MSP Engineering Pty Ltd v Tianqi Lithium Kwinana Pty Ltd [No 2]
[2021] WASC 39
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: MSP ENGINEERING PTY LTD -v- TIANQI LITHIUM KWINANA PTY LTD [No 2] [2021] WASC 39
CORAM: MASTER SANDERSON
HEARD: 24 SEPTEMBER 2020
DELIVERED : 18 FEBRUARY 2021
PUBLISHED : 18 FEBRUARY 2021
FILE NO/S: CIV 1318 of 2020
BETWEEN: MSP ENGINEERING PTY LTD
Plaintiff
AND
TIANQI LITHIUM KWINANA PTY LTD
Defendant
FILE NO/S: CIV 1319 of 2020
BETWEEN: MSP ENGINEERING PTY LTD
Plaintiff
AND
TIANQI LITHIUM KWINANA PTY LTD
Defendant
Catchwords:
Construction contract - Whether summary judgment available in relation to program certificates when contract terminated
Legislation:
Nil
Result:
Application granted
Category: A
Representation:
CIV 1318 of 2020
Counsel:
| Plaintiff | : | G R Donaldson SC & J Sippe |
| Defendant | : | J K Taylor SC & A Pieniazek |
Solicitors:
| Plaintiff | : | Squire Patton Boggs |
| Defendant | : | Clayton Utz |
CIV 1319 of 2020
Counsel:
| Plaintiff | : | G R Donaldson SC & J Sippe |
| Defendant | : | J K Taylor SC & A Pieniazek |
Solicitors:
| Plaintiff | : | Squire Patton Boggs |
| Defendant | : | Clayton Utz |
Case(s) referred to in decision(s):
Aquatec‑Maxcon Pty Ltd v Minson Nacap Pty Ltd (2004) 8 VR 16
MSP Engineering Pty Ltd v Tianqui Lithium Kwinana Pty Ltd [2020] WASC 251
Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274
Queensland University of Technology v Project Construction (Aust) Pty Ltd (In liq) (2003) 1 Qd R 259
Tianqui Lithium Kwinana Pty Ltd v MSP Engineering Pty Ltd [No 2] [2020] WASCA 201
MASTER SANDERSON:
In both of these actions the plaintiff applies for summary judgment. Although both actions are separate and distinct they are inter‑related and can conveniently be dealt with together.
The matter has a history. In each action the defendant applied for a stay of the summary judgment application essentially on the grounds the matter should be dealt with by an arbitrator pursuant to notices of dispute issued by the defendant. I dismissed that application: MSP Engineering Pty Ltd v Tianqui Lithium Kwinana Pty Ltd [2020] WASC 251. The Court of Appeal upheld that decision: Tianqui Lithium Kwinana Pty Ltd v MSP Engineering Pty Ltd [No 2] [2020] WASCA 201. At the conclusion of their reasons, the Court of Appeal had this to say:
154We note that, at the time of preparing these reasons, there was an undetermined summary judgment application pending in the primary proceedings. That application may raise issues which were not before the master when dealing with the application made under s 8 of the Arbitration Act. In the event that the court hearing that application were to determine that Tianqi had raised a triable issue and refused MSP's summary judgment application, it would then also have in effect determined that the action was brought in a matter which the arbitration agreement required be referred to arbitration. That is, it would have determined that MSP's claim in the primary proceedings was not capable of summary determination.
155In that event, while Tianqi's application under s 8 of the Arbitration Act has been determined, it would be open (and at least ordinarily appropriate) for the primary court to refer the matter to arbitration in the exercise of its inherent jurisdiction.
156We have found that Tianqi failed, on the material before the master, to establish that the action was brought in a matter the subject of an arbitration agreement, on the basis that it had not established MSP's claim to be incapable of summary determination. That is not equivalent to a finding that the action was not brought in a matter the subject of an arbitration agreement, or a finding that MSP's claim is capable of summary determination. Nothing in these reasons operates to preclude the refusal of summary judgment based on material or issues which were not before the master.
157For example, these reasons do not preclude a finding in the primary court that MSP's summary judgment application should be dismissed based on:
1. the application of cl 39.10 of the contracts to the purported termination of the contracts after the dismissal of the s 8 application, or
2. a claim by Tianqi for rescission of the contracts for misleading and deceptive conduct to the extent that claim is advanced in the summary judgment application.
158In noting these possibilities, we should not be taken to be indicating any view as to how the primary court should resolve those matters, to the extent that they may be raised by Tianqi in defence to MSP's summary judgment application.
