[2012] WASAT 13

JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL

STREAM : COMMERCIAL & CIVIL

ACT : CONSTRUCTION CONTRACTS ACT 2004 (WA)

CITATION : CONNEQ INFRASTRUCTURE SERVICES

(AUSTRALIA) PTY LTD and SINO IRON PTY LTD

[2012] WASAT 13

MEMBER : JUSTICE E M CORBOY (SUPPLEMENTARY PRESIDENT)

MR C RAYMOND (SENIOR MEMBER)

HEARD : 16 AUGUST 2011

DELIVERED : 20 JANUARY 2012

FILE NO/S : CC 626 of 2011

BETWEEN : CONNEQ INFRASTRUCTURE SERVICES

(AUSTRALIA) PTY LTD

Applicant

AND

SINO IRON PTY LTD

Respondent

 

Catchwords:

Construction Contracts Act 2004 (WA) - Whether work connected with desalination plant construction work - Meaning of s 4(3)(c) of the Act – Whether work 'constructing any plant' - Whether desalination plant constructed for the purpose of extracting or processing a 'mineral bearing or other substance' - Whether adjudication application made within time

 

Legislation:

Construction Contracts Act 2004 (WA), s 3, s 4, s 5, s 6, s 17, s 18, s 25, s 26, s 31, Sch 1 Div 2, Div 4, Div 5

 

Construction Contracts Bill 2004

Income Tax Assessment Act 1936 (Cth), s 122

Mining Act 1978 (WA), s 8(1), s 9

 

Result:

Decision of adjudicator affirmed

 

Category: B

 

Representation:

Counsel:

Applicant : Mr W L Ryan

Respondent : Mr S R Boyle

Solicitors:

Applicant : Norton Rose Australia

Respondent : Clayton Utz

 

Case(s) referred to in decision(s):

Attorney-General v Salt Union Ltd [1917] 2 KB 488

Blackadder Scaffolding Services (Aust) Pty Ltd and Mirvac Homes (WA) Pty Ltd [2009] WASAT 133

Federal Commissioner of Taxation v Imperial Chemical Industries Australia Ltd (1972) 127 CLR 529

Harrison v Melhem (2008) 72 NSWLR 380

Longmont Consolidated Pty Ltd v and Fleetwood Pty Ltd [2010] WASAT 22

Lord Provost v Farie (1888) LR 13 App Cas 657

Marine & Civil Bauer Joint Venture and Kumagai Joint Venture [2005] WASAT 269

North Australian Cement Ltd v Federal Commissioner of Taxation (1969) 119 CLR 353

NSW Associated Blue-Metal Quarries Ltd v Federal Commissioner of Taxation (1956) 94 CLR 509

Re Bell Basic Industries Ltd and Collector of Customs (1988) 18 ALD 192

 

REASONS FOR DECISION OF THE TRIBUNAL :

Summary of Tribunal's decision

 

1 Conneq Infrastructure Services (Australia) Pty Ltd and Sino Iron Pty Ltd made a contract in July 2010 by which Conneq Infrastructure Services agreed to undertake work and provide services in connection with a desalination plant that was to form part of the Sino Iron iron ore project. The Contract was terminated by Sino Iron in October 2010.

 

2 The Contract contained provisions relating to the payment of Conneq Infrastructure Services' costs in the event of termination. Conneq Infrastructure Services made a claim for the payment of those costs in February 2011. The claim was rejected by Sino Iron.

 

3 Conneq Infrastructure Services subsequently applied for an adjudication of its claim under the Construction Contracts Act 2004 (WA). The application was dismissed by the adjudicator under s 31(2)(a)(i) of the Act (the Contract was not a construction contract) and s 31(2)(a)(ii) of the Act (the application did not comply with the requirements of s 26 of the Act). He held that the Contract was not a construction contract as the water produced by the desalination plant was used for the purpose of processing iron ore and, consequently, the work to be performed under the Contract was not construction work by reason of s 4(3)(c) of the Act. He further held that the adjudication application was prepared and served more than 28 days after the payment dispute had arisen between the parties.

 

4 The Tribunal concluded that the Contract was not a construction contract but for different reasons to that given by the adjudicator. It also found that the adjudication application had been commenced within the time prescribed by s 26 of the Construction Contracts Act 2004 .

 

5 The result of the application to review the adjudicator's determination was that the decision to dismiss the adjudication application was affirmed.

 

The Contract

 

6 By a letter of intent dated 6 July 2010 (LOI), Citic Pacific Mining Management Pty Ltd (CPM) acknowledged, on behalf of Sino Iron Pty Ltd (Sino), that Conneq Infrastructure Services (Australia) Pty Ltd (Conneq) and Sino had agreed in principle to the contract price and the terms and conditions for Conneq to undertake what was described in the letter as the mechanical, electrical and instrument installation and commissioning for the desalination plant. The agreement was expressed to be subject to the 'final internal approval requirements' of Sino.

 

7 It was stated that the LOI had been issued so that Conneq could commence some of the contract work while Sino obtained the final approvals required. The LOI further provided that:

 

a) The contract price and the terms and conditions that had been agreed in principle were contained in a contract annexed to the LOI (Provisional Contract).

b) On acceptance of the LOI by Conneq and 'otherwise until such time as the Contract is executed', the LOI constituted the 'legally binding obligations' of Conneq and Sino with respect to undertaking the contract work (Clause 1(a)).

c) On acceptance of the LOI, Conneq was instructed to undertake the contract work (Clause 2(a)).

d) Conneq was required at all times to comply with the terms of the Provisional Contract with respect to the contract work performed pursuant to the LOI (Clause 2(b)).

e) For the purpose of all 'time frames' in the Provisional Contract, the contract award was the date on which the LOI was executed by both parties (Clause 2(c)).

f) If the Provisional Contract had not been executed by Sino within three months of the date of the LOI, the LOI would terminate unless the lapse date was extended by written agreement between the parties. Further, Sino could terminate the LOI by giving Conneq 14 days written notice. The LOI would end 14 days after the date of the notice (Clause 3(a)).

g) In the event that the LOI expired and the Provisional Contract was not entered into by the parties or Sino terminated the LOI, Sino would pay Conneq within 14 days of the lapse date or the termination date the 'direct reasonable costs actually incurred' by Conneq in relation to the contract work on the condition that Conneq provided substantiation of the reasonable costs that it had incurred in accordance with the LOI to the reasonable satisfaction of Sino (Clause 4(b)).

 

8 The LOI was signed by Sino on 7 July 2010 and by Conneq on the following day.

 

9 The Provisional Contract comprised an instrument of agreement to which was attached a document entitled 'contract details' (Contract Details), general terms and conditions (General Conditions) and various schedules. The schedules included a scope of work (Schedule 1), a payment schedule (Schedule 5) and pricing schedules (Schedule 6). It was not in issue that the LOI and the Provisional Contract together constituted the contract between the parties.

 

The work to have been undertaken by Conneq

 

10 The instrument of agreement stated that the instrument, the Contract Details and the attached schedules comprised a contract that set out the terms upon which Conneq had agreed to undertake 'works' for Sino. Clause 1.1 of the General Conditions similarly provided that Conneq would undertake 'the Works' for Sino in accordance with the requirements of the Contract.

