BMD Constructions Pty Ltd v Golding Contractors Pty Ltd
[2000] QSC 57
•20/03/2000
SUPREME COURT OF QUEENSLAND
CITATION: BMD Constructions Pty Ltd v Golding Contractors Pty Ltd
[2000] QSC 057PARTIES: BMD CONSTRUCTIONS PTY LTD ACN 010 126 100
(applicant)
v
GOLDING CONTRACTORS PTY LTD ACN 009 734
794
(respondent)FILE NO: S7438 of 1999 DIVISION: Trial PROCEEDING: Civil Trial DELIVERED ON: 20 March 2000 DELIVERED AT: Brisbane HEARING DATE: 1 September 1999 JUDGE: Atkinson J ORDER: Application for leave to appeal dismissed. CATCHWORDS: ARBITRATION – AWARD – SETTING ASIDE – PROCEDURE – application for leave to appeal from interim award by arbitrator – earthworks dispute where applicant alleged errors of law on the face of the arbitration award – whether determination of question of law could substantially affect the rights of one of parties – whether there was a manifest error on the face of the award – whether there was strong evidence of an error of law and the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law - discretion by Judges of the Supreme Court to grant leave – policy behind Commercial Arbitration Act 1990, s 38 and its uniformity with other state legislation.
Acts Interpretation Act (Qld)1954, s 27B
Commercial Arbitration Act (Qld) 1990, s 29(1), s 38(4)(b),s 38(5)
Abignano v Electricity Commission of New South Wales
(1987) 3 BCL 290, considered
American Diagnostica Inc v Gradipore Ltd (1998) 44
NSWLR 3, considered
Brown and Another v Moore and Another (1996) 68 IR 176;
(1996) 1 QADR 410, considered
Carpaolo Nominees Pty Ltd v Marrosan Nominees Pty Ltd
(1997) 112 NTR 1, applied
Crewford Pty Ltd v Transit Australia Pty Ltd CA No 5600 of
1998, 23 March 1999, considered
Cypressvale Pty Ltd v Retail Shop Lease Tribunal [1996] 2
Qd R 462, considered
Friend & Brooker Pty Ltd v Eurobodealla Council of the
Shire of NSWCA No 40293 of 1993, 24 November 1993,
distinguished
Hadley v Baxendale (1845) 9 Ex 341; 156 ER 145,
considered
Ipswich Borough Council v Fisons PLC [1990] 1 Ch 709,
considered
Jennings Construction v QH & M Birt (1986) 8 NSWLR 18,
considered
Kennedy-Taylor (Qld) Pty Ltd v Civil & Civic Pty Ltd CA No
8733 of 1996, 3 February 1998, considered
Kleerstyle Homes v Dickson SC No 8037 of 1997,
16 September 1997, considered
Natoli v Walker NSWCA No 40351 of 1993, 26 May 1994,
applied
Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982]
AC 724, considered
Promenade Investments Pty Ltd v New South Wales (1992)
26 NSWLR 203, applied
Re Tiki Village International Limited [1994] 2 Qd R 674,
considered
Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR
247, considered
Warley Pty Ltd v Adco Constructions Pty Ltd (1992) 8 BCL
300, applied
White Constructions (NT) Pty Ltd v Mutton (1988) 57 NTR 8;91 FLR 419, considered
COUNSEL: D D Bates for the applicant J K Bond for the respondent SOLICITORS: McCullough Robertson for the applicant
Clayton Utz for the respondent
ATKINSON J: This is an application for leave to appeal from an interim award made by an arbitrator on 16 July 1999. The application for leave was made under s 38(4)(b) of the Commercial Arbitration Act 1990 (the Act) which provides that an appeal on a question of law arising out of an award may only be brought with the leave of the Supreme Court.
Section 38(5) of the Act sets out the only circumstances in which the Supreme Court may grant leave. It provides:
“(5) 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 1 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”.1
The policy of this section of the Act is “to promote the finality of arbitral awards even at the price of denying a party its usual entitlement to the determination of the dispute by a court of law”.2
The applicant is therefore required to satisfy the court that either:
(1)(a) the determination of the question of law concerned could substantially affect the rights of a party to the arbitration agreement; and
(b) there is a manifest error of law on the face of the award; or
(2)(a) the determination of the question of law concerned could substantially affect the rights of a party to the arbitration agreement; and
(b) there is strong evidence that the arbitrator made an error of law; and
(c) the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.
