Justice Beech of the Supreme Court of WA delivered a judgment, on 14 October 2016, in relation to an application by Samsung C&T Corporation (Samsung) to set aside five unfavourable adjudication determinations under the Construction Contracts Act 2004 (WA) (CCA) on the basis of jurisdictional error. The adjudication determinations had been made in favour of Samsung’s subcontractor on the Roy Hill Iron Ore Project (Project), Duro Felguera Australia Pty Ltd (Duro) and totalled more than AU$60 million. His Honour set aside two of the five adjudication decisions. Samsung was unsuccessful in its application to set aside the other three determinations, with Duro obtaining leave to enforce them. As a consequence, Samsung was required to pay Duro a total of AU$12 million.
In summary, in relation to the two determinations that were set aside:
- The first was set aside because the adjudicator’s reasons for refusing to give credit to Samsung for a payment on account of more than AU$6.66 million revealed jurisdictional error.
- The second was also set aside as jurisdictional error. The adjudicator’s reasons were fatally flawed in a particular respect: a substantial element of Duro’s claim, AU$32.4 million, was not referable to the payment claim.
First Determination to be Set Aside
In the first determination to be set aside, the adjudicator found that Samsung had the right to set-off the payment on account of AU$6.6 million against amounts it owed to Duro. However, the adjudicator declined to bring that set-off to account on the ground that he found that, in an earlier progress certificate relating to a different progress claim, Samsung had wrongly set-off an amount of AU$13.1 million, which exceeded the payment on account.
Justice Beech found that the adjudicator exceeded the limits of his statutory powers as they do not permit direct attention to the merits of competing claims, counterclaims or set-offs made in, or in response to, earlier or separate payment claims.10 Justice Beech held it is not open to an adjudicator to find that the amount payable by a party in relation to the payment claim is to be increased (or decreased) on the ground that the adjudicator considers that a party wrongfully denied liability (or wrongfully made a claim) in relation to an earlier, different payment claim.
Second Determination to be set aside
The second determination to be set aside related to a progress claim for an amount of about AU$64 million, comprising four elements outlined in Duro’s submissions to the adjudicator.12 On the face of Duro’s submissions to the adjudicator, nothing in Duro’s progress claim was referrable to, or connected to any part of, the AU$32.4 million awarded.
Justice Beech repeated what His Honour said in Alliance Contracting Pty Ltd v James, 14 regarding an adjudicator’s powers and functions and came to the conclusion that as Duro had not made a payment claim in relation to the AU$32.4 million in its progress claim it followed that the adjudicator had no power to determine that Samsung was obliged to pay that sum to Duro. Therefore, His Honour held that the adjudicator exceeded his statutory authority.15 Furthermore, in failing to respond at all to Samsung’s primary submission about the AU$32.4 million, the adjudicator breached the requirements of procedural fairness.16
Reasons for Upholding Three of the Determinations
Samsung was unsuccessful in its application to set aside the other three adjudication determinations for the following reasons:
- Justice Beech did not accept Samsung’s submission that two adjudicators made a jurisdictional error in that they made their determination without regard to the subcontract, or because they adopted a construction of it that was outside reasonable bounds. His Honour held that an adjudicator has jurisdiction to err in the construction of a contract.17 He was not persuaded that any error on the part of the adjudicators in determining whether milestones applied to the subcontract was anything more than an error in construing the subcontract.18
- Justice Beech did not accept Samsung’s submission that the progress claims in dispute were not payment claims as defined under the Act because the claim for payment was not confined to construction work. His Honour held this proposition involves a restrictive reading of the statutory language that finds no support in the text and, bearing in mind the evident object of the Act, gives rise to consequences that are unlikely to have been intended.19