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Ichthys contractor loses $2.5 billion Court Appeal

27 Jul 2020 12:30 PM | Sonia Harvey (Administrator)

ONE of the major contractors which worked on the massive Ichthys LNG project in Northern Australia, has lost its appeal in the Supreme Court worth around A$2.5 billion.

Legal fights have consumed contractors, subcontractors and Ichthys operator Inpex, for years. The case before the court this month was just the latest in ongoing cases between the main contractor and its subcontractors. 

JKC had hoped to overturn an earlier decision over subcontractor obligations relating to a combined cycle power plant which provided electricity to the Ichthys LNG processing facility. 

It hoped to claw back $2.5 billion in costs and damages, however, has now officially had its case dismissed, after the Court found each of its grounds for appeal failed. 

Japan's Inpex engaged JKC Australia LNG in 2012 to engineer, procure and construct and commission the Ichthys onshore LNG production facility. The project was worth in the region of US$47 billion. 

JKC in turn subcontracted CH2M, UGL Infrastructure, General Electric for work on a combined cycle power plant to provide electricity to the processing facility. 

The contract was terminated in 2017, after the subcontractors pulled its workers offsite after a stoush broke out over significant time delays and cost overruns reaching billions of dollars. 

JKC then engaged replacement subcontractors to complete the power plant. It then took its former subcontractors to court over the termination claiming costs of replacing subcontractors. 

At the same time, the former consortium of subcontractors claimed costs for the work they had already completed. 

The contractual disputes between UGL, CH2M, GE, and JKC have taken around three and a half years to come to close.

At the heart of this particular case, was the interpretation of a commercial contract, and parent company liabilities. 

The subcontractors, through a consortium or joint venture agreement, were obliged to conduct their work which was guaranteed by what are known as parent company guarantees. 

JKC argued that the Parent Company Guarantees should be treated as 'pay now, argue later' instruments, similar to bank guarantees.

The subcontractors argued that any obligation under the Parent Company Guarantees depended on establishing actual liability under the subcontract.

The Court of Appeal dismissed all three of JKC's reasons for appeal.

Source: Energy News Bulletin


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