Bovis Lend Lease Pty Ltd v WGE Pty Ltd - [2002] NSWSC 566

No judgment structure available for this case.

CITATION: Bovis Lend Lease Pty Ltd v WGE Pty Ltd [2002] NSWSC 566

CURRENT JURISDICTION: Equity Division
Technology and Construction List

FILE NUMBER(S): SC 55013/02

HEARING DATE(S): 3 June 2002

JUDGMENT DATE: 26 June 2002

PARTIES :

Bovis Lend Lease Pty Ltd (Plaintiff)
WGE Pty Ltd (Defendant)

JUDGMENT OF: Bergin J

COUNSEL : T.F. Bathurst QC leading M.R. Gracie (Plaintiff)
T.J. Davie (Defendant)

SOLICITORS: Freehills (Plaintiff)
Colin Biggers & Paisley (Defendant)

CATCHWORDS: [ARBITRATION] - Application for leave to appeal from the Interim Award of an Arbitrator - Whether there is a manifest error of law on the face of the Award - Whether the proper determination of the question of law concerned could substantially affect the rights of the Plaintiff in the Arbitration proceedings.

LEGISLATION CITED: Commercial Arbitration Act 1984 (NSW)

CASES CITED: Natoli v Walker, NSWCA, unreported, 26 May 1994, Kirby P, Mahoney and Meagher JJA
Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203
State of New South Wales v Coya (Constructions) Pty Ltd, NSWSC, unreported, 4 July 1994, Rolfe J

DECISION: See paragraph [72].

- 27 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
commercial LIST

BERGIN J

26 JUNE 2002

55013/20002 BOVIS LEND LEASE PTY LTD V WGE PTY LTD

JUDGMENT

1 This is an application by the plaintiff, Bovis Lend Lease Pty Ltd, for leave to appeal from the Interim Award (the Award) of Mr T M McDougall (the Arbitrator) dated 28 February 2002. The parties consented to an order made on 19 April 2002 that the hearing of the application for leave to appeal be heard concurrently with the substantive appeal. The Arbitration was conducted under the Commercial Arbitration Act 1984 (NSW) (the Act) between the plaintiff and the defendant, WGE Pty Ltd. Leave is sought pursuant to s 38(4)(b) of the Act on the grounds that (a) there is a manifest error on the face of the Award, and (b) the proper determination of the question of law concerned could substantially affect the rights of the plaintiff in the Arbitration proceedings.

2 The matter was heard by me on 3 June 2002 when Mr T F Bathurst QC leading Mr M R Gracie, of counsel, appeared for the plaintiff and Mr T Davie, of counsel, appeared for the defendant.

3 The plaintiff and the defendant entered into a written subcontract that was executed on 11 August 1999 whereby the defendant agreed to perform certain works for the plaintiff at the Sydney International Terminal Expansion Project (the Works) at Kingsford-Smith Airport Mascot (the Airport).

4 The Works included the design, certification, manufacture, supply, delivery, testing, insulation, protection and warranty of the structural steel, cladding, flashing, roofing and suspended concrete slabs comprising “fixed links” at the Airport for a lump sum price of $9,114,441. Fixed links are part of the connection between the Terminal proper and the aircraft facilitating the embarkation/disembarkation of passengers.

5 A dispute arose between the parties which was referred to the Arbitrator on 17 February 2000. The Arbitration proceeded for 24 days between 6 August 2001 and 14 September 2001. It is agreed that the net result of the Arbitrator’s findings is that the defendant was awarded the sum of $1,887,674.

6 The plaintiff claims that the Award contains manifest errors on its face in respect of two matters. The first relates to the subcontract (the subcontract issue) and the second to transport obligations (the transport issue).

The Subcontract Issue

7 Although the subcontract was not executed until 11 August 1999 the date for commencement of the Works was 8 January 1999. The plaintiff claims that in the period prior to the execution of the subcontract the Works were performed pursuant to the terms of the Letter of Acceptance from the plaintiff to the defendant dated 8 January 1999. The defendant denies this and claims that prior to the execution of the subcontract on 11 August 1999, the Tender Documents together with the written Notice of Acceptance by Civil & Civic (former name of the plaintiff) constituted the subcontract.

8 The Arbitrator found as follows:

The formal contract was not executed until 11 August 99. However the Conditions of Tendering (Cl 13) provided that, until the formal agreement was executed, the Tender Documents together with written notice of acceptance by Civil & Civic constituted the Sub-contract (B20).

9 The plaintiff claims that the Arbitrator construed the subcontract contrary to its express terms by finding that the drawings that the subcontract incorporated were the drawings in the possession of the defendant between November 1998 and 4 January 1999 rather than the drawings in the Schedule of Drawings dated 6 January 1999 which were included by reference in the Letter of Acceptance dated 8 January 1999 and in the subcontract dated 11 August 1999. It is submitted that this is a manifest error of law on the face of the Award.

10 At the time of the Tender, drawings were available for only three of the fixed links and the initial offer was for the three fixed links. Negotiations ensued and an additional eighteen fixed links were added. The Arbitrator referred to the “controversy” over whether the drawings for fixed links 56/63, 60/61 and 59 were “handed over” on 8 January 1999, as contended for by the plaintiff. He found that “at the latest they were available on 11 or 12 January 99”, initially in electronic form and then in prints (D1).