 

11 Clause 1 of the Contract Details described the Works as, 'mechanical, electrical and instrument installation and commissioning for Desalination Plant as further detailed in Scope of Work and Specifications'. Section 5 of the scope of works provided an introduction to the work to be performed. It was stated that:

 

a) A major seawater desalination plant was to be constructed as part of the Sino iron project at Cape Preston in the Pilbara region.

b) A treated water production capacity of 140 ML/d would be provided by means of a seawater reverse osmosis plant. IDE Technologies (Israel) had been appointed for the process design and supply of equipment for that plant.

 

c) The project 'mainly' comprised the following systems:

 

 

d) Sections of the plant were to be fabricated overseas as completed interconnecting modules. The delivered plant sections would have all mechanical, piping, instrumentation and selected portions of the electrical works completed or partly completed.

 

12 Section 6 of the scope of works described the works to be performed by Conneq. The description was extensive (it occupied 55 pages) and cannot be conveniently summarised. Conneq contended, however, that the work specified by the scope of work did not involve 'constructing any plant' within the meaning and for the purpose of s 4(3)(c) of the Construction Contracts Act 2004 (WA) (CC Act).

 

13 The payment schedule contained in Schedule 5 provided that Conneq would be paid 30 days in arrears for all work undertaken pursuant to the Contract. Section 5.3 of the Schedule specified that Conneq was to submit invoices to Sino for payment of the 'Indirects Lump Sum' according to milestones contained in a table forming part of Section 5.3. The milestones provided for fixed payments on invoices to be submitted on the 28th day of each month, commencing on 28 July 2010.

 

14 The reference to the Indirects Lump Sum in the payment schedule was explained by the pricing schedules comprising Schedule 6. That Schedule distinguished between 'indirect' and 'direct' works. 'Indirect Works' were defined as those activities, plant, equipment and other items necessary to support the full and complete performance by Conneq of the works according to the contract but excluding the labour, plant and materials directly required to undertake the works.

 

15 The pricing schedule commenced with a general statement indicating that Conneq would be reimbursed for performance of the Works in a number of ways - for the Indirect Works according to Sections 6.2.1 to 6.2.6 and Section 6.2.9 of the Schedule and for the Direct Works by Sections 6.3 to 6.12 and Section 6.14. The sections contained detailed statements of the work to be performed and Schedule 6 contained schedules of the rates to be applied for those items of work. The total estimated contract price was $62,634,999.74.

 

16 The General Conditions also contained provisions relating to payment. GC 17.1 provided that:

 

a) The 'Contract Sum' would be payable in the instalments set out in the Contract Details. The expression 'Contract Sum' was defined by GC 45.1 to mean the amount specified as such in the Contract Details. The Contract Details did not expressly define the Contract Sum but referred to Schedule 6 to identify the fixed, variable and provisional components of the Contract Sum.

b) Conneq could make a 'Payment Claim' for an instalment of the Contract Sum on the Payment Claim Date for that instalment. GC 45.1 defined a 'Payment Claim' as a claim for payment of an instalment of the Contract Sum and a 'Payment Claim Date' as the date specified in the Contract Details for an instalment of the Contract Sum. Item 7 of the Contract Details referred to Schedule 5 for the payment schedule of the Contract Sum. As previously noted, Schedule 5 provided for payment by monthly milestones of the Indirects Lump Sum; that is, payment for the Indirect Works. It made no provision for the payment of the Direct Works.

 

17 GC 17.2 provided that on and after each Payment Claim Date but in any event within five business days of that date, Conneq was required to submit a Payment Claim for the instalment for that Payment Claim Date. GC 17.2 to GC 17.4 specified the form of a payment claim, the information to be contained in the claim and the material to accompany the claim. GC 17.5 required Sino's representative to review each payment claim and within 10 days of receipt of the claim, issue a notice setting out whether it agreed that the pre-conditions to the making of the Payment Claim had been met and whether the Payment Claim had been made in accordance with the requirements of the contract. Sino's representative was to specify in the notice the correct amount of the Payment Claim if satisfied about those matters. It was obliged to provide reasons where its assessment differed from the amount of the Payment Claim. Conneq was obliged to issue a tax invoice to Sino within two days of its representative determining that Conneq was entitled to make, and had correctly made, a claim for payment. Payment was then to be made by Sino within 30 days of receipt of the tax invoice (GC 17.6).

 

The adjudication application

 

18 CPM advised Conneq by letter dated 1 October 2010 that Sino had decided not to execute the Provisional Contract and that accordingly, the LOI would automatically terminate as and from 6 October (applicant's bundle of documents, Vol 1 Tab 3). Conneq did not dispute the effect of Sino's decision not to execute the Provisional Contract.

 

19 On 5 October 2010 Conneq sent by email to CPM a tax invoice claiming payment of $2,400,000 plus GST (applicant's bundle, Vol 1 Tab 2). The tax invoice referred to 'milestone payment ref 5.3.3 - 28 September 2010'. That statement was a reference to the relevant milestone for payment of Indirects Lump Sum as provided for in Section 5.3 of Schedule 5.

 

20 Conneq advised Sino by letter dated 6 October 2010 that it would commence demobilisation from the project site immediately and that it would present its 'final account' as soon as practicable. The letter further stated, 'We note [Sino's] obligation to effect payment within 14 days of the Lapse Date in accordance with Clause 4(b) of the LOI'.

 

21 CPM advised Conneq by letter dated 15 October 2010 that the invoice submitted with Conneq's email of 5 October 2010 and the amounts claimed were not accepted for reasons that included that:

 

a) The claim constituted by the invoice did not comply with the requirements of GC 17.2 or GC 17.3.

b) Conneq's entitlement to payment had changed as a result of the expiry of the LOI and was governed by Clause 4(b) of the LOI. Sino had not received a substantiation of Conneq's reasonable costs as required by that clause.

 

22 The letter also stated that Sino had attempted to estimate Conneq's direct reasonable costs. The estimate was set out in an attachment to the letter and was said to have generated an 'interim value' for Conneq's direct reasonable costs. Certain amounts were deducted from the estimated costs. The letter advised that:

 

… [a]ll such amounts are subject to reconsideration upon receipt of additional information but will otherwise stand until such time as [Conneq] is willing to meet to discuss the valuation or otherwise provide substantiation to the reasonable satisfaction of [Sino].

 

23 Conneq was requested to submit an invoice for the amount estimated by Sino less the identified deductions so that a payment could be made 'on account until final resolution of this matter'.

 

24 It appears that on 4 November 2010 Conneq wrote to Sino advising that it was collating the information necessary to quantify the costs to be claimed under the LOI and the Contract (see letter dated 3 February 2011 from Conneq to Sino; applicant's bundle, Vol 1 Tab 5). Conneq provided that information by letter dated 3 February 2011. The letter stated that the time taken to compile and submit the information had been caused by delays in subcontractors and suppliers providing their invoices.

