JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA IN CHAMBERS

CITATION : ENERFLEX PROCESS PTY LTD -v- KEMPE ENGINEERING SERVICES (AUSTRALIA) PTY LTD [2013] WASC 406

CORAM : LE MIERE J

HEARD : 29 OCTOBER 2013

DELIVERED : 15 NOVEMBER 2013

FILE NO/S : CIV 2642 of 2013

MATTER : An Application pursuant to Order 52 of the Rules of the Supreme Court

BETWEEN : ENERFLEX PROCESS PTY LTD

Plaintiff

AND

KEMPE ENGINEERING SERVICES (AUSTRALIA)

PTY LTD

First Defendant

KIM DOHERTY

Second Defendant

Catchwords:

Practice and procedure - Interlocutory injunction - No cause of action disclosed - No prima facie case - Balance of convenience

Legislation:

Construction Contracts Act 2004 (WA), s 3, s 4(3), s 26, s 31(2)(a), s 31(2)(b)

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff : Mr M Christie SC & Mr M C Hotchkin

First Defendant : Mr P J Ward

Second Defendant : No appearance

Solicitors:

Plaintiff : Hotchkin Hanly

First Defendant : Ashurst Australia

Second Defendant : No appearance

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

ABC v Lenah Game Meats Pty Ltd [2001] HCA 63, 208 CLR 199

O'Donnell Griffin Pty Ltd v Davis [2007] WASC 215

Perrinepod v Georgiou Building Pty Ltd [2011] WASCA 217

Re Graham Anstee-Brook; Ex Parte Karara Mining Ltd [2012] WASC 129

1 LE MIERE J : The plaintiff, Enerflex Process Pty Ltd (Enerflex), is constructing the Gorgon Domestic Gas Custody Transfer Meter Station for Chevron Australia as part of the Gorgon Natural Gas Project. The Gorgon Project includes the construction of a Liquefied Natural Gas Plant on Barrow Island off the North West coast of Western Australia. Enerflex entered into a contract with Chevron for the engineering, procurement, construction and pre-commissioning of the Meter Station. Included in the scope of work was the pipework to interconnect each of the Meter Station's main process units (Interconnecting Pipework). The Interconnecting Pipework transports gas through the Meter Station. Enerflex and the first defendant, Kempe Engineering Services (Australia ) Pty Ltd (Kempe), entered into a subcontract whereby Kempe was to fabricate, assemble, examine, post weld, heat treat and package Interconnecting Pipework for the Meter Station.

2 Kempe undertook work in performance of the contract which involved fabrication of piping, fittings and other components of the Metering Station. Kempe issued invoices to Enerflex with a total value of $1,533,018.66 (including GST). Enerflex rejected the invoices. On 17 October 2013 Kempe served an application for adjudication (Adjudication Application) pursuant to s 26 of the Construction Contracts Act 2004 (WA) (the Act) on Enerflex and the Institute of Arbitrators & Mediators Australia. On 18 October the Institute appointed the second defendant, Mr Kim Doherty, to adjudicate the Adjudication Application. On 29 October Enerflex commenced this action by writ of summons claiming an injunction restraining Kempe from progressing the Adjudication Application and an injunction restraining Mr Doherty from making a determination as an adjudicator with respect to the Adjudication Application.

3 Also on 29 October Enerflex brought an application for an interlocutory injunction restraining Kempe from progressing the Adjudication Application and Mr Doherty from making a determination as an adjudicator with respect to the Adjudication Application. Enerflex filed a certificate of urgency certifying that its application for an interlocutory injunction is of such an urgent nature that it was required to be heard that day, 29 October, because its response to the Adjudication Application was due on 31 October. For that reason I heard the application on 29 October. During the course of the hearing senior counsel for Enerflex informed the court that Enerflex intended to serve its response to the Adjudication Application by 31 October in any event and hence the matter was no longer urgent. The appointed adjudicator, Mr Doherty, has informed the court that he does not intend to take any part in the proceedings and will abide by the outcome.

Grounds of application

4 Enerflex submits that its contract with Kempe is not a construction contract as defined by s 3 of the Act and therefore Kempe is not entitled to apply to have the dispute between it and Enerflex adjudicated under the Act and the adjudicator does not have jurisdiction to make a determination under s 31(2)(b) of the Act whether Enerflex is liable to make a payment to Kempe. A construction contract is defined to mean a contract, amongst other things, under which a person has an obligation to carry out construction work. Section 4(3) provides that construction work does not include, amongst other things, 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. Enerflex says that the work Kempe is contracted to perform is constructing plant for the purposes of extracting or processing natural gas and hence it is not construction work.

