Angela Kinnane v Zee Homes Pty Ltd No. Scciv-02-1279

ANGELA KINNANE v ZEE HOMES PTY LTD
[2003] SASC 187
Full Court: Duggan, Debelle and Lander JJ

DUGGAN J I agree with the reasons for decision of Debelle J.
DEBELLE J This appeal by leave against a decision granting leave to appeal from a decision of an arbitrator was heard on 14 April 2003. The parties wished to file affidavit evidence. After they had done so, the hearing resumed on 6 June. The same day, after hearing further argument, the court announced its decision and said it would publish its reasons. These are my reasons for joining in that order.
The appellant and the respondent had entered into a lump sum building contract to construct additions and alterations to a dwelling in Unley. I will refer to the appellant as “the owner” and to the respondent as “the contractor”. During the course of the work disputes arose. Eventually another builder was appointed to complete the work. The contractor sought to recover from the owner the balance of the contract price and made claims for variations and other items. The owner counterclaimed for defective work. The dispute was referred to arbitration. The arbitrator published his award on 29 August 2002. The contractor was dissatisfied with the award and on 11 September 2002 applied for leave to appeal. The application was heard by a judge of this Court on 20 September. Although the application was made ex parte, counsel for the owner appeared on the hearing of the application. The judge reserved his decision. On 29 October 2002 the judge granted leave but did not publish any reasons for that decision.
The owner responded on 3 December 2002 by applying for leave to appeal from the order of the judge granting the contractor leave to appeal from the award of the arbitrator. That application was heard ex parte on 19 December 2002 by the same judge who had granted leave to appeal from the award of the arbitrator. The judge granted leave to appeal to the Full Court from his own order granting leave to appeal from the award of the arbitrator.
I have some reservations about the desirability of the procedure by which this appeal came before the court. Although a party to an award may appeal against an order refusing leave to appeal: Minister for Industrial Affairs v Civil Tech Pty Ltd (1997) 69 SASR 348; Energy Brix Australia Corporation Pty Ltd v National Logistics Coordinators (Morwell) Pty Ltd [2002] VCSA 113, different issues arise where leave to appeal has been granted. The procedure adopted in this case had the advantage at least of saving the substantial cost of preparing what would have been a very bulky set of appeal books. As neither party raised any objection, it is unnecessary to examine the matter.
The Criteria for Leave
The question whether leave to appeal should be granted is governed by s 38 of the Commercial Arbitration Act 1986 as amended by the Act No. 64 of 1992. When hearing an appeal from a refusal to grant leave, the question is whether the judge below correctly applied the criteria listed in s 38 and the court will not exercise the judge’s discretion afresh unless it is satisfied that the judge manifestly erred in the application of s 38: Energy Brix Australia Corporation Pty Ltd v National Logistics Coordinators (Morwell) Pty Ltd (supra).
It is common ground that the question whether leave should be granted in this case turns on the provisions of s 38(5) which provides:
“The Supreme Court shall not grant leave under subsection (4)(b) unless it considers that –
(a)having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement;
and
(b)    there is –
(i)     a manifest error of law on the face of the award;
or
(ii)   strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.”
The policy underlying s 38 and in particular s 38(5) and the operation of that provision have been examined in length in Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 203 and in Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust (1994) 63 SASR 444 approved in Minister for Industrial Affairs v Civil Tech Pty Ltd (1998) 70 SASR 394 at 404-405 and at 410-411. It is sufficient to refer to those decisions without repeating all that was said. Both parties acknowledge the application of these decisions. For present purposes it is sufficient to note the following propositions which have been extracted from Leighton Contractors at 447 – 499.
1The intention of Parliament in enacting s 38 was to reject a broad discretionary approach to the grant of leave.
2It is a corollary of that Parliamentary intention that courts should apply a more restrictive criterion for the grant of leave than had previously applied.
3The requirements of a manifest error of law on the face of the award or strong evidence that the arbitrator made an error of law and that the determination of the question may add substantially to the certainty of commercial law suggests that Parliament intended to constrain the exercise of court control over arbitral awards in the manner described by the House of Lords in The Nema [1982] AC 724.
The particular aspects of the régime established by s 38 which apply to this appeal are:
1There is no appeal from an arbitrator on a question of fact unless the parties consent.
