INPEX Operations Australia Pty Ltd v Telford Offshore Australia Pty Ltd - [2019] WASC 24

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   INPEX OPERATIONS AUSTRALIA PTY LTD -v- TELFORD OFFSHORE AUSTRALIA PTY LTD [2019] WASC 24
CORAM:   MASTER SANDERSON
HEARD:   4 DECEMBER 2018
DELIVERED          :   7 FEBRUARY 2019
FILE NO/S:   COR 167 of 2018
BETWEEN:   INPEX OPERATIONS AUSTRALIA PTY LTD
Plaintiff
AND
TELFORD OFFSHORE AUSTRALIA PTY LTD
Defendant

Catchwords:

Corporations law - Application to set aside statutory demand - Whether application properly on foot - Whether genuine dispute

Legislation:

Corporations Act 2001 (Cth)

Result:

Statutory demand set aside

Category: A

Representation:

Counsel:

Plaintiff	:	Mr M Howard SC & Ms P Honey
Defendant	:	Mr I R Pike SC & Mr J Anderson

Solicitors:

Plaintiff	:	INPEX Operations Australia Pty Ltd
Defendant	:	Bird & Bird

Case(s) referred to in decision(s):

Accommodation West Pty Ltd v Innis [2009] WASC 337
CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [No 2] [2017] WASCA 123

MASTER SANDERSON:

This is the plaintiff's application to set aside a statutory demand. The application raises two issues. First, whether or not there is under the provisions of the Corporations Act 2001 (Cth) (the Act) an application properly on foot. Second, whether the plaintiff has an offsetting claim equal or greater than the amount of the statutory demand. Before setting out the submissions on each of those two points it is appropriate to give a summary of the relevant facts. What follows is taken largely from the defendant's written submissions.[1] There was no dispute between the parties as to the circumstances giving rise to the claim.
[1] Defendant's submissions filed 23 November 2018.
The defendant (who I will refer to as 'Telford') was formerly known as Sea Trucks Australia Pty Ltd. Telford provides services to support offshore oil and gas projects including the provision of offshore accommodation services. Telford provided a 'flotel' to accommodate personnel and subcontractors engaged by the plaintiff (who I will refer to as INPEX) in the commissioning of a floating production and storage offloading (FPSO) facility at the Ichthys LNG Project. It did so pursuant to a contract described as 'Contract number 800555 flotel services' (the Contract).[2]
[2] Attachment JB‑03 to the affidavit of Jarrad Blinco sworn 25 September 2018.
The Contract was amended and varied from time to time. The only one of these variations which is relevant (or which the defendant claims is relevant) was executed on 27 April 2017 and is referred to as 'change order 6'. During the period 1 March 2017 to 22 August 2017 Telford and INPEX corresponded about pre‑mobilisation activities with the flotel and proposed variations to the Contract. On 28 August 2017 a 'notice of readiness' was issued. The flotel arrived at the perimeter of the Ichthys field on 31 August 2017.
The flotel and the FPSO were intended to be connected by a gangway to facilitate the flow of personnel between the two areas. The gangway malfunctioned twice – once on 1 September 2017, the date of the initial connection and again on 3 September 2017. The gangway was not repaired until 18 September 2017. During this period personnel were not able to access the FPSO from the flotel. This was referred to as the 'gangway breach'. Considerable evidence was filed dealing with the reasons for the gangway breach and the steps taken to rectify the problem. For the moment that evidence can be put to one side. It is common ground between the parties that the breach occurred on 1 September 2017, an attempt was made to fix the gangway but it failed again on 3 September 2017 and it was not working until 18 September 2017.[3]
[3] Defendant's submissions pars 7 – 13.
The second aspect of the plaintiff's claim refers to what is described as the 'mould breach'. The plaintiff alleges in the period from 28 September 2017 to 19 October 2017 mould colonies appeared in a number of the accommodation units in the flotel which affected INPEX's use of the units during that period.[4]
[4] Affidavit of Jarrad Blinco sworn 25 September 2018 par 58.
On 12 July 2018 Telford issued INPEX with an invoice which sought payment of a lump sum Demobilisation Fee of USD 10,480,000 plus tax (totalling USD 11,528,000). INPEX deducted from the invoice the following:
1.USD 608,832.44 plus GST being amounts due to INPEX by Telford for fuel on board the flotel on demobilisation (this deduction is not disputed by the defendant);
2.USD 8,345,772 in respect of the gangway breach; and
3.USD 1,013,590 being overpayment arising from the mould breach.[5]
[5] Plaintiff's submissions filed 16 November 2018 par 14.
INPEX then paid Telford an amount of USD 511,805.24 plus GST which it said was the undisputed part of the invoice.
Turning then to the Contract itself. INPEX was invoiced monthly by Telford for the services provided pursuant to the Contract: cl 23.1(a). It was not in dispute that payment of invoices by INPEX was on account only and did not constitute approval or acceptance by INPEX of any item in respect of which the invoice was issued or an admission of due performance or a waiver, variation, or relaxation of INPEX's rights: cl 23.3.
By cl 23.4.3(a) of the Contract INPEX could deduct from any sums due to Telford, any overpayments made by the contractor and any additional costs incurred by INPEX as a result of Telford's failure to perform any part of the Contract. It was not in dispute between the parties that such a contractual right existed. As to the proper interpretation of this provision counsel for the plaintiff referred to the recent decision of the Western Australian Court of Appeal in CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [No 2].[6] In that case the court was dealing with an almost identical provision. The court said:
Furthermore, in the case of GC 34.5(a), the right of deduction with respect to sums 'due' to the contractor is given to the contractor 'at any time during the performance of the subcontract'. It is difficult to suppose that the right of deduction was intended to be exercised only in the event of an admission by the subcontractor, or following an arbitral determination. Thus, the contractor's self help remedy of deduction could be applied notwithstanding that the subcontractor disputed that it owed the sum claimed by the contractor. Further, under GC 34.5(c), the result of the deduction may leave an amount 'due' to the contractor which the subcontractor 'must immediately pay'. Again, it is difficult to suppose that these words mean other than what they appear to say, ie, that the amount is payable immediately, and not dependent on admission or determination in subsequent arbitral proceedings [124].
[6] CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [No 2] [2017] WASCA 123.
There are two claims made by INPEX in respect of the gangway breach. First, a claim is made for USD 4,953,927 being the cost of helicopter shuttles to transfer certain employees to the FPSO, the cost of salaried and contracted personnel on standby and liability to INPEX's contractor for standby/prolongation costs. Second, an amount of USD 3,391,845 being an overpayment to Telford for the flotel during the period of the gangway breach.
Clause 33.1 of the Contract deals with 'fault or deficiency of the contractor'. It is in the following terms:
33.1Fault or deficiency of Contractor
(a)If Contractor, during the course of carrying out the Work or Services is in breach of any of its obligations under the Contract, including by failing to:
(i)supply sufficient, properly skilled personnel or contractor's Equipment of proper quality or quantity;
(ii)perform the Work or Services in an efficient, workmanlike, skilful and careful manner in accordance with the requirements of the Contract;
(iii)satisfy the health, safety, environment, security or business ethics requirements of the Contract; or
(iv)provide a Parent Company Guarantee or Bank Guarantee in accordance with the requirements of the Contract,
then Company may notify Contractor of such breach and request Contractor to make remedial steps within the period of time specified in the notice (which must be a reasonable time).
(b)Contractor must immediately take, or have taken, at no extra cost to the Company, all steps necessary to remedy the breach and must inform Company of the steps undertaken or to be undertaken in the related schedule.
(c)If Company considers the steps proposed by Contractor to be inadequate or insufficient, it may direct Contractor to take (within a reasonable time) specific remedial steps at no extra cost to the Company.
(d)From the day of receiving the above notification to the date all the deficiencies as notified by the Company have been corrected and accepted by Company Representative, Contract will be remunerated on the following basis:
(i)If, at Company's sole option, the performance of the Services continues, reduced performance rates will apply as per clause 21.6 and Exhibit B
(ii)In the case of total suspension of the Services exceeding 24 hours Company shall have the option to notify Contractor to re‑man the vessel, and following departure of Company personnel, Breakdown rate will apply.
Evidence was tendered by Telford as to what went wrong with the gangway, the difficulties associated with diagnosing the problem and why it took the time it did to affect repairs. It seems clear, given the uncertainty surrounding the reasons for failure, Telford were not in a position to provide the 'related schedule' anticipated by cl 31.1(b). There is no doubt Telford took what steps it could to both advise INPEX of the problem and to provide a schedule of when repairs would be affected. But, the nature of the fault meant that no precise date was ever provided.
It is not difficult to imagine the situation could have been different. If the gangway had failed because anchor struts had sheered (for example) and the nature of the defect was obvious to anyone looking at the problem, then Telford could simply have found out where parts could be accessed, estimated how quickly the parts could be brought to the vessel, estimated the time likely to be taken for repairs and have provided a schedule which satisfied sub‑clause (b). But in this case that was not possible. What arose was a circumstance which does not appear to have been anticipated by the Contract.
Under sub‑clause (d) when confronted with a problem which rendered the flotel unusable INPEX had two alternatives. It could apply the 'reduced performance rates' under sub‑clause (d)(ii) or it could 'de-man' the vessel and the 'breakdown rate' would apply. INPEX adopted the first option. The evidence shows de-manning the vessel was a significant undertaking and clearly INPEX was keen to avoid that option if it all possible. Given INPEX was never in a position to assess just when the repairs might finally be concluded that may well have been a sound decision. Either way it is the course it adopted. What INPEX is now saying is had it been aware of the length of time it would have taken to repair the defect it would have de-manned the vessel and applied the breakdown rate. Alternatively, INPEX say the costs incurred – that is the costs of helicopter transfers and standby - were properly incurred and were damages it was entitled to claim under the Contract.
In my view there is a genuine dispute in relation to this matter. As I have indicated above, the concealed nature of the fault which led to the gangway breach means it is difficult to see how the Contract responds. The position may or may not be covered by cl 33. Given INPEX is protected contractually against a claim of waiver its decision at the time to not de-man and apply the breakdown rate may not be of any significance.
In summary I am not satisfied the position is so clear that it could be said there is no serious question to be tried on the meaning and effect of the Contract. So far as the gangway breach is concerned I accept submissions made on behalf of the plaintiff.
In relation to the mould breach it is not in dispute between the parties that in or about September 2017 mould colonies appeared in a number of the accommodation units on the flotel and prevented the use of these units. It is also not in dispute that the mould breach was a breach of various provisions of the Contract. The defendant accepted responsibility for the mould breach and took steps to investigate and rectify the issue.
INPEX was invoiced for and paid the full day rate during the period of the mould breach. The plaintiff says, relying on cl 33.1(d)(i) of the Contract, that if a breach occurs and performance of the services otherwise continues then the reduced performance rate applies. It is on that basis that INPEX says it overpaid Telford. In response Telford seeks to establish that INPEX was not in fact impacted by the mould breach as there was a surplus of accommodation units on board the flotel. In response INPEX says that irrespective of whether there were surplus rooms the mould breach was still in breach of the Contract and the reduced performance rate applied. INPEX says further the evidence of both parties is to the effect the mould breach required entire floors of rooms to be vacated and personnel relocated on a 'rolling basis'. INPEX submits this caused significant disruption to the personnel staying on board the flotel.
On this issue I am satisfied there is a genuine dispute between the parties. Having set out in broad terms the nature of that dispute I need do nothing further than say that I am satisfied that it is genuine. It would be inappropriate for me to attempt to evaluate the merits of the parties' arguments.
Accordingly I am satisfied there is a genuine dispute as to the amount of the debt claimed in the statutory demand. That then leaves the question of whether or not there is a proper application on foot.
The defendant's argument on this issue can be summarised in this way. The application to set aside the statutory demand was lodged via the efiling system on 25 September 2018. On page three of that application is a section which anticipates inserting which judicial officer will hear the matter and the date and time of the hearing. That section was blank. The next day the registry issued a letter specifying the date and time of the hearing. That letter was served with the originating process. It is the defendant's position the failure to insert the date and time on the application itself was fatal and therefore no application was properly on foot.
It should be noted that because of the way in which the court's efiling system operates a date and time of hearing cannot be inserted. There was no failure here on the part of registry staff or in the part of the plaintiff's solicitors. In the days before efiling, when documents were lodged manually, a clerk in the central office would write in the date and time. Since the advent of electronic filing no hard copy document exists and no document is touched by human hand. So at issue here is the question of whether or not there can ever be on foot a proper application to set aside a statutory demand when the efiling system is in operation.
The defendant relied on a number of decisions including my decision in Accommodation West Pty Ltd v Innis [2009] WASC 337. That case concerned a situation where the service copy of the originating process did not contain the first return date. The day after the service copy had been returned to the plaintiff's solicitors the Supreme Court registry notified the solicitors of the return date. But the copy of the originating process served did not contain the return date. I determined that was fatal to the plaintiff's application. The fact the plaintiff's solicitors notified the defendant's solicitors of the return date by email was not sufficient to cure any defect.
The difference between that situation and the present situation is clear. What is required is the application must notify the defendant of the date and time of the hearing. That is what was done in this case. It was not what was done in the Accommodation West case. Here the plaintiff could have done nothing other than serve the documents it did serve. Its actions were proper and appropriate and in my view in conformity with the requirements of the relevant section.
Accordingly I am satisfied the application is properly on foot and the statutory demand ought be set aside. Subject to hearing from the parties, the defendant ought pay the plaintiff's costs of the application including the reserved costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DG
Associate to Master Sanderson
7 FEBRUARY 2019