Having satisfied all the requirements either of (1) or (2) the applicant must then persuade the court that as a matter of discretion leave to appeal should be granted.[3]
[3]The first constraint on judicial intervention is that the determination of the question of law could substantially affect the rights of one of the parties. If the amount in issue is substantial that is a relevant factor in determining whether the requirement in s 38(5)(a) is met.4 The award made by the arbitrator in this case was in the amount of $234,292, an amount which would appear to be sufficient to substantially affect the rights of the parties. However where the applicant has identified what it says is an error of law which would only affect some of that amount, this criterion may not be met.
The second constraint to consider is whether or not there was a manifest error of law on the face of the award. This second constraint is only satisfied if:-
(1) there is an error of law rather than of fact; (2) the error of law appears on the face of the award made by the
arbitrator;(3) the error is manifest in the sense of being evident or obvious.
The leading decision in Australia on the interpretation of this subsection is Promenade Investments Pty Ltd v State of New South Wales5 and in particular the judgment of Sheller JA. His Honour held6:
“The expression >error of law on the face of the award= is one of a type well-known to courts. The award having been examined the question is whether there is apparent (and such is the denotation of the word >manifest=) an error of law. >Manifest error= is an expression . . . used to indicate something evident or obvious rather than arguable: see generally per McHugh JA in Larkin v Parole Board (1987) 10 NSWLR 57 at 70-71.
. . .
. . . However as McHugh JA pointed out >manifest=, in the context of the subsection, which contemplates the grant of leave before an appeal can be pursued, connotes an error of law that is more than arguable. There should, in my opinion, before leave is granted 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 reasoning of Sheller JA was adopted by the New South Wales Court of Appeal in Natoli v Walker[7] where Kirby P said:
“The precondition to curial intervention is the easy demonstration
[7]that the primary decision maker was >clearly wrong=.”In Re Tiki Village International Limited[8], Byrne J considered the test to be applied when there were competing constructions of a phrase. His Honour held9 that if the construction relied upon by the arbitrators was “fairly arguable” there would be no manifest error of law. The position in Queensland was summarised by Williams J in Kleerstyle Homes v Dickson10 where his Honour said:
“The authorities make it clear that for there to be a manifest error of law the error must be >obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator= (re Caf - Grains [1994] 2 Qd R 252) and a conclusion which is > fairly arguable= will not evidence such an error (re Tiki Village International Limited [1994] 2 Qd R 674).”
[8]In Crewford Pty Ltd v Transit Australia Pty Ltd11 the Court of Appeal held that the word “manifest” in this context means “evident” or “obvious”.
If there is not such a manifest error, then the court may only intervene where there is strong evidence that the arbitrator made an error of law and the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law. In explaining what is meant by strong evidence of error Kearney J in Carpaolo v Marrossan12 relied on the decision of the English Court of Appeal in Ipswich Borough Council v Fisons PLC.13 In that case, Lord Donaldson held that if the dispute really centred upon an issue calling for non legal expertise, albeit with some underlying question of law, and the chosen arbitrator had that expertise then the parties must be assumed to have had good reason for relying upon his or her expertise and the presumption in favour of finality or, to put it the other way round, the strength needed to rebut it would be greater. On the other hand if the arbitrator were not a lawyer and the whole dispute centred upon a difficult question of law, less strength might be required. Similarly, his Honour said, the degree of strength would be affected by whether the clause in question was one of a class commonly encountered, so that others would benefit from an authoritative decision on its meaning or application. Lord Donaldson concluded:
“But the bottom line must always, I think, be that the judge concludes that there is a more or less strong, but still ‘strong’, prima facie case that the arbitrator has erred in law. To adopt any other approach would be to fly in the face of the legislative preference for finality.”