Serious question whether contract is a construction contract

5 Both parties referred to my reasons for judgment in Re Graham Anstee-Brook; Ex Parte Karara Mining Ltd [2012] WASC 129 where I said:

Whether the pipeline is part of any plant for the purposes of extracting or processing any mineral bearing substance, in this case iron ore, depends upon whether the pipeline, and the function performed by it, is so related to the extraction or processing of iron ore that it warrants being held to be plant. The evidence does not establish that the pipeline performs a function so related to the extraction or processing operations so as to make it part of the plant. The function performed by the pipeline is to transport water from the borefield to the mine site and camp. Clause 1.1 of the Pipeline Contract provides that raw water is required for mine site operation and potable use. Paragraph 1.1.4 provides that infrastructure at the mine site to receive the raw water includes a raw water tank at the campsite, a raw water tank at the mine site and a raw water dam at the mine site which receives overflow from the raw water tank. Thus, the function of the pipeline is to transport the water from the bore field to the campsite and mine site. The water, or most of it, is then subsequently used for the purposes of extracting or processing iron ore. However, no extraction, concentration, filtering or other processes that form part of the extraction or processing of the iron ore takes place in the pipeline. The evidence does not establish the function performed by the pipeline, or the relationship between the pipeline and any part of the plant that directly extracts or processes iron ore, is such that the pipeline might be properly regarded as part of any plant for the purposes of extracting or processing any mineral bearing substance [16].

6 Natural gas is produced at the LNG Plant on Barrow Island. It is then piped to the mainland and into the Meter Station about 75 km away. The gas Chevron produces for domestic consumption, which I will call DomGas, is required to meet the pressure and composition standards specified by the entity which operates the Dampier to Bunbury Natural Gas Pipeline (DBNGP). Enerflex says that the Meter Station processes and measures the gas to ensure it meets Chevron's sales gas quality requirements before it is piped to the connection with the DBNGP and then to gas consumers in Western Australia.

7 Dwight Blackburn, an engineering manager employed by Enerflex, has sworn that the Meter Station includes the following units:

(a) Filtration and flow regulation unit

(1) After the Input Gas enters the Meter Station, it is filtered by means of directing the Input Gas through the filtration vessels which remove any solid particulate material from the Input Gas;

(2) Water is removed from the Input Gas by means of directing the Input Gas through a coalescing unit;

(3) The flow and pressure of the Input Gas is adjusted so that the Output Gas is at the DBNGP operating specifications.

(b) Instrument gas unit

In this unit a stream of Input Gas is taken from the main Input Gas line for use in pressurising the control actuators in the Meter Station. For the Input Gas to be used in this way, it requires further filtration, dehydration and pressure reduction.

Enerflex says that these steps involve the 'processing' of natural gas.

8 Kempe says that the work under the contract is not work for constructing any plant for the purposes of processing natural gas because:

(a) the Metering Station is not part of the processing of natural gas;

(b) the filtering and extracting of impurities is not 'processing' for the purposes of the Act; and

(c) Kempe was supplying management and labour to fabricate spools from the free issue pipes and fittings and not the transfer station itself.

Kempe says that the processing of natural gas takes place at the processing plant on Barrow Island. The purpose of the pipeline is for transmission and measuring not processing. Changes in pressure and filtering of the DomGas is not in itself the processing of gas. Changes in gas pressure occur anytime a pipe size changes and is not processing. Filtering happens up and down the DBNGP to extract contaminating particles and condensate from the gas stream that enter because of the transportation process and not because the natural gas as extracted needs to be changed or processed. Kempe says that this is a normal operation with the supply and transmission of gas and it is not accurate to categorise this as 'processing'.

9 I find that there is a serious question to be tried whether the work performed by Kempe under the contract is construction work. It is unnecessary and inappropriate to say anything further about that issue at this stage of the proceedings.

Cause of action

10 Kempe says that the application is fundamentally defective because the indorsement of claim on the writ of summons does not disclose any cause of action against either defendant. Counsel for Kempe referred to O'Donnell Griffin Pty Ltd v Davis [2007] WASC 215 in which Templeman J dismissed an application for an interlocutory injunction restraining the first defendant, who was an adjudicator appointed under the Act, from hearing or determining the second defendant's application for adjudication under the Act. The plaintiff had engaged the second defendant to perform certain works. Disputes arose between the plaintiff and the second defendant as to the second defendant's entitlement to damages to compensate it for the cost of delays in the project for which the second defendant contended it was not responsible. The plaintiff contended that because the second defendant's entitlement to delay damages arose only when an extension of time had been granted and that no such extension had been granted in relation to the dispute, the claim was not a payment claim and the adjudicator therefore had no jurisdiction to entertain it. Templeman J held that the writ did not disclose a cause of action against the first defendant as adjudicator because there was nothing in the indorsement which identified any legal, statutory or equitable rights asserted by the plaintiff against the first defendant. Nor did the indorsement disclose any cause of action against the second defendant because the indorsement did not assert any right or the threatened infringement of any right.

