Hamersley HMS Pty Ltd v Davis
[2015] WASC 14
•16 JANUARY 2015
HAMERSLEY HMS PTY LTD -v- DAVIS [2015] WASC 14
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2015] WASC 14 | |
| Case No: | CIV:1890/2014 | 22 DECEMBER 2014 | |
| Coram: | BEECH J | 16/01/15 | |
| 38 | Judgment Part: | 1 of 1 | |
| Result: | Application to set aside the adjudication determination dismissed Application for leave to enforce the adjudication determination stayed | ||
| B | |||
| PDF Version |
| Parties: | HAMERSLEY HMS PTY LTD ROGER DAVIS FORGE GROUP CONSTRUCTION PTY LTD (FORMERLY CIMECO PTY LTD (IN LIQ) (RECEIVERS AND MANAGERS APPOINTED) PILBARA LOGISTICS (WA) PTY LTD FORGE GROUP CONSTRUCTION PTY LTD (FORMERLY CIMECO PTYLTD (IN LIQ) (RECEIVERS AND MANAGERS APPOINTED) HAMERSLEY HMS PTY LIMITED |
Catchwords: | Administrative law Prerogative writs Whether determination by an adjudicator under the Construction Contract Act 2004 (WA) should be set aside on grounds of jurisdictional error Turns on own facts Bankruptcy and insolvency Company in liquidation Whether company in liquidation should be given leave to enforce adjudication determination under Construction Contract Act 2004 (WA) Respondent asserting counterclaim Relevance and operation of Corporations Act 2001 (Cth), s 553C Building and construction Security of payment legislation Whether adjudication determination should be set aside for jurisdictional error Whether leave to enforce as a judgment should be given |
Legislation: | Construction Contracts Act 2004 (WA), s 31, s 43 Corporations Act 2001 (Cth), s 553 |
Case References: | Apache Northwest Pty Ltd v Agostini [No 2] [2009] WASCA 231 Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430 Commissioner for Australian Capital Territory Revenue v Alphaone Pty Ltd (1994) 49 FCR 576 Hamersley Iron Pty Ltd v James [2015] WASC 10 McKay v Commissioner of Main Roads [2013] WASCA 135 Mijatovic v Legal Practitioners Complaints Committee [2008] WASCA 115; (2008) 37 WAR 149 Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; (1986) 162 CLR 24 Minister for Immigration and Citizenship v Li [2013] HCA 18; (2013) 249 CLR 332 MK Builders Pty Ltd v 36 Warrigal Road Pty Ltd [2014] VSC 149 Mount Lawley Pty Ltd v Western Australian Planning Commission [2004] WASCA 149; (2004) 29 WAR 273 Re Minister for Immigration and Multicultural Affairs; Ex parte Lam [2003] HCA 6; (2003) 214 CLR 1 Stead v State Government Insurance Commission (1986) 161 CLR 141 Stein v Blake [1996] 1 AC 243 Westport Insurance Corporation v Gordian Runoff Ltd [2011] HCA 37; (2011) 244 CLR 239 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Applicant
AND
ROGER DAVIS
Respondent
FORGE GROUP CONSTRUCTION PTY LTD (FORMERLY CIMECO PTY LTD (IN LIQ) (RECEIVERS AND MANAGERS APPOINTED)
First Other Party
PILBARA LOGISTICS (WA) PTY LTD
Second Other Party
- Applicant
AND
HAMERSLEY HMS PTY LIMITED
Respondent
Catchwords:
Administrative law - Prerogative writs - Whether determination by an adjudicator under the Construction Contract Act 2004 (WA) should be set aside on grounds of jurisdictional error - Turns on own facts
Bankruptcy and insolvency - Company in liquidation - Whether company in liquidation should be given leave to enforce adjudication determination under Construction Contract Act 2004 (WA) - Respondent asserting counterclaim - Relevance and operation of Corporations Act 2001 (Cth), s 553C
Building and construction - Security of payment legislation - Whether adjudication determination should be set aside for jurisdictional error - Whether leave to enforce as a judgment should be given
Legislation:
Construction Contracts Act 2004 (WA), s 31, s 43
Corporations Act 2001 (Cth), s 553
Result:
Application to set aside the adjudication determination dismissed
Application for leave to enforce the adjudication determination stayed
Category: B
Representation:
CIV 1890 of 2014
Counsel:
Applicant : Mr M J Feutrill
Respondent : No appearance
First Other Party : Mr C A Luck & Mr A R Fleming
Second Other Party : Mr C A Luck & Mr A R Fleming
Solicitors:
Applicant : Holman Fenwick Willan
Respondent : No appearance
First Other Party : Clayton Utz
Second Other Party : Clayton Utz
CIV 1778 of 2014
Counsel:
Applicant : Mr C A Luck & Mr A R Fleming
Respondent : Mr M J Feutrill
Solicitors:
Applicant : Clayton Utz
Respondent : Holman Fenwick Willan
Case(s) referred to in judgment(s):
Apache Northwest Pty Ltd v Agostini [No 2] [2009] WASCA 231
Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430
Commissioner for Australian Capital Territory Revenue v Alphaone Pty Ltd (1994) 49 FCR 576
Hamersley Iron Pty Ltd v James [2015] WASC 10
McKay v Commissioner of Main Roads [2013] WASCA 135
Mijatovic v Legal Practitioners Complaints Committee [2008] WASCA 115; (2008) 37 WAR 149
Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; (1986) 162 CLR 24
Minister for Immigration and Citizenship v Li [2013] HCA 18; (2013) 249 CLR 332
MK Builders Pty Ltd v 36 Warrigal Road Pty Ltd [2014] VSC 149
Mount Lawley Pty Ltd v Western Australian Planning Commission [2004] WASCA 149; (2004) 29 WAR 273
Re Minister for Immigration and Multicultural Affairs; Ex parte Lam [2003] HCA 6; (2003) 214 CLR 1
Stead v State Government Insurance Commission (1986) 161 CLR 141
Stein v Blake [1996] 1 AC 243
Westport Insurance Corporation v Gordian Runoff Ltd [2011] HCA 37; (2011) 244 CLR 239
- BEECH J:
Introduction
1 The applicant (Hamersley) applies for a writ of certiorari to set aside the determination made by the respondent (the adjudicator) under the Construction Contracts Act 2004 (WA) (the Act). The adjudication determined a dispute arising under a contract between Hamersley and Forge Group Construction Pty Ltd (Forge) and Pilbara Logistics (WA) Pty Ltd (Pilbara) (collectively the Contractor). Forge has applied for leave under s 43 of the Act to enforce the determination.
2 These proceedings were heard with similar proceedings, in relation to a different adjudication, in Hamersley Iron Pty Ltd v James.1 These proceedings raise a number of issues in common with those proceedings. The reasons in these proceedings should be read with those reasons.
3 For the reasons that follow:
(1) I would dismiss Hamersley's application to set aside the adjudication determination; and
(2) I would stay Forge's application for leave to enforce the determination.
Background facts
4 Hamersley as principal, and Forge and Pilbara as contractors, are parties to a contract (the Contract) dated 30 May 2011 relating to construction work to be performed by the Contractor.
5 Under the Contract, the Contractor was to perform the design, manufacture, supply, testing, installation, construction and commissioning of mine buildings and support facilities at Hamersley's Hope Downs 4 Mine Project (the HD4 Project). The Contract was a fixed price lump sum contract. The original contract price was $81,735,194.
6 The Contract included the following clauses:
47. Deductions from Payments and Alternative Works Deductions
(a) The company may:
(i) deduct from any money due or becoming due to the Contractor pursuant to Clause 45 or from the Security referred to in Clause 10 the following amounts:
(A) all debts and moneys due from the Contractor or its Personnel or Sub-contractors to the Company;
(B) all Liabilities which the Company may have paid, suffered or incurred and which or for which the Contractor or its Personnel or Sub-contractors is or are liable to bear, pay or reimburse to the Company (including pursuant to any indemnity contained in the Contract);
(C) the cost of remedying any defective or damaged Works;
(D) any Taxes which the Company may be required by any applicable legislation or laws to deduct and remit from time to time, and any Indirect Transaction Taxes in respect of deductions payable in accordance with Clause 59; or
(ii) where there is no money due or becoming due to the Contractor pursuant to Clause 45, invoice the Contractor for any of the amounts represented at Sub-clause 47(a)(i) and such amounts will be a debt due from the Contractor to the Company.