The application for summary judgment was argued prior to the delivery of reasons by the Court of Appeal. Subsequent to that decision I invited the parties to make submissions taking into account the Court of Appeal decision. These reasons then are based upon the written submissions filed prior to the hearing of the application, the oral submissions made during the course of the hearing and the subsequent written submissions filed by the parties.
The background facts are found in my original reasons and are more fully developed in the reasons of the Court of Appeal. However, for the purposes of this application I will briefly summarise the facts. This summary is taken from the written submissions filed by the plaintiff. None of these matters are controversial.
The matter relates to two contracts for the design and construction of lithium hydroxide processing plants ('LHPP') in Kwinana. The relevant terms of each contract are identical. The relief claimed by the plaintiff is payments of amounts the subject of progress certificates certifying the amounts as due pursuant to cl 37.2 of the LHPP contracts. There are five progress certificates relevant to the LHPP 1 contract and seven progress certificates relevant to the LHPP 2 contract.[1]
[1] Plaintiff's outline of submissions in support filed 31 August 2020 [2] – [5].
After certification the defendant made some payments. In respect of the LHPP 1 contract, it paid $7,151,873.56 between August 2019 and January 2020. In respect of the LHPP 2 contract it paid $1,812,803.13 on 26 September 2019. The parties agreed a payment plan on 13 November 2019 in respect of the then outstanding amounts. The payment plan came about because of the defendant's difficulty in paying what it accepted it owed. The defendant made some payments under the payment plan. It failed to pay the balance. The balance owing to the plaintiff by the defendant in respect of progress certificates issued under LHPP 1 contract is $26,969,407.88 plus GST in the amount of $2,696,940.79. The balance owing to the plaintiff by the defendant in respect of the progress certificates issued under LHPP 2 contract is $5,643,951.49 plus GST in the amount of $564,395.15.[2]
[2] Plaintiff's outline of submissions in support filed 31 August 2020 [6] – [8].
These proceedings were issued on 4 March 2020. On 6 March 2020 the defendant issued notices of dispute under the contract regarding matters that have now been referred to arbitration. The defendant purported to terminate the contracts by notices dated 7 August 2020. The plaintiff disputes that the termination notices are effective.[3]
[3] Plaintiff's outline of submissions in support filed 31 August 2020 [10] – [12].
The defendant has purported to terminate the contract under cl 39.4.[4] Clause 39.2 of the contract sets out matters which amount to 'a substantial breach of the contract'. As an example of a substantial breach, cl 39.2(a)(i) refers to a failure of the contractor to properly perform the design obligations.[5] If the defendant (referred to in the contract as the 'principal') believes the plaintiff (defined in the contract as the 'contractor') has defaulted under the terms of the contract then pursuant to cl 39.3 the defendant may issue a show cause notice. That was done in this case. It is the defendant's position the plaintiff having failed to comply with the show cause notice, it (the defendant) was entitled to terminate the contract under cl 39.4(b).[6] As I have indicated above, the plaintiff maintains that it was not in default under the contract, that there was no basis for the issue of the show cause notice and that the defendant was not entitled to terminate the contract under cl 39.4(b) or otherwise. [7] The plaintiff maintains the contract is still on foot.
[4] Defendant's submissions in opposition filed 1 September 2020 [34].
[5] Affidavit of Robert Francis van Erp sworn 17 August 2020; Annexure RFVE-1 (page 85).
[6] Defendant's submissions in opposition filed 1 September 2020 [35].
[7] Plaintiff's outline of submissions in support filed 31 August 2020 [27].
For the purposes of a summary judgment application it is necessary to assume a version of facts most favourable to the defendant. That being so, it must be assumed there was default on the part of the plaintiff, that the plaintiff failed to comply with the show cause notice and that the termination under cl 39.4(b) was proper. Of course that assumption is made for the purposes of a summary judgment application and is not in any way determinative of the issue between the parties. That will be one of the matters addressed by the arbitration.
Against that, the defendant does not dispute the validity of the progress certificates or contend that it is not obliged to pay the certified amounts. Against the summary judgment application the defendant puts three arguments. First, it says it has rights of set‑off against the amounts claimed by the plaintiff under the terms of the contracts. Secondly, it says it has rights of set‑off in law or equity. Third, it says the contracts are liable to be set aside or avoided or declared unenforceable and therefore any contractual rights the plaintiff may have pursuant to the contract cannot be enforced but must await determination by arbitration. [8]
[8] Defendant's submissions in opposition filed 1 September 2020 [7].
