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Western Australian decision of Laing v Samsung – Payment Dispute

When is a payment dispute a dispute and can your adjudicator handle it?

This is an article on the recent Supreme Court of Western Australia decision of Laing O’Rourke Australia Construction Pty Ltd (Laing) v Samsung C&T Corporations (Samsung) of 3 July 2015.

Background to the dispute 

Samsung were appointed EPC contractor on the infamous $10 billion Roy Hill iron ore mine. The project includes a new 55 million ton per annum iron ore mine, 344 km of railway and a new port at Port Hedland.

On 21 February 2014, Samsung and Laing entered into a subcontract (“the Subcontract“). Under the Subcontract, Laing was in charge of structural steel and associated mechanical piping, electrical and instrumentation work for the immense mine. The Subcontract also incorporated building the ore stockyard facilities to support the intermodal and export operations, comprising car dumpers, inter connection conveyors and transfer stations. The Subcontract value was $215 million.

The Subcontract incorporated general conditions amended from AS4902-2000. The relevant clauses of the Subcontract included:

  • clause 37- which set out the standard progress payment regime;
  • clause 37.8 gave Samsung the right to set off (this clause specifically survived termination);
  • clause 39A.1- giving Samsung the right to terminate, ‘at any time for its sole convenience’, (“Termination for Convenience”);
  • clause 39.A.2- which set out a regime for determining Laing’s entitlements if and when Samsung exercised the Termination for Convenience.

Importantly, clause 39A.2 was expressly stated to survive Termination for Convenience of the Subcontract.

A dispute over ‘commercial matters’ arose. On 10 February 2015, Samsung exercised its right under clause 39A.1, Termination for Convenience.

On 21 February 2015, Samsung and Laing entered into an ‘interim deed’, (“the Deed“) to determine the terms of payment for the Termination for Convenience. The Deed provided for Samsung to make certain payments to Laing; under the terms, Samsung made payments up to a total of $45 million ‘on account’ only.

Subsequent to the payment, Laing purported to make further payment claims under clause 37.1 of the Subcontract, a clause which did not expressly survive termination.

Subsequent to the payment of the $45 million, Laing served two adjudication applications under the Construction Contracts Act 2004 (WA), (“the CCA“). The adjudicator made two adjudication determinations in Laing’s favour, stating that Samsung must pay Laing a further $44,140,518.

With no real surprise, Samsung sought to ask the court to issue ‘writs of certiorari’ and quash the adjudicator’s two decisions on a number of grounds including:

  • the termination meant that there was no payment dispute capable of being adjudicated, and
  • that the adjudication had failed to consider the subcontract terms, and as a consequence, there was a jurisdictional error.

Laing sought to enforce the adjudication decisions as judgments of the court. The applications were heard together.

The first issue – when does a payment dispute commence?

Until this case, there had been conflicting decisions on when a payment dispute, pursuant to the CCA has said to have arisen, or to have commenced.

Samsung argued, on one of its grounds, that a valid ‘payment dispute’ had not yet arisen for the purposes of s6(a) of the CCA.

Section 6(a) provides that a payment dispute arises if:

“by the time when the amount claimed in a payment claim is due to be paid under the contract, the amount has not been paid in full, or the claim has been rejected or wholly or partly disputed.” 

Samsung argued that a s6(a) payment dispute is only triggered when the amount claimed in a progress claim is due to be paid under the contract, (“the Due Date“). In this case, although Samsung had already rejected the progress claim, the Due Date had not actually yet arisen when Laing commenced the adjudication.

In reverse, Laing argued that a payment dispute arose when Samsung rejected its progress claim.

In relation to the first issue, Justice Mitchell found in favour of Laing. He felt that Laing’s interpretation both gave meaning to more words in the provision and more adequately achieved the purpose of the CCA. The dispute arose when the payment claim was rejected.

The second issue – was there jurisdictional error?

The question was had the adjudicator failed to properly consider the terms of the subcontract and therefore misconstrued his function under the Act?

The second issue looked at the two decisions of the Adjudicator.

The adjudicator had based his decisions on the progress payment regime under clause 37 of the subcontract. Justice Mitchell held that clause 37, with the exception of clause 37.8, had not survived termination of the contract. He held that the adjudicator had failed to consider the correct contractual position. In doing so, he therefore failed to correctly consider that, after the Termination for Convenience, clause 39A.2 governed Samsung’s liability to make any payments to Laing.

As a consequence, the adjudication determinations were quashed as the adjudicator’s actions gave rise to a jurisdictional error. Justice Mitchell held that the adjudication “evidenced a misapprehension of the nature and scope of the function he was required to perform.” [1]

Justice Mitchell went on to state that if the Adjudicator is asked to embark on a complex contractual construction exercise and he is not able to do so in the time permitted, then he should summarily dismiss the Adjudication Application without reasons under Section 31(2)(a)(iv) of the CCA.

Arguably, and of interest, this implies that adjudicators who do not have legal training should dismiss applications that turn a difficult question of contractual constriction.

The second issue was, therefore, determined in Samsung’s favour.

 The third issue – Enforcement

The third issue was whether leave to enforce the determinations should be refused because the determinations were invalid (because of the jurisdictional error), or because the payments on account required by those determinations had already been made under the Interim Deed (and were covered by clause 39A.2).

Again, Justice Mitchell found in favour of Samsung on this issue. The Court (in obiter) stated that it would have opposed leave under Section 43 of CCA to register the determinations as the payments which were the object of the determinations had already been made under the Interim Deed.

Watch this space

Laing has filed an appeal notice so further clarification of the points should be coming from the Court of Appeal soon.

We will keep you posted!

[1] At 248