...
Notification of withholding or deductions
(d) The Company must notify the Contractor of the details of any amounts withheld or deducted pursuant to this Clause 47.
…
50. Default by Contractor
Notice of Default
(a) If the Contractor does any more or more of the following:
(i) fails to perform or observe any obligation, term, condition or stipulation contained in the Contract and on its part to be performed or observed;
(ii) without reasonable cause, wholly or substantially suspends the performance of the Works before Completion thereof;
(iii) fails to proceed with the Works with due diligence and in a competent manner;
(iv) fails to comply with a notice from the engineer pursuant to Sub-clause 33(d) and by such failure the works and/or any Separable Part of the works and/or the time of Completion of any of the foregoing are materially affected,
Then in any such case the Engineer may send the Contractor a notice specifying the Default and stating the intention of the Company to terminate the Contract. The notice shall not be unreasonably given and the notice shall specify that it is a notice under the provisions of Clause 50.
Failure to Remedy
(b) If the Contractor fails to remedy such default in a proper manner within 14 days after receipt of the notice referred to in Sub-clause 50(a) or if the contractor fails within the said period of 14 days to provide adequate assurance, in the opinion of the Engineer, that the default will be rectified and the Works satisfactorily Completed, or if the Contractor gives such an adequate assurance as aforesaid but the said default is not rectified within a reasonable time (in the opinion of the Engineer) thereafter, then the company may (without limiting any other rights or remedies of the Company under the Contract), within a further 14 days after the Contractor receives the said notice, or, as the case may be at any time after the Engineer forms the opinion that the said default has not been rectified within a reasonable time, exercise all or any of the following powers:
(i) elect by notice to the Contractor wholly or partly to suspend payment under the Contract until the default has been remedied;
(ii) take the Works remaining to be Completed wholly or partly out of the hands of the Contractor or of any other Person in whose hands or possession it or any part of it may be; or
(iii) by notice terminate the contract.
Effect of Termination
(c) If the Company decides to terminate the Contract pursuant to this Clause 50 or Clause 51:
(i) The Contract will be terminated from the date of the relevant notice.
(ii) The Company may engage a third Party to perform the Works and the Company or any agent or Contractor of the Company may enter the Site and (without limiting any right which the Contractor may establish to payment for such use or for compensation for wear and tear to the relevant items) use all Temporary Works, Constructional Plant and goods which are or may be necessary for the performance of the Works in accordance with the contract (as if the contract has not been terminated).
(iii) If the Works or any part of it has been taken out of the hands of the Contractor, the Engineer, on completion of the Works, will ascertain and certify the cost to the Company of the works comprising payments made to the Contractor and all costs charges and expenses of whatsoever nature and howsoever called incurred by the Company or any End User in carrying out the Works or such part thereof taken out of the Contractor's hands. If the amount so certified is greater than the total amount which would (but for any rights which the company might have to withhold or set off payments) have been payable to the Contractor if the whole of the Works had been carried out by it by the Completion Date, the difference between the two amounts will be deducted by the Company from any moneys due, or becoming due, to the Contractor and if the total of these moneys be less than the amount to be deducted the deficiency will be a debt due by the Contractor to the Company which may be recovered in the manner set out in this Sub-clause 50(c)(iii) and/or by proceedings in any court of competent jurisdiction.
Insolvency or Bankruptcy
(a) If the Contractor, not being a partnership, becomes insolvent or bankrupt, or has a receiving order made against it or compounds with its creditors, or being a corporation commencing to be wound up (not being a members' voluntary winding up for the purpose of amalgamation or reconstruction), or is placed under official management or carries on its business under a receiver, trustee, liquidator, provisional liquidator or administrator for the benefit of its creditors or any of them, the Contractor shall notify the Company accordingly, and the Company may either:
(i) terminate the contract by notice to the Contractor, receiver, trustee, liquidator, provisional liquidator, official manager, administrator or to any other Person in whom the Contract may have become vested, and proceed as provided in Clause 50; or
(ii) give to the receiver, trustee, liquidator, provisional liquidator, official manager, administrator or other Person, the option to perform the Works in accordance with the Contract, subject to it providing a guarantee (satisfactory to the Company) up to the value (as conclusively certified by the Engineer) of the Works for the time being remaining to be performed for the due and faithful performance of the Contract.
Any option given under Sub-clause 51(ii) shall be exercisable within 1 month of its receipt, if pending its exercise the works shall be performed continuously and with due diligence in accordance with the contract but otherwise shall be exercisable within 14 days of its receipt.
...
7 On 23 January 2014, the Contractor submitted a progress claim under the contract seeking payment by Hamersley in the amount of $2,138,733.05, plus GST. That day, Hamersley certified that the amount claimed was payable.
8 On 24 January 2014, the Contractor issued a tax invoice seeking payment of that sum (the Payment Claim).
9 On 11 February 2014, Forge appointed administrators. Also on that day, receivers and managers were appointed to Forge by its principal secured creditor, the Australia and New Zealand Banking Group Ltd (ANZ).
10 On 12 February 2014, the receivers and managers terminated the employment of all of the Contractor's employees doing work under the Contract on the HD4 Project. No further work was done under the Contract.
11 On 17 February 2014, Hamersley had recourse to security furnished by the Contractor, and recovered the sum of $8.17 million.
12 On 24 February 2014, by letter, Hamersley terminated the contract, with effect from that date.2 On the same day, Hamersley wrote to the Contractor notifying it that Hamersley was exercising its right to set off against the Payment Claim its loss and damage from the Contractor's breaches. It gave a preliminary estimate of loss and damage in the order of $7 million.3
13 On 24 March 2014, the Contractor served on Hamersley the application for adjudication of the payment dispute arising from Hamersley's non-payment of the Payment Claim. In its adjudication claim, the Contractor asserted that Hamersley has no right under the Contract, or at law, to set off any amounts from the Payment Claim. That was said to be so because:
(a) no notice had been given under cl 47(d) of the Contract as required;
(b) in any event, set-off was only available in relation to debt and moneys due, or Liabilities, as defined in the Contract, which the company has suffered or incurred. That would not encompass future losses;4 and
(c) further, Hamersley had already had recourse to approximately $8.2 million in security. Hamersley's contention that it was entitled to withhold the sum the subject of the Payment Claim as well is baseless.5
14 Forge stated in its application that if Hamersley made submissions seeking to set off an unliquidated claim, it requested that the adjudicator exercise his power under s 32(2)(a) of the Act to allow the Contractor to respond to those allegations. As will be seen, the adjudicator did not exercise his power under s 32(2)(a).
15 On 7 April 2014, Hamersley lodged its response (the Response).
16 In the Response, Hamersley did not dispute the Contractor's entitlement to the sum the subject of the Payment Claim, but contended that it was entitled to set off an amount in excess of $1.8 million against that sum under cl 47(a) of the general conditions of the Contract and, or alternatively, under s 553C of the Corporations Act 2001 (Cth).
17 The sum of $1,861,627 the subject of Hamersley's claimed set off was calculated as follows:
|
| $11,590,000 |
|
| $2,999,949 |
|
| $1,582,744 |
|
| ($6,137,546) |
|
| ($8,173,520) |
|
| $1,861,627 |
18 In the Response, Hamersley contended that it had satisfied the requirement to give notice under cl 47(d), by its letter of 24 February 2014. The Response asserted that, alternatively and in any event, Hamersley was entitled to set off its loss and damage under s 553C of the Corporations Act.6
19 The claim by Hamersley asserted in the Response was supported by the statutory declaration of Hamersley's project manager, Mr Bernard Haak.7
20 Mr Haak's statutory declaration stated that Hamersley have calculated the total cost to complete as approximately $11.59 million, by reference to an estimate of the number of man hours to complete the project.8 Mr Haak's statutory declaration also stated that at the termination date liquidated damages totalling approximately $3 million had accrued.9 I will say more about Mr Haak's statutory declaration later in these reasons.
