INPEX Operations Australia Pty Ltd v JKC Australia LNG Pty Ltd
[2017] NTSC 45
•15 June 2017
CITATION: INPEX Operations Australia Pty Ltd & Anor v JKC Australia LNG Pty Ltd & Anor [2017] NTSC 45
PARTIES:INPEX OPERATIONS AUSTRALIA PTY LTD (ABN 48 150 217 262)
and
ICHTHYS LNG PTY LTD
(ACN 150 217 299)
v
JKC AUSTRALIA LNG PTY LTD
(ABN 14 154 383 409)
and
DAVIS, Hugh
JURISDICTION: SUPREME COURT OF THE NORTHERN TERRITORY EXERCISING TERRITORY JURISDICTION
FILE NO:6 of 2017 (21706782)
DELIVERED ON: 15 June 2017
DELIVERED AT: Darwin
HEARING DATE: 28 April 2017
JUDGMENT OF: KELLY J
CATCHWORDS:
ADMINISTRATIVE LAW – Judicial review – Jurisdictional error – Natural justice – Substantial failure to comply with requirements of – No opportunity to address critical issues not raised by parties - Deprived of possibility of a successful outcome
BUILDING AND CONSTRUCTION – Security of payments – Determination – Validity of - Essential requirements – Natural justice - Act bona fide – Construction Contracts (Security of Payments) Act 2004 (NT)
BUILDING AND CONSTRUCTION – Security of payments – Adjudication – Jurisdiction of adjudicator – Whether the type of payment dispute in the application delimits the jurisdiction of adjudicator - Construction Contracts (Security of Payments) Act 2004 (NT) ss 8, 28, 33(1)
BUILDING AND CONSTRUCTION – Security of payments – Adjudication – Whether failure to undertake statutory task - Construction Contracts (Security of Payments) Act 2004 (NT) s 33(1)(b)
Construction Contracts (Security of Payments) Act 2004 (NT) ss 8, 20, 28, 29(2)(c), 33, 34, 48(3), sch cl 6(2)
Stead v SGIO (1986) 161 CLR 141 – applied
AJ Lucas Operations Pty Ltd v Mac-Attack Equipment Hire Pty Ltd (2009) 25 NTLR 14; Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421; Hall Contracting Pty Ltd v Macmahon Contractors Pty Ltd & Anor (2014) 34 NTLR 17; Independent Fire Sprinklers (NT) Pty Ltd v Sunbuild Pty Ltd (2008) 24 NTLR 15; Trans Australian Constructions Pty Limited v Nilsen (SA) Pty Ltd and Another (2008) 23 NTLR 123; Zurich Bay Holdings Pty Ltd v Brookfield Multiplex Engineering and Infrastructure Pty Ltd [2014] WASC 40 – followed
Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 1 KB 223 – referred to
REPRESENTATION:
Counsel:
Plaintiffs:C Colvin SC with A Wyvill SC and W Roper
First Defendant: M Solomon SC with B Millar
Solicitors:
Plaintiffs:Paul Maher Solicitors
First Defendant: De Silva Hebron
Judgment category classification: B
Judgment ID Number: Kel1713
Number of pages: 32
IN THE SUPREME COURT
OF THE NORTHERN TERRITORYINPEX Operations Australia Pty Ltd & Anor v
JKC Australia LNG Pty Ltd & Anor [2017] NTSC 45
No. 6 of 2017 (21706782)
BETWEEN:
INPEX OPERATIONS AUSTRALIA PTY LTD
(ABN 48 150 217 262)
First Plaintiff
AND:
ICHTHYS LNG PTY LTD
(ACN 150 217 299)
Second Plaintiff
AND:
JKC AUSTRALIA LNG PTY LTD (ABN 14 154 383 409)
First Defendant
AND:
DAVIS, Hugh
Second Defendant
CORAM: KELLY J
REASONS FOR JUDGMENT
(Delivered 15 June 2017)
The plaintiffs (“INPEX”) are joint venturers in the Ichthys Gas Field Development Project (“the Project”). The Project consists of offshore facilities, a pipeline from the central processing facility off the Western Australian coast to the onshore processing facilities at Bladin Point near Darwin and onshore facilities at Bladin Point which will include two LNG trains, LPG and condensate plants, product storage tanks, administration facilities and a materials off-loading facility and jetty.
By a contract dated 9 February 2012 (“the EPC Contract”),[1] INPEX engaged the first defendant (“JKC”) to provide engineering, procurement, supply, construction and commissioning of the onshore facilities for the Project for a contract price in the order of USD 13 billion.
There are various categories of works to be performed under the EPC Contract. They are variously categorised as Lump Sum Works, Re-measurable Works or Reimbursable Works. This proceeding involves a dispute over payment claims in the Re-measurable Works category in relation to module fabrication packages under the EPC Contract. (There were eight separate module fabrication packages for the construction of pieces of infrastructure for the Project which JKC sub-contracted to four sub-contractors under four sub-contracts referred to by the parties as FAB-1, FAB-2, FAB-3 and FAB-4.)