2While s 38 provides that an appeal should lie from the award of an arbitrator on a question of law, leave must nevertheless be obtained unless both parties consent.
3Leave will only be granted in the circumstances prescribed by s 38(5).
4The applicant for leave must satisfy both paragraphs (a) and (b) of s 38(5). Thus, a party might be able to point to an obvious flaw in the reasoning of the arbitrator but if it appears that the flaw could not substantially affect the ultimate conclusion, leave should not be granted.
5The epithet “manifest” in the expression “manifest error of law” is used to indicate an error which is evident or obvious rather than one which is merely arguable. While a judge is entitled to the benefit of adversarial argument in determining whether a manifest error of law exists, nevertheless, “manifest” denotes an error of law which is more than arguable. As Sheller JA noted in Promenade Investments (at 226):
“There should . . . be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law.”
The question is not whether the point is fit for argument but whether an obvious error of law exists.
6Assuming there is not a manifest error of law in the face of the award, it may be argued that there is strong evidence that the arbitrator made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law. This requirement indicates that the question should be one of wider and general importance than, for example, the construction of a one-off clause in the context of a particular agreement between the parties.
With these principles in mind I turn to examine whether the order granting leave to appeal was properly made. It was common ground that it was proper to refer to the award as well as to the building contract.
Six Sets of Issues
The notice of appeal lists 19 grounds of appeal. Some plainly raise issues of fact. Others repeat grounds stated earlier in the notice of appeal. With commendable diligence, counsel for the contractor identified the relevant questions of law and grouped together those grounds which repeated earlier grounds. In the result there are, he contends, six questions of law which justify a grant of leave. It is convenient to deal with each in turn.
The first set of issues concerns the meaning of s 72 of the Development Act 1993 which provides:
“(1) If –
(a)building work is defective; and
(b)the defect or defects arise from the wrongful acts or defaults of two or more persons; and
(c)those persons would, apart from this section, be jointly and severally liable for damage or loss resulting from the defective work; and
(d)an action is brought against any one or more of those persons to recover damages for that damage or loss,
the court may only give judgment against a defendant, or each defendant, for such amount as may be just and equitable having regard to the extent to which the act or default of that defendant contributed to the damage or loss.
(2) An act or default for which a person is vicariously liable will be taken to be an act or default of that person for the purposes of this section.”
The arbitrator made a finding of fact that there were no other persons who were party to the building work who might fall within s 72. He also considered the meaning of s 72. The contractor appeals against the arbitrator’s interpretation of the meaning of s 72. However, the contractor is faced with the arbitrator’s finding of fact that there was no other party to whom s 72 might apply. In the result, the determination of the proper meaning of s 72, assuming the arbitrator to be wrong, would not affect the rights of the parties to the arbitration. The contractor, therefore, fails to satisfy s 38(5)(a). In those circumstances leave ought not to have been granted in respect of this issue.
The second set of issues is grounded on the contention that the arbitrator erred in holding that the owner was entitled to terminate the contract at common law. The arbitrator had found that the owner and her architect were profoundly frustrated by the failure of the contractor to complete the building work with reasonable expedition. The work was to have been completed in six months but still had not been completed some 18 months after the work had commenced. The arbitrator found that there was no cause to justify the delay. The architect had given the contractor notice to complete a specified list of works by 12 August 1998. All but three items had been completed by the deadline proposed by the architect. One of the three unfinished items was tiling which was delayed by the late arrival of tiles. The contractor was responsible for ensuring the timely arrival of tiles. The contractor expressed its willingness to complete the three outstanding items. However, on 14 September 1998 the contractor made a final claim for what was said to be due to it under the building contract. Thereafter, on 21 September 1998, the architect wrote to the contractor stating that a list of items requiring attention was being prepared. The architect then appointed another builder to complete the work.
