Introduction
In this Update we look at a recent Queensland Supreme Court decision involving a dispute over an unpaid progress claim for $14 million.[1]
Background
Sun Engineering (Qld) P/L (“Sun”) entered into a contract with Wiggins Island Coal Export Terminal P/L (“WCT”) to build a rail retrieval facility, an overland conveyor and a substation as part of the Wiggins Island Coal Export Terminal. Sun claimed a payment of approximately $17 million, which included a significant amount for costs arising from delays to the project. WCT agreed to pay about $3 million but disputed Sun’s entitlement to the balance of $14 million. Sun referred the dispute to adjudication under the Building and Construction Industries Payments Act 2004 (Qld) (“Act”). The adjudicator received submissions from the parties and on 3 July 2014, awarded Sun the amount it claimed. WCT paid Sun the $3 million but did not pay the balance.
Instead, WCT applied to the Supreme Court for an injunction preventing Sun from enforcing the adjudicator’s award. WCT also asked the Court to declare the adjudicator’s award void on the ground of jurisdictional error. With the consent of Sun, WCT paid the $14 million into the Court’s trust fund pending the Court’s decision on the injunction.
As is commonly the case with adjudication disputes before the Court, an expedited timetable was put in place and the matter was listed for hearing on 14 and 15 August 2014.
However, even with this expedited hearing date for the matter, the Court decided to determine the injunction application immediately. This Update reports on the outcome of the injunction application.
Injunctions: 2 factors to consider
WCT asked the Court to grant an injunction that prevented Sun from enforcing the award (obtaining the $14 million) until after the Court had heard the full argument in August 2014. When a Court considers an injunction application, it looks at two main factors:
- Does WCT have a case?
- Where is the balance of convenience between Sun and WCT?
In considering the first factor, the Court looks at the preliminary evidence before it. WCT only has to persuade the Court that it has a prima facie case. This is a lower hurdle than persuading the Court that it will succeed at the ultimate trial. It is sufficient that WCT show a sufficient likelihood of success to justify the preservation of the status quo pending the trial.
In relation to balance of convenience, the Court looks at whether the inconvenience or injury likely to be suffered by WCT if it refuses the injunction outweighs the inconvenience to Sun if it grants the injunction.
Sun conceded that WCT had a prima facie case but did not agree that WCT’s case was strong. The dispute between the parties before the Court centred on the balance of convenience although WCT claimed that due to the strength of its case, the balance of convenience should be exercised in its favour.
WCT’s contention on likely success
The majority of the $14 million claimed related to Sun’s claim for additional costs arising from extensions of time (“EOT”) it claimed. WCT said that Sun was not entitled to the EOTs because it had failed to ask for them within the 28 day period after the delaying event, as required by the contract. The adjudicator decided that WCT had waived its right to insist on the 28 day time period because it had assessed other EOT requests by Sun when they had been submitted late.
WCT said that this finding as to waiver was wrong, because WCT had a separate absolute discretion under another clause of the contract to award an EOT to Sun. Therefore, by granting an EOT to a late request it was simply using this other discretionary right and it had not waived its right to deny EOT requests made after the 28 day period.
WCT said that the adjudicator had ignored provisions of the contract and had made irrational errors. On this basis, his determination was void for jurisdictional error.
The Court reviewed these contentions of WCT and summarised them as a “good arguable case”. However, the Court said that the balance of convenience test must also be considered.
Balance of convenience test
WCT said that while the contract sum was $69 million, it had already paid to Sun $76 million and the work was only 92% complete. It said that if it paid the further amount it would have overpaid Sun by about $15 million and had doubt that Sun could repay. WCT said that given the fact that the trial was listed for mid August, the convenience rested with leaving the money in the Court’s trust fund until the trial.
Sun said that a significant factor to be considered is the policy reason behind the Act. Sun referred to earlier cases where Court’s have required parties to pay adjudicated amounts even though they have resisted by seeking review of the adjudicator’s awards.
The Court referred particularly to Justice Keane’s judgement in Neller[2] where his Honour said that the risk of a contractor not being able to repay an adjudication award is a risk that the Act has assigned to the owner. Justice Keane said:
an assured cash flow is essential to the commercial survival of builders …if a payment the subject of an adjudication is withheld pending the final resolution of the builder’s entitlement to the payment, the builder may be ruined
Relying on the Court of Appeal decision in Neller, the Court refused WCT’s application. This had the effect of requiring the $14 million to be paid out from the Court to Sun, even though the matter was listed for trial only two weeks after the decision was delivered.
Conclusion
The decision marks a strong endorsement of the adjudication regime by the Queensland Supreme Court. It appears to be the first time that funds held in trust by the Court have been ordered to be paid out to the claimant, notwithstanding an imminent trial date as to the validity of the adjudication.
Principals engaged in adjudication should ensure that they put forward all appropriate evidence and arguments before the adjudicator to attempt to minimise the likelihood that they will be required to pay funds they consider they will ultimately have to attempt to recover.
Contributor: Tom Grace
[1] Wiggins Island Coal Export Terminal Pty Ltd v Sun Engineering (Qld) Pty Ltd & Anor [2014] QSC 170
[2] R J Neller Building Pty Ltd v Ainsworth [2009] 1 Qd R 390