On 3 November 2016, JKC issued two invoices to INPEX in respect of part of the Re-measurable Works, one for USD 205,825,452.00 and a separate invoice for GST on that amount. The description of the works for which payment was claimed in the first invoice was “Remeasure final subcontractor account for all remeasure works actually performed by FAB1, FAB2, FAB3 and FAB4 subcontractors”.
On 24 November 2016, INPEX issued a letter disputing USD 133,501,780.00 of the first invoice and USD 17,510,093.00 of the GST claimed.
On 3 January 2017, JKC served on INPEX an application under s 28 of the Construction Contracts (Security of Payments) Act 2004 (NT) (“the Act”) for adjudication of the resulting dispute (“the Application”). The Application did not seek a determination in relation to the entire disputed amount. It sought a determination that the amount of USD 83,933,837.00 was owing by INPEX to JKC on the ground that, although it claimed an entitlement to the whole amount, the balance of the amounts claimed were not readily amenable to adjudication under the Act.
The second defendant, Hugh Davis (“the Adjudicator”), was appointed to adjudicate the payment dispute.
Before serving its response, INPEX raised a potential jurisdictional issue with the Adjudicator arising out of the fact that JKC’s payment claim was contained in two invoices and the Adjudicator invited and received submissions on that issue. (That jurisdictional issue is not relevant to this proceeding.)
On 12 January 2017, the Adjudicator applied for, and the Construction Contracts Registrar granted, an extension of time within which to make a determination.
INPEX served its response to the Application (“the Response”) on 17 January 2017.
The Application comprised 34 volumes of material. It:
(a)identified the EPC Contract as the relevant construction contract and identified relevant parts of the EPC Contract;
(b)relied on the two 3 November 2016 invoices as constituting the payment claim;
(c)asserted that the payment dispute arose on 24 November 2016, the date of the INPEX letter disputing part of the claim;
(d)claimed USD 83,933,837.00 only of the disputed amount of USD 133,501,780.00 plus GST; and
(e)provided supporting documents going to the merits of its claims.
The Application did not assert that INPEX was precluded contractually or otherwise from disputing the merits of JKC’s claims.
In the Response, INPEX:
(a)accepted that the EPC Contract was the relevant construction contract;
(b)disputed the jurisdiction of the Adjudicator on a number of grounds not relevant to this proceeding; and
(c)disputed in detail the merits of JKC’s claimed entitlement to the USD 83,933,837.00.
By email to the parties on 25 January 2017 the Adjudicator sought further submissions from the parties in the following terms:
Gentlemen
I have had the opportunity to review the parties’ submissions and the EPC Contract. A possible issue arises with respect to uncertainty in the payment terms of the EPC Contract. The question is: whether the provisions implied into deficient construction contracts by section 20 of the NT Act should or should not be imported into the EPC Contract?
I invite both parties to address this question, in no more than two pages, by close of business Friday, 27 January 2017. Submissions from both parties must be strictly confined to the question raised. Please provide electronic copies of relevant authorities.
The solicitors for JKC (DLA Piper) responded initially on 27 January 2017 [at 9:53am] (formal parts omitted): “We would be grateful if you could clarify which part of the payment terms of the EPC Contract give rise to a possible issue with uncertainty?”
The Adjudicator sent an email to the solicitors for both parties [at 11:12am on 27 January 2017] advising:
Article 34.2(a) of the Contract provides that, if Inpex disputes a payment claim, it must notify JKC within 21 days of receipt specifying in writing the items to which Inpex objects and the reasons for its objections. If such notice is given, JKC is required to either:
·re-submit a single revised payment claim taking into account Inpex’s objections; or
·promptly re-submit to Inpex two new separate payment claims, one for the undisputed part of the original invoice and the other for the revised part of the original invoice.
Relevantly, both options require JKC to produce a revised payment claim.
Article 34.2(b) of the Contract provides that if the revised payment claim is disputed wholly or in part, the procedure in Article 34.2(a) must be repeated until the parties have reached agreement as to the part of the invoice that is in dispute.
I have formed a preliminary view, that due to the circular and repetitious nature of Articles 34.2(a) and 34.2(b), Inpex could indefinitely delay payment. The question then arises: whether the provisions implied into deficient construction contracts by section 20 of the Act should or should not be imported into the EPC Contract to cure the uncertainty? [emphasis in original]
The solicitors for both parties responded submitting that there was no basis for importing the implied provisions into the EPC Contract pursuant to s 20 of the Act.
The solicitors for JKC wrote:
Adjudications 51-17-01: JKC Australia LNG Pty Ltd (Applicant) – Further Submissions
1. We confirm your preliminary view that, due to the circular and repetitious nature of Articles 34.2(a) and 34.2(b), the Respondent could indefinitely delay payment. However, we submit that importing the implied provisions set out in Division 5 of the Schedule to the Construction Contract Act 2004 (NT) (Act) is not necessary as:
1.1 there is no uncertainty about the period ‘by when payment must be made’ as per section 20 of the Act;
1.2 the application of the implied provisions would not make the circumstances materially different; and
1.3 any circularity in the process is cured by the application of the adjudication regime under the Act.