The adjudication determination
21 On 15 April 2014, the adjudicator made an adjudication determination in which he determined that Hamersley was liable to pay to the Contractor the sum claimed by the Contractor, namely $2,138,733.05 plus GST, together with interest on the principal sum. The adjudicator's reasons included the following:
(1) the only issue in relation to the Contractor's entitlement to payment of the sum claimed was Hamersley's claim to set off, either under the contract or under s 553C of the Corporations Act;10
(2) in determining the amount due in respect of the Payment Claim, the adjudicator would need to take account of any contractual and legal liability of one party to the other;11
(3) category B of cl 47(a) only permits Hamersley to deduct amounts that it has 'paid, suffered or incurred', that is, the money must have been spent or the liability crystallised. The liabilities Hamersley was purporting to set off were not of this character, but related to prospective loss or damage that Hamersley expected to incur as a result of the need to have the remaining work completed by others;12
(4) the applicable procedure for effecting a final accounting following termination of the contract for the Contractor's insolvency is found in cl 51 and cl 50(c)(iii). Under those clauses, on completion of the works the engineer ascertains and certifies the total costs of completing the works and if those costs exceed what would have been payable under the Contract to the Contractor, the excess may be deducted from any sum payable to the Contractor. Any deficit then becomes a debt due and payable by the Contractor. Only when the engineer has undertaken that exercise and issued his certificate does a liability arise that could ground a contractual set-off. That has not occurred;13
(5) the adjudicator accepted Hamersley's contention that an adjudicator is empowered to determine liability by reference to any set-off rights, including the set-off rights that exist under s 553C of the Corporations Act.14 However, it is for the liquidator, not an adjudicator, to conduct the account of amounts owed by each party to the other required by s 553C;15
(6) the Contractor's entitlement was to be determined at the time of the application, when the contractual time for payment had passed. At that time, the only details supplied were those in the first letter of 24 April 2014 with the bald assertion that a preliminary estimate was in the order of $7 million. That could not be taken into account in ascertaining whether the Contractor was entitled to the determination it seeks;16 and
(7) the adjudicator concluded that even if he were to take into account the evidence of Mr Haak, Hamersley's position was 'not much improved'. The cost to complete in the sum of $11.59 million comprised a substantial part of the $16.17 million total claims asserted by Hamersley. The figure of $11.59 million was to be contrasted with the residual value in the contract of $6.13 million. The adjudicator was unable 'by a wide margin' to accept that the additional cost of having others complete the works was $5.46 million. The adjudicator said as follows:
One would expect some additional cost arising out of the change of contractors but the difference between the stated costs of engaging the new team of $7.42 million and the residual value in the Contractor's contract would, without clear proof of more, appear ample to cover the changeover. I have in mind here that Hamersley could reasonably be expected to have paid the Contractor on progress claims no more than it had earned to that point and there is no evidence to the contrary. Hamersley is also claiming a figure of approximately $3 million for liquidated damages said to have already been incurred by the Contractor. Again, without firm proof, I am unable to accept that figure, or any figure, for liquidated damages. I have no evidence before me that such a claim has ever been advanced before this adjudication or that such damages are payable now. A mere assertion of an approximate liability is not sufficient.
I must also take into account the fact that Hamersley has drawn down bank securities to a value of approximately $8.1 million, which leaves an alleged amount owing of $1.87 million, which is less than the amount to which the contractor is entitled. Even on Hamersley's own figures, the contractor is entitled to a determination that Hamersley pay to it approximately $300,000. I am, however, satisfied, on the balance of probabilities, that Hamersley's calculation of the anticipated cost to complete and liquidated damages of $14.59 million is overstated, by at least $1.87 million.17
22 Hamersley applies for a writ of certiorari quashing the adjudication determination. The grounds for the application are as follows:
1. On 15 April 2014, the respondent (Adjudicator) made a purported determination (Determination) under the Construction contracts Act with respect to a payment dispute arising between the other parties, namely, Forge Group Construction Pty Ltd (formerly Cimeco Pty Ltd) (In Liquidation) (Receivers and Managers Appointed) (Forge Group) and Pilbara Logistics (WA) Pty Ltd (together Contractor), on the one hand, and the applicant (Hamersley HMS), on the other, as to a progress payment claim 29 submitted by the Contractor to Hamersley HMS pursuant to a contract (Contract) dated 30 May 2011 between the Contractor and Hamersley HMS. In the Determination, the Adjudicator made jurisdictional errors, or there are errors of law on the face of the record by concluding that Hamersley HMS was not entitled to set off its estimated costs arising out of the termination of the Contract against the amount payable to the Contractor on progress payment certificate 29 in that:
(a) the Adjudicator failed, as he was required by s 31(2)(b) of the Construction Contracts Act, to determine on the balance of probabilities whether any party to the payment dispute was liable to make a payment to the other as at the date of his determination and instead made his determination as at the date of the application for adjudication;
(b) further, the Adjudicator failed, as he was required by ss 31(2)(b), 32(1)(a) and 32(2) of the Construction Contracts Act, to make his determination on the basis of the Contractor's application and its attachments and Hamersley HMS's response and its attachments and further submissions, information or documentation provided by the Contractor and Hamersley at the request of the Adjudicator;
(c) further or in the alternative, the Adjudicator disregarded, or failed to give any weight to, or failed to give adequate weight to, Hamersley HMS's evidence and in particular the evidence of Bernard Haak as he was required to do so by ss 31(2)(b), 32(1)(a) and 32(2) of the Construction Contracts Act;
(d) further or in the alternative, the Adjudicator (instead) had regard to his own speculative view of the cost complete the works under the Contract for which there was no evidence and thereby he had regard to matters ss 31(2)(b), 32(1)(a) and 32(2) of the Construction Contracts Act required him to disregard;
(e) further or in the alternative, the Adjudicator erroneously formed a view as to the cost to complete the work by reference to contract value, and treated contract value as if it was a true indicator of the cost to complete the works under the Contract (when there was no evidence which treated contract value as a benchmark) and thereby he had regard to matters ss 31(2)(b), 32(1)(a) and 32(2) of the Construction Contracts Act required him to disregard;
(f) further or in the alternative, the Adjudicator dealt with disputed or contested facts arising from Hamersley HMS's evidence and the Contractor's evidence by drawing unsubstantiated conclusions about that evidence (rather than concluding pursuant to s 31(2)(a)(iv) of the Construction Contracts Act that the Adjudicator should dismiss the application without making a determination of its merits on the basis that he was satisfied that it is not possible to fairly make a determination, in the face of those disputed or contested facts, because of the complexity of the matter);
(g) further or in the alternative, the Adjudicator had regard to and made his determination of the basis of his conclusions on the operation, effect and application of cl 50 of the Contract, which was not based on any information, document or submission relied on by the Contractor in its application and its attachments or response to a request of the Adjudicator, or relied on by Hamersley HMS in its response and its attachments or any response to a request of the Adjudicator, and thereby he had regard to matters ss 31(2)(b), 32(1)(a) and 32(2) of the Construction Contracts Act required him to disregard;
(h) further or in the alternative, the Adjudicator failed to give any reasons based on the evidence for his conclusion as he was required to do by s 36(d) of the Construction Contracts Act;
(i) further or in the alternative, the Adjudicator failed, as he was required by s 31(2)(b) of the Construction Contracts Act and s 553C of the Corporations Act 2001 (Cth), to determine on the balance of probabilities what sum, if any, was payable to the Contractor after setting off any sum due from the Contractor to Hamersley HMS against any sum due from Hamersley HMS to the Contractor; and
(j) further or in the alternative, the Adjudicator erroneously concluded that Hamersley HMS was not entitled to deduct unliquidated damages for breach of the Contract from amounts due to the Contractor, whereas on the proper construction of the Contract (cl 47(a) of the General Conditions) Hamersley HMS was entitled to such a deduction and thereby he failed to have regard to matters to which ss 31(2)(b), 32(1)(a) and 32(2) of the Construction Contracts Act required him to have regard.
