ICC Commission Report Construction Industry Arbitrations Part 2
Out-Law Legal Update | 23 Mar 2018 | 10:02 am | 5 min. read
The Court of Appeal said that an adjudicator was not obliged to dismiss an adjudication application, without making a determination on its merits, merely because an adjudication application incorrectly included a claim for payment for non-construction work. This means that an adjudicator is not obliged to dismiss an adjudication application which contains claims in respect of both construction work and non-construction work. This is significant as the contrary position would have meant that if a claimant inadvertently included non-construction or excluded works in their adjudication application, the application would be dismissed out of hand.
But an adjudicator is not permitted under the CCA to award payments in respect of non-construction work or work which falls under the CCA's express exclusions, including the 'mining exclusion'.
The application of the CCA is limited to contracts which fall within the definition of a 'construction contract'. A 'construction contract' is defined to include a contract under which a party has the obligation to undertake 'construction work' or certain other works related to 'construction work'.
Section 4(3) of the CCA, colloquially known as the 'mining exclusion', also expressly excludes certain construction-like activities relating to mining from the definition of 'construction work'.
It is very common for construction contracts relating to resources projects to contain a range of obligations; some of which fall within the definition of 'construction work' and some of which do not. Is such a 'hybrid' contract still a 'construction contract' for the purposes of the CCA? If so, could a contractor make an application for adjudication under the CCA in respect of obligations which do not fall within the definition of a 'construction contract'?
The Court of Appeal of Western Australia has ruled (58-page / 192KB PDF) in the latest in a series of disputes on this issue between Samsung C&T Corporation and Duro Felguera Australia.
The dispute relates to the Roy Hill Iron Ore Project, where head contractor Samsung engaged Duro as a subcontractor to carry out procurement and construction of mine infrastructure. Some of that work fell within the mining exclusion under the CCA.
Samsung and Duro disagreed about Duro's entitlement to certain progress payments. Duro began a number of adjudication proceedings for the payments; two of which were the subject of this appeal. In these adjudications, each adjudicator separately held that Samsung was liable to make payments to Duro. Duro sought to enforce these determinations in the Supreme Court of Western Australia. Samsung sought to resist enforcement of the determinations and commenced proceedings seeking judicial review. A number of jurisdictional challenges were submitted by Samsung, one of which was that the determinations included components relating to payments for work excluded from the definition of 'construction work' under the CCA which, Samsung submitted, was a jurisdictional error on the part of the adjudicator.
The trial judge found in favour of Duro, holding that the erroneous characterisation of some portions of the work was an error by the adjudicator in making his determination, but that this was not a jurisdictional error and did not invalidate the determinations. This case dealt with Samsung's appeal of that decision.
This case addressed the following questions:
The WA Court of Appeal unanimously ruled that a contract which contains both construction and non-construction work will constitute a 'construction contract' for the purposes of the CCA. A unanimous finding on this point is important for the resources sector, as it confirms that 'hybrid' contracts which include both work that falls within the definition of 'construction contract' and work which is expressly excluded under the CCA will be subject to the adjudication regime. However Chief Justice Martin left open the possibility that contracts with only a "miniscule" proportion of construction work compared to non-construction work may not constitute 'construction contracts'.
The Court said that an adjudicator is not obliged to dismiss an adjudication application, without making a determination on its merits, merely because an adjudication application incorrectly included a claim for payment for non-construction work.
The Court of Appeal also considered whether an adjudicator could make a determination in respect of non-construction or excluded work, where that non-construction or excluded work was the subject of an adjudication application alongside construction work. Not surprisingly, it was unanimously held that they could not. If a payment dispute includes a claim for payment of both 'construction work' and non-construction or excluded work, an adjudicator is required to differentiate between those of the contractor's obligations which are covered by the CCA and those which are not. An adjudicator may only make a determination in respect of those 'obligations' which are covered by the CCA. An adjudicator commits an error of law by including non-construction or excluded work in their determination.
The contentious issue in this case, which divided the Court of Appeal, was whether this error constituted a 'jurisdictional error' or was simply a general error of law in the exercise of the adjudicator's jurisdiction.
Two of the three Court of Appeal judges held that the adjudicator purported to exercise a power which was beyond his jurisdiction and therefore committed a jurisdictional error. However, rather than finding that the whole determination was invalid, it was held that those parts of the determinations which were outside of the adjudicator's jurisdiction, the assessment of non-construction work claims, could be severed and the remainder of the determination remained valid and enforceable. The majority of the Court of Appeal allowed Samsung's appeal in part.
The dissenting judgment of Chief Justice Martin found that the assessment of whether a payment claim relates to construction work is a matter to be determined by an adjudicator in the exercise of the adjudicator's jurisdiction under the CCA. That is, while the adjudicator in this instance was incorrect to include non-construction work in his determination, it was a non-jurisdictional error of law. This aligns with the trial judge's findings at first instance, which were essentially that errors made in the characterisation of 'construction work' comprise a non-jurisdictional error of law and are consequently not amenable to judicial review under the CCA.
The Court of Appeal's diverging views stem from the classification of whether a decision by an adjudicator to make a determination in respect of non-construction work constitutes a jurisdictional error or a general error of law. The fact that the Court of Appeal is divided in its view in respect of the above questions demonstrates the complexities that arise when dealing with the application of the mining exclusion under the CCA. While this new ruling clarifies a number of issues, the enigma of the application of the mining exclusion continues.
George Varma and Toby Evans are construction lawyers at Pinsent Masons, the law firm behind Out-Law.com
ICC Commission Report Construction Industry Arbitrations Part 2