No Uncertainty
2. We respectfully submit that there is no uncertainty as to when payment must be made as section 11.4.4 of Exhibit B on the EPC Contract clearly states that ‘Contractor shall issue monthly sets of invoices on the first day of each month with payment from Company to Contractor due and payable in 45 days.’
3. Therefore, it is clear that the undisputed portion of a payment claim must be paid within 45 days of the payment claim being issued. This is a written provision dealing with the time for payment and therefore there is no requirement to imply the terms of Division 5 of the Schedule pursuant to section 20 of the Act.
4. The disputed portion would be withheld regardless of whether the payment procedure ended there or further revised invoices were to be submitted by the Applicant.
Circumstances Not Materially Different
5. In the event that the provisions of the Schedule, Division 5 of the Act were imported into the Contract, the practical effect of those provisions would be as follows:
5.1 if the Respondent disputes part or all of a payment claim, the Respondent is required to issue a notice of dispute to the Applicant, and pay the undisputed portion of that payment claim, within 14 days of receiving the payment claim. The Applicant then has the right to make an application to adjudicate the payment dispute upon receiving the notice of dispute [Schedule, Division 5, s 2(a)]; or
5.2 if the Respondent does not dispute the payment claim, it must pay the entire amount claimed under the payment claim within 28 days of receiving the payment claim [Schedule, Division 5, s 2(b)]. If payment is not received within this time, then the Applicant has the right to make an application to adjudicate the payment dispute.
6 Under the existing terms of the Contract:
6.1 if the Respondent disputes part or all of a payment claim, the Respondent issues a notice of objection to the Applicant within 21 days of receiving the payment claim [Article 34.2(a) of the Contract], and pays the undisputed portion within 45 days of the payment claim being issued. The Applicant then has the right to make an application to adjudicate the payment dispute upon receiving the notice of objection; or
6.2 if the Respondent does not dispute the payment claim, it must pay the entire amount claimed under the payment claim within 45 days of receiving the payment claim. [Article 34.3(a) of the Contract] If payment is not received within this time, then the Applicant has the right to make an application to adjudicate the payment dispute.
7In practical terms, there is no difference between the Respondent rejecting the disputed portion outright or engaging in a procedure that indefinitely delays payment as, either way, the disputed portion is withheld from the Applicant and the Respondent has disputed part of the payment claim for the purposes of section 8 of the Act, entitling the Applicant to bring an adjudication application.
The Act Cures Circularity and Repetition
8The Act cures the repetitious and circular process by enabling the Applicant to bring an adjudication application. The cycle is ended upon a determination being made by an adjudicator as:
8.1 Section 40 makes the determination [to pay] binding;
8.2 Section 41(1) makes the party liable to pay the determined amount on or before the date stipulated in the determination; and
8.3 Section 42(2) confirms that the payment is an advance towards the total amount payable under the contract.
9Therefore, a fixed and firm date for payment arises.
10The EPC Contract provisions, especially Article 34, provide the mechanism by which JKC claims entitlement under the EPC Contract and is paid its entitlements for the obligations it performs under the EPC Contract. The invoices are the vehicles by which payments are claimed, determined and effected. The fact that the EPC Contract prescribes additional steps that are superfluous to the payment regime, a regime that accords with the Act’s minimum requirements, is irrelevant to the determination of whether there was a valid payment claim and then a dispute arising from that claim.[2]
The solicitors for INPEX wrote:
2.INPEX submits that Article 34 of the EPC Contract contains enforceable written provisions about:
(a) when and how INPEX must respond to a payment claim by JKC; and
(b) by when a payment must be made,
and consequently, s 20 of the Act does not (and cannot) operate to imply into the EPC Contract the term contained in the Schedule, Division 5 of the Act (the Implied Term).
INPEX’s submissions went on to refer to a number of Western Australian authorities and then referred to the contractual provisions in question. They noted that s 20 provides that the provisions in the Schedule are implied in a construction contract that does not have a written provision about:
(a)when and how a party must respond to a payment claim made by another party; and
(b)by when a payment must be made.
They then pointed to the written provisions in the EPC Contract about both of those matters. [Article 34.2(a) of the EPC Contract provides that INPEX must notify JKC of any payment dispute within 21 days of receiving the claim. Article 34.3 provides that INPEX must pay any undisputed portion of a payment claim within 45 days from the date of issue.] The submissions went on to submit that, contrary to the Adjudicator’s preliminary view, the provisions of Article 34 are not uncertain.
The Adjudicator handed down his determination on 1 February 2017 (“the Determination”). He determined that “Inpex is liable to pay the applicant, JKC, USD 83,933,837.00” and went on to make provision for the payment of interest and fix a time for payment.
The basis of the Determination was that, contrary to the submissions of both parties, s 20 of the Act operated to imply into the EPC Contract the implied terms set out in Division 5 of the Schedule, specifically the implied term in cl 6(2) which provides:
(2) The party [who wishes to dispute a payment claim] must:
(a) within 14 days after receiving the payment claim:
(i)give the claimant a notice of dispute; and
(ii)if the party disputes part of the claim – pay the amount of the claim that is not disputed; or
(b)within 28 days after receiving the payment claim, pay the whole of the amount of the claim.[3]
The Adjudicator’s reasons for this decision as set out in the Determination (relevantly) are:
59.By email dated 25 January 2017, I notified the parties of the issue of uncertainty in the payment terms of the Contract and invited the parties to respond to the question of whether the provisions implied into deficient construction contracts by section 20 of the Act should or should not be imported into the Contract.