2. Further, by disregarding, or failing to give weight to, or failing to give adequate weight to, Hamersley HMS's evidence and in particular the evidence of Mr Bernard Haak, the Adjudicator failed to accord procedural fairness to Hamersley HMS in that:
(a) the Adjudicator made findings without giving Hamersley HMS the opportunity to be heard on whether any of Hamersley HMS's evidence could or should be disregarded or ignored;
(b) further or in the alternative, the Adjudicator made findings as to credibility without giving Hamersley HMS the opportunity to be heard on the issue;
(c) further or in the alternative, the Adjudicator made findings disfavouring Hamersley HMS's evidence without giving Hamersley HMS an opportunity to test (by oral examination or otherwise) the credibility of that evidence; and
(d) further or in the alternative, the Adjudicator had regard to his own speculative view as to cost of completing the works under the Contract without giving Hamersley HMS the opportunity to be heard as to that view.
3. Further, by having regard to and concluding that cl 50 of the General Conditions of the Contract was the correct contractual procedure to be followed in the circumstances of the adjudication and concluding that cl 50 procedure had not been undertaken by the parties, the Adjudicator failed to accord procedural fairness to Hamersley HMS in that the Adjudicator construed the Contract and made factual findings without giving Hamersley HMS the opportunity to be heard on those issues.
4. Further, the Adjudicator's Determination was unreasonable or irrational and beyond the Adjudicator's jurisdiction:
(a) by reason of the matters set out in each one, or further and in the alternative, each one or more of the grounds 1(a) - (j) above;
(b) further or in the alternative, because, on disputed or contested facts arising from Hamersley HMS's evidence and the Contractor's evidence, the Adjudicator could not reasonably or rationally formed a view disfavouring Hamersley HMS's evidence; and
(c) further or in the alternative, the Adjudicator could not have reasonably or rationally failed to apply s 553C of the Corporations Act.
23 I repeat to the outline of the provisions of the Act in Hamersley Iron Pty Ltd v James.18
Judicial review of an adjudication: legal principles
24 I repeat the legal principles relating to the availability and grounds of judicial review of an adjudication in Hamersley Iron Pty Ltd v James.19
The disposition of the application
Introduction
25 In essence, the adjudicator said that he was not satisfied by the material relied on by Hamersley that Hamersley had established the set-off that it claimed. Thus, in the end, the adjudicator's decision was founded on his view of the sufficiency of the material relied on by Hamersley.
26 It is not in doubt that it was for Hamersley to satisfy the adjudicator of the counterclaims it asserted as giving rise to its set-off.
27 It is convenient to begin by outlining in more detail the material relied on by Hamersley.
28 Hamersley's submissions to the adjudicator in this respect were brief: six paragraphs, which outlined the effect of what was in Mr Haak's statutory declaration. I turn to that statutory declaration.
Mr Haak's statutory declaration
29 Mr Haak was the project manager of the HD4 project. He had been in the construction industry for 36 years. He had been involved with the HD4 Project since August 2012.
30 Since shortly after the administrators and the receivers and managers were appointed to Forge, Mr Haak had been engaged in the process of assessing the cost impact to Hamersley of the Contractor ceasing work.
31 Mr Haak stated that, after considering various options, Hamersley calculated that the total cost to complete the contract would be approximately $11.59 million. That calculation was set out in more detail in attachment BH2. The combined effect of Mr Haak's statutory declaration and attachment BH2 is that:
(a) the total cost to complete the contract was calculated by estimating the number of man-hours to complete the project, taking into account the productivity Forge had achieved when it was performing work;20
(b) most of the increased costs resulted from labour costs associated with the need for some personnel to stay on site considerably longer (at least four months) than what would have been the case;21
(c) the most significant costs were:
(i) the costs of engaging contractors ($7.42 million); and
(ii) project management personnel needing to stay on considerably longer ($2 million);22
(d) The estimate of the total costs of utilising another contractor was based on direct costs of labour estimated at $4.89 million; preliminary costs estimated at $1.22 million, said to be assumed to be 25% of direct costs and noting that Forge had already claimed all of its preliminary costs; materials costs estimated to be $0.5 million, based on an engineer's estimate of additional materials needing procurement; and contingency costs, at 15% of the direct costs, of $0.81 million;
(e) the $2 million in project management costs shown in BH2 was an estimate of the cost of project management personnel needing to remain on site for an additional period of at least four months; and
(f) $2.17 million was also claimed in relation to the engineering costs of regenerating drawings and other necessary documentation for the project.23 By letter of 24 February 2014, Hamersley had requested Forge to deliver the material to the company by 3 March 2014.24 As of 4 April 2014 that had not occurred.25 Mr Haak stated that even if the material was delivered, Hamersley was likely to incur additional cost, in an unspecified amount, in assessing the adequacy of the material provided.26
32 Two observations may be made:
(1) $2.17 million of the estimated cost of completion is based on an assumption that the drawings and other documents would not be delivered by Forge in circumstances where, despite one request, the material had not been delivered by 4 April 2014. If the drawings are delivered, the claim for $2.17 million would fall away, replaced only by a wholly unquantified claim for the cost of the time to review the documents; and
(2) a considerable amount of the additional cost is based on the asserted need for personnel to stay at the site for an additional period of four months longer. Why that is so is not explained. There is no detail explaining why the various relevant personnel would need to stay for an additional four months as a result of the Contractor not completing the work under the Contract.
33 The adjudicator was not convinced that Hamersley had sufficiently established additional costs of completion beyond its stated costs of engaging new contractors in the amount of $7.42 million. Thus, the adjudicator was not sufficiently satisfied in relation to the additional costs pertaining to the additional project management costs of $2 million and the additional engineering costs of $2.17 million. The observations I have just made suggest that there was room for the view that serious questions arose in relation those claims.
34 Mr Haak's statutory declaration also asserted a liquidated damages claim of approximately $3 million.27 Mr Haak outlines that:
(1) works under the Contract were initially broken down into 15 separable parts, each with its own date for acceptance. The Contractor failed to complete 14 of those separable parts by the relevant date for acceptance. Attachment BH3 to his declaration was said to be copies of letters from Hamersley, or more correctly, its agent, to the Contractor 'acknowledging' those failures;
(2) by the date the contract was terminated, the Contractor had still failed to complete the 14 remaining separable parts. By that date, liquidated damages had accrued totalling about $3 million; and
(3) the calculations regarding the Contractor's liability to pay liquidated damages were set out in attachment BH4.
35 The letters at attachment BH3:
(a) were sent by the Engineer under the contract pursuant to cl 9 of the general conditions. Clause 9 provides, in substance, that if the Engineer forms the opinion that the Contractor will not be able to complete the works, or any part of the works, in accordance with the approved construction schedule, then the Engineer may instruct the Contractor to work overtime and to furnish additional labour to maintain the approved construction schedule, without additional cost to Hamersley;
(b) in most cases, stated that identified separable parts had not been completed in accordance with the approved contract schedule; and
(c) stated that the Engineer reminded the Contractor that all Contract conditions still prevail as Hamersley had not relieved the Contractor of its obligation to complete the relevant separable portion, but made no specific mention of claims for liquidated damages.
36 Attachment BH4 listed a contractual completion date, and an actual or forecast completion date, together with a calculation of liquidated damages, capped at 5% of the contract price for that separable part.
37 There is very little explanation of the claim beyond what is to be derived from attachment BH4. Hamersley submits that the obvious inference to be drawn from BH3, BH4 and the contract terms is that the dates for completion of the separable parts were extended in accordance with the dates set out in the approved construction schedule referred to in the correspondence, and as set out in BH4.28 I accept that an assertion to that effect may be seen to be implicit in that material. However, it is fair to say that neither the Response nor the body of Mr Haak's statutory declaration gave any explanation or flesh to the claim for liquidated damages.