The constraint that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law means that the question should not be one which applies only to the particular contract or factual situation.14
In this case, the arbitrator awarded $234,292 to the respondent in respect of its claim for a contractual debt for work carried out under a subcontract which incorporated the Australian Standard Subcontract Conditions AS2545-1993 and damages for breach of the subcontract. The subject of the claim was earthworks of 50,000m3 from the Sanfam Borrow Area to the Burleigh Cove Estate Stage 6 for the price of $5.00 per cubic metre. The arbitrator made the following award:
(a) Balance on claim $139,013
Interest to 31 August 1999 $42,285 $181,298
(b) 2½% Retention $22,649
Interest to 31 August 1999 $4,179 $26,828
(c) Damages $11,930
$16,400 $28,330 (d) Less sum paid during hearing ($2,164) Due and payable on 31 August 1999 $234,292
An assessment of whether or not the court should grant leave requires an examination of the errors of law that the applicant relied upon before me. They were alleged to be:
(1) the arbitrator erred in law in failing to include in the award a statement
of the reasons for making the award contrary to s 29 of the Act;(2)(a) the arbitrator erred in law in failing to hold that the respondent was required to lodge a final payment claim endorsed “final payment claim” pursuant to cl 42.7 of AS2545-1993 which formed part of the subcontract between the applicant and the respondent;
(b) the arbitrator erred in law in failing to hold that the respondent did not lodge a “final payment claim” pursuant to cl 42.7 of AS2545-1993 and the respondent’s claim was barred;
(3)(a) the arbitrator erred in law in failing to hold that the respondent was required to give to the applicant a “prescribed notice” pursuant to cl 46.1 of AS2545-1993;
(b) the arbitrator erred in law in failing to hold that the respondent did not give the applicant a “prescribed notice” pursuant to cl 46.1 of AS2545- 1993 and the applicant was not liable to the respondent;
(4)(a) the arbitrator erred in law in holding that the subcontract between the applicant and the respondent was a “net cut” contract;
(b) the arbitrator erred in law in failing to hold that the subcontract between the applicant and the respondent was a “net fill” contract.
(5)(a) the arbitrator erred in law in failing to decide the arbitration on the basis that the respondent bore the onus of proving its claim on the balance of probabilities;
(b) the arbitrator erred in law in failing to hold that the respondent did not prove its case on the balance of probabilities or at all;
(c) the arbitrator erred in law in failing to hold that the respondent did not prove that it was entitled to payment from the appellant under cl 3.1 of AS2545-1993 on the balance of probabilities or at all and, in particular, the respondent failed to prove it carried out 50,000 cubic metres of earthworks from the Sanfam Borrow Area to Burleigh Cove Estate Stage 6 for which it had not been paid;
(6)(a) the arbitrator erred in law in holding that the respondent was entitled to costs and disbursements incurred in the arbitration as contractual damages;
(b) the arbitrator erred in law in failing to hold that the respondent did not prove the quantum of the applicant’s internal management costs and expenses or the consultants’ fees and expenses on the balance of probabilities or at all.
1. Failure to give reasons for the award
| [16] | Section | 29(1) | of | the | Act | provides: |
“29.(1) Unless otherwise agreed in writing by the parties to the
arbitration agreement, the arbitrator or umpire shall –(a) make the award in writing; and
(b) sign the award; and
(c) include in the award a statement of the reasons for making the award.”
The applicant made submissions on this ground of appeal for the first time in its written outline of submissions in reply. The respondent had taken the view that this ground had been abandoned since it had not been pursued in the applicant’s comprehensive submissions. In its submissions in reply the applicant said that there was an error of law because of a failure by the arbitrator to construe the contract according to legal principles, that the failure to find the facts necessary to support his findings constituted an error of law as did a failure to give reasons. The applicant asserts that the arbitrator failed to include in the award a statement of reasons as defined in s 27B of the Acts Interpretation Act 1954 which provides that:
“27B If an Act requires a tribunal, authority, body or person making a decision to give written reasons for the decision (whether the expression ‘reasons’, ‘grounds’ or another expression is used), the instrument giving the reasons must also –
(a) set out the findings on material questions of fact; and
(b) refer to the evidence or other material on which those findings were based.”
