21/03/2017 - 15:20

Contractor fights for $13m owed by John Holland

21/03/2017 - 15:20

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Private company Applied Electro Systems has become enmeshed in a legal fight with construction giant John Holland after the two businesses had a falling out over contracted work on Chevron’s Gorgon gas project.

Chevron's Gorgon LNG facility during its construction on Barrow Island.

Private company Applied Electro Systems has become enmeshed in a legal fight with construction giant John Holland after the two businesses had a falling out over contracted work on Chevron’s Gorgon gas project.

An independent expert who assessed the contract dispute ruled last year that John Holland owed Brisbane-based Applied Electro $13.2 million.

However, John Holland has appealed the ruling and therefore is not required to pay the amount owing.

The construction company has upped the ante, telling the WA Supreme Court it has a claim for breach of the sub-contract agreement, which it says will exceed the amount presently owing.

John Holland has also applied to the Supreme Court for security for costs.

The submitted evidence on this matter included Applied Electro’s June 2016 financial statements, which revealed it has no readily available cash.

Applied Electro, which has a branch in Malaga, responded be seeking summary judgement, which would force John Holland to pay the amount currently owing.

In a ruling handed down today, Master Craig Sanderson dismissed both applications.

The legal fight between Applied Electro and John Holland is the latest of many between prime contractors and sub-contractors on major projects.

The end of the mining construction boom and the paucity of new work has led to an escalation in legal disputation.

This dispute had its origins in November 2011, when John Holland contracted Applied Electro for electrical works on the Gorgon project.

The parties fell into dispute in regard to 198 different aspects of the subcontract works.

The disputes were subsequently resolved under an agreed dispute resolution procedure, either by senior executives in August 2016 or by independent expert Laurie James in November 2016.

Mr James determined that John Holland owed Applied Electro $13.2 million.

Applied Electro demanded payment of $13.7 million after adjusting for errors, interest and other factors, but John Holland declined to pay after notifying it would appeal - via the courts rather than arbitration.

In its Supreme Court application, Applied Electro argued John Holland has no defence to the claim and judgment ought to be entered.

Master Sanderson dismissed the application.

“Suffice to say, it is, in my view, arguable that once an appeal is initiated under clause 16.10 (of the sub-contract) the expert adjudication is not 'final and binding' and the defendant is not obliged to make payment to the plaintiff,” the judgement said.

“On that basis, the summary judgment application must be dismissed.”

He also dismissed John Holland’s application for security for costs, after concluding Applied Electro’s lack of funds was caused, at least in part, by the actions of John Holland.

Explaining this decision, Master Sanderson said the plaintiff (Applied Electro) has in its favour an expert determination.

“Not only that, the determination was conducted pursuant to the terms of the agreement between the parties,’’ he said.

“While the defendant may well be within its rights to appeal the expert determination the fact that the determination is in the plaintiff's favour must suggest the plaintiff has a more than arguable case.

“Furthermore, it is not clear how the appeal procedure will unfold - there may be a hearing de novo on each determination by the expert or it may be a question of whether the expert made an error in reaching the conclusion he did.

“I express no concluded view on how the appeal procedure will unfold.

“It nonetheless remains the case at present, there is finding in the plaintiff's favour.

“That then leads into the second point.

“The accounts of the plaintiff make it plain if the expert adjudication amount was paid the plaintiff would have more than adequate funds to cover any adverse costs order.

“While I accept there is a serious question to be tried as to the proper interpretation of the contract it can be said in one sense at least that the present impecuniosity of the plaintiff is due to the actions of the defendant.

“In addition to these two matters, it is clear the defendant is presently indebted to the plaintiff in an amount which is not in dispute as a consequence of the settlement reached between the senior executives.

“The defendant, for its part, points out that it has a claim for breach of the subcontract agreement which it says will exceed the amount presently owing.

“It may be the defendant's claim will succeed.

“It nonetheless remains the case at present, the defendant owes the plaintiff an amount which is not in dispute.

“That being so, to make an order for security for costs would in my view be inappropriate.”

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