38 Moreover, more than $1.2 million of the liquidated damages claimed related to separable portions that were yet to be completed, in respect of which liquidated damages were estimated on the basis of a forecast completion date.
39 In these circumstances, it was open to the adjudicator to conclude, as he did,29 that there was no evidence before him that such a claim had ever been advanced, or that such damages were payable now. Further, his characterisation of the claim as 'a mere assertion of an approximate liability' was one that was open to him.
40 Hamersley's claim to a set-off acknowledged the need to credit approximately $14.3 million, being $6.13 million in the contract value of the residual work under the Contract, and $8.17 million recovered from the securities. Allowing for the unrecovered back charges of $1.58 million, that meant that Hamersley's claims for the cost to complete the HD4 Project and for liquidated damages would have to total more than $12.72 million before they would give rise to a credit in favour of Hamersley that could be set off against the sum the subject of the Payment Claim.
41 Taking into account the observations that I have made, it seems to me to have been open to the adjudicator to conclude, as he did, that he was not satisfied by Hamersley's material that the total of Hamersley's estimated cost to complete, and its claim for liquidated damages, was more than $12.72 million, with the result that Hamersley had not satisfied him that it was entitled to any amount by way of set-off.
Grounds 1(b) - (e) - The adjudicator's use of contract value, and treatment of Mr Haak's evidence
42 As has been seen, in assessing Hamersley's claim about the cost to complete, the adjudicator had regard to the amount of the contract sum that remained to be paid that was referable to the work remaining to be done. One of Hamersley's central criticisms of the adjudicator's reasons is that, in doing so, the adjudicator erred. Hamersley submits that:
(1) the adjudicator treated the value and price under the Contract of the remaining work as a benchmark, when there was no evidence to support that approach;
(2) there was no evidence one way or the other concerning the extent to which what Hamersley had paid the Contractor on progress claims was no more than it had earned;
(3) there was no evidence for the conclusion drawn by the adjudicator that the difference between the stated costs of engaging the new contractors ($7.42 million) and the residual value in the Contractor's contract ($6.13 million) should be ample to cover additional costs;
(4) in these ways, the adjudicator failed to make his determination on the basis of the parties' application, response and further submissions and their attachments, as he was required to do by the Act; and
(5) the adjudicator unjustifiably disregarded, or ignored, Hamersley's evidence.30
43 In my opinion, the adjudicator's approach in having regard to the contract value of the remaining work does not reveal error. In my view, the question is not whether a party had led evidence to the effect that the contract value for the remaining work was a benchmark against which Hamersley's estimate of the work to be done could be assessed. The scheme under the Contract involved a process of claim and verification of works done to date, assessed against the value of the contract sum. In my view, in that context, as a matter of logic and common experience, it was open to the adjudicator when assessing an estimate of the cost of completion to have regard to the remaining value of the works under the Contract as had been assessed by Hamersley's engineer.
44 Further, in my view, no error is revealed in the adjudicator's observations that Hamersley could reasonably be expected to have paid the Contractor on progress claims no more than it had earned to that point, and that there was no evidence to the contrary. It is true, as Hamersley submits, that there was no evidence one way or the other in relation to the extent to which Hamersley paid their Contractor any more than the Contractor had in fact earned. The adjudicator understood that. It was open to the adjudicator to infer, in the absence of evidence to the contrary, that given the contractual scheme and what was known of the parties, it was likely that there was a robust verification process in relation to progress claims.
45 The adjudicator's observation about the difference between the stated costs of engaging new contractors, of $7.42 million, and the residual value should not be read in isolation, or given an exaggerated significance. Moreover, as I have explained, the adjudicator's observation is to be understood in the context that the additional components of Hamersley's estimate, beyond the stated costs of engaging the new contractors, were open to the questions and criticisms already identified.31
46 As to the fifth submission, in my view the adjudicator did not ignore or disregard Mr Haak's evidence. The adjudicator took the material in Mr Haak's statutory declaration and its attachments into account, as part of his assessment of whether he was satisfied that Hamersley was entitled to the set-off it claimed, or to any set-off. However, he reached a conclusion contrary to that invited by Hamersley. In my view, that does not reveal any misconception of the function which he was performing or any misconstruction of the Act.
47 In essence, Hamersley's complaint is that the adjudicator should have been, but was not, satisfied by Mr Haak's evidence as to the likely cost to complete the remaining work on the HD4 Project. Where, as in this case, the complaint is really that the decision-maker failed to give something sufficient weight, the complaint is not one of failing to take into account a relevant consideration. Weight is a question for the decision-maker, unless weight provides 'a path by which a conclusion of unreasonableness may be reached'.32 For the reasons already given, and for reasons to be explained in dealing with ground 4, the adjudicator's decision was not manifestly unreasonable.
48 As I will explain, these conclusions mean that a number of Hamersley's other grounds of complaint fall away.
Ground 1(a) - Determination at the date of the application for adjudication, rather than at the date of the determination
49 Hamersley complains that the adjudicator misunderstood his function and misconstrued the Act in that he wrongly made his determination as at the date of the application for adjudication, rather than as at the date of the determination.33
50 I accept that the adjudicator determined the application primarily on the basis that he was required to determine the Contractor's entitlement as at the time of the application.34 I also accept that that approach reveals jurisdictional error in misconstruing the Act. The Act requires an adjudicator to determine the position at the date of his adjudication, not at the date of the application for adjudication. However, the adjudicator went on and determined the application on an alternative basis, in which he took into account and considered the evidence of Mr Haak.35 That involved assessing the relevant questions as at the date of the adjudication determination. Thus, any error revealed by the primary basis on which the adjudicator proceeded was not material to his conclusion, because he reached the same conclusion on an alternative basis that was not affected by that error.
Grounds 1(g) and 1(j) - The adjudicator's reference to cl 50 and cl 51 and his characterisation of Hamersley's claim
51 Hamersley makes various complaints about the adjudicator's findings that:
(1) the liabilities Hamersley was purporting to set off related to prospective loss not yet incurred; and
(2) the applicable procedure for effecting a final accounting following termination of the Contract for the Contractor's insolvency is that found in cl 51 and cl 50(c)(iii), so that only when the additional work has been done and certified by an engineer does a liability arise.36
52 It is not necessary to outline and consider Hamersley's various complaints in these respects. If Hamersley's complaints in these respects are made out, the adjudicator should have considered the merits of Hamersley's claim to be entitled to set off the amounts it asserted. The adjudicator did consider the merits of those claims, and rejected them.37 In those circumstances, Hamersley's complaints in these respects do not provide a ground to set aside the determination.
Ground 1(i) - Section 553C of the Corporations Act
53 Hamersley complains that the adjudicator found that his role did not include the undertaking of the account referred to in s 553C of the Corporations Act, and in so concluding fell into jurisdictional error in misconceiving his function.38
54 I adopt the outline of principles relating to s 553C of the Corporations Act set out in Hamersley Iron Pty Ltd v James.39
55 I accept Hamersley's submission that the adjudicator made a jurisdictional error in finding that it was not his function to conduct the account referred to in s 553C of the Corporations Act. The account to be taken under s 553C must be taken at any time it is necessary to apply the set off provision.40 In my view, in determining under the Act whether any party to the Payment Dispute was liable to make a payment and if so the amount to be paid, the adjudicator was obliged to apply s 553C. In doing so, the adjudicator was required to take an account of what was due from one party to the other in respect of their mutual dealings and only the balance of that account would be payable to the company.
56 However, I do not accept that the adjudicator's error in failing to apply s 553C affected, or may have affected, the conclusions that he reached on the evidence before him. As I have explained, contrary to Hamersley's submissions,41 the adjudicator considered the information in Mr Haak's statutory declaration and its attachments, and decided that he was not satisfied by it. The task of an adjudicator in applying s 553C is to take the account of what is due from each party to the other based on the material put before him in the adjudication. The material before the adjudicator failed to satisfy him that any sum was due from the Contractor to Hamersley. Thus, the adjudicator's findings as to the amount payable by Hamersley to Forge would not have been different if the adjudicator had accepted he was required to apply a set-off under s 553C.