 

25 Conneq's letter of 3 February 2011 was accompanied by a 'progress claim summary' that identified the basis upon which the amounts claimed had been calculated. The amounts claimed were for indirect and direct costs. They were calculated and summarised by reference to Section 6.2 to Section 6.14 of Schedule 6. Accordingly, the amounts claimed and the related items of work did not directly correspond with the milestone claim made under Section 5.3 of Schedule 5 in the invoice rendered with Conneq's email dated 5 October 2010.

 

26 The letter concluded:

 

We note that the Letter of Intent required payment of our costs to be made within 14 days following expiration of the Contract. As such, we ask that you arrange payment of the attached invoice within 14 days of receipt of this letter.

 

27 Sino rejected Conneq's claim by letter dated 1 March 2011 from CPM (applicant's bundle, Vol 1 Tab 7). The letter was received by Conneq on the following day. It gave several reasons for rejecting the claim. Those reasons included assertions that Conneq had failed to substantiate its claim in various respects. There was, however, no reference to the timing of the claim and the letter concluded with a request that Conneq resubmit its claim after taking into account the matters that had been identified by CPM, alternatively, that it contact Sino to arrange a meeting to discuss the claim 'with a view to resolving all matters regarding the Contract and the LOI once and for all'.

 

28 Conneq applied for an adjudication under the CC Act by notice dated 29 March 2011. In its response dated 11 April 2011, Sino sought to have the application dismissed on two grounds:

 

a) the Contract was not a construction contract within the meaning and for the purpose of the Act: s 31(2)(a)(i);

b) Conneq had not complied with the requirements of s 26 of the CC Act as the application had not been served within 28 days of a payment dispute arising: s 31(2)(a)(ii).

 

The relevant provisions of the CC Act

 

29 A 'construction contract' is defined by s 3 of the CC Act to mean a contract or other agreement under which a person has one or more of the following obligations:

 

(a) to carry out construction work;

(b) to supply to the site where construction work is being carried out any goods that are related to construction work by virtue of s 5(1);

(c) to provide, on or off the site where construction work is being carried out, professional services that are related to the construction work by virtue of section 5(2);

(d) to provide, on the site where construction work is being carried out, on-site services that are related to the construction work by virtue of section 5(3)(b).

 

30 The expression 'construction work' is comprehensively defined by s 4(2) of the CC Act. The definition is to be read in conjunction with the definition of 'civil works' appearing in s 4(1) and the provisions of s 5 of the Act. Sino did not put in issue that Conneq was required to perform 'construction work' under the Contract if the exclusion contained in s 4(3)(c) of the CC Act did not apply.

 

31 Section 4(3) of the CC Act is as follows:

 

Despite subsection (2) [in which 'construction work' is defined] construction work does not include any of the following work on a site in WA –

 

(a) drilling for the purposes of discovering or extracting oil or natural gas, whether on land or not;

(b) constructing a shaft, pit or quarry, or drilling, for the purposes of discovering or extracting any mineral bearing or other substance;

(c) constructing any plant for the purposes of extracting or processing oil, natural gas or any derivative of natural gas, or any mineral bearing or other substance;

…

 

32 Section 25 of the CC Act provides that if a payment dispute arises under a construction contract, any party to the contract may apply to have the dispute adjudicated. A 'payment dispute' is defined by s 6 of the CC Act to arise if, among other things, 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. A 'payment claim' is defined by s 3 of the CC Act to mean a claim made under a construction contract by the contractor to the principal for payment of an amount in relation to the performance or non-performance by the contractor of its obligations under the contract.

 

33 Section 26(1) of the CC Act provides that to apply to have a payment dispute adjudicated, a party to the contract must prepare a written application for adjudication and serve it on each other party to the contract within 28 days after the dispute arises.

 

34 Section 31(2) of the CC Act requires an appointed adjudicator to dismiss an application for adjudication without making a determination on its merits if, among other things, the contract concerned was not a construction contract or the application had not been prepared and served in accordance with s 26 of the Act.

 

The adjudication

A summary of the parties' contentions

 

35 Conneq contended that a payment dispute arose on receipt of Sino's letter of 1 March 2011 rejecting the claim contained in its letter dated 3 February 2011. It further contended that the contract was a construction contract having regard to the definition of 'construction work' and that the exclusion contained in s 4(3)(c) of the CC Act did not apply as:

 

a) The contract was not a contract for 'constructing any plant' within the meaning of the subsection.

b) The purpose of the desalination plant was not to extract or process any mineral bearing or other substance. Section 4(3) of the CC Act was concerned with mining activities. The purpose of the desalination plant was not to undertake a mining activity; its purpose was to produce desalinated water. The production of desalinated water was an activity that was only incidental to mining and processing iron ore.

 

36 Sino contended that the Contract was for the construction of a plant that processed a substance (seawater) and, therefore, the work performed under the contract was not construction work by reason of s 4(3)(c) of the CC Act. Alternatively, the purpose of the plant was to extract water from a mineral bearing substance.

 

37 Sino further contended that the Contract was a contract for constructing plant of a kind referred to in s 4(3)(c) of the CC Act as:

 

a) the desalination plant was 'critical plant for the purposes of processing or extracting a mineral bearing substance because it is plant used in a larger process, the purpose of which is the processing and extraction of iron ore';

b) the Sino iron project comprised a magnetite mine, a water desalination plant, a power station and port facilities which together formed a facility or plant constructed for the purpose of extracting and processing a 'mineral bearing or other substance';

c) over 99% of the water produced by the desalination plant was to be used in extracting and processing iron ore.

 

38 Sino also submitted that the payment dispute between the parties arose either on 4 February 2011 or at the latest, by 18 February 2011. It argued that the effect of Clause 4(b) of the LOI was that, where Conneq only provided a substantiation of the costs that it claimed outside the 14 day period referred to in the clause, Sino was obliged to pay the costs claimed either immediately on receipt of the substantiation or within 14 days. Conneq provided a substantiation of its claim in its letter of 3 February 2011. The letter was received by Sino on the following day so that payment of the claim was due either immediately or by 18 February 2011. The adjudication application was made and served more than 28 days after 18 February 2011 and accordingly, Conneq had not complied with s 26 of the CC Act.

 

39 It is to be noted that Sino's submission regarding non-compliance with s 26 of the CC Act was made notwithstanding that the grounds for rejecting Conneq's claim asserted that the claim was not substantiated according to the requirements of Clause 4(b) of the LOI.

 

40 Finally, Sino contested Conneq's claim for payment on its merits. It provided detailed submissions on why it alleged that Conneq was not entitled to any payment in Appendix B to its response to the adjudication application. In summary, Sino submitted that the reasons for rejecting Conneq's claim included that:

 

a) Sino had previously assessed and paid Conneq's direct costs;

b) Conneq had 'failed to provide any direct evidence of any real substance to show the costs it had actually incurred';

c) the 'direct labour' that Conneq had on site 'did not do any direct work of any real nature'.

