Avoiding jurisdictional error: Is near enough good enough? - Arbitration & Dispute Resolution

The recent decision of the WA Supreme Court of Appeal in Laing O'Rourke Australia Construction Pty Ltd v Samsung C&T Corporation [2016] WASCA 130 (LORAC v Samsung) is an important one for parties seeking (or resisting an application for) judicial review of an adjudicator's determination.

In particular, the decision confirms that courts will be reluctant to find jurisdictional error in a determination if the adjudicator at least means to apply the contract, even if he or she falls into error in that application.

WHY IS THIS DECISION IMPORTANT?

The LORAC v Samsung decision is also important for three additional reasons:

It makes clear that a payment dispute can arise before the amount claimed in a payment claim is due under the contract.
There has been some judicial comment (by His Honour Mitchell J) to the effect that the question of whether an adjudicator should dismiss an application by reason of complexity will depend on an adjudicator's ability and experience. The Court of Appeal left open the question of whether this is the correct approach.
It clarifies that the court, in deciding whether to grant leave to enforce a determination, has discretion to consider all the facts and circumstances of the individual case (including extraneous payments not made directly in respect of the relevant determination).

THE FACTS

The recent LORAC v Samsung decision involved an appeal from a previous decision of the WA Supreme Court.¹ The first respondent (Samsung) subcontracted the appellant (LORAC) to undertake the Port Landside Structural, Mechanical, Piping (SMP) and Electrical and Instrumentation (E&I) works at the Roy Hill project.

In January 2015, LORAC issued a progress claim under the subcontract. Samsung then exercised its contractual entitlement to terminate the subcontract for convenience. A dispute arose.

The parties signed an 'Interim Deed' which required Samsung to pay LORAC termination payments including an 'on account' amount of $45 million. Amongst other things, the termination payments covered all work done prior to termination. Samsung made the $45 million payment.

Importantly, the other termination costs payable under the Interim Deed were subject to two qualifications:

firstly, Samsung's right to set-off; and
secondly, a qualification that the total amount to be paid under the Interim Deed could not exceed the subcontract sum.

In February 2015, LORAC issued a second claim in respect of works it had performed prior to Samsung's termination of the subcontract. Samsung did not pay and LORAC applied for adjudication of both the January progress claim and the February claim under the Construction Contracts Act 2004 (WA) (Act). The adjudicator determined both applications in favour of LORAC, requiring Samsung to pay LORAC a combined (additional) amount of about $44.1 million.

LORAC sought the WA Supreme Court's leave to register the determinations as judgments. In response, Samsung applied for judicial review of each determination, seeking to quash the determinations by writs of certiorari.²

THE DECISION AT FIRST INSTANCE

His Honour Mitchell J heard LORAC and Samsung's applications together. His Honour upheld Samsung's applications for judicial review and each of the adjudicator's determinations were quashed.

Mitchell J found that the adjudication determinations were not made in accordance with proper legal principles. His Honour said that the adjudicator failed to resolve the payment disputes by reference to the terms of the parties' contract, thereby misapprehending the nature of his adjudicative function.

Therefore, Mitchell J denied leave to enforce those adjudication determinations. In any event, His Honour found that, even if the determinations were validly made, Samsung's liability to pay those amounts was discharged by its payments under the Interim Deed.

Mitchell J also dismissed Samsung's contention that a 'payment dispute' under the Act could not arise prior to the time that payment for a payment claim was due to be paid pursuant to the provisions of the contract.

THE DECISION ON APPEAL

The WA Supreme Court of Appeal unanimously overturned the decision of Mitchell J and determined that the adjudicator did not fall into jurisdictional error. However, the Court of Appeal declined to enforce the determinations in light of the payments Samsung had made under the Interim Deed.

Jurisdictional error
The Court of Appeal found that the adjudicator did not, in either determination, commit jurisdictional error.

His Honour Martin CJ (with whom McLure P and Newnes JA agreed) set out the relevant authorities before concluding that:
on one end of the spectrum, an adjudicator will not exceed jurisdiction if he or she merely misconstrues, or makes an error in the application of, a construction contract;
on the other end of the spectrum, an adjudicator who expressly excludes consideration, or 'takes no account whatever', of a construction contract will exceed jurisdiction; and
in cases falling along the spectrum (between these extremes), the court must approach the question of jurisdictional error on a case-by-case basis. Applying these principles, Martin CJ held that the adjudicator had not fallen into jurisdictional error because any error made by the adjudicator was (merely) 'an error in the construction or application of the construction contract'.