The first of these arguments relies upon cl 39.10 of the contracts which has the heading 'Termination'.[9] Relevantly, the clause reads:
If the Principal rightfully terminates the Contract pursuant to Clause 39.4 prior to the date of Practical Completion, then the Principal shall not be required to pay the Performance Margin and the Contractor shall reimburse to the Principal amounts paid by the Principal for WUC that has not yet been performed but the Contractor shall be entitled to claim for:
i)WUC which will include all direct costs, indirect costs, EPCM costs and Fixed Margin incurred up to and including the date for termination minus any payments that have already been made;
ii)demobilisation costs, cancellation fees and other reasonable expenses and or costs applicable in complying with or as a consequence of the termination.
A party may deduct from moneys due to the other party, any money due or which may become due from that other party under the Contract or otherwise.
[9] Affidavit of Robert Francis van Erp sworn 17 August 2020; Annexure RFVE-1 (page 89).
Clause 1 of the contract, which is the definition section, defines 'WUC' (work under the contract)[10] in the following way:
(WUC) (from 'work under the contract') means the work which the Contractor is or may be required to carry out and complete under the Contract and includes the FEED Works, variations, remedial work, construction plant and temporary works.
(For present purposes the definition of 'FEED Works' is not relevant).
[10] Affidavit of Robert Francis van Erp sworn 17 August 2020; Annexure RFVE-1 (page 45).
It is the final sentence for cl 39.10 which is presently relevant. The defendant says that because of the plaintiff's breach of the contracts and its rightful termination of the contracts, it is entitled to substantial damages from the plaintiff. Those damages are well in excess of what is owed under the progress certificates. That being so, the defendant says it is entitled to set‑off these claims against the progress certificates and it is not presently obliged to make payment under the progress certificates. In answer to the argument the plaintiff says that at present there is not 'any money due' to the defendant by the plaintiff the plaintiff says further that damages, after arbitration 'may become due' and on the assumption the defendant has a good claim; but that is not sufficient to refuse an order for summary judgment.
As I have indicated above, for the purposes of this application it is necessary to assume both that the contract has been validly terminated by the defendant and that in due course there may be an award of damages in the defendant's favour greater than the amount to which the plaintiff is entitled under the progress certificates. That being so, the essence of the defendant's argument is clear. It relies on the phrase 'may become due'. The defendant says it does not have to establish with certainty the money will become due. The phrase embodies an element of speculation. Effectively the defendant says once it is assumed the contracts have been validly terminated and its claims for damages may exceed the amounts claimed under the progress certificates, then the parties' rights are effectively put on hold pending the arbitration.
In my view, that is not the way that the clause ought be approached. Properly considered, what is being referred to in the final sentence of cl 39.10 are sums certain. So if, for instance, the parties had agreed that at some date in the future, beyond the day when the contract was terminated, the plaintiff would pay to the defendant a specified amount (for whatever reason – perhaps an overpayment which was acknowledged) then the defendant would be entitled to deduct that sum from the amounts owing under the progress certificates. What the clause does not anticipate is a deduction of an unspecified amount which may become payable after an arbitration.
In large measure this interpretation of the contract is contextual. The clause actually specifies what amounts the principal will not be required to pay in rightful termination. It also sets out amounts the plaintiff will be entitled to claim. It is clear the clause is not what might be called a 'drop dead provision'. That is to say, the contract does not provide that once the contract comes to an end, the plaintiff is entitled to nothing. The clause represents a balancing exercise between the plaintiff and the defendant. To adopt the defendant's interpretation would run counter to the intent of the clause evident in its wording. So it provides no impediment to the plaintiff seeking payment of amounts claimed under the progress certificates.
Turning then to the defendant's second argument, it is common ground between the parties that cl 37.2 of the contracts requires progress certificates to be paid on account without set‑off or counterclaim. It is also accepted by the parties this provision negates the right of the defendant to rely upon either legal or equitable set‑off. The defendant says the contracts are now at an end. Therefore it is no longer precluded from relying on equitable set‑off. It is clear, on the facts, there can be no question of a legal set‑off.
There are then two aspects to the defendant's argument. The first is that termination of the contract acts to remove the restraint on equitable set‑offs found in cl 37.2. The second aspect is that on the facts in this case, equitable set‑off is available.
On the first of these two questions, the defendant says there is authority to support their proposition. Reference is made to two cases Aquatec‑Maxcon Pty Ltd v Minson Nacap Pty Ltd (2004) 8 VR 16 and Queensland University of Technology v Project Construction (Aust) Pty Ltd (In liq) (2003) 1 Qd R 259. The plaintiff disputes that either of these two cases properly considered, supports the defendant's position. Without undertaking a detailed analysis of the two decisions, I am prepared to approach this matter on the basis that as the contract has been properly terminated by the defendant, it is no longer precluded from relying upon equitable set‑off. So the question then is whether, in the circumstances of this case, equitable set‑off is available.