 

41 Conneq anticipated Sino's contention that the adjudication application was made more than 28 days after a payment dispute arose. It submitted that it was not necessary for it to establish that the payment claim complied with the requirements of the contract or any terms to be implied under the CC Act; all that was required for the purposes of a payment dispute was that a claim for payment had been made. Reference was made to Marine & Civil Bauer Joint Venture and Leighton Kumagai Joint Venture [2005] WASAT 269 and Blackadder Scaffolding Services (Aust) Pty Ltd and Mirvac Homes (WA) Pty Ltd [2009] WASAT 133 ( Blackadder Scaffolding ) in support of that proposition.

 

42 Conneq also contended that the Contract was silent on when and how Sino was to respond to any claim made by Conneq under Clause 4(b) of the LOI. Consequently, terms about those matters were implied by s 17 of the CC Act. Sino had failed to comply with those terms with the result that the amount claimed by Conneq was payable.

 

'[C]onstruction work' to be performed by Conneq

 

43 In its written submissions in support of the adjudication application, Conneq contended that:

 

a) the 'Contract Work' comprised the 'installation, construction and commissioning of mechanical, electrical, and instrumentation equipment for a desalination plant (applicant's submissions, para 27);

b) the 'Contract Work' fell within a number of parts of the definition of 'construction work' in s 4(2) of the CC Act, including installing fittings to the desalination plant structure for the supply of electricity and water (among other things); undertaking earth compaction works and performing civil works (pipelines for water) (applicant's submissions, para 28);

c) the 'Contract Work' included the provision of goods and services that were related to 'construction work' under s 5 of the CC Act:

 

i) the provision of plant or materials 'for use in connection with the carrying out of the construction work at the site of the construction work';

ii) the provision of project management services; and

iii) the provision of labour to carry out construction work.

 

44 Sino did not directly contest those submissions in its response. Rather, it focused on the application of s 4(3)(c) of the CC Act by contending that (among other things) Conneq was constructing a plant for the purpose of processing a substance in 'undertaking "mechanical, electrical and instrument installation and commissioning" for the desalination plant' (respondent's response, Annexure A, para 2.3(h)).

 

45 The evidence relied on by the parties to establish the work to be performed by Conneq under the Contract was almost entirely confined to the documents comprising the Contract - in particular, the LOI, the Contract Details, the scope of work and the pricing schedule. As previously noted, the desalination plant comprised a number of modules that had been constructed overseas. Conneq, in conjunction with other various other contractors, was required to, in effect, arrange, fix and connect the modules and to construct, supply or install associated facilities and services so as to form an operating desalination plant. It was to project manage the steps required to create an operating plant from the delivered modules and, as best as can be ascertained from the documents submitted by the parties in the adjudication, it was to be responsible for performing most of the work that was involved.

 

The determination

 

46 The adjudicator held that Sino's contentions that the Contract was not a construction contract because the desalination plant processed a substance (seawater) or because it was used to extract water from a mineral bearing substance were 'tenuous as the second reading of the Bill in the Western Australia Parliament refers specifically to the mining exclusions and this was the intent of the Act' (determination, para 18). However, he further held that the work to be performed under the Contract was not construction work by reason of s 4(3)(c) of the CC Act as 'the water the plant produces is used almost exclusively for the processing of the iron ore'. In particular, the water was used to form slurry to facilitate the transport of the iron ore in the 25 kilometre slurry line from the mine site to the processing plant and it was used in the process of producing pellets from the fines ore (determination, para 19).

 

47 The adjudicator did not make any finding on Conneq's contention that s 4(3)(c) of the CC Act did not apply as the work that it was required to perform under the Contract was not for 'constructing' the desalination plant.

 

48 As for Sino's contention that the application should be dismissed under s 31(2)(a)(ii) of the CC Act, the adjudicator noted that Conneq's letter of 3 February 2011 referred to the LOI requiring payment of its claim within 14 days. He stated that this was 'clear indication that [Conneq] considered the payment terms of the lapsed LOI to be 14 days'. Further, Sino never disputed that payment was required within 14 days under the LOI. Accordingly, Conneq required payment by 18 February 2011 and a payment dispute arose on the following day when payment was not made (determination, para 27 and para 28). The 'belated' letter of rejection provided by Sino on 1 March 2011 had no effect on the date on which a payment dispute arose as the payment claim had not been paid by the 'due date' of 18 February 2011 (determination, para 29).

 

Conneq's application for review of the adjudicator's decision

 

49 Conneq applied to the Tribunal for orders that the adjudicator's decision be set aside and that the Tribunal substitute its own decision requiring Sino to pay the amount claimed by Conneq. The grounds stated in the application for those orders were, in summary, that:

 

a) the correct and preferable decision was that the Contract was a construction contract as, among other things, the 'exclusion' in s 4(3)(c) of the CC Act did not apply to the work performed by Conneq;

b) the correct and preferable decision was that the adjudication application was made within the time specified in s 26 of the CC Act as, among other things, the terms implied by s 17 of the Act about when and how a party is to respond to a payment claim applied to the Contract;

c) the full amount claimed by Conneq was due and payable as Sino had failed to provide a notice of dispute as required by the terms to be implied into the Contract by s 17 of the CC Act.

 

Ground 1: Was the Contract a construction contract?

The parties' submission to the Tribunal

 

50 Conneq submitted that the adjudicator erred in holding that s 4(3)(c) of the CC Act applied for the following reasons:

 

a) He failed to consider whether the work to be performed by Conneq was for 'constructing any plant'. Conneq contended that it was required by the Contract to perform 'in substance' installation work and commissioning services and that the provision of those services did not constitute constructing a plant for the purpose of s 4(3)(c).

b) On the adjudicator's own findings, the water produced by the desalination plant was used primarily to transport ore rather than to process the ore.

c) The plant was not a 'plant for the purpose of processing ore' even if the water was used in processing the ore. The adjudicator had erred in giving the subsection an extended operation.

 

51 As to the first of those matters, Sino contended that s 4(3) of the CC Act presumed that the work concerned was 'construction work'. That was indicated by the opening words of the section: '[d]espite subsection (2) construction work does not include any of the following work …'. The subsection then excluded certain types of 'construction work activities' from the purview of the CC Act. Consequently, 'once it is shown that [Conneq] was engaged in "construction work" relating to "plant for the purposes of extracting etc" then the work the subject of the LOI was not "construction work" within the meaning of the exclusion contained in section 4(3)(c) of the Act' (respondent's outline of submissions, para 40).

 

52 Sino further contended, in the alternative, that the work to be performed by Conneq did concern 'constructing' a plant having regard to the ordinary and industry meanings of 'to construct' and 'construction' and the nature of the work required by the Contract.

 

53 As to the remaining grounds of the application for review, Sino:

 

a) repeated the submission it made in the adjudication that the plant processed a substance; alternatively, that it extracted water from a mineral bearing substance (or a mineral - salt - from a mineral bearing substance);

b) the desalinated water produced by the plant was used in, and formed an integral part of, the production process for the iron ore mined as part of the project even if its primary use was to transport the ore.

 

54 Conneq contended in response to the first of those submissions that s 4(3) of the CC Act was only concerned with work performed as part of a mining activity. Consequently, the reference in s 4(3)(c) of the Act to 'or other substance' was to be read down by the preceding words (an ejusdem generis interpretation) so as to refer to substances mined for profit.