For example, his Honour said of the adjudicator's failure to correctly identify the date from which interest was payable: '... an error of this kind is precisely the kind of departure from contractual and legal precision which the legislature has accepted as part of the 'trade-off' for speed and efficiency.'³
When does a 'payment dispute' arise?
Samsung argued, on a proper construction, that (properly construed) s 6(a) of the Act⁴ has the effect that no payment dispute can arise prior to the time at which the amount claimed in a payment claim is due to be paid under the provisions of the contract.

Mitchell J rejected each of Samsung's submissions and, in consequence, found that there was a payment dispute at the time LORAC submitted the first adjudication application.

Martin CJ (Newnes JA agreeing) held that Mitchell J was correct to reject Samsung's submissions, adding a general observation that:

'...the construction of s 6(a) of the Act for which Samsung contends would render words in that section otiose and redundant, and would be inconsistent with the evident objectives of the Act.'

McLure P delivered separate reasons, but nonetheless agreed that a payment dispute can arise before payment is 'presently due, as in the phrase 'due and payable'.⁵
The enforcement of a determination
Martin CJ found that the Court, in considering an enforcement application, has discretion to consider all the facts and circumstances of the individual case.⁶ Those circumstances extend to considering other payments, and whether or not they were made directly as a result of the determination.⁷

Martin CJ considered that extraneous payments made under the Interim Deed were made 'on account' and formed a running account of termination and post-termination costs. Martin CJ found that Samsung was not liable to pay the adjudication determination amounts as its liability was satisfied by the relevant appropriation in the running account, leaving Samsung with a reduced credit balance.⁸

Although neither party made submissions on that point, Martin CJ stated in obiter that it is arguable that the Interim Deed itself could be a construction contract or a variation to the subcontract. The effect of this would be that the Interim Deed (and any liability to pay under the Interim Deed) would fall within the jurisdiction of the adjudicator and therefore not be amenable to review absent jurisdictional error.⁹
The question of complexity
The Court of Appeal left open the question as to the proper approach for the court to take in reviewing an adjudicator's refusal to decline jurisdiction for complexity.¹⁰

In the decision at first instance, Mitchell J stated that in cases where the quantum in dispute is large or the primary issue is one of complicated contractual construction and the adjudicator is not legally trained, the proper approach is to dismiss the application for reasons of complexity under s 31(2)(a)(iv) of the Act.

Martin CJ did not comment on this aspect of the first instance decision. Her Honour McLure P addressed the issue, albeit indirectly, in the course of discussing the distinction between narrow and broad jurisdictional facts. McLure P found that the complexity ground is a jurisdictional fact in the broad sense, as it requires the subjective view of the adjudicator.

In these circumstances, McLure P found that an adjudicator's decision on the question of complexity was open for judicial review.¹¹ Her Honour did not, however, express a view as to whether the adjudicator's legal training should be taken into account in determining whether he or she erred in determining a legally complex dispute.

KEY TAKEAWAYS

In LORAC v Samsung, the Court of Appeal emphasised that the speed and efficiency of the adjudication process is a trade-off, which the legislature has accepted, for contractual and legal precision. The decision appears to buck the recent trend of the Supreme Court, which was to emphasise the importance of adjudicators making determinations in accordance with ordinary legal principles¹². Going forward, the decision may make it difficult for a party to resist enforcement of a determination on the grounds that an adjudicator has misapplied the contract or the law. Although industry participants may be aggrieved by an adjudicator's determination, the decision emphasises the interim nature of the adjudication process.

Footnotes

¹ Laing O'Rourke Australia Construction Pty Ltd v Samsung C&T Corporation [2015] WASC 237 as reported in the Construction Law Update October 2015 < HTTP://WWW.CORRS.COM.AU/ASSETS/THINKING/PDF/CONSTRUCTION-LAW-UPDATE-OCTOBER-2015.PDF > at page 40.

² Certiorari: a remedy issued by order or judgment of a court quashing the decision of a tribunal or inferior court on the grounds of jurisdictional error, an error of law on the face of the record or denial of procedural fairness.

³ [2016] WASCA 130 [107].

⁴ Which provides that: 'For the purposes of this Act, 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;'.

⁵ See [2016] WASCA 130 [200]-[207] (McLure P).

⁶ [2016] WASCA 130 [141].

⁷ This is at odds with the District Court decision in Kuredale Pty Ltd v John Holland Pty Ltd [2015] WADC 61 where Keen DCJ held that an overpayment under a construction contract does not constitute a "sufficient reason" for a court to decline to grant leave under section 43 of the Act.

⁸ [2016] WASCA 130 [161].

⁹ [2016] WASCA 130 [146].

¹⁰ [2015] WASC 237 at [223]-[226].

11 [2016] WASCA 130 [194], [198].

¹² Red Ink Homes Pty Ltd v Court [2013] WASC 52; Delmere Holdings Pty Ltd v Green [2015] WASC 148.

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