At pars 44 and 45 of their written submissions, the plaintiff puts the position in relation to equitable set‑off in the following way:
44.To establish an equitable set-off 'it is not sufficient that there be countervailing claims, nor that those claims be mutual, or even that they arise out of the same transaction' (J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehanne's Equity: Doctrines and Remedies (5th ed, 2015) [39‑060](g). There must be an additional ingredient: that the defendant's counter-claim impeaches the title of the plaintiff's claim in that the defendant's counter‑claim is so directly connected with the plaintiff's claim that it would be positively unjust to allow the plaintiff to recover without taking it into account (Rawson v Samuel (1841) 41 ER 451, 458; Hill v Ziymack [1908] HCA 13; (1903) 7 CLR 352, 362 – 363; MacKenzie v Albany Finance Ltd [2004] WASCA 301 [103]; Hawes v Dean [2014] NSWCA 380 [60]-[61]).
45.This additional ingredient reflects the nature of equitable set‑off as a substantive equitable defence:
The fourth category of equitable set-off may be described as 'true' or 'substantive' equitable set-off because it involves the exercise of substantive equitable jurisdiction to relieve against unjust or unconscientious conduct… It is not simply a procedural mechanism and is better described as an 'equitable defence'. Substantive equitable set-off, in this sense, does not operate by providing a balance of cross-claims; rather, it has the effect of extinguishing and eliminating the basis of the claim against which it is raised (P Young, C Croft and M Smith, On Equity (2009) [15.430] and the cases there cited. See, to similar effect, Spry, Equitable Remedies (9th ed, 2014) pp 179 – 182).
Although the submissions of the defendant on this issue did not directly mirror those of the plaintiff, there was no real departure on points of principle. What emerges from the cases and the relevant texts is that where the equity of a case requires it, having regard to how closely the claims are related, particularly as to time and subject matter and to the conduct of the parties, then there can be an equitable set‑off. That is not the case here. Progress certificates were issued under the contract which was then on foot. The defendant undertook to pay those progress certificates. It is not offensive in equity to require that undertaking to be honoured. The parties always agreed that if, in the end, the plaintiff owed money to the defendant, then the progress payments would be disgorged. That position has not altered. The facts and circumstances in this case do not, in my view, give rise to a fairly arguable claim for equitable set‑off.
Finally, there is the defendant's argument the contracts are liable to be set aside or avoided or declared unenforceable, at least in part.
It is very difficult to see how that conclusion can be reached. After all the defendant is at present relying on the dispute resolution provisions in cl 42 of the contracts to bring the arbitration proceedings. It would seem the defendant is both approbating and reprobating. It is true that one of the remedies available for misleading and deceptive conduct is to have contracts declared void or set aside. However, the authorities suggest the statutory power to avoid an agreement entered into by reason of pre‑contractual misleading and deceptive conduct is governed by analogous equitable principles: See Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274, 288. That means the principles of laches would be considered as would the difficulty of effecting restitutio in integrum, which are central considerations in the granting of such relief. Furthermore, there is no allegation of fraud in this case. Taken at its highest, I am not satisfied, in this case, it is arguable the contracts would be set aside.
Even if that were to be the case, there would have to be a balancing exercise between amounts rightly claimed by the plaintiff and amounts owing to the defendant. At that stage any amount paid in relation to the progress certificate could be set‑off against any amount found to be owing by the plaintiff to the defendant. Nothing in that outcome would suggest there is an injustice in requiring the defendant to meet contractual obligations which it accepted were on foot when the plaintiff's claims were made.
In preparing these reasons I have been acutely conscious this is a summary judgment application. There have been any number of summary judgment applications which have failed because the matters at issue between the parties are complex and the proper course is to have a full trial of the matter. Here the parties agreed that when progress claims were made and certified, the amounts due and payable by the defendant (principal) and the plaintiff (contractor) would be paid and if they were not paid could be recovered summarily. That is an important aspect of construction contracts. So although this summary judgment application is a long way from the norm and is by no means straightforward, it seems to me important from a policy perspective, the issues should be carefully considered and resolved summarily if possible. None of that alters the essential principles applicable to summary judgment applications. I am satisfied, in this case, the plaintiff is entitled to the judgment it seeks.
I will hear the parties as to the precise form of orders and as to costs. If, upon conferral, parties cannot reach an agreement as to final orders and costs, then short submissions, together with a minute of proposed orders, should be filed within 7 days of publication of these reasons.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CB
Associate to Master Sanderson
18 FEBRUARY 2021
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