Ground 1(h) - Adequate reasons?
57 Hamersley asserts that the adjudicator's reasons were inadequate.42 In support of its contentions that the reasons of the adjudicator were inadequate, Hamersley refers to authorities relating to reasons given by courts43 and by an arbitrator under the Commercial Arbitration Act 1984 (NSW).44 Statements made in these contexts cannot readily be translated into the different context of an adjudication under the Act.
58 To state the obvious, an adjudicator's reasons are not required to be expressed with the same degree of precision and detail as the reasons of a court. The statutory context of the Act influences what is required for an adjudicator's reason to be adequate. That includes that:
(a) an adjudicator is required to hand down a decision within 14 days; and
(b) an adjudicator's decision is interim in character and does not finally affect the rights of the parties.
59 In my opinion, the adjudicator sufficiently explained why he was not satisfied that Hamersley had established a set-off against the sum it was required to pay the Contractor. In effect, the adjudicator's reasoning was that:
(a) taking into account the need for Hamersley to credit $6.13 million for the work yet to be performed under the Contract, and $8.17 million recovered from the securities, and taking into account the unrecovered back charges of $1.58 million, Hamersley's claims for the cost to complete the Contract and for liquidated damages would have to total more than $12.72 million before they would give rise to a credit in Hamersley's favour that could be set off against the sum the subject of the Payment Claim;
(b) the residual value of the Contract sum was $6.13 million, and it was reasonable to expect that Hamersley had not overpaid the Contractor in respect of the amounts already paid under the Contract, and there was no evidence to the contrary;
(c) comparing the claimed figure of $11.59 million with that of the residual value of $6.13 million meant that Hamersley was asking him to accept that the additional cost of having the same work completed by others was $5.46 million, which he was unable to accept;
(d) the difference between the stated costs of engaging new contractors of $7.42 million and the residual value would, without clear proof of greater additional costs, appear ample to cover the changeover;
(e) there was no clear proof of the further costs claimed;
(f) the liquidated damages claim had not been advanced before the adjudication, and the evidence did not establish that such damages were payable now; and
(g) moreover, the claim for liquidated damages involved a mere assertion of an approximate liability and that was not sufficient.
60 That sufficiently reveals the reasons why the adjudicator was not satisfied as to Hamersley's set-off.
61 Specifically, Hamersley complains that the adjudicator did not provide adequate reasons for concluding that:
(a) the value of the remaining work under the Contract was an applicable benchmark; and
(b) Hamersley could reasonably be expected to have paid the Contractor no more than had been earned on the progress claims.
62 In my view, the adjudicator was not required to give distinct reasons for these steps or elements in his reasoning. To my mind, the failure to give reasons for these specific findings does not reveal jurisdictional error in the adjudication process.
Ground 1(f) - Failure to dismiss under s 31(2)(a)(iv)
63 Hamersley submits that:
(1) its estimated costs of completion and its claim for liquidated damages were, in the end, the key issues in the adjudication;
(2) its case in these respects was supported by Mr Haak's statutory declaration and its attachments;
(3) that evidence was not contradicted by any other evidence;
(4) procedural fairness required the adjudicator to hold an oral hearing before rejecting or making adverse findings about Mr Haak's evidence; and
(5) in the circumstances, it must be inferred that the adjudicator did not give any, or any proper, consideration to the application of s 31(2)(a)(iv), in that, acting properly, the adjudicator could not have been satisfied that it would be possible to make a fair determination.45
64 I do not accept the last two of these propositions.
65 I am not persuaded that procedural fairness required that the adjudicator hold an oral hearing before determining whether the material relied upon by Hamersley was sufficient to satisfy him in relation to its claimed set-off. The content of the requirements of procedural fairness depend upon the statutory framework, and all of the circumstances of the case.46 Regard must be had to the character and consequences of an adjudication in determining the content of procedural fairness in the present context. An adjudication determination does not finally determine substantive legal rights. Under s 31(2), an adjudicator is required to give a decision, with reasons, within 14 days of service of the response. It was for Hamersley to provide to the adjudicator material which satisfied him in relation to the claims it sought to set off against the Payment Claim. In my opinion, in the circumstances of this case, it was open to the adjudicator to determine the application as he did, without holding an oral hearing.
66 It is to be borne in mind that the jurisdictional facts in s 31(2)(a) are jurisdictional facts in the wide sense.47 I am not satisfied that the reasons of the adjudicator reveal jurisdictional error in this respect. In particular, I am not satisfied that the only view open to the adjudicator was that the application for adjudication must be dismissed under s 31(2)(a)(iv).
Grounds 2 and 3 - Procedural fairness
67 Apart from the complaint contained in ground 1(f), Hamersley complains that the adjudicator failed to afford it procedural fairness in several respects.48
68 First, Hamersley submits that the reasons given by the adjudicator for 'disregarding' Mr Haak's evidence were matters which it could not have anticipated, and in respect of which it had no opportunity to provide information or make submissions. For the reasons that follow, I reject that submission.
69 Generally, procedural fairness does not require a decision-maker to invite comment on his or her evaluation of a person's case, including as to the evidentiary sufficiency of material relied on by the party. However the position may be different when the decision-maker's emphasis is one that could not have reasonably been anticipated.49
70 These general principles regarding procedural fairness apply in the more demanding context of civil proceedings. The position is reinforced when regard is had to the specific context of an adjudication. In this respect, I repeat what I said at [65].
71 In the adjudication Hamersley asserted a set-off in answer to the Contractor's claim. It was for Hamersley to satisfy the adjudicator that the Contractor owed it the $1.87 million claimed by Hamersley. It was the task of the adjudicator to, and it was to be expected that he would, scrutinise the material advanced by Hamersley in support of its set-off and determine whether he was satisfied by it. The starting point, in my view, is that, in the setting of the summary and interim adjudication process, procedural fairness does not require the adjudicator to raise with a party the matters that cause the adjudicator to doubt whether that party has satisfied its onus of establishing a claim. Only where the grounds of rejection of a claim are conspicuously unable to have been reasonably anticipated would procedural fairness require an adjudicator to disclose to a party the contemplated grounds for rejecting the sufficiency of the evidentiary material proffered by the party.
72 Part of the adjudicator's reasoning of which Hamersley complains was the adjudicator's adoption of the value of the work remaining under the Contract as a relevant consideration in assessing whether he was satisfied in relation to Hamersley's claim for its estimated costs to complete. As I have said, the scheme under the Contract involved a process of claim and verification of works done, assessed against the value of the Contract sum. In that context, as a matter of logic and common experience, one way of assessing Hamersley's estimate was to take into account the remaining value of the works under the Contract, together with the additional costs that would follow from a new contractor being engaged. Such an approach was one that could reasonably have been anticipated. Procedural fairness did not require the adjudicator to put Hamersley on notice that he was considering using the remaining Contract value in assessing Hamersley's claim for estimated completion costs.
73 Similarly, it was to be expected that the adjudicator would critically assess the material put forward by Hamersley to sustain its claim for liquidated damages of approximately $3 million. A conclusion that that material was very general and assertive in character, did not reveal any previous making of such claims, and involved elements of estimation regarding the future, was one that could have been anticipated.
74 Secondly, Hamersley submits that procedural fairness required that before the adjudicator made adverse findings about the evidence of Mr Haak he should have required some form of oral hearing, and the failure to do so resulted in a breach of the requirements of procedural fairness. For the reasons given in relation to ground 1(f), in the circumstances of the case, and in the statutory setting in which the adjudicator acted, I am not persuaded that procedural fairness required the adjudicator to hold an oral hearing before determining the adjudication application as he did.
75 Thirdly, Hamersley submits that the adjudicator rejected its claim for contractual set-off on the basis that the correct procedure was under cl 50(c)(iii) and cl 51, when that had not been raised against it by the Contractor, and when Hamersley could not have anticipated such an approach.
