SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
ASC AWD SHIPBUILDER PTY LTD v OTTOWAY ENGINEERING PTY LTD
[2017] SASCFC 150
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice Stanley and The Honourable Justice Nicholson)
10 November 2017
ARBITRATION - THE AWARD - APPEAL OR JUDICIAL REVIEW - PROCEDURE - APPEALS AND LEAVE TO APPEAL - LEAVE TO APPEAL FROM DECISION OF ARBITRATOR - QUESTION OR ERROR OF LAW
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - THE CONTRACT - CONSTRUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS - IMPLIED TERMS
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS - GENERALLY
In September 2009 the parties entered into a contract pursuant to which the respondent was to fabricate, assemble and supply pipework to the appellant. The contract included clause 25, an arbitration agreement, which provided that any dispute arising was to be referred to and finally resolved by arbitration in accordance with the IAMA Rules.
At the time the parties entered into the contract, section 38(2) of the Commercial Arbitration and Industrial Referral Agreements Act 1986 (SA) conferred on a party to an arbitration agreement a right to seek permission to appeal to the Supreme Court on any question of law arising out of an arbitral award, either with the consent of both parties or with the permission of the Court, unless the parties had agreed in writing to exclude such a right of appeal. At no point did the parties enter into an agreement to opt out of the statutory right of appeal.
After the parties entered into the contract, the 1986 Act was repealed by the enactment of the Commercial Arbitration Act 2011 (SA). The arbitration agreement fell to be governed by the 2011 Act. The effect of section 34A of the 2011 Act is that a right of appeal on a question of law arising out of an arbitral award will lie only if the parties agree that such an appeal may be made and the Court grants leave to appeal.
In 2016 a dispute arose and was referred to arbitration. The arbitrator made an award in favour of the appellant and dismissed the respondent’s cross-claim.
The respondent sought leave to appeal against the award on the ground that the arbitrator erred in law by not providing reasons or sufficient reasons for key findings. A Judge of the Supreme Court granted the respondent leave to appeal in May 2017. The Judge held that it was an implied term of the contract that there was to be a statutory right of appeal against the arbitral award on a question of law, as provided for by section 34A(1)(a) of the 2011 Act. The Judge found that, objectively assessed, it was the contractual intention of the parties at the time of entering into the contract that there was to be such a right of appeal and that each of the conditions identified in BP Refinery (Westernport) Pty Ltd v Hastings Shire…
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- AGLC
- ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd [2017] SASCFC 150
- Case
- [2017] SASCFC 150
- Decision Date
CaseChat Overview and Summary
The central legal issue before the Full Court was whether the primary judge erred in finding that a term was implied into the contract between ASC and Ottoway Engineering, granting a statutory right of appeal against an arbitration award. This involved determining whether the conditions for implying a term in fact, as established in *BP Refinery (Westernport) Pty Ltd v Hastings Shire Council*, were met. Specifically, the court had to assess if such a term was reasonable and equitable, necessary for business efficacy, so obvious it went without saying, capable of clear expression, and did not contradict express terms.
The Full Court reasoned that the primary judge had correctly applied the *BP Refinery* test. It was found that implying a term allowing for a statutory appeal was reasonable and equitable, necessary to prevent the contract from operating capriciously, and so obvious that the parties would have agreed to it had the issue been raised. The implied term was also capable of clear expression and did not contradict the express terms of the contract, being consistent with the statutory opt-out scheme in place at the time. The court rejected arguments that the term was not implied, noting that the absence of an express agreement did not preclude implication where the conditions were otherwise satisfied.
Ultimately, the Full Court allowed the appeal. The order of the primary judge granting Ottoway Engineering leave to appeal the arbitration award was vacated, and the application for leave to appeal was dismissed in its place. The court indicated it would hear the parties on the question of costs.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
Ratio Decidendi
Legal Principle Established
Established by: KOURAKIS CJ, NICHOLSON J
His Honour concluded as follows.[32]Each of the conditions identified in BP Refinery (Westernport) is satisfied in respect of an implied term that the parties were to have the statutory right of appeal against an arbitration award. It is reasonable and equitable to imply the term. It is necessary to give business efficacy to the contract because otherwise the contract would operate capriciously, unreasonably and inequitably. It goes without saying because the parties hypothetically and objectively assessed would have said “of course” that should be the position if the issue had been raised. It is capable of clear expression. It does not contradict the express terms of the contract. It is entirely consistent with the effect of the contract under the statutory opt out scheme prevailing at the time of the contract.His Honour then proceeded to address and reject a number of contrary contentions that had been submitted on behalf of ASC[33] before concluding in these terms.[34][I]t was an implied term of the contract that there was to be a statutory right of appeal against an arbitration award.[32] Ottoway Engineering Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2017] SASC 69 at [44].[33] Ottoway Engineering Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2017] SASC 69 at [45]-[58].[34] Ottoway Engineering Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2017] SASC 69 at [59].Consideration I start with the preliminary observation that it is necessary to identify with some precision the wording or at least the nature of any contractual term said to be implied in fact. This is a necessary precursor to being able to assess whether each of the five BP Refinery conditions would be satisfied. In Ottoway Engineering’s originating application for leave to appeal against the arbitral award, the grounds of application for leave were as follows.1.Section 34A(1) of the [2011] Act allows for an appeal on a question of law arising out of an award, if the parties agree ... and the Court grants leave.2.The [2011] Act requires the parties to an arbitration agreement to agree to allow recourse to the Court on a question of law arising out of the award. This agreement is usually found in the arbitration agreement.3.The arbitration agreement in the Contract does not record such agreement, because at the time of entry into the Contract, the [2011] Act had not been enacted.4.The Court may imply a term (implied by fact) that the parties agreed to allow an appeal.5.The plaintiff [Ottoway Engineering] and defendant [ASC] agreed at a preliminary conference held by the Arbitrator on 13 April 2016, that the arbitration would be determined according to law, thereby agreeing that either party could have recourse to the Court on questions of law. The conclusion I have reached is consistent with that arrived at by Hammerschlag J in Ashjal Pty Ltd v Elders Toepfer Grain Pty Ltd.[46] The facts are materially indistinguishable from those before this Court, at least with respect to the question of an implied term. Hammerschlag J delivered an ex tempore judgment which gave short shrift to the implied term contention. His Honour said this.[46] [2012] NSWSC 545 at [16]-[19].The plaintiff correctly accepts that there is no express agreement between the parties. It puts that there is to be implied from the terms of the contracts a term that either party may appeal on a question of law with leave of the court. It was accepted that the terms sought to be implied must meet the well known test for an implied term laid down in BP Refinery Western Port Pty Ltd v Hastings Shire Council and adopted by the High Court in Codelfa Construction Pty Ltd v State Rail Authority of NSW which are the following: (1) It must be reasonable and equitable. (2) It must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it. (3) It must be so obvious that it goes without saying. (4) It must be capable of clear expression. (5) It must not contradict any express term of the agreement. Those tests must be met at the time that the contract is entered into. The term contended for fails to satisfy at least three of the tests. Firstly, as at the date of the contracts the old Act gave a right of appeal with leave or by agreement. The implied term contended for was thus not necessary to give the contract business efficacy at that time. The contracts operated and still operated without it. Secondly, given the state of the legislation at the time, the term contended for was not obvious. Indeed, such a term was obviously not required.[citations omitted]