The Supreme Court has dismissed a $25 million claim brought by local contractor AGC Industries against the developer of the Karara iron ore project in the Mid West.
The Supreme Court has dismissed a $25 million claim brought by local contractor AGC Industries against the developer of the Karara iron ore project in the Mid West.
AGC, which is a wholly-owned subsidiary of Singapore-listed AusGroup, commenced the claim in 2013.
It originally claimed $54.7 million against Karara Mining, which is majority owned by Chinese steel producer Ansteel.
However, some of the claims have subsequently been resolved, with the balance understood to be worth about $25 million.
AGC was one of several contractors to lodge claims against Karara, after the project ran over time and over budget.
Claims by UON have been resolved while claims by DM Civil, worth about $32 million, are still before the courts.
The AGC dispute stemmed from a Main Works Contract signed in March 2012.
In a judgement handed down on Friday, Justice Jeremy Allanson said there was a fundamental dispute between the parties about the proper construction of the Main Works Contract.
Karara, represented by law firm Jackson McDonald, contended that AGC was only obliged to perform such work as it was directed to do.
AGC, which was represented by Hotchkin Hanly Lawyers, contended that it was obliged to carry out a fixed scope of works valued at about $176 million.
AGC alleged that Karara engaged in misleading and deceptive conduct after the contract was signed.
Specifically, AGC said it lost the opportunity to earn a higher rate of corporate overhead and profit (COP) as a result of Karara directing variations to the contract which prevented AGC from meeting performance milestones.
Among many claims, AGC said Karara directed it to limit the number of blue-collar employees employed on site; directed it to undertake additional work; and delivered steel, mechanical equipment and piping later than planned.
Karara also directed AGC to integrate the workforce of another contractor, Ausco Engineering, into AGC's workforce, according to its claim.
Justice Allanson accepted some of AGC’s claims but not enough to sway his overall conclusion.
For instance, in regard to limits on the number of blue-collar employees, he stated:
“The result is that, while I am satisfied that the pleaded directions are likely to have been one of the factors delaying completion of the Dirty Concentrate Works, I am not satisfied that the work would have been completed by any of the Milestone Dates but for those directions,” he said.
“Looking at the matter with the benefit of hindsight, one can only agree with Mr Vorster's opinion in February 2012, that it was nearly impossible to achieve any of the then proposed milestone date.”
Similarly, he accepted that late delivery of steel and other items affected the ability of AGC to complete the Dirty Concentrate Works and delayed Practical Completion, but was unable to find the extent of that delay.
“Particularly when there were so many concurrent factors affecting Practical Completion, it is not possible to say by when AGC would have achieved completion but for the late deliveries.”
Justice Allanson summed up his findings as follows:
“The result is that I have found that Karara breached the contract in relation to the 'Ausco claim', and also that it deducted the SPEC allowance from the amount certified in the progress certificate of 30 August 2013 without any ·contractual entitlement to do so,” the judgement stated.
“Karara is, however, entitled to rely on the contractual exclusion of liability for consequential loss, and the contractual time bar excluding claims not made in the Final Payment Claim.
“The two claims which I would otherwise uphold fall within the contractual exclusions.
“AGC has not made out the balance of its claims.
“In particular, to the extent that AGC relied on terms to be implied into the Main Works Contract, its claims failed at that point.
“In seeking to give content to the duty to cooperate, AGC contended for the Loss of Opportunity Term and the Cooperation Terms.
“Neither is necessary for the operation of the Main Works Contract, and neither is consistent with the terms of that agreement.
“I would, accordingly, dismiss the claim.”
AusGroup said today it was reviewing the judgment with respect to possible grounds of appeal.
