Below is a snapshot of some recent cases of interest across
Australia and the insights they offer the industry.
Queensland: Sierra Property v National Construction
Management [2016] QSC 108
An adjudication award under Security of Payment legislation set
aside due to inadequate reasons given by an adjudicator
In the Queensland Supreme Court, Sierra Property
("Sierra") successfully overturned an adjudication award
obtained by its builder, National Construction Management
("NCM"), on the basis that the adjudicator failed to
provide adequate reasons in accordance with s26(3) of the
Building and Construction Industry Payments Act 2004
(Qld).
The adjudicator awarded NCM 95 percent of its claims in
circumstances where Sierra contended that NCM had not undertaken
some of the work for which claims were made. Despite there being
distinct disputes as to the extent of work in nine different
categories, the adjudicator awarded the 95 percent globally without
consideration of each category. The adjudicator's reasons
provided no explanation, other than stating that the decision was
made "after carefully considering [Sierra's] material and
concerns".
In overturning the award, the Court described the adjudicator's
reasons as "opaque" and focused on the fact that the
decision did not demonstrate an analysis of the extent of work in
any of the nine categories. The Court concluded this was inadequate
and set aside the award on the basis that it amounted to a
jurisdictional error.
The case is a reminder to scrutinise an adjudicator's decision
both for errors in the reasoning and also for the adequacy of the
explanation. Inadequate reasons will offer an avenue to overturn an
adjudication award, although what is adequate will depend on the
circumstances of a particular case. It also serves as a reminder to
prepare any adjudication materials in a manner that will assist an
adjudicator in drafting sufficiently detailed reasons.
Western Australia: Australian Maritime
Systems v McConnell Dowell [2016] WASC
52
The application and enforceability of alternative dispute
resolution clauses in construction contracts
The Supreme Court in Western Australia considered a dispute
resolution clause in a contract between McConnell Dowell
("MACD") and Australian Maritime Systems
("AMS") to design, supply and install navigation aids for
MACD's construction works at Cape Lambert Tug Harbour
("Original Agreement"). The dispute resolution clause
provided:
40.1 Disputes
In the event that any dispute, controversy or difference of any
kind whatsoever arising out of or in connection with the Agreement
(including the validity or enforceability of the Agreement or any
part thereof) or the carrying out of the Agreement, shall arise,
either Party may notify the other in writing that a dispute has
arisen and giving full details of the dispute....
40.3 Arbitration
If the parties are unable to resolve the dispute by negotiation or
agree a method of settlement, within 30 days of notification of the
dispute, the dispute may be referred by either party to arbitration
by a single arbitrator ....
The parties subsequently executed a settlement agreement
("Settlement Agreement") to resolve certain disputes that
arose. The Settlement Agreement modified warranties in the Original
Agreement but was silent as to dispute resolution.
A further dispute arose as to claims made by MACD under the
Original Agreement regarding alleged defects. AMS commenced Court
proceedings seeking a declaration that the Settlement Deed released
it from its obligations under the Original Agreement. MACD sought
to stay these proceedings on the basis that the Original Agreement
required any dispute first to be referred to arbitration.
A key question was whether the arbitration clause in the Original
Agreement continued to apply despite the Settlement Agreement
modifying the parties' rights. The Court found the arbitration
clause did apply, due to the express recognition in the Settlement
Agreement that it formed part of the Original Agreement and applied
to "any dispute, controversy or difference of any kind
whatsoever arising out of or in connection with the [Original]
Agreement".
Interestingly, the Court held that it was "implicit" that
the referral to arbitration contemplated by the clause was
mandatory, despite the clause using the word "may" (as
opposed to "must"). However, it is not clear whether this
issue was the subject of much argument between the parties, and
this may have influenced the conclusion.
The unexpected should always be expected in complex construction
and infrastructure projects. Agreeing in advance on alternative
dispute resolution procedures can be an excellent way of managing
unexpected changes and disputes more collaboratively and
efficiently to reduce the risk that they delay the success of the
project. However, care must be taken in drafting such clauses to
ensure clarity as to their scope and whether they are mandatory.
This is equally important when entering into contract variations
and settlement deeds, which are not uncommon on such
projects.
Victoria: Construction Engineering v Adams Consulting
Engineering [2016] VSC 209
The Court's appetite for expert input on technical
construction matters
Construction Engineering (Aust) ("CEA") alleged that
defective structural engineering drawings prepared by Adams
Consulting Engineering ("Adams") resulted in substantial
cost overrun on the upgrade of a large shopping centre on which CEA
was head contractor. The Court sought expert input on the
engineering and considered the following two available mechanisms:
(i) referring technical questions to a special referee; or (ii)
appointing an expert to assist the Court during the hearing.
CEA pressed for a special referee to determine certain questions;
however, the Court chose to appoint an expert to assist it during
the trial. The Court preferred this mechanism because the
engineering issues involved questions of fact and law, and it was
concerned that deferring questions to a special referee might
result in further questions that would need to be resolved by the
Court or by further deferral.
One of the difficulties in having projects disputes resolved
through litigation is that the central questions frequently concern
specialised and technical industry knowledge as much as, or more
than, questions of law. The court system is increasingly
recognising this by the introduction of mechanisms for expert input
and the Court's broad discretion to apply them flexibly and at
its own behest (even without party consent). Use of mechanisms such
as those considered in this case are paving the way for Court
decisions that are more cognisant of technical matters. However,
this case may also demonstrate that courts are unlikely to defer
making their own decisions, even in respect of highly technical
matters.
NSW: Martin v Hume Coal Pty Ltd [2016] NSWLEC
51
Mining licence issues on the Hume Coal project
This case overturned a decision of the Commissioner to allow Hume
Coal ("Hume") access to rural properties under the
Mining Act 1992 (NSW) ("Mining Act") without
landowner consent.
Hume sought access to drive through the properties within its
mining exploration licence area in order to carry out prospecting
operations but did not seek to carry out prospecting operations on
those properties. Hume argued that because it was not seeking to
undertake prospecting on the property, the access fell within
provisions of the Mining Act that do not require landowner
consent.
While Hume succeeded before the Commissioner, the landowners
successfully argued in the NSW Land & Environment Court that
the access sought was the exercise of a mining licence right which
required landowner consent where there were "significant
improvements" to the land, even if no actual prospecting work
was to be undertaken on the property. The Court also rejected
Hume's argument that the "significant improvements"
claimed by the landowners (formed roads and driveways, paddocks
with improved pasture, an equestrian cross-country event course,
cattle laneways, irrigation piping and fences) did not qualify
under the Mining Act.
The decision is a significant victory for the landowners, five
families which are among a number of people trying to prevent
mining in the area. It also confirms a greater burden on
prospective mining licence holders to survey access routes and
assess the likelihood of obtaining consents when considering the
utility and value of a potential licence.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