60.In its subsequent submissions, JKC contended the payment terms of the Contract were not uncertain and the implied provisions in the Schedule should not apply. Inpex contended the same but argued its position more comprehensively. Both parties’ submissions focused on the procedure under Option 2 in Article 34.2(a) and 34.2(b), but did not consider Option 1.[4] For the reasons that follow, in contending the implied provisions in the Schedule should not apply, both parties have misconstrued the Contract and the Act. Given the complexity of the statutory provisions and judicial authorities in issue this is understandable.
…
62.Under section 20 of the Act, to avoid the implication of terms set out in the Schedule, Division 5, all construction contracts must have written provisions about when and how a party is to respond to a claim for payment and the time by when a payment must be made. This ensures the parties to a contract, and the adjudicator, arbitrator or court in the event of a dispute, have clear written provisions about the process for responding to or disputing payment claims and when a payment must be made before it becomes due.
63.Section 3 of the Act sets out the object of the Act, which is “to promote security of payments under construction contracts” which is achieved by, inter alia, “providing mechanisms for the rapid recovery of payments under construction contracts”. Certainty in construction contract payment terms is essential to uphold the object of the Act. Where the payment terms of a construction contract are uncertain, the Act will intervene, rendering those terms void for uncertainty and implying the relevant terms from the Act.
…
68.As noted, on 24 November 2016 Inpex issued the Notice of Dispute, 21 days after the Payment Claim was lodged. I have no evidence Inpex issued a notice of dispute, compliant or otherwise, within 14 days after receiving the Payment Claim as required by clause 6(2)(a) of the Schedule. In the absence of any compliant notice of dispute and pursuant to clause 6(2)(b) of the Schedule, which was necessarily implied into the Contract, Inpex was obliged to pay the Payment Claim in full when payment fell due on 1 December 2016, that is 28 days from 3 November 2016. It failed to do so. As noted below, the obligation remains.
In this proceeding, INPEX seeks relief in the nature of certiorari to quash the Adjudicator’s Determination. Alternatively, INPEX seeks a declaration that the Determination is void and of no force and effect.
As both parties were (and are) agreed, the Adjudicator’s decision in the Determination that the implied terms in Division 5 of the Schedule were imported into the EPC Contract is plainly wrong, inter alia for the reasons set out in JKC’s submissions set out at [18] above and echoed in the submissions of INPEX’s solicitors summarised in the following paragraphs. However, that by itself does not mean that the decision is amenable to judicial review by this Court. The question is whether there is a valid determination under the Act or whether any error by the Adjudicator renders the Adjudicator’s Determination a nullity.
Section 48(3) of the Act provides:
Except as provided by subsection (1), [which provides for a limited and not presently relevant right of review by the Local Court] a decision or determination of an adjudicator on an adjudication cannot be appealed or reviewed.
It is uncontroversial that, in order for there to be a valid determination within the meaning of the Act which is immune from review by reason of s 48(3), the adjudicator must make a bona fide attempt to comply with the essential requirements of the Act, and there must be no substantial denial of procedural fairness. In Brodyn Pty Ltd v Davenport[5] Hodgson JA (with whom Mason P and Giles JA agreed) said (in a passage quoted in almost every decision of this Court relating to the Act):
What was intended to be essential was compliance with the basic requirements …, a bona fide attempt by the adjudicator to exercise the relevant power relating to the subject matter of the legislation and reasonably capable of reference to this power, and no substantial denial of the measure of natural justice that the Act requires to be given. If the basic requirements are not complied with, or if a purported determination is not such a bona fide attempt, or if there is a substantial denial of this measure of natural justice, then in my opinion a purported determination will be void and not merely voidable, because there will then not, in my opinion, be satisfaction of requirements that the legislature has indicated as essential to the existence of a determination.[6] [citations and references omitted]
An error of law in construing provisions of the Act which give the adjudicator his jurisdiction to make a determination will render a determination a nullity reviewable by this Court.[7] However, non-jurisdictional errors of law or fact made by an adjudicator in the process of making a bona fide attempt to carry out the functions conferred on him or her by the Act are not amenable to review by this Court. If the only complaint were that the Adjudicator had misconstrued the EPC Contract, then that would not, of itself, render the Determination a nullity, reviewable by the Court despite the provisions of s 48(3) unless it could be shown that the Adjudicator’s decision was unreasonable (in the Wednesbury[8] sense) or that there was a substantial failure to comply with the requirements of procedural fairness in the circumstances.[9]
Here, the plaintiff complains that there was a substantial failure to accord natural justice. I agree.