 

The meaning and effect of s 4(3)(c) of the CC Act

The structure of s 4(3)

 

55 Clearly, s 4(3)(a) - s 4(3)(c) of the CC Act concern related topics: generally, particular types of work undertaken in exploring for, extracting and processing natural resources. That raises the question of whether s 4(3)(c) is to be construed by reference to s 4(3)(a) and s 4(3)(b). In particular, the issue raised by ground 1 of Conneq's application for review is the meaning and effect of the expression 'mineral bearing or other substance' when used in s 4(3)(c). Neither party drew a direct connection between the wording of s 4(3)(b) and s 4(3)(c) to construe that expression. Nevertheless, the Tribunal considers that one question that arises is whether s 4(3)(c) should be interpreted to refer only to work constructing a plant for the purpose of extracting mineral bearing or other substances from a shaft, pit or quarry or by drilling or for processing substances that were extracted from those sites or by that means.

 

56 It is necessary, however, to first consider Conneq's contention that the work that it was required to perform under the Contract could not be characterised as work 'constructing any plant' for the purpose of s 4(3)(c) regardless of the meaning attributed to the expression 'mineral bearing or other substance'.

 

'[C]onstructing any plant'

 

57 The meanings given to the word 'construct' by the Macquarie Dictionary include 'to form by putting together parts; build; frame; devise'. The meaning of the word would include 'to assemble' according to ordinary usage. The process of arranging on site the various modules that comprised the desalination plant, fixing those modules to their foundations, connecting the modules structurally and by the necessary piping and electrical cabling and wiring and providing associated facilities, services and equipment so as to create an operating plant would in everyday language be described as constructing the plant. It is hardly surprising that the documents submitted in the adjudication referred to the site of the works as a construction site. It accords with the ordinary meaning of 'construction' and its derivatives to describe the process of assembling the modules to form an operating plant as 'constructing' the plant.

 

58 Sino contended that s 4(3)(c) of the CC Act applied to any construction work (as defined by s 4(2)) 'relating to' constructing a plant for the purpose specified in the subsection. However, that interpretation would appear to give the subsection a wider application than was intended. For example, work commissioning a plant that had been constructed might be characterised as work relating to constructing the plant. However, work performed in commissioning the plant would not ordinarily be described as constructing the plant.

 

59 Nevertheless, in the Tribunal's view, the expression, 'work constructing any plant' encompasses work forming part of the process of constructing a plant. As Conneq contended, it would not involve installing a completed plant or, as previously noted, commissioning the plant. However, Conneq was required by the scope of work to do more than merely 'install' the modules (or any other item of plant or equipment) and to commission the completed plant. Conneq's submissions concerning why the Contract required it to perform construction work appear to tacitly acknowledge that fact.

 

60 We consider that much of the work described by the scope of work was work to be undertaken in constructing the desalination plant in the sense of assembling and completing the building of the plant so that it was operational. The work involved more than merely installing the modules in the sense of fixing them to their foundations and connecting them to external services such as electricity and water supplies (which might be described as 'installing the modules). As has been indicated, the process of creating an operating desalination plant from the delivered modules involved constructing (putting together parts so as to build or devise) the plant. The scope of work indicated that much of the work to be undertaken by Conneq formed part of that process and was work constructing the plant.

 

'[M]ineral bearing substance'

 

61 The second issue on the meaning and effect of s 4(3)(c) of the CC Act concerned the purpose of the desalination plant: was the purpose of the plant to extract or process any 'mineral bearing or other substance'? The possibility that the expression 'mineral bearing or other substances' is to be interpreted by reference to s 4(3)(b) of the CC Act has already been noted. However, it is helpful to first consider the meaning of the expression without reference to the wording of that subsection.

 

62 Conneq submitted that the expression 'mineral bearing' was to be understood as referring to minerals 'found on or dug out of land' (applicant's outline of submissions in reply, para 12). That was said to be supported by reference to the definition of 'minerals' in the Mining Act 1978 (WA) (Mining Act) and to the 'common law' meaning of the word. 63 Section 8(1) of the Mining Act defines 'minerals' to mean, 'naturally occurring substances obtained or obtainable from any land by mining operations carried out on or under the surface of the land …'. In Lord Provost and Magistrates of Glasgow v Farie (1888) LR 13 App Cas 657 ( Lord Provost v Farie ) Lord Macnaghten stated that 'in its widest signification it probably means every inorganic substance forming part of the crust of the earth other than the layer of soil which sustains vegetable life' (689). Conneq contended that, by implication, salt contained in seawater was not a mineral.

 

64 Several points can be made about Conneq's submission. First, in NSW Associated Blue-Metal Quarries Ltd v Federal Commissioner of Taxation (1956) 94 CLR 509 ( NSW Associated Blue-Metal Quarries ) the High Court observed that:

 

The meaning of the words 'mine' and 'mining' like the word 'minerals' is by no means fixed and is readily controlled by context and subject matter. Few words have occasioned the courts more difficulty than 'minerals' but in some degree that is because in legal instruments it is seldom, if ever, used in its accurate or scientific sense and yet the word possesses no secondary meaning at once accepted and definite. (522)

 

65 Second, the definition of 'minerals' appearing in the Mining Act reflects a particular statutory context. It is plain from its terms that the Mining Act is concerned with regulating land use for mining in circumstances where precious metals and minerals on or below the surface of any land in the State are the property of the Crown (s 9 of the Mining Act). The Mining Act also has a particular historical and constitutional context which explains its focus on land use. It is, therefore, not surprising that the Mining Act would define minerals by reference to mining operations conducted on or below the surface of land. There is no basis for inferring that Parliament intended that the word 'mineral' when used in s 4(3)(c) of the CC Act would carry the same meaning as when the word is used as a defined term in the Mining Act. There is no relevant correlation between the subject matter and objects of the Mining Act and the CC Act.

 

66 Third, Hunt states in Mining Law in Western Australia (4th ed, 2009) that the term 'minerals' carries the meaning 'at common law' attributed to it by Lord Macnaghten in Lord Provost v Farie (1.8.1). That appears, with respect, to overstate the effect of his Lordship's observation. It does not seem that Lord Macnaghten was intending to either establish or adopt a settled meaning for the word in law and such a view would be contrary to the observations of the High Court in NSW Associated Blue-Metal Quarries . It is also to be noted that Lord Macnaghten was concerned in Lord Provost v Farie to draw a distinction between 'minerals' and 'mines' in relation to a reservation in a conveyance of the 'whole coal and other minerals in the land …'. It cannot be inferred that he had in mind the distinction sought to be drawn by Conneq when he proffered his understanding of the meaning of the word 'minerals'.

 

67 Fourth, there are many reported decisions in which specific substances have been decided or assumed to be (or not to be) minerals based on the facts of each case (see Mining Law in Western Australia at 1.8.1; and also Willis, 'What Is A Mineral? Interpreting Mining Terminology' (1997) 16 AMPLJ 69). That is consistent with the points already noted and with the proposition that the question of what is meant by expressions such as 'minerals' and 'mining' is ordinarily a question of fact to be determined by 'an informed general usage': North Australian Cement Ltd v Federal Commissioner of Taxation (1969) 119 CLR 353, 363 (Menzies J).