Those facts are set out in the reasons for the award and are the facts on which the arbitrator held that the conduct of the contractor was so dilatory that the owner and her architect were entitled to have lost confidence in it and to believe it would not complete the work in a prompt and workmanlike manner. The arbitrator held that, although it had not been established that the owner was entitled to terminate the contract under the provisions of the building contract, the owner was entitled to repudiate the contract at common law as the contractor had manifested an intention no longer to be bound by the contract. Counsel for the contractor properly acknowledged that the owner had a right to repudiate the contract at common law if the contractor had manifested an intention no longer to be bound by the contract but contended that the evidence did not justify a finding that the owner was entitled to repudiate. There may be real questions whether the decision that the owner was justified in repudiating the contract was a decision on a question of law. It has the hallmarks of a finding of fact. However, assuming that the decision constitutes a question of law, it is not possible to conclude that the arbitrator has made a manifest error of law particularly as his conclusion depends on his interpretation of the evidence. The contractor therefore fails to satisfy the first limb of s 38(5)(b). As to the second limb of s 38(5)(b), there can be no doubt that the determination of this question will not in any respect add anything to the certainty of commercial law. The decision represents nothing more than the application of settled principles to the evidence.
For these reasons, the contractor does not satisfy either limb of s 38(5)(b) with the consequence that the contractor was not entitled to a grant of leave to appeal.
The third set of issues concerns the award of damages to the owner. The arbitrator awarded the owner $7,000 damages for the mental distress and inconvenience caused by the failure of the contractor to carry out the works in a proper and workmanlike fashion and for the delay in completing the work. The arbitrator expressed his reasons in these terms:
“In my view the duty of care to carry out the Works in a proper and workmanlike fashion carried with it the foreseeable consequence that if not done so the Owner would be exposed to inconvenience. Further the longer the Work took to complete it is reasonable to foresee that the delay would bring about some distress.”
The arbitrator had earlier identified four factors of which the contractor was aware which would have caused the contractor to be aware of the consequences of a failure to carry out the work in a proper and workmanlike manner.
Clause 10.10 of the building contract provided for payment of what the contract called “Liquidated and Ascertained Damages” in the event that the contractor should fail to bring the works to practical completion by the date for practical completion. Upon a failure of the contactor to complete the works within the time specified by the architect, the contractor is liable to damages as provided in the contract. Clause 10.10 concludes by providing that the owner “shall have no right to damages for delay apart from that expressed in this clause”. The contractor contends that clause 10.10 precludes any award for mental stress and inconvenience. The question whether clause 10.10 precludes an award of the kind made by the arbitrator is plainly a question of law. However, the contractor misconstrues the reasons of the arbitrator. As is apparent from the extract from the reasons quoted above, damages were awarded not simply for delay but also for failure to complete the work in a proper and workmanlike manner as well as for the mental distress caused by the delay. There is no indication in the award as to the amount allowed under each head. It cannot be said, therefore, that the arbitrator has made a manifest error of law in making this award. The contractor, therefore, fails to satisfy the first limb of s 38(5)(b). There is nothing to suggest the determination of this issue will add or be likely to add substantially to the certainty of commercial law. Thus neither the first or second limb of s 38(5)(b) is satisfied and the contractor was not entitled to a grant of leave to appeal on this question.
The fourth set of issues concerns findings by the arbitrator that the contractor was liable for work which had been agreed by an architect retained by the owner at an earlier stage in the contract. These issues relate mainly to brickwork. The contractor contends that the owner is estopped by the conduct of her architect from asserting that work was defective saying that followed instructions of the architect and the building contract required the contractor to comply with architect’s instructions. However, the arbitrator has made findings of fact to the effect that the owner continually voiced her concerns to the contractor as to the quality of both the bricks and the brickwork. The architect had been dismissed. Those findings of fact stand in the path of any contentions that the owner is estopped by the instructions of her architect. In these circumstances, there is no manifest error of law. In addition, as counsel for the respondent pointed out, this issue also concerns questions arising under s 72 of the Development Act which for the reasons already given does not give rise to any question of law sufficient to justify a grant of leave under s 38(5). There is nothing which justifies a grant of leave under s 38(5)(b)(ii). For all of these reasons, this fourth ground of appeal does not justify a grant of leave to appeal.
The fifth set of issues concerned an admission by the owner in the defence to the contractor’s claim. The contractor claimed $4,388.70 for architect’s fees, engineering fees and council fees which had been paid by it for and on behalf of the owner. The contractor alleged that the owner had agreed to this arrangement which had been suggested by the first architect. In her defence, the owner admitted the claim. The arbitrator dismissed the claim save for $118.70. The arbitrator’s finding was in these terms:
“There was no evidence that the amount remains outstanding. The Owner admits $118.70. It is asserted in the Owner’s defence that the amount of $4,388.70 has been paid. The Contractor has not discharged its onus and in the circumstances I dismiss this claim.”
