25/06/2015 - 14:19

Resources boom morphs into lawyers’ picnic

25/06/2015 - 14:19

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Tough times are not tough for everyone, it seems, when two recent events are considered

Monadelphous managing director Rob Velletri.

Tough times are not tough for everyone, it seems, when two recent events are considered

The first was the launch of legal action by local resources-project construction engineer, Monadelphous Group, against a customer; something that hasn’t happened in more than 25 years.

The second was the arrival of a new international law firm that specialises in infrastructure advisory work and dispute resolution.

The Monadelphous dispute with Wiggins Island Coal Export Terminal, and the entry of London-based Pinsent Masons into the Australian market, are not directly connected but are very much a sign of the times.

For Monadelphous, a company that prides itself on quality construction management and always settling a dispute through resolution, the legal action is a last resort launched in response to a claim filed against it by Wiggins Island.

The details of the dispute have not been released but it’s a fair bet that it comes down to an argument over work quality and alleged delays, points Monadelphous will fight vigorously.

Monadelphous managing director Rob Velletri said in a statement last week that his company had not instituted legal proceedings against a customer, or had any customer previously filed a similar claim against Monadelphous, during the past 25 years.

But the real reason the Monadelphous versus Wiggins Island despite is interesting is that it could be the tip of a legal iceberg, and almost certainly an extension of the cost-cutting culture that has risen to replace the get-the-job-done culture that existed until commodity prices crashed, especially for iron ore and coal.

The starting point for Wiggins Island versus Monadelphous was a claim for $130 million from Wiggins Island. The reply from Monadelphous was a counter-claim for $200 million to recover costs associated with changes in the scope of work and the value of bank guarantees drawn down. 

For builders, the end of the boom represents a horrid time when they have to fight every inch of the way to get their final contract payments, which in the case of Monadelphous also remains taking a step it has avoided for decades – taking legal action against a customer.

For lawyers, the Wiggins Island versus Monadelphous dispute is a sign that the good times for litigation specialists are about to roll, as boom-time building contracts come to an end and management on both sides of a once harmonious deal fights over the last few dollars.

A spokesman for Pinsent Masons, which ranks as one of the 15 biggest British law firms, told the Australian Financial Review newspaper that the firm was opening offices in Sydney and Melbourne because it saw a way to win business in infrastructure construction work.

There could be plenty of that as governments, at a national and state level, try to stimulate activity with rail, road and port building projects.

But another speciality of Pinsent Masons is dispute resolution, arbitration and litigation of the sort that has drawn Wiggins Island and Monadelphous into their courtroom encounter.

Pinsent Masons is not alone in heading for Australia’s end-of-boom wash up. Other international law firms are bolstering their presence in Australia as the building phase of the resources boom runs down and the companies behind the projects try to claw back some of the cost over-runs suffered during the boom.

Investment bank UBS noted in a recent report on Monadelphous that the Wiggins Island dispute could “happen to the best of them”, adding that Monadelphous had an exemplary track record in project delivery over many years.

“We believe it (the dispute) is also potentially a sign of the times, given the significant capital expenditure and operating expenditure pressures felt by customers,” UBS said.

Other views were equally sympathetic towards Monadelphous. Morgan Stanley was another investment bank to note that Monadelphous has a strong record of project execution, while Mr Velletri said in his statement that the legal actions were not expected to have a material impact on overall earnings in the financial year, which ends next week.

Sympathy, however, is not enough in cases where more than $100 million is in dispute, which is why both UBS and Morgan Stanley have retained ‘sell’ ratings on Monadelphous, along with Macquarie and JP Morgan.

Meanwhile, in the new offices of Pinsent Masons and other law firms around Australia, there will be smiles all round as the resources boom morphs into a lawyers’ picnic.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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