 

68 Fifth, the decided cases include instances where courts have held that brine is a mineral according to the ordinary meaning of what constitutes a mineral. In Attorney-General v Salt Union Ltd [1917] 2 KB 488 ( Attorney-General v Salt Union ) the defendants owned land on and in which there were two vertical shafts used by them for the purpose of pumping natural brine to the surface. Lush J held that the word 'minerals' was 'unquestionably' wide enough to include fluid and oil and included 'all substances forming part of the crust of the earth which can be obtained, other than those on the surface, whether they are solid or in a state of solution'. Consequently, salt in a state of solution was a mineral.

 

69 Similarly, in Federal Commissioner of Taxation v Imperial Chemical Industries Australia Ltd (1972) 127 CLR 529 ( FCT v ICI ), the taxpayer was the lessee of mining leases under the surface of which were substantial quantities of brine. The taxpayer sank bores and pumped brine to the surface where it was concentrated by natural evaporation and, after crystallisation, the salt was removed and washed. It was held that the taxpayer was carrying out mining operations upon a mining property for the purposes of s 122 of the Income Tax Assessment Act 1936 (Cth).

 

70 In the Tribunal's view, there is no reason to restrict the expression 'mineral bearing substance' in s 4(3)(c) of the CC Act to substances found on or in land or which are solids. There is no statutory purpose that would be served by such a restriction having regard to the subject matter and breadth of the CC Act considered as a whole. The definition of 'mineral' appearing in the Oxford English Dictionary includes a 'naturally occurring substance of neither animal nor vegetable origin; an inorganic substance'; a 'solid, naturally occurring, usually inorganic substance with a definite chemical composition, physical structure and properties' (such as crystalline form) as well as a 'product of the depths of the earth'. Similar meanings for the word are given in the Macquarie Dictionary . Salt is a mineral according to those definitions; it would be regarded as such in ordinary usage as illustrated by the reasoning in Attorney-General v Salt Union and FCT v ICI .

 

71 The Macquarie Dictionary defines 'process' to mean 'a continuous action, operation or series of changes taking place in a definite manner'and 'to treat or prepare by some particular process, as in manufacturing'. Plainly, the desalination plant processes sea water (and neither party suggested otherwise). Accordingly, in the Tribunal's opinion, s 4(3)(c) of the CC Act would apply to work constructing a plant for the purpose of processing sea water to produce desalinated water if the wording of the subsection was considered without regard to the remaining provisions of s 4(3) of the Act (or, on one submission made by Conneq, if the expression is not interpreted as referring to a category of substances defined by the subsection).

 

The 'mining exclusion', s 4(3)(b) of the CC Act and the meaning of 'or other substance'

 

72 Conneq characterised s 4(3)(c) of the CC Act as creating a 'mining exclusion'. As previously mentioned, it contended that the subsection identified and was concerned with a defined category of substances - substances that were mined for profit (applicant's outline of submissions in reply, para 6). The contention was primarily directed to Sino's submission that the inclusion of the words 'or other substances' meant that the subsection applied to work performed in relation to constructing a plant that processed or extracted any substance. Conneq argued that the expression 'or other substance' was to be read ejusdem generis so that the subsection was confined to constructing any plant for the purpose of extracting or processing substances that were mined for profit.

 

73 Conneq submitted that two matters supported that interpretation:

 

a) the identification of particular matters that preceded the reference to 'other substances' would be redundant if Parliament had intended that s 4(3)(c) of the CC Act extend to constructing a plant for the purpose of extracting or processing any substance;

b) the object of the section as explained in extrinsic materials.

 

74 The word 'substance' is defined by the Macquarie Dictionary to mean 'that of which a thing consists; matter or material; a species of matter of definite chemical composition'. The word is, self-evidently, of wide import and it would be surprising if Parliament intended that the application of the CC Act would be significantly circumscribed by the introduction of general words at the tail of a provision that forms part of a series of specific exceptions to the operation of the Act. That suggests that the expression 'or other substances' was not intended to be read disjunctively from the preceding words in s 4(3)(b) and s 4(3)(c) of the CC Act so as to create an additional and separate matter to which the subsections were to be applied (constructing a shaft etc to discover or extract any substance or constructing a plant to extract or process any substance).

 

75 That observation and the common subject matter of s 4(3)(a) - s 4(3)(c) of the CC Act further suggests that the words 'or other substance' are to be read contextually and in a way that does not extend the application of the subsections beyond their common subject matter. The subsections are generally concerned with work performed in the resources industry. In our view, the expression 'or other substances' should be interpreted in that context.

 

76 An obvious example of where 'mineral bearing or other substance' might apply in such a context is coal mining. As previously noted, the ordinary meaning of 'mineral' is an inorganic substance (and that would apparently accord with geological definitions: see Re Bell Basic Industries Ltd and Collector of Customs (1988) 18 ALD 192, 202 - 203). Consequently, coal is not a mineral. However, it is an organic substance that is mined by shafts and pits and it is consistent with the subject matter of s 4(3)(b) and s 4(3)(c) of the CC Act that those sections should apply to work performed in constructing such shafts and pits and to constructing plant for the purpose of extracting or processing coal. Coal mining would ordinarily be regarded as forming part of the resources industry.

 

77 Conneq referred to extrinsic materials in support of its contention that s 4(3)(c) of the CC Act was to be construed as referring to a limited and defined category of substances (substances mined for a profit). In particular, reference was made to debate in the Legislative Council during the second reading of the Construction Contracts Bill 2004 and to discussion in the committee stage. In the course of debate, cl 4(3) was referred to as the 'mining exclusion' and there were a number of references to the clause relating to the mining industry. Conneq cited, in particular, statements made by the Hon Nick Griffiths, then Minister for Housing and Works, to the effect that the wording of cl 4(3) did not 'exclude the mining industry' but rather 'it excludes activities that are commonly associated with mining, but it does not prevent its terms operating in respect of some aspects that may be incidental to mining, such as a construction of work other than those set out in the exclusion'. In the committee stage, he also stated that the activities set out in the clause were 'in themselves peculiar'.