The contractor seeks leave to appeal against this finding.
The arbitrator has totally misunderstood the effect of the pleadings. The owner had not alleged she had paid the fees. Instead, she admitted the contractor’s claim. The arbitrator ought to have allowed the contractor’s claim. There is, therefore, a manifest error of law. The question is whether the error of law appears on the face of the award.
Until at least the enactment of the Commercial Arbitration Act in 1986, a strict view was taken as to the materials outside the award to which reference could be made. On one view, the terms of s 38 of the Commercial Arbitration Act may require a more liberal interpretation. However, this is not an appropriate case in which to consider the issues at length. It is sufficient to refer to Gold Coast City Council v Canterbury Pipe Lines (Aust) Pty Ltd (1968) 118 CLR 58 and to Tuta Products Pty Ltd v Hutcheson Bros Pty Ltd (1972) 127 CLR 253 where it was held that, in determining whether there was an error of law on the face of the award, it was proper to have regard to what documents were incorporated into the award as well as to the surrounding facts and circumstances. In Gianfriddo v Garra Constructions Pty Ltd [1971] VR 289 at 290 – 291, Smith J made a helpful summary of the authorities listing instances where it was permissible to examine documents outside the award. At 290 he instanced where it is possible to refer to a document other than the award in these terms:
“If, however, the decision or direction given is expressed in terms which are to such a degree referential that, without reading a document referred to, it is not possible to understand what has been decided or directed, or not possible to give effect to the decision or direction, then the document should be treated as incorporated in the award: see the Champsey Bhara Case, supra, at (A.C.) p. 487; Hitchins v. British Coal Refinery Processes Ltd., [1936] 2 All E.R. 191, at p. 194, and the Giacomo Costa Case, supra, at (Q.B.) p. 210.”
In his award and in his reasons, the arbitrator expressly referred to the owner’s defence as well as to the contractor’s claim. It is apparent that the arbitrator referred to these documents to avoid the necessity of reciting them in full in the award. They are thereby incorporated in the award and reference may be made to them. There is, therefore, an error of law on the face of the award.
The next question is whether the amount is sufficiently substantial to justify granting leave: see s 38(5)(a). The award allowed $38,378.44 to the contractor and $68,146.12 to the owner. The claim for fees would result in an additional payment of some 11 per cent to the contractor. In many cases, the sum of $4,000 might not be regarded as sufficiently substantial to justify a grant of leave to appeal. However, the word “substantial” at s 38(5)(a) must be considered in a relative sense, that is to say, in light of the amounts in issue. It is a question of fact and degree. See generally Abignano Ltd v Electricity Commissioner of NSW (1986) 3 BCL 290 at 297 and Balcombe v RA & AR Young Pty Ltd (unreported, 18 October 1991, Supreme Court of New South Wales, Giles J). While not in itself large, I conclude with some hesitation that the sum of $4,270 is sufficiently substantial to satisfy s 38(5)(a). I would, therefore, grant leave to appeal on this ground.

The argument and the evidence adduced on the application for leave enables the court to determine the appeal on this question. In Energy Brix Australia Corporations Pty Ltd v National Logistics Coordinators (Morwell) Pty Ltd (supra) at para 46, the Court of Appeal in Victoria questioned whether the appellate court should hear the appeal where leave had been granted. There is considerable force in the reasons. However, in the special circumstances of this case, it is appropriate for this Court to deal with this ground. As will be seen, this is the only ground on which the initial grant of leave to appeal stands. The issues are in narrow compass. In the course of argument of the leave application, it quickly became apparent there was a dispute as to the state of the pleadings and whether the admission by the owner had been withdrawn. The parties agreed to file affidavit evidence. The evidence and argument was so detailed that this Court was in a position to determine the appeal. Furthermore, the parties should not be put to the additional cost of appeal on such a discrete issue involving a relatively small amount of money.