76 If the approach taken in this respect by the adjudicator had been of determinative significance then I think there would be merit in Hamersley's complaint. However, in circumstances where, in any event, the adjudicator considered and determined the merits of Hamersley's claim to a set-off by reference to Mr Haak's statutory declaration and attachments, in the distinctive statutory setting of an adjudication, I am not satisfied that procedural fairness required the adjudicator to give Hamersley an opportunity to deal with his view that the contractual position was governed by cl 50 and cl 51.
77 Further, if I am wrong in this respect, it seems to me that this is a case in which any breach of the requirements of procedural fairness could not possibly have made any difference to the result.50 That is because if the adjudicator had given Hamersley an opportunity to put submissions on the point, and if the adjudicator had been persuaded by Hamersley's submissions, he would have gone on to consider the merits of Hamersley's claim to a set-off. That is precisely what the adjudicator did, and he determined it adversely to Hamersley.
78 For these reasons I would not set aside the determination on grounds 2 or 3.
Ground 4 - Unreasonableness or irrationality
79 Ground 4 asserts that the adjudicator's determination was unreasonable or irrational, in effect, by virtue of the various matters referred to in ground 1.
80 I repeat what is said in Hamersley Iron v James.51
81 In my opinion, the adjudicator's decision was not manifestly unreasonable in any relevant sense. It had an evident and intelligible justification; it was not irrational. The view adopted by the adjudicator of the material relied on by Hamersley was one that was, in my opinion, open to him. I refer to what I have said under the heading of Mr Haak's statutory declaration.52
Conclusion on application to set aside the determination
82 For these reasons, I am not satisfied that the adjudication determination should be set aside on any ground.
83 That brings me to the question of whether leave to enforce the adjudication determination should be granted.
Application for leave to enforce
84 Forge seeks leave under s 43 of the Act to enforce the adjudicator's determination.
85 The general principles relevant to s 43 of the Act are outlined in Hamersley Iron Pty Ltd v James.53
86 The issues in relation to whether leave should be granted are substantially identical to the issues arising on Forge's application for leave to enforce the determination in CIV 1810 of 2014,54 the subject of the decision in Hamersley Iron Pty Ltd v James.55
87 Hamersley contends that:
(1) the material before this court demonstrates that it has an arguable case, giving rise to a serious question to be tried, of a counterclaim against Forge for an amount that substantially exceeds the amount of the Adjudicated Sum;
(2) its counterclaim is, notwithstanding that it is contingent and partly unliquidated, a mutual dealing for the purposes of s 553C of the Corporations Act 2001 (Cth);
(3) section 553C operated as at the date of the administration to mean that the Adjudicated Sum was one of the entries in the account required to be taken, and Hamersley's contingent partly unliquidated counterclaim was another entry in that account. Only the balance due after the taking of that account is payable. The balance lies in favour of Hamersley, or there is at least a serious question to be tried in that respect; and
(4) in those circumstances, leave to enforce the adjudication determination should be refused.
88 Forge disputes all of these assertions. More specifically, it contends that:
(1) as to Hamersley's first contention, Hamersley has failed to establish a serious question to be tried as to its counterclaim, because there is no serious question to be tried that the scope of the works the subject of the new contract Hamersley entered into was the same as the scope of the works the subject of the Contract.56 That was the sole challenge to Hamersley's first contention;57
(2) as to Hamersley's second and third contentions, Hamersley's counterclaim is of such a nature that s 553C does not apply to it. In particular, the counterclaim, or a substantial majority of it, did not exist as at the relevant date, namely the date of administration, and the claim is unquantified;58 and(3) further or alternatively to (2), there is no mutuality of beneficial interest between Forge's claim to the Adjudicated Sum and Hamersley's counterclaim. That is because Forge had earlier granted a charge in favour of ANZ Ltd, having the effect of assigning beneficial title to Forge's debts, including its claims against Hamersley, to ANZ.59
89 In Hamersley Iron Pty Ltd v James60 I explained the reasons why, with one qualification, I accept Hamersley's contentions, and do not accept Forge's responsive contentions.
90 The parties' first contentions relate to the sufficiency of the evidence in support of Hamersley's counterclaims and so require analysis of the evidence in these proceedings. Otherwise, my reasons in Hamersley Iron v James for accepting Hamersley's second, third and fourth contentions, and rejecting Forge's second and third contentions, are not sensitive to the specific evidence and apply equally to those contentions in these proceedings, and I adopt that reasoning in these proceedings.
91 I note that, Hamersley in its written submissions challenged Forge's application on the ground of irregularity. This irregularity was said to result from the failure to join Pilbara. Prior to the hearing the solicitors for Hamersley indicated that Hamersley would not pursue this submission. Consequently, I say no more about that point.
92 I turn to the merits of the parties' competing first contentions, relating to the evidence in support of Hamersley's counterclaim.
Hamersley's counterclaim
93 Hamersley relies on the affidavit of Bernard Haak sworn 27 August 2014 and its voluminous annexures, to demonstrate a serious question to be tried in relation to its counterclaim against Forge.
94 I begin with Mr Haak's summary of Hamersley's claims, together with the amounts that Hamersley acknowledges it owes to Forge. The position is summarised as follows:
|
| $16,000,496.00 |
|
| $2,999,949.00 |
|
| $1,583,000.00 |
| $20,583,454.00excl GST | |
| ||
| $3,998,812.00 | |
| $8,173,520.00 | |
| $2,138,733.00 | |
| $6,272,380.00 excl GST |
95 It can be seen from this summary that Hamersley claims that after deducting all amounts owed by Hamersley to Forge, including the Adjudicated Sum, the total amount owed by Forge to Hamersley is an amount in excess of $6.2 million.
96 The largest component of Hamersley's counterclaim is the claim for damages under general contract law for Forge's repudiation in dismissing its workforce, Hamersley having terminated the Contract on 24 February 2014. Hamersley claims its cost of completing the remaining work under the Contract, less the price it would have paid to Forge under the Contract for that work.
97 Mr Haak says the following in relation to Hamersley's counterclaim for its cost to complete the works:
(a) after consideration and analysis, the project team determined that the most efficient approach to completion of the works was for Hamersley to take on the project management role and to engage contractors directly to complete the works;61
(b) with limited exceptions, the works are now substantially complete;62
(c) Hamersley claims the actual cost of completing the works, assessed at $16,000,496, of which $13,001,967 has been paid and $14,384,536 has been incurred;63
(d) the total cost claimed comprise $10,593,348 in direct contractor costs and $5,407,149 in project management costs and associated expenses;64
(e) attachment BH3 is a schedule setting out the work performed and associated costs claimed for completion of the works up to 15 August 2014;65
(f) attachment BH4 includes voluminous documents relating to the incurring by Hamersley of the contractor costs;66
(g) among the documents contained in attachment BH4 are the contracts entered into with the four contractors who performed the substantial majority of the work necessary to complete the works under the Contract;67
(h) the internal documents known as Capital Appropriation Requests (CAR) are also included in attachment BH4. All of the CARs 'were needed to fund the additional cost resulting from [Forge] abandoning the work';68
(i) three of the four contracts were entered into following Forge's collapse. Hamersley already had a contract with one of the contractors, but that contract needed to be extended to allow for additional work as a result of Forge abandoning the HD4 Project. Only the costs of the additional work performed by that contractor as a result of Forge's abandonment of the Contract are included in the costs claimed.69
98 Forge contends that Hamersley has failed to establish a serious question to be tried as to its counterclaim for the cost of completion, because there is no serious question to be tried that the scope of the works the subject of the new contracts Hamersley entered into is the same as the scope of the works the subject of the Contract. I do not accept that submission. Although expressed in general terms, for the purpose of establishing a serious question to be tried, Mr Haak's evidence that all of the CARs relating to the additional work were needed to fund the additional cost resulting from Forge's abandoning of the works is sufficient.70 In this respect it is to be borne in mind that even if, ultimately, some part of the additional work claimed by Hamersley were found to have a scope wider than the scope of work under the Contract, that in itself would not prevent Hamersley's counterclaim from exceeding the Adjudicated Sum. As formulated, Hamersley's counterclaim exceeds the Adjudicated Sum by more than $6.2 million.