 

78 Reference to extrinsic materials such as the second reading speech of a Minister or the explanatory memorandum accompanying a Bill may assist in identifying the purpose or object of a provision. However, as Pearce and Geddes observe in Statutory Interpretation in Australia (7th ed, 2011):

 

The fundamental task of a court is to interpret and apply the words of the legislation. It is not permitted to give effect to ministerial intent as expressed in reports of parliamentary debates at the expense of the enacted words. [3.10]

 

79 It is also relevant to note the distinction drawn by the New South Wales Court of Appeal in Harrison v Melhem (2008) 72 NSWLR 380 between the use of extrinsic material to ascertain the object of a provision - the mischief to which the provision is directed - and the use of such materials to ascertain the meaning of the provision. Spigelman CJ observed in that case:

 

Statements of intention as to the meaning of words by ministers in a Second Reading Speech, let alone other statements in parliamentary speeches are virtually never useful. Relevantly, in my opinion, they are rarely, if ever, 'capable of assisting in the ascertainment of the meaning of the provisions' within the meaning of [the New South Wales equivalent of s 19(1) of the Interpretation Act 1984 (WA)]. (384)

 

80 Similarly, Mason P commented that:

 

Statements in parliament, even by ministers during the Second Reading debate, will however seldom be available to elucidate the meaning of the later-enacted text. Identification of mischief and purpose is one thing, statement of meaning is another. (399)

 

81 It follows from the preceding discussion that, in the Tribunal's view, s 4(3)(c) of the CC Act does not apply to constructing a plant for the purpose of extracting or processing 'any' substance as Sino contended. That conclusion is reinforced by the point taken by Conneq that the reference to oil, natural gas and its derivatives and mineral bearing substance in s 4(3)(c) of the CC Act would be redundant if 'other substance' meant any substance.

 

82 The remaining question is whether the phrase 'mineral bearing substance' in s 4(3)(c) of the CC Act should be read in the context of s 4(3)(b) so as to refer to substances extracted from shafts, pits or quarries or by means of drilling or, as Conneq contended, as referring to substances that were mined for profit. In the Tribunal's view, the phrase is not to be read in that way. Desalinating water is not a mining activity.

 

However, the phrase is not to be interpreted according to references to the mining industry in parliamentary debates for the reasons that have been given. The wording of the subsection does not suggest that its application was intended to be limited to constructing plant used for extracting or processing substances that were intended to be mined for profit; the application of the subsection turns on the purpose of constructing the plant rather than on the purpose of extracting or processing the substance concerned. In our view, the plain meaning of the language used in the subsection must prevail.

 

83 Similarly, there is no reason for reading the words 'mineral bearing substance' in s 4(3)(c) of the CC Act as limited by s 4(3)(b). The form of s 4 and s 5 of the CC Act indicates that extensive use has been made of cross-referencing between subsections where Parliament intended that one provision would build upon or be qualified by another provision. It would have been a simple drafting exercise to have linked the itemisation in s 4(3)(b) with s 4(3)(c) of the CC Act if it had it been intended to confine the later subsection to constructing plant used to create shafts etc or to process substances extracted from the sites and by the means referred to in s 4(3)(b).

 

The meaning attributed to s 4(3)(c) of the CC Act by the adjudicator

 

84 The adjudicator held that the purpose of the desalination plant was to extract or process a mineral bearing substance as the water produced by the plant was used to process iron ore. However, s 4(3)(c) of the CC Act is concerned with the purpose of the plant in question and not the use that might be made of any product created by that plant. The purpose of the desalination plant was to produce desalinated water. That is the relevant purpose for the application of s 4(3)(c). Consequently, the Tribunal considers that the adjudicator erred by applying the section according to the use made of the desalinated water in the processing of iron ore mined as part of the project.

 

Ground 2: Was the adjudication application commenced in time?

The parties' submissions

 

85 Conneq's grounds for review pleaded that the correct and preferable decision was that the adjudication application was commenced within time because of the terms to be implied into the Contract by s 17 of the CC Act as to when and how a party is to respond to a payment claim. It contended that Clause 4 of the LOI contained no written provision as to when or how Sino was to respond to a claim for payment made by Conneq under that clause. Accordingly, terms were to be implied into the Contract pursuant to s 17 and s 18 of the CC Act. The adjudication application complied with the requirements of s 26 of the CC Act when the times specified by the statutory terms for paying or disputing payment claims were applied.

 

86 Conneq also contended in its written submissions that, 'the [T]ribunal established in Blackadder Scaffolding … that a late or non-complying notice of dispute (which is the proper characterisation of [Sino's letter of 2 March 2011]) is sufficient to trigger the establishment of a payment dispute under the Act'. It was not entirely clear whether that contention formed a separate basis for arguing that the adjudication application had been made within time regardless of the terms of the Contract.

 

87 Sino contended that 'on a proper construction of Clause 4(b) of the LOI, 'once [Conneq] provided … substantiation outside of the 14 day period, payment became immediately due and payable by [Sino] or, at the latest, was due within 14 days of the provision of that substantiation' (respondent's outline of submissions, para 74). It submitted that a payment dispute arose on either 4 February 2011 or at the latest, by 18 February 2011 (respondent's outline of submissions, para 75 and para 77):

 

Accordingly, by operation of the first limb of s 6 of the Act, the 'payment dispute' arose when the respondent failed to pay the amount claimed by the time when payment was 'due to be paid under the Act' (ie on 4 February 2011 or alternatively, at the latest, by 18 February 2011).

 

…

 

The Payment Claim was due to be paid on 18 February 2011 (at the latest). It was not paid by that date and as a result, a payment dispute arose on 19 February 2011 (if not earlier).

 

88 It is implicit in those submissions that Conneq had provided the substantiation that, on Sino's interpretation of Clause 4(b) of the LOI, conditioned the obligation to pay. Payment was due by at least 18 February 2011 as the conditions relating to the obligation to pay had been satisfied. Consequently, a payment dispute arose not because Sino rejected the payment claim or disputed the amount claimed but because a payment that was due to be made (that is, was payable) had not been paid. That is made clear by Sino's further submission that if terms were to be implied into the Contract, the effect of those terms when read with Clause 4(b) of the LOI was that Sino was 'obliged to pay the whole of the amount of the claim by 18 February 2011' (respondent's outline of submissions, para 108). Similarly, it was contended that there was no basis for implying terms into the Contract as Clause 4(b) of the LOI provided for how Sino was to respond to a claim for payment - 'that is, [Sino] is to pay [Conneq] the direct reasonable costs actually incurred by the applicant on the condition that the applicant provide substantiation' (respondent's outline of submissions, para 97). On that submission, a payment dispute could only have arisen by 18 February 2011 at the latest if it was accepted that Sino was obliged to make payment because the claim concerned the direct reasonable costs actually incurred by Conneq and the condition regarding substantiation had been satisfied.

89 Those submissions were inconsistent with the position that Sino had previously adopted. It had rejected Conneq's claim for payment by letter of 1 March 2011 and had made detailed submissions in the adjudication as to why Conneq was not entitled to any payment 'on the merits' of its claim (Sino submitted that the costs claimed had either been paid or were not direct reasonable costs actually incurred). The submissions were also inconsistent with submissions by Sino made elsewhere in the application for review and with the fact that Sino continued to resist Conneq's claim. At para 113 of its outline of submissions, it repeated submissions made in the adjudication (in Appendix B) as to why Conneq was not entitled to payment.

 

Clause 4(b) of the LOI

 

90 Clause 4(a) of the LOI stipulated that unless Sino provided prior written approval or agreed otherwise in writing, its liability to Conneq for 'Contract Work' and any and all matters in connection with the LOI was not to exceed $4 million. Clause 4(b) provided that:

 

Subject to [C]lause 4(a) above, in the event that:

 

i the LOI expires and the [C]ontract is not entered into by the Parties; or

ii the Principal terminates the LOI[,] the Principal will pay the Contractor within 14 days of the Lapse Date or the Termination Date the direct reasonable costs actually incurred by the Contractor in relation to the Contract Work on the condition that the Contractor provides substantiation of the reasonable costs that it has incurred in accordance with this LOI to the reasonable satisfaction of the Principal. For avoidance of doubt, the caps on expenditure outlined in [C]lause 4(a) of this LOI apply.