Procedural fairness required that the Adjudicator notify the parties of “proposed conclusions that were not put forward by the parties and could not be easily anticipated.”[10] The Court will set aside a purported determination by an adjudicator where there has been a failure by an adjudicator to provide such procedural fairness and, as a result, a party has been deprived of the possibility of a successful outcome.[11]
Here the Adjudicator did alert the parties to what he considered to be an issue – ie whether the provisions implied by s 20 of the Act should be imported into the EPC Contract and also to his preliminary view that “due to the circular and repetitious nature of Articles 34.2(a) and 34.2(b), Inpex could indefinitely delay payment”.
In written submissions, INPEX contended that the Adjudicator did not warn the parties that he was considering making a determination on the basis that:
(a)“both parties misconstrued the Contract and the Act” and he intended to proceed on a basis that was contrary to the common position of the parties;
(b)clause 6 was implied into the EPC Contract;
(c)INPEX had not complied with the implied cl 6 in relation to the payment claim; and
(d)as a consequence INPEX was obliged to pay the full disputed amount regardless of the merits of the matters raised by INPEX in its letter of 24 November raising the dispute and regardless of whether JKC had established that it had performed the work in question and what its value might be.
JKC contends that it may be inferred that the Adjudicator’s request for further submissions was intended to convey a preliminary view that the provisions implied by s 20 should be imported into the Contract, but even if this assumption is made, I agree with INPEX’s contention that this was far from sufficient. The Adjudicator did not mention that the implied term he thought would apply was cl 6(2) or spell out what he thought the consequences of that would be.
In his initial request for further submissions, the Adjudicator advised: “A possible issue arises with respect to uncertainty in the payment terms of the EPC Contract.” Upon being asked by the solicitors for JKC to clarify “which part of the payment terms of the EPC Contract give rise to a possible issue with uncertainty”, the Adjudicator referred to cl 34.2(a) and (b) which deal with how payment disputes are to be dealt with. Payment terms[12] are dealt with in cl 34.2(c) and (d) and cl 34.3.[13] As counsel for INPEX pointed out, there was never any suggestion from the Adjudicator that there was any uncertainty in relation to the provision in cl 34.2 providing that INPEX must notify any objections to a payment claim within 21 days.
The Adjudicator did not warn the parties that despite the plain wording of the EPC Contract providing that INPEX must notify any objections to a payment claim within 21 days and pay the undisputed portion within 45 days (about which both parties were agreed) and the fact that both parties were agreed that the relevant payment dispute arose on 24 November 2016, he was contemplating making his Determination on the basis that INPEX had failed to give notice of any objection to a payment claim within 14 days and was therefore obliged to pay the whole of the claim (ie USD 83,933,837.00)[14] within 28 days, regardless of the merits of the claim.
Counsel for INPEX submitted that the Adjudicator’s failure to give notice to INPEX that he was contemplating making his Determination on this basis deprived INPEX of the opportunity to put material before the Adjudicator as to why that result should not follow even if the Adjudicator determined that the implied terms in the Schedule were imported into the EPC Contract. For example, counsel for INPEX contended that INPEX may well have submitted that the payment claim did not comply with the requirements of the EPC Contract (for example by failing to supply proper particulars)[15] and so did not attract the operation of cl 6; and/or that JKC was precluded by estoppel or waiver from relying on any failure by INPEX to comply with the 14 day requirement for disputing liability in cl 6; or argued that even if cl 6 applied, the Adjudicator had an obligation under the Act to determine if any money was owing which, at a minimum, required the Adjudicator to be satisfied that the work had been done and valued in accordance with the EPC Contract.
JKC submitted that by requesting submissions as to “whether the provisions implied into deficient construction contracts by section 20 of the NT Act should or should not be imported into the EPC Contract”, the Adjudicator was impliedly letting INPEX know that that included cl 6(2) and that INPEX could readily have anticipated that he was considering making a Determination on the basis that INPEX had not disputed any part of the payment claim within the 14 days specified in cl 6(2), and so was obliged to pay the full amount of the payment claim. That being so, JKC contended that it was open to INPEX to make all of the submissions which INPEX submitted it was precluded from making.
I do not agree. In his request of 25 January 2017 the Adjudicator specifically directed the parties in these terms:
I invite the parties to address this question, in no more than two pages, by close of business Friday, 27 January 2017. Submissions from both parties must be strictly confined to the question raised. [emphasis added]
This warning followed an earlier direction to the parties in an email to the parties dated 11 January 2017.
Mr Edwards and Mr Quan-Sing
I refer to your letters dated 11 January 2017 and 9 January 2017 respectively.
The parties clearly differ on this jurisdictional point. While, contrary to the direction in my letter of 6 January 2017,[16] the applicant has already made unsolicited submissions on the issue, Mr Edwards has indicated he has more to add. It is clearly desirable to resolve the matter prior to the delivery of the response.
I am prepared to consider further submissions from the applicant directed to whether I can or should regard the two invoices the subject of the application to be a single payment claim.
I am also prepared to consider further submissions from the respondent on two issues only. First, whether or not the two invoices should, for present purposes, be regarded as two pages of the one payment claim. Second, whether or not the respondent would be required by law to pay to the applicant the GST payable on the principal sum due pursuant to a determination, in any event.
Submissions from both parties must be strictly confined to the questions raised above and should not exceed 3 pages in length, excluding authorities. The submissions must be in my hands and those of both parties by close of business tomorrow, 12 January 2017.