It is clear that the contractor had paid fees totalling $4,388.70 on behalf of the owner. In her defence, the owner had admitted liability for the contractor’s claim. During the hearing before the arbitrator, evidence on this issue was given by the contractor, the first architect and the owner. In the course of cross-examination of the owner, counsel for the contractor drew the owner’s attention to her defence and suggested that the arrangement had been agreed. Counsel for the owner interrupted and said that the defence spoke for itself. Later in his closing written submissions, counsel for the owner purported to withdraw the admission and admit liability for $118.70 only. The owner had admitted liability in her defence and did not apply for leave to withdraw the admission. Although there may have been some resiling from that admission in the course of the hearing, that was put to an end by her counsel stating that the admission spoke for itself. Having reasserted the plea in the defence, it was not open for counsel for the owner to resile from that plea in his closing submission. As the owner had admitted liability, there was no onus for the contractor to discharge. When regard is had to the defence, it is apparent that the arbitrator’s summary of it is wrong. The contractor had paid the fees. Thus, the merits were plainly with the contractor and nothing had occurred at the arbitration which justified the withdrawal of the admission. The arbitrator should have allowed the claim of $4,388.70.
For these reasons, I would allow the contractor’s appeal on this question and vary the award to allow for the payment to the contractor of $4,270 (being the sum of $4,388.70 less the award of $118.70).
The final set of issues concern clause 9.2 of the building contract which concerns delay. Clause 9.2 was reproduced in the reasons for the award. It is in these terms:
“DELAYS
9.2.1Upon it becoming evident to the Builder that progress of the Works is likely to be delayed, the Builder shall notify the Architect stating the nature, cause and extent of the delay.
9.2.2Should progress of the Works be delayed due to causes beyond the control of the Builder, then the Builder shall be entitled to a reasonable extension of time for Practical Completion.
9.2.3The Architect shall determine whether an extension of time for Practical Completion shall be granted and the extent thereof and shall so notify the Builder in writing within 10 days of receipt of the Builder’s notice under sub-clause 9.2.1.
9.2.4If the Architect does not notify the Builder in terms of sub-clause 9.2.3 the time for Practical Completion of the Works shall be deemed to be extended by the time stated in the Builder’s notice given under sub-clause 9.2.1.
9.2.5Notwithstanding the provisions of this clause the Architect may at any time, by notice in writing to the Builder during the currency of this Agreement, extend the time for Practical Completion if in the Architect’s opinion the Builder is entitled to such an extension.”
The contractor relied on clause 9.2 to make claims for extensions of time. The contractor had claimed the extension of time by reason of certain factors which had caused the progress of the works to be delayed. The contractor had not given written notice of each of the causes of the delay as required by clause 9.2.1. In the course of his reasons the arbitrator held that clause 9.2.1 required that the notice given by the builder be in writing. The arbitrator then examined each of the seven causes for delay. In all cases but one the arbitrator held that the contractor had not proved the cause of delay and disallowed the claim for an extension of time. In some instances he also disallowed the claims because of the contractor’s failure to give written notice. Given the arbitrator’s findings disallowing the claims for extension on the ground that the cause of delay had not been established, it is unnecessary to examine whether the architect correctly interpreted 9.2.1 of the contract. There is, therefore, no question of law arising under clause 9.2.1. In these circumstances neither limb of s 38(5) is satisfied and there is no ground upon which leave to appeal can be granted.
For these reasons, the contractor has failed to satisfy the requirements of s 38(5) in the case of all but one of the grounds of the intended appeal and on that single ground the contractor’s appeal should be allowed. The orders made to give effect to these reasons were:
1 Appeal allowed.
2That the order made on 29 October 2002 granting leave to appeal is set aside and, in lieu thereof, there will be an order granting leave to appeal in respect of para 14 of the intended grounds of appeal.
3That the appeal against the award of the arbitrator be allowed.
4That the award of the arbitrator be varied by adding the sum of $4,270 to the award to the respondent.
5That there be no order as to costs on the application for leave to appeal heard by Mullighan J on 20 September 2002.
6That the respondent pay the appellant’s costs of the application for leave to appeal heard by Mullighan J on 3 December 2002.
7That the respondent pay three-quarters of the appellant’s costs of the appeal.
LANDER J I agree with the reasons of Debelle J.

[2003] SASC 187

11 June 2003