejected or wholly or partly disputed" in section 6(a) would serve no purpose, and this construction would also require subcontractors to wait until the due date for payment before being able to commence the adjudication process. The majority was therefore satisfied that a payment dispute had arisen by the time of the first adjudication and that the First Determination was not invalid by reason of lack of jurisdiction.
2. Did the adjudicator exceed the jurisdiction conferred by the CCA?
LORAC argued that all the adjudicator had done was to misconstrue the Contract or err in respect of its operation, and that neither of these things constituted jurisdictional error .
Samsung argued that the jurisdiction of an adjudicator under the CCA is intrinsically linked to the application of the construction contract in question, and that the trial Judge had been correct in finding that the adjudicator had exceeded his jurisdiction by failing to determine the adjudications in accordance with the terms of the Contract.
The Court of Appeal noted the risks associated with attempting to define the boundaries between jurisdictional and non-jurisdictional error, and confirmed that the current approach to identifying jurisdictional error requires courts to construe the statute in question as a whole and have regard to the purpose and object of the statute to identify the boundaries of the jurisdiction conferred.
The Court of Appeal then went on to find that:
(a) the provisions of the CCA conferring jurisdiction on an adjudicator are to be read having regard to the context of the CCA as a whole and the objective of the Act, namely the facilitation of construction disputes determinations as fairly and as quickly, informally and inexpensively as possible.
(b) it is clear that an adjudicator who expressly excludes consideration of the underlying construction contract or who takes no account whatsoever of that contract will clearly exceed the jurisdiction conferred by the CCA to determine a payment dispute arising under the construction contract;
(c) however, an adjudicator will not exceed the jurisdiction conferred by the CCA merely because he or she misconstrues the contract or makes an error in the application of its terms to the facts; and
(d) the adjudicator in this case had erred in respect of the proper construction or application of the Contract, but this was not a jurisdictional error.
LORAC's appeal on this issue was upheld, and the decision at first instance to quash the Determinations was set aside.
3. What is the role of the Court in an application for leave to enforce a determination?
This issue arose from LORAC's appeal of the finding that the amounts paid by Samsung under the Interim
Deed should be treated as payments against the Determinations.
Martin CJ commented that "the role of the court in which enforcement is sought is not purely mechanical, but requires the court to itself determine whether, in all the circumstances, the relevant determination should be enforced as a judgment of the court", and the Court of Appeal ultimately held that an application for enforcement under section 43(2) involves more than "merely ascertaining whether a determination has been made", but does not include "a de facto appeal from, or review of, the relevant determination".
The Court of Appeal found that Samsung's obligation to pay the amounts in the Determinations had been satisfied by the payments it had made under the Interim Deed, and dismissed LORAC's appeal on this issue.
Implications of the decision
This decision provides important clarification as to the proper construction of section 6(a) of the CCA, as well as the question of when an adjudication can be challenged for jurisdictional error.
Given the time limits for commencing adjudications and the finding of the Court of Appeal as to when a payment dispute is said to arise, parties should be vigilant as to whether a response to a payment claim has given rise to a payment dispute and started the clock running on the commencement of an adjudication.
The decision also corrects any suggestion arising from Mitchell J's decision at first instance that there may have been an expansion of the basis upon which adjudicator's determinations can be challenged, and confirms that there is no scope for judicial review where the true underlying complaint is that the adjudicator misconstrued or misapplied the construction contract in question.
For further information, please contact:
Lawrence Lee , Ashurst
lawrence.lee@ashurst.com