Mr Edwards, would you please in future strictly comply with my direction as to further submissions.
In the request of 25 January 2017, the only “question raised” by the Adjudicator upon which the Adjudicator had invited submissions (limited to two pages) was “whether the provisions implied into deficient construction contracts by section 20 of the NT Act should or should not be imported into the EPC Contract”. Not only was that not putting INPEX on notice of the basis upon which he was proposing to make his Determination; even if INPEX had worked out what the Adjudicator was proposing, the terms of the direction in the invitation to make submissions specifically precluded INPEX from making submissions about what the consequences might be if the implied terms were to be imported into the EPC Contract, or why those consequences should not automatically apply. Under the Act, an adjudicator has power to request a party or parties to make further submissions or to provide further information or documents;[17] neither the applicant nor the respondent has an entitlement to provide such information or submissions unless requested to do so by the adjudicator.[18]
In my view, that did amount to a substantial denial of natural justice which deprived INPEX of the possibility of a successful outcome. It is not appropriate for me to make an assessment of the merits of any of the submissions which INPEX was denied an opportunity of presenting. It is sufficient that INPEX was denied that opportunity. There is no telling what the Adjudicator may have made of any of those submissions.
While conceding that the Adjudicator was bound to accord procedural fairness, counsel for JKC submitted that the content of that duty was necessarily conditioned by the legislative regime which provided a “rough and ready” procedure which had a built in tolerance for certain levels of unfairness. For example, a respondent may go well beyond the matters raised in the application and the Act provides no opportunity for the applicant to respond to such matters unless invited to do so by the adjudicator. JKC contended that the duty to accord procedural fairness did not extend to providing the parties with any further notice or opportunity to make submissions than the Adjudicator did in fact provide.
I accept that the Act may necessarily be productive of some particular kinds of potential unfairness – such as the kind given in example by counsel for JKC. As has been often repeated by this Court, the Act is intended to provide a fairly rough and ready means of facilitating progress payments in construction contracts and for the rapid resolution of payment disputes arising under construction contracts. Importantly, an adjudicator’s determination does not finally determine the rights of the parties. It provides a mechanism for interim payments only and that is a relevant consideration when considering the content of the requirements of natural justice in the circumstances.
However, the process engaged in by the Adjudicator in this case, it seems to me, was not the kind of “built in” potential unfairness referred to by counsel for JKC; the kind which exists in the interest of facilitating the rapid, interim determination of progress payment disputes the Act is designed to achieve. The procedures provided for under the Act would not normally involve an adjudicator deciding on his own initiative to ignore the issues defined by the parties and make a determination on a basis not raised by the parties. If an adjudicator decides to embark upon such a course, in my view he is obliged to give the parties proper notice of the way he intends to decide and a proper opportunity to make submissions on whether he should do so. If he fails to do so, that cannot be characterised as one of the “built in” possibilities for unfairness intrinsic to the nature of the legislation. As Barr J said in Hall Contracting Pty Ltd v Macmahon Contractors Pty Ltd & Anor:
[A] party to a potentially unfavourable decision is entitled to have his or her mind directed to the critical issues or factors on which the decision is likely to turn in order to have an opportunity of dealing with them.[19]
To my mind, consistent with the decisions in Hall Contracting and Zurich Bay, the real question is whether, in all of the circumstances, the Adjudicator gave the parties (in particular INPEX as the potentially losing party) reasonable notice of the basis upon which he intended to make his decision and a fair opportunity to address that proposed basis and make submissions as to why he should not decide that way. For the reasons I have outlined, in my opinion, he did not. Accordingly, in my view the Determination of the Adjudicator is a nullity and the application for judicial review should succeed on this ground.
This proceeding arose out of a construction contract with a value of about USD 13 billion. As might be expected, the agreement between the parties is contained in a lengthy, complex and sophisticated written contract. The parties have been working with the contract for a number of years and were not in dispute about its construction or operation (as distinct from whether those provisions had been strictly complied with). Both parties retained solicitors who are well qualified and experienced in matters of this nature. When a highly technical dispute involving many millions of dollars arose as to the amount that was properly payable on the payment claim in question,[20] the adjudicator appointed was an engineer. However, instead of enquiring into the technical merits of the claim, for which he was well qualified, the engineer made his determination on a legal technicality which the solicitors for both parties had advised him was incorrect. That has led to the issue of the present proceedings for judicial review and it seems to me that there must be some question as to whether this is the kind of dispute, or the kind of process, which was in the contemplation of the legislature when the Act was passed.
The plaintiff relied on a number of other grounds which it is not strictly necessary for me to determine given my decision to uphold the challenge to the Determination on the natural justice ground. I will address them for the sake of completeness.
Ground 2 – failing to adjudicate the subject payment dispute
INPEX contends that an adjudicator is only authorised by the Act to adjudicate the payment dispute which is the subject of an adjudication application. This is said to follow from the use of the term “the dispute” in ss 27, 28, 29, 33(1)(a) and (b) and numerous other sections in the Act. (For example s 27 provides, in part: “If a payment dispute arises under a construction contract, any party to the contract may apply to have the dispute adjudicated under this Part ...”) According to this contention, “the dispute” as defined by the application must be the subject matter for the determination in relation to jurisdiction under s 33(1)(a) and, if jurisdiction is accepted, the determination on the merits under s 33(1)(b).