If the applicant were correct in his submissions this might have the effect of unravelling the uniformity of approach which the courts have taken to the interpretation of the Act. Provisions equivalent to s 27B of the Acts Interpretation Act (Queensland) are found in the Acts Interpretation Act (Commonwealth) 1901 s 25D and the Interpretation Act (ACT) 1967 s 13C, but there are no similar provisions in the Interpretation Act (NSW) 1987, Interpretation of Legislation Act (Vic) 1984, Acts Interpretation Act (SA) 1915, Interpretation Act (WA) 1984, Acts Interpretation Act (Tas) 1931 or the Interpretation Act (NT). However, in my view whether one applies s 27B of the Acts Interpretation Act or the many cases helpfully referred to by Mr Bond for the respondent15 the arbitrator has adequately stated his reasons for decision. An arbitrator is not a judge and as the Court of Appeal held in Cypressvale Pty Ltd v Retail Shop Lease Tribunal16:
“Reasons that would not be considered adequate if given by a judge may nevertheless suffice for some other decision-makers not chosen for their task because of their resemblance to the judiciary.”
This decision was specifically applied to the decision of an arbitrator in Kennedy- Taylor (Qld) Pty Ltd v Civil & Civic Pty Ltd.17 The findings of fact made by the arbitrator were not an inadequate foundation for the conclusions he reached.18 The reasons he gave were adequate for the task.
2. Failure to comply with clause 42.7 of AS2545-1993
Clause 42.7 of the contract between the applicant and respondent provided as follows:
“42.7 Final Payment Claim
Within 21 days after the expiration of the Defects Liability Period, or where there is more than one, the last to expire, the Subcontractor shall lodge with the Main Contractor’s Representative a final payment claim and endorse it ‘Final Payment Claim’.
The Subcontractor shall include in that claim all moneys which the Subcontractor considers to be due from the Main Contractor under or arising out of the Subcontract or any alleged breach thereof.
After the expiration of the period for lodging a Final Payment Claim, any claim which the Subcontractor could have made against the Main Contractor and has not made shall be barred.”19
The applicant claimed that the respondent failed to lodge a claim endorsed “final payment claim” on or before 26 September 1997, which was 21 days after the expiration of the defects liability period. The complaint by the applicant was that none of the claims made by the respondent were endorsed with the words “final payment claim” and therefore any claim made by the respondent was barred. The applicant asserts that this is the plain and ordinary meaning of the clause.20 The applicant supports its case by reference to a remark by Smart J in Jennings Construction v QH & M Birt21 that the “requirement of written notice, which is so common in construction contracts, puts the matter on a formal and readily identifiable basis.”
There can, however, be no dispute that there was written notice of a final claim. The arbitrator so held. The question was whether the failure to endorse the final claim with the precise words “final payment claim” meant that it was permanently barred.
The arbitrator held, at clause 4.9.3 of his reasons for decision, that on both 18 October 1996 and 7 November 1996 claims were sent to the applicant endorsed “Final”. The applicant would have been in no doubt as to the meaning “final” and that the claims therefore conformed with the intent of cl 42.7.
It was argued by the respondent that the plain meaning of clause 42.7 is that a claim will be barred by operation of clause 42.7 if it could have been made within the time prescribed, but was not in fact made within that time. The barring part of the clause turned, in the respondent’s submission, on whether a claim was in fact made within time, not on whether it was made within time and endorsed with the words “final payment claim”. If the parties had intended such a construction they would have made that clear in the words they used in the barring part of the clause. The respondent submitted that the applicant’s suggested construction is not the plain meaning of the clause.
I agree with the submission of the respondent that the approach taken by the arbitrator is not evidently or obviously wrong as a matter of law and that, for the reasons the respondent has given, it was a fairly arguable construction of the clause. Furthermore, so far as his conclusions involve findings of fact, no error of law is revealed.
Neither is there strong evidence that the arbitrator made an error of law nor that the determination of this question by a superior court would add substantially to the certainty of commercial law. Whether or not the clause has been complied with is a question of fact to be determined in the circumstances of each particular case.