 

91 It will be immediately apparent that there is considerable scope for dispute about Conneq's entitlement to payment under Clause 4(b): whether the costs claimed are 'direct' costs; whether they were reasonable; whether they were actually incurred and whether they had been substantiated. Those matters define Sino's obligation to pay but the clause is silent on what is to occur if the obligation to pay was disputed for any reason. The clause does not specify how a dispute is to be resolved and what is to occur on resolution of the dispute. Further, the clause defines Sino's obligation to pay by reference to a number of days from the Lapse Date or the Termination Date. It does not provide for when payment is to be made if, for example, Conneq provided substantiation of its claim outside the 14 day period or a dispute over payment was not resolved within that period. It is reasonable to infer that it might take time for Conneq to substantiate its costs given the nature of the work to be performed under the Contract and the differences between payment under Clause 4 of the LOI and the payment and pricing schedules annexed to the LOI.

 

GC 17

 

92 GC 17 is concerned with making and paying a 'Payment Claim'. GC 17.2 requires Conneq to submit a 'Payment Claim' on or within a specified period after each 'Payment Claim Date' for the 'instalment' for that 'Payment Claim Date'. GC 17.3 to GC 17.5 contain provisions for submitting and processing a Payment Claim that culminated in Conneq being entitled to issue a tax invoice to Sino in respect of its payment claim as assessed by Sino's representative. Payment is to be made within 30 days of receipt of the tax invoice subject to the set off, withholding and deduction provisions contained in GC 17.7 to GC 17.10.

 

93 GC 45.1 defines the term 'Payment Claim' to mean a claim for payment of an instalment of the Contract Sum. The condition also defines a 'Payment Claim Date' to mean 'in respect of an instalment of the contract sum, the date specified in the Contract Details for that instalment'.

 

94 The Contract Details do not specify instalment dates for payment of the Contract Sum. However, Item 7 of the Contract Details is headed 'Payment Schedule for Contract Sum' and is cross-referred to GC 1.5. That condition provides that, 'in consideration of the Contractor undertaking the Works and discharging all of its remaining obligations under this Contract, the Principal will pay the Contractor the Contract Sum in accordance with the requirements of this Contract'. Item 7 then refers to Schedule 5, the payment schedule. As previously explained, s 5.3 of Schedule 5 provides for payments of the 'Indirects Lump Sum' on monthly 'milestone' dates - that is, in effect, by instalments. Schedule 6 contains the pricing schedules and provides for payment of various items of indirect works. Each relevant pricing schedule for those works specifies that payment for the item was to be on a 'lump sum basis in accordance with sch 5'.

 

Terms implied under the CC Act

 

95 Division 2 of the CC Act contains provisions to be implied into construction contracts. Section 17 provides that the provisions in Sch 1 Div 5 to the Act as to when and how a party is to respond to a claim for payment made by another party are implied into a construction contract that does not have a written provision about that matter. Section 18 implies the provisions in Sch 1 Div 5 where the construction contract does not have a written provision about the time by when a payment must be made.

 

96 Division 5 of Sch 1 is entitled 'Responding to claims for payment' and provides that where a party to a construction contract receives a payment claim the party must within 14 days after receiving the claim give the claimant notice of a dispute if it is believed that the claim should be rejected because it has not been made in accordance with the contract or the whole or part of the claim is disputed. Division 5 contains provisions concerning the form of the notice of dispute. The party that has received the payment claim must pay that amount of the claim that is not disputed within 28 days.

 

The effect of Clause 4(b) of the LOI

 

97 Sino's contentions concerning the effect of Clause 4(b) of the LOI cannot be accepted. It could not have been intended by the parties that the only response that Sino could make to a claim submitted to Conneq was to pay the claim (which is the effect of Sino's contention as to why Clause 4(b) provided for how it was to respond to a claim). Such an interpretation would be commercially nonsensical having regard to the subject matter of Clause 4(b). Sino's contention appears, with respect, to be opportunistic.

 

98 In the Tribunal's view, Clause 4(b) does not provide for how Sino was to respond to Conneq's claim where the claim was made outside the 14 day period stipulated by the clause and/or Sino disputed the amount claimed. Accordingly, the terms to be implied by s 17 and s 18 of the CC Act formed part of the Contract. That conclusion is consistent with the approach previously taken by the Tribunal in cases such as Longmont Consolidated Pty Ltd and Fleetwood Pty Ltd [2010] WASAT 22.

 

The application of GC 17

 

99 GC 17 provides for the payment of 'instalments'. The Contract provided for milestone or instalment payments of 'Indirects Lump Sum'. The condition did not refer to payment of any other amount that might become payable under the Contract - in particular, payment of 'direct reasonable costs actually incurred' by Conneq on termination of the Contract or expiry of the LOI. Clause 4(b) of the LOI was clearly intended to operate independently of the payment regime created by GC 17.

 

The application of the implied terms

 

100 Conneq’s claim was dated 3 February 2011 and was received by Sino on the following day. It was not in issue that the claim was a payment claim within the meaning of cl 5(1) of Div 4 and cl 6 of Div 5, Sch 1 of the CC Act.

 

101 By cl 7(1) of Div 5, Sino was to give Conneq notice of a dispute within 14 days if it believed that the claim should be rejected or disputed the whole or part of the claim. It did not give a notice within that time.

 

102 Clause 7(3) of Div 5 provides that a party who receives a payment claim must pay the whole of the claim or that part of the claim that is not disputed unless the claim had been rejected or wholly disputed pursuant to cl 7(1). Conneq contends that the full amount of its claim was payable under cl 7(3) on 4 March 2011. Sino disputes that contention.

 

103 Sino’s letter rejecting Conneq's claim was dated 1 March 2011 and was received on the following day. The adjudication application was served on 28 March 2011.

 

104 Section 6(a) of the CC Act 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. The Tribunal held in Blackadder Scaffolding that a payment dispute may arise where a notice rejecting or disputing a claim was served outside the time prescribed by cl 7(1) of Div 5 but prior to when the 28 day period referred to in cl 7(3) had expired. Accordingly, a payment dispute arose on 2 March 2011. The adjudication application was made within 28 days of the dispute arising and in compliance with the requirements of s 26 of the CC Act.

 

Ground 3: Payment of Conneq's claim

 

105 The decision under review was whether the correct or preferable decision was to dismiss the adjudication application under s 31(2((a) of the CC Act. The adjudicator held that the application must be dismissed. The Tribunal has held that this was the correct decision, although for different reasons to that given by the adjudicator. It is not appropriate that ground 3 of the application for review be further considered having regard to the provisions of s 31(2) and s 46(2) of the CC Act. I certify that this and the preceding [105] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

 

___________________________________

JUSTICE E M CORBOY, SUPPLEMENTARY PRESIDENT