For the purposes of this contention, INPEX focuses on the term “payment dispute” as it is used in the Act and points out that it is essential for an adjudicator to identify “the dispute” for the purpose of determining whether he is obliged to dismiss a particular application without making a determination of its merits under s 33(1)(a). An adjudicator must do so if the application has not been prepared and served in accordance with s 28.[21] To ascertain whether the application has been prepared and served in accordance with s 28, an adjudicator must decide whether the application was made within 90 days after “the dispute” arose.[22] Under s 8 a payment dispute can arise in one of two ways. Both depend upon the existence of a payment claim. The first is by the rejection or dispute of the payment claim (in whole or in part). The second is by non-payment (or partial non-payment) when the amount claimed is due to be paid. INPEX contends that an adjudicator must look to the application to see what kind of dispute he is being asked to adjudicate and how the applicant alleges it arose and then make a decision under s 33(1)(a) as to whether the application was made within 90 days of the time when that dispute arose. If he decides that it was (and the other requirements of s 28 have been met), then it is that dispute, and not some other “dispute”, which he must determine on the merits under s 33(1)(b).
In this case, INPEX contends that the payment dispute which was the subject of the Application was the payment dispute which arose on 24 November 2016 when INPEX disputed part of the payment claim of 3 November 2016. The Adjudicator was bound to determine whether the Application was made within 90 days of the date on which that dispute arose and then, if he was not obliged to dismiss the Application under s 33(1)(a), it was that dispute which he was bound to determine under s 33(1)(b). (INPEX also relies, in support of this submission, on s 34(1) of the Act which provides that an adjudicator must, if possible, determine the payment dispute on the basis of the application and its attachments and the response and its attachments.)
INPEX contends that instead of determining the payment dispute the subject of the Application, the Adjudicator determined some other “dispute” – which was not the subject of the Application, and which did not in fact exist. (JKC had never claimed – and still does not claim – that INPEX was obliged to give a notice of dispute within 14 days or pay the whole amount of the payment claim within 28 days.) INPEX submits that this took the Adjudicator outside what he was authorised to do under the Act and that, as a consequence, the Determination was a nullity.
Counsel for JKC submitted that this submission took too narrow a view of the Act, and that the appropriate focus is on the “payment claim” which an applicant claims a respondent has disputed or failed to pay. The payment dispute which an adjudicator must determine under s 33(1)(b) is whether the respondent owes the applicant any money in relation to that payment claim and if so how much. Whether or not the application has been made within 90 days of the payment dispute arising as required by s 28 is just a question of fact to be determined as a preliminary matter, and not an integral part of the definition of the payment dispute which the adjudicator is authorised to determine. On that view, all that is required once an adjudicator has embarked on a determination on the merits under s 33(1)(b), is that the adjudicator focus on the payment claim the subject of the application and make a bona fide effort to determine whether the respondent owes the applicant any money in respect of that claim. That, JKC contends, is what the Adjudicator did in this case; any errors he made in the process were errors within jurisdiction, and his Determination is not reviewable by this Court by virtue of s 48(3).
Although it is apparent that there may often be real difficulties where, as in this case, an adjudicator goes outside the parameters of the issues as defined by the parties, if it were necessary for me to determine this issue, I would not allow INPEX’s application for judicial review on this ground.
In oral submissions, senior counsel for INPEX submitted that if the payment dispute is one that arose under s 8(a)(i) (claim rejected or disputed) it is not open to an adjudicator to adjudicate it as though it were a payment dispute arising under 8 (a)(ii) (claim not paid) because the application defines what type of dispute it is and therefore it is the application that sets the bounds of the jurisdiction.
That contention cannot be correct. It will not always be the case (as it was here) that the parties are in agreement about when and how a payment dispute arose. It will often be the case that an applicant asserts that a payment dispute of one kind arose on a particular date (for example by non-payment) and a respondent asserts that, on the contrary, the payment dispute in relation to that particular payment claim arose on an earlier date (for example by express rejection) as a result of which the application is out of time for the purpose of s 28. In other words, an adjudicator will often be involved in defining the nature of the dispute for the purpose of making a decision whether an application complies with s 28 or must be dismissed under s 33(1)(a). It seems to me that that is what the Adjudicator did here - define the nature of the payment dispute - albeit he was not asked to do so and did so notwithstanding that the parties both agreed that he was wrong.
Further, the provisions of the Act are in mandatory terms. An adjudicator must dismiss the application under s 33(1)(a) without making a determination of its merits if the contract concerned is not a construction contract, or the application has not been prepared and served in accordance with s 28. To apply to have a payment dispute adjudicated, a party to the contract must comply with the requirements of s 28. This, it seems to me, obliges an adjudicator to engage in a process of fact finding.