99 Hamersley also makes a claim for liquidated damages. The claim for liquidated damages arises under General Condition 63(b)71 and under pt 10 and pt 11 of the Schedule to the Contract.72
100 Forge did not address any separate submissions to the question of the sufficiency of Hamersley's evidence relating to the liquidated damages claim for the purposes of Forge's application to enforce the determination. Mr Haak's evidence in support of the liquidated damages claim is substantially similar to the evidence in his statutory declaration in the adjudication before Mr Davis, although significantly less of the claims now made relate to forecast completion dates, as distinct from actual completion dates. The adjudicator was not satisfied by Mr Haak's statutory declaration, and I have found that that conclusion was open to him. However, the question for present purposes is a different question. For present purposes, the question is whether the material establishes a serious question to be tried, not whether its sustains a finding of liability on the balance of probabilities.
101 I am satisfied by the evidence of Mr Haak that there is a serious question to be tried in relation to Hamersley's counterclaim for liquidated damages in the sum claimed of $2,999,949.
102 Hamersley also counterclaims an amount of $1,583,000 in respect of charges for flights and accommodation incurred by Hamersley, and reimbursable by Forge under the Contract. Hamersley's claim arises under General Condition 2173 and Appendix A - Site Specific Requirements.74 Mr Haak says75 that when Forge abandoned the works there were back charges owed to Hamersley totalling $1.583 million. They comprised accommodation costs of $1.1 million and the costs of flights of $473,000.
103 Forge did not make any submissions in relation to this aspect of Hamersley's counterclaim. I am satisfied that Hamersley has demonstrated a serious question to be tried in relation to its counterclaim for accommodation and flight back charges in the amount claimed of $1,583 million.
104 For these reasons I am satisfied that Hamersley has an arguable case, giving rise to a serious question to be tried, in relation to each of the components of its counterclaim against Forge, giving rise to a total counterclaim that substantially exceeds the amount of the Adjudicated Sum.
The exercise of discretion under s 43 of the Act
105 In my view, in those circumstances, for the reasons given in Hamersley Iron Pty Ltd v James76 s 553C is engaged in this case, with the result that leave should not be given to enforce the adjudication determination. Rather, the application for leave to enforce the adjudication determination should be stayed pending resolution, by legal proceedings or by agreement, of Hamersley's counterclaim.
Conclusion
106 For these reasons I would:
(1) dismiss Hamersley's application to set aside the adjudication determination; and
(2) stay Forge's application for leave to enforce the adjudication determination.
107 I will hear from the parties as to the orders that should be made, and as to costs.
1Hamersley Iron Pty Ltd v James[2015] WASC 10.
2 Affidavit of Scott Michael Jackson sworn 26 June 2014 669.
3 Jackson affidavit 679.
4 Adjudication application [6.14] - [6.23].
5 Adjudication application [6.26].
6 Response [3.37] - [3.52].
7 Response [4.1] - [4.6]; Jackson affidavit 937 and following.
8 Statutory declaration of Bernard Haak dated 4 April 2014 [16].
9 Haak statutory declaration [21].
10 Adjudication reasons [12].
11 Adjudication reasons [13].
12 Adjudication reasons [15].
13 Adjudication reasons [16].
14 Adjudication reasons [17].
15 Adjudication reasons [18].
16 Adjudication reasons [19].
17 Adjudication reasons [20] - [21].
18Hamersley Iron v James [33] - [46].
19Hamersley Iron v James [47] - [61].
20 Haak statutory declaration [16].
21 Haak statutory declaration [17].
22 Haak statutory declaration [17].
23 Haak statutory declaration [18], Annexure BH2.
24 Haak statutory declaration [18], Annexure BH1.
25 Haak statutory declaration [19].
26 Haak statutory declaration [19].
27 Haak statutory declaration [21] - [24].
28 Hamersley's Reply submissions dated September 2014 [16].
29 Adjudication reasons [20].
30 Grounds 1(b), (c), (d) and (e); Hamersley's submissions dated 1 August 2014 [33] - [36], [77] - [81]; Hamersley's reply submissions dated September 2014 [19], [20], [33], [34], [36].
31 See [32] - [33].
32Minister for Immigration and Citizenship v Li [2013] HCA 18; (2013) 249 CLR 332 [74]; Minister for Aboriginal Affairs v Peko-WallsendLtd [1986] HCA 40; (1986) 162 CLR 24, 41.
33 Ground 1(a); Hamersley's submissions dated 1 August 2014 [31], [75] - [76], [99] - [100]; Hamersley's reply submissions dated September 2014 [62] - [76].
34 Adjudication reasons [19].
35 Adjudication reasons [20] - [21].
36 Ground 1(g), 1(j); Hamersley's submissions dated 1 August 2014 [103] - [109]; Hamersley's reply submissions dated September 2014 [77] - [80].
37 Adjudication reasons [20] - [21].
38 Ground 1(i); Hamersley's submissions dated 1 August 2014 [30], [91] - [102]; Hamersley's reply submissions dated September 2014 [53] - [61].
39Hamersley Iron v James [134] - [143].
40Stein v Blake [1996] 1 AC 243, 253; MK Builders Pty Ltd v 36 Warrigal Road Pty Ltd [2014] VSC 149 [35], [36].
41 Hamersley's submissions dated 1 August 2014 [99] - [100].
42 Ground 1(h); Hamersley's submissions dated 1 August 2014 [82] - [84]; Hamersley's reply submissions dated September 2014 [39] - [44].
43Mount Lawley Pty Ltd v Western Australian Planning Commission [2004] WASCA 149; (2004) 29 WAR 273; Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430.
44Westport Insurance Corporation v Gordian Runoff Ltd [2011] HCA 37; (2011) 244 CLR 239.
45 Ground 1(f); Hamersley's submissions dated 1 August 2014 [85] - [90]; Hamersley's reply submissions dated September 2014[45] - [52].
46Re Minister for Immigration and Multicultural Affairs; Ex parte Lam [2003] HCA 6; (2003) 214 CLR 1 [37]; Mijatovic v Legal Practitioners Complaints Committee [2008] WASCA 115; (2008) 37 WAR 149 [3] - [4].
47 See Hamersley Iron v James [52] - [54].
48 Hamersley's submissions dated 1 August 2014 [116] - [121].
49Commissioner for Australian Capital Territory Revenue v Alphaone Pty Ltd (1994) 49 FCR 576, 591 - 592; McKay v Commissioner of Main Roads [2013] WASCA 135 [157]; Apache Northwest Pty Ltd v Agostini [No 2] [2009] WASCA 231 [217] - [218].
50Stead v State Government Insurance Commission (1986) 161 CLR 141, 147.
51Hamersley Iron v James [108] - [111].
52 See [33] - [41].
53Hamersley Iron Pty Ltd v James [116].
54 ts 53.
55 See [117] - [120].
56 Forge's reply submissions dated 22 September 2014 [19] - [22]; ts 24 - 26, 39 - 40.
57 ts 42 - 43.
58 ts 10 - 11, 73 - 74.
59 Forge's reply submissions dated 22 September 2014 [26] - [31]; ts 70 - 71.
60Hamersley Iron Pty Ltd v James [122] - [173].
61 Haak affidavit [11] - [12].
62 Haak affidavit [13].
63 Haak affidavit [13].
64 Haak affidavit [14].
65 Haak affidavit [15].
66 Haak affidavit [15].
67 Haak affidavit [15].
68 Haak affidavit [17(a)].
69 Haak affidavit [18].
70 Haak affidavit [17] - [18].
71 Jackson affidavit 97.
72 Jackson affidavit 39 - 42.
73 Jackson affidavit 76 - 77.
74 Jackson affidavit 502 - 503.
75 Haak affidavit [21].
76Hamersley Iron Pty Ltd v James [134] - [144] and [170] - [173].
19
2