Jurisdiction of Adjudicator

11 The powers and functions of an adjudicator under the Act were considered by the Court of Appeal in Perrinepod v Georgiou Building Pty Ltd [2011] WASCA 217. Murphy JA, with whom Martin CJ agreed, considered the jurisdiction conferred on an adjudicator by s 31(2) of the Act:

Section 31 is in Div 3 which is headed 'The Adjudication Process ' (emphasis added). Section 31(2)(a) itself is expressed in terms conferring jurisdiction on an appointed adjudicator - to dismiss an application. It is the proper exercise (or non-exercise) of that power or function, in its own right, which determines whether s 31(2)(b) has any application. The statutory language is clear. The two are alternative functions. In s 31(2), an appointed adjudicator may not determine an application on its merits if it is required to be dismissed under s 31(2)(a). In other words, an appointed adjudicator may not proceed under s 31(2)(b) to determine an application on its merits if the application is one which must be summarily dismissed under s 31(2)(a). If an appointed adjudicator were purportedly to proceed to determine an application under s 31(2)(b) which ought to have been dismissed under s 31(2)(a), the adjudicator would be acting unlawfully and without power. The prerogative writs of prohibition and certiorari would be available respectively to restrain, or quash, the abuse of power (subject to the effect of s 46(3), discussed later) [113].

No cause of action

12 Where an interlocutory injunction is sought it is necessary to identify the legal (which may be statutory) or equitable rights which are to be determined at the trial and in respect of which final relief is sought: ABC v Lenah Game Meats Pty Ltd [2001] HCA 63, 208 CLR 199. Enerflex has not established that at this time it has any legal or equitable right in respect of which final relief is sought. The adjudicator has jurisdiction to receive and consider Kempe's application and Enerflex's response. If the adjudicator were purportedly to proceed to determine the application under s 31(2)(b) when it ought to have been dismissed under s 31(2)(a) because the contract concerned is not a construction contract, then the adjudicator would be acting unlawfully and without power. The prerogative writs of prohibition and certiorari would be available respectively to restrain, or quash, the abuse of power: Perrinepod (Murphy JA) [113]. Arguably, the remedies of declaration and injunction may also be available if the adjudicator were to determine an application under s 31(2)(b) which he ought to have dismissed under s 31(2)(a)(i). owever, the adjudicator has not purported to make a determination under s 31(2)(b) and has not failed to dismiss the application under s 31(2)(a) within the prescribed time. Unless and until one of those events occur the adjudicator is not acting, purporting to act or threatening to act beyond his jurisdiction. Enerflex has no cause of action to restrain the adjudicator from proceeding to either dismiss the application under s 31(2)(a) or make a determination under s 31(2)(b). Indeed, if the contract concerned is not a construction contract then the Act requires the adjudicator to exercise his power to dismiss under s 31(2)(a). In Perrinepod Murphy JA said:

The language of s 31(2)(a) is mandatory; the appointed adjudicator 'must' dismiss if one or more of the criteria in subparas (i) – (iv) are satisfied. Section 31(2)(a) does not involve the exercise of a statutory discretion. In my view, the matters in subparagraphs (i) – (iv) of s 31(2)(a) are 'jurisdictional facts' which condition the lawful exercise of the function committed to an appointed adjudicator under s 31(2)(a) [115].

13 For the reasons I have stated, Enerflex has not made out a prima facie case of the existence of an underlying cause of action against the defendants. Its application for an interlocutory injunction must be dismissed.

The balance of convenience

14 If, contrary to my finding, Enerflex has made out a prima facie case for relief I would decline to grant the injunction sought in the exercise of my discretion. Counsel for Enerflex informed the court that Enerflex intends to serve a response under s 27 of the Act irrespective of whether or not an injunction is granted. In those circumstances the most convenient course is not to restrain the adjudicator from exercising his jurisdiction to dismiss the application without making a determination of its merits if the contract concerned is not a construction contract or otherwise making a determination under s 31(2)(b). If the adjudicator dismisses the application then no injunction is necessary. If the adjudicator makes a determination on the merits and the contract concerned is not a construction contract then the adjudicator will have acted unlawfully and beyond power and that would be the appropriate time for Enerflex to seek relief.

Conclusion

15 The plaintiff's application for an interlocutory injunction should be dismissed.