3. Giving of a “Prescribed Notice” pursuant to clause 46.1 of AS2545-1993
Clause 46 of the subcontract between the applicant and the respondent provided:
“46 TIME FOR NOTIFICATION OF CLAIMS
46.1 Subcontractor’s Prescribed Notice The Main Contractor shall not be liable upon any claim by the Subcontractor in respect of or arising out of a breach of the Subcontract unless within 28 days after the first day upon which the Subcontractor could reasonably have been aware of the breach, the Subcontractor has given to the Main Contractor’s Representative the prescribed notice.
The Main Contractor shall not be liable upon any other claim by the Subcontractor for any extra cost or expense in respect of or arising out of any direction or approval by the Main Contractor’s Representative unless within 42 days after the first day upon which the Subcontractor could reasonably have been aware of the entitlement to make the claim, the Subcontractor has given to the Main Contractor’s Representative the prescribed notice.
The prescribed notice is a notice in writing which includes particulars of all the following –
(a) the breach, act, omission, direction, approval or circumstances on which the claim is or will be based;
(b) the provision of the Subcontract or other basis for the claim or proposed claim; and
(c) the quantum or likely quantum of the claim.
This Clause 46.1 shall not have any application to –
(i) any claim for payment to the Subcontractor of an amount or amounts forming part of the Contract Sum;
(ii) any claim for payment for a variation directed by the Main Contractor’s Representative or to be made pursuant to Clause 12.3;
(iii) any claim for an extension of time for Substantial
Completion;
(iv) the provisions of Clause 46.2; or (v) any breach of contract by the Principal or direction of the Superintendent to which Clause 47.4 applies.”22
The arbitrator held that it was not necessary to serve a prescribed notice in this case. He said:
“Clause 46.1 states ‘This Clause 46.1 shall not have any application to – (i) any claim for payment to the Subcontractor of an amount or amounts forming part of the Contract Sum.’
Since it has been determined that the Subcontract is a Schedule of Rates Subcontract and that there was no variation involved, then Clause 46.1 has no application. The claim for damages by the Claimant has no effect.”
The arbitrator held that in the circumstances of a schedule of rates subcontract with no variations the service of a prescribed notice under clause 46.1 was unnecessary. Since the arbitrator applied a schedule of rates in determining the “damages” claim and viewed these as amounts forming part of the contract sum there is no evident or obvious error of law. To the extent that this ground relates only to the contractual damages awarded of $11,930.00 for internal management costs and expenses and consultants’ fees of $16,400.00, it will be dealt with under heading 6.
There is no manifest error of law nor strong evidence that the arbitrator made an error of law.
4. Net cut or Net fill contract
The applicant submitted that the arbitrator found correctly that the main contract was a net fill contract but that his logic was obviously and fundamentally flawed when he found that the subcontract was a net cut contract. This was, however, a finding of fact which was open to him and there is no error of law manifest or otherwise in the arbitrator’s making that finding of fact. It is certainly not the role of the court in a consideration of this kind to consider whether or not it might have reached a different finding of fact on the same or different evidence.
5. Proof of claim by the plaintiff
The submissions of the applicant are directed to showing that the respondent failed to prove its claim on what it called the central issue, namely, that the respondent performed 50,000 cubic metres of earthworks from the Sanfam Borrow Area to the Burleigh Cove Estate Stage 6 for which it had not been paid by the applicant. In support of that proposition the applicant referred to arguments which were essentially that the evidence was inadequate to support that finding and therefore the arbitrator conducted the arbitration upon the assumption that the respondent’s claim was true and the applicant was required to disprove the claim. The question of sufficiency of evidence is not a question of law. As McHugh JA held in Warley Pty Ltd v Adco Constructions Pty Ltd23 at 310:
“Whether or not a finding in a particular case gives rise to a question of law is often a difficult question to determine. But one proposition has been settled for more than a century. If the only question in the case is whether evidence ought to be accepted or whether evidence which has been accepted established a particular fact, no question of law is involved (Clark v Flanagan ((1934) 52 CLR 416 at 428); McPhee v S Bennett Ltd ((1935) 52 WN (NSW) 8 at 9); De Gioia v Darling Island Stevedoring & Lighterage Co Ltd ((1941) 42 SR (NSW) 1 at 5); Azzopardi v Tasman UEB Industries Ltd ((1985) 4 NSWLR 139 at 155-156)).”