I do not think an adjudicator is obliged to accept the parameters of the dispute as agreed between the parties – and I do not understand INPEX to have gone so far as to suggest this. An adjudicator has an independent duty to ascertain (for example) that the requirements of s 28 have in fact been met and it may be that the adjudicator finds the position to be otherwise than contended for by either party. If so, then (importantly) subject to the requirements of natural justice, it seems to me that he has a duty to give effect to his own findings. Parties could not, for example, confer jurisdiction on an adjudicator to make a determination which takes effect as such under the Act by agreeing that a contract was a construction contract within the meaning of the Act when it was not.
Ground 3 – failure to undertake the statutory task in s 33(1)(b)
The third ground relied upon by INPEX for asserting that the Determination was a nullity was that he failed to undertake the statutory task in s 33(1)(b) which required him to consider whether it had been demonstrated that a particular amount was due. I do not agree that an adjudicator must always look into the underlying “merits” of whether or not an amount claimed in a payment claim was “due” in the sense that the underlying work had been performed and correctly valued under the contract. As has been said many times in cases connected with this Act, the focus of the Act is on the contract. If the contract between the parties provides for a claim to be paid in full if not disputed within a given time, then there is no reason why an adjudicator ought not give effect to that provision in making a determination on the merits under s 33(1)(b), and every reason why he should.
ORDERS:
(a)There will be an order in the nature of certiorari quashing the Determination.
(b)I will hear the parties as to any consequential orders and costs.
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[1] I have adopted the term used by the parties in the Application and Response and by the Adjudicator in his Determination.
[2] At the hearing of this application, Mr Wyvill SC (counsel for INPEX) described this submission as “accurate and sensible”, a contention it would be hard to disagree with.
[3]Construction Contracts (Security of Payments) Act 2004 (NT) sch, cl 6
[4]“Option 1” and “Option 2” are the Adjudicator’s shorthand for the alternative procedures under Article 34.2 in the EPC Contract.
[5] (2004) 61 NSWLR 421; [2004] NSWCA 394
[6] Ibid 441-442 [55]
[7] AJ Lucas Operations Pty Ltd v Mac-Attack Equipment Hire Pty Ltd (2009) 25 NTLR 14; [2009] NTCA 4
[8] Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 1 KB 223
[9] Trans Australian Constructions Pty Limited v Nilsen (SA) Pty Ltd and Another (2008) 23 NTLR 123, 138 [43] per Southwood J; Independent Fire Sprinklers (NT) Pty Ltd v Sunbuild Pty Ltd (2008) 24 NTLR 15, 24 [49] per Mildren J; A J Lucas Operations Pty Ltd v Mac-Attack Equipment Hire Pty Ltd and Another (2009) 25 NTLR 1, 11 [29] per Kelly J; Hall Contracting Pty Ltd v Macmahon Contractors Pty Ltd & Anor (2014) 34 NTLR 17, 31 [34] per Barr J (“Hall Contracting”); See also Brodyn Pty Ltd v Davenport and Another (2004) 61 NSWLR 421, 441-442 [55] per Hodgson JA
[10] Zurich Bay Holdings Pty Ltd v Brookfield Multiplex Engineering and Infrastructure Pty Ltd [2014] WASC 40 [10] (“Zurich Bay”)
[11] Stead v SGIO (1986) 161 CLR 141, 147; Zurich Bay Holdings Pty Ltd v Brookfield Multiplex Engineering and Infrastructure Pty Ltd [2014] WASC 40 [12]
[12] Counsel for INPEX pointed out that s 20 makes a distinction between payment terms and payment disputes. It provides: The provisions in the Schedule, Division 5 about the following matters are implied in a construction contract that does not have a written provision about the matter:
(a)when and how a party must respond to a payment claim made by another party;
(b)by when a payment must be made.
(c)
[13] There are also subsequent terms dealing with payment of interest on delayed payments and other matters related to payment terms.
[14] Following the Adjudicator’s logic, if cl 6 was implied into the EPC Contract, the amount payable would actually have been the whole invoiced amount (USD 205,825,452.00 plus GST).
[15] Counsel for JKC pointed out that INPEX did make this particular submission in its Response (though not the others identified by counsel for INPEX) and it was rejected by the Adjudicator. That was in the context of the actual provisions of the EPC Contract which the Adjudicator found to be “uncertain”. Perhaps the argument would have taken on a different complexion in the context of the implied terms, perhaps not. As stated in [41] I do not think it is appropriate for me to assess the merits of any of these potential arguments.
[16] In the Adjudicator’s initial letter to the parties he wrote: “Please do not send me any material or submissions in addition to the application or response unless I specifically request that you do so.”
[17] Construction Contracts (Security of Payments) Act 2004 (NT) s 34(2)
[18] Section 28(2)(c) of the Act provides that the application must state or have attached to it all the information, documents and submissions on which the party making it relies in the adjudication. Section 29(2)(c) provides that the response must state or have attached to it all the information, documents and submissions on which the party making it relies in the adjudication.
[19] (2014) 34 NTLR 17, 32 [38]
[20] The material supplied by JKC in support of the application amounted to 34 volumes, the material supplied by INPEX with its response to seven volumes.
[21] Construction Contracts (Security of Payments) Act 2004 (NT) s 33(1)(a)(ii)
[22] Ibid s 28(1)
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