03.05 2013

Supreme Court of Queensland ruling provides guidance for interpretation of FIDIC Contracts

The success of GRT’s client DML in a recent Supreme Court of Queensland Application is a significant win not only for DML, but also for the contribution the judgment makes to interpretation of FIDIC Contracts in Australia.  Ruling in favour of Discovery Metals Limited (DML) (the Employer), Justice Philip McMurdo dismissed Sedgman Limited’s (Sedgman) (the Contractor) application for an interim payment in the sum of USD20,027,470.07 and awarded costs in favour of DML.  Importantly from a precedent perspective, His Honour was required to interpret certain provisions of the Engineering Procurement & Construction Federation Internationale des Ingenieurs-Conseils (FIDIC) Silver Book Contract (EPCC) entered into between the parties in May of 2010.

 

FIDIC Contract

Although both ASX Listed companies, the parties agreed to use an international FIDIC Contract to facilitate the construction of a copper concentrate processing plant and associated facilities in Botswana, Africa (Boseto Copper Project).  This form of contracting (known as ‘turnkey contracting’) requires greater risk be assumed by the contractor as they are to engineer, procure and construct the works and operations such that the employer may operate the facility at the turn of a key.

 

Interim Payments – Application Dismissed

The Supreme Court endorsed DML’s actions in finding that on the proper construction of the EPCC the interim payment was not due and payable to Sedgman under Sub-Clause 14.6 ‘Interim Payments’.  The amounts do not become due by operation of this sub-clause itself.  Payments may be withheld in certain circumstances.

 

DML was justified in asserting an entitlement to a contractual set-off against the balance of the purported interim payment, as the amount claimed did not correspond with the actual progress of works including the failure to remedy defects.  DML rightfully determined to withhold the payment pursuant to the terms of the EPCC.

 

Determination and Dispute Adjudication

The EPCC required DML to make a fair determination in accordance with Sub-Clause 3.5 ‘Determinations’ (as amended by the parties). Sedgman’s dissatisfaction with DML’s determination triggered certain dispute resolution provisions of the Contract including clause 20 ‘Claims, Disputes and Arbitration’. That clause provides a detailed regime for the resolution of disputes by a Dispute Adjudication Board (DAB) acting in the capacity as an expert to a determination.

 

By giving effect to the express terms of the Contract, the Supreme Court paved the way for the DAB mechanism for resolution of disputes to be adhered to.  The Supreme Court also recognised that Clause 20 of the EPCC included steps for a binding resolution by international arbitration.

 

Judgment

The Supreme Court of Queensland Judgment by Justice Philip McMurdo can be accessed together with the ASX Announcement released by Discovery Metals Limited on 30 April 2013 here.


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