The arbitrator accepted the evidence of the respondent as to how he measured the quantity of each section of item of work and rejected, as he was entitled to do, the applicant’s argument that such method of measurement was unreliable. The arbitrator specifically referred to preferring the evidence of the respondent’s witness to those called by the applicant. This is a case where the arbitrator, who was an engineer, had his own expertise. He was entitled to reject the applicant’s argument as to the reliability of the respondent’s measurement. To do so reveals no error of law. It certainly does not reveal any reversal of onus.24 The arbitrator specifically found that, “[o]n the balance of the probabilities, the Claimant has established his position, that he has excavated and transported 50 000m3 of filling from the Sanfam Borrow to the Burleigh Cove Estate Stage 6 at the scheduled rate of $5.00/m3 and is entitled to payment.”
6. Costs and disbursements incurred in the arbitration and the quantum of those
costs
The arbitrator awarded the respondent internal management costs of $11,930 and consultants’ fees and expenses of $16,400.00 as contractual damages. The respondent had claimed costs and disbursements incurred in its claim for arbitration as contractual damages. In addition to its argument that damages could only be claimed if a prescribed notice had been given, the applicant submitted that such amounts are only recoverable, if at all, as costs and not as contractual damages.
The applicant submitted that contractual damages are constrained to the amount which may fairly and reasonably be considered to either arise naturally from the breach of the contract or is reasonably supposed to have been in the contemplation of the parties at the time they entered into the contract as the probable result of the breach of the contract.25 The consultant Mr Bradford was briefed to provide expert consulting services to the respondent from 27 September 1997 to assist in the dispute between the applicant and the respondent. The applicant submitted that it followed that this claim for the sum of $16,400.00 of costs incurred in the arbitration and are not recoverable as contractual damages.
The applicant also submitted that the respondent’s attempt to claim an amount for internal management costs totalling $20,610.00 was misconceived as it lacked proper proof and was simply a claim by the respondent for asserted internal management costs for preparing itself for the litigation.
These submissions do not satisfy the tests set out in s 38(5). The amount involved is not sufficient to substantially affect the rights of a party to the arbitration agreement. To the extent that it was submitted that a proper claim for costs was mislabelled a claim for damages, the effect of a successful appeal would be merely to change the denotation of one part of the award. To the extent that the appellant asserted there was insufficient proof of one part of the quantum of the claim, of which only $11,930.00 was allowed, that is a question of fact and not one of law and therefore not one warranting intervention by the court.
Conclusion
It follows that, as s 38(5) of the Act has not been satisfied with regard to any of the grounds of appeal, the applicant should not be granted leave to appeal.
| 2 | 1 | Natoli v Walker (supra); American Diagnostica Inc v Gradipore Ltd (1998) 44 NSWLR 312. | This section is uniform throughout Australia and is found in the Commercial Arbitration Act 1986 (ACT); Commercial Arbitration Act 1984 (NSW); Commercial Arbitration Act 1985 (NT); Commercial Arbitration Act 1986 (SA); Commercial Arbitration Act 1986 (Tas); Commercial Arbitration Act 1984 (Vic); Commercial Arbitration Act 1985 (WA). | Natoli v Walker NSWCA No 40351 of 1993, 26 May 1994, per Kirby P at 2; see also Carpaolo Nominees Pty Ltd v Marrosan Nominees Pty Ltd (1997) 112 NTR 1 at 11-12. | |||||||||
| 5 | 6 | 4 |
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| 9 | 10 | 11 | 12 | 13 | 14 |
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| 15 | 16 | 18 | 17 | 19 |
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| 21 | 20 |
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| 22 | This standard clause has been replaced by cl 41.1 of AS4901-1998, which is in quite different terms. | ||||||||||||
| 23 | (1992) 8 BCL 300. | ||||||||||||
| 24 | 25 |
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