11 The Arbitrator dealt with the Scope of Works in section K of his Award which included the following:

12 The formation of the contract was dealt with by the Arbitrator in section B of the Award. On 26 November 1998 the defendant received an Invitation to Tender for three fixed links comprising two double and one single link. The Tender Package included drawings for the three links all stamped “Tender” and some were also noted “For Construction” (B1). The closing date of the Tender was 3 December 1998.

13 It is apparent that a meeting between the representatives of the plaintiff and the defendant took place on 27 November 1998 at the defendant’s premises in Wollongong. On 30 November 1998 the plaintiff sent a fax to the defendant in which it stated that the revised price was to reflect the construction of the steel units off-site in modules and clad and that the price was to be broken down into each link.

14 On 10 December 1998 the defendant tendered for the three fixed links for a price of $2,134,168 (B3). On 16 December 1998 the consulting engineers for the project sent a fax to the plaintiff enclosing “amended tender drawings” as an “interim issue only” for use “in discussion with the fabricators” (B4).

15 On 16 December 1998 the plaintiff sent a fax to the defendant referring to 21 fixed links to be constructed (4 double and 17 single fixed links) requesting provision by 22 December 1998 of the proposed methodology and delivery and insulation proposal (B6). The plaintiff faxed to the defendant the information relating to “the approximate lengths” of the first 14 links and advised that the remaining 7 links were to be provided at a later date (B9).

16 On 22 December 1998 the defendant inspected the site and submitted a “new lump sum tender price” for fourteen fixed links at $7,322,382 which was revised on 4 January 1999 to $7,160,931. At a meeting on 4 January 1999 the defendant asked the plaintiff about pricing for the remaining 7 links. The Arbitrator found that the plaintiff “put the bite on” the defendant for a $400,000 discount which was subsequently agreed at $350,000 (B13-15).

17 On 8 January 1999 the plaintiff’s representatives travelled to the defendant’s premises in Wollongong taking with them a “Letter of Acceptance” erroneously dated 8 January 1998. That letter was signed by the Project Director of the plaintiff. The defendant signed a copy of that letter with the words “signed and accepted.” The Arbitrator stated that it needed to be stressed that there was no evidence that at the time the defendant signed the letter it had been advised of the estimated lengths of the additional 7 fixed links. The letter of 8 January included the following:

Re: Sydney Airport 2000
Fixed Links-Structural Steel and Cladding
Letter of Acceptance
We hereby authorise you to proceed with work in relation to the abovenamed project in accordance with the terms of this letter, pending the execution of the proposed Trade Contract between Civil & Civic and WGE Pty Ltd.
The authorisation is given having regard to our discussions at the Tender Interview and to the terms and conditions of the subcontract included in the tender documents under which you are willing to carry out the Trade Contract Works. It will allow us to continue to work towards the dates in the proposed Construction Programme.
The work will be performed in accordance with a trade Contract comprising the following documents, copies of which formed the basis of the tender:
1. Form of Subcontract
2. Subcontract Terms
3. Schedule of Specifications, the Schedule dated 6th January 1999
4. Schedule of Drawings, the Schedule dated 6th January 1999
5. Scope of Works dated 26th November 1998
6. Schedule of House Rules as per Tender documents
7. Programme - see attached schedule.
The Trade Contract Sum is a Lump Sum of $2,086,074 (for links 56/63, 60/61, 59), with a Schedule of Rates for the remaining 18, fixed and not subject to rise and fall. The current estimate of the final lump sum ($9,464,441), less the final discount of $350,000, is $9,114,441. (see attached schedule). Note that the determination of the final length of each link will be made on the issuing of the AFC architectural drawings.
…
Notwithstanding the terms of this letter or any document referred to herein Civil & Civic in its sole discretion may terminate the arrangements set out in this letter at any time prior to the execution of the formal Trade Contract by giving you seven (7) days notice in writing.

18 The Schedules attached to the letter included a heading “Schedule of Drawings” which stated “Refer to attached Site Drawing Register dated 7/1/99.” Although the first page of the Site Drawing Register is “dated: 6/1/99” the last page thereof has the date “7/01/1999.”

19 On 12 January 1999 the defendant wrote to the plaintiff in which it was stated that “WGE Group has the pleasure in submitting our offer for the supply, fabrication, painting, delivery and erection of fixed links and pod items as listed below.” It then stated that the total price for “4 off double links and 17 off single links (equal to 1859 L/m)” was $9,464,441 less a discount as agreed at the defendant’s office on 8 January 1999 of $350,000.00 with a “Final Revised Lump Sum Price of $9,114,441.00”

20 The parties executed the subcontract on 11 August 1999. In the definition of subcontract there appears “(q) the Schedule of Drawings and the Drawings listed in the Schedule.” Clause 2.7 of the subcontract provides as follows:

2.7 Entire Agreement

21 The Schedule of Drawings is entitled “Schedule of Drawings for Fixed Link Works. Refer to 5 pages attached hereto.” The five pages are headed “Site Drawing Register dated: 6/1/99.”

22 The parties agree that when executing the subcontract on 11 August 1999 the defendant stated that such execution was “based on the inclusion of” two documents, namely (a) “Review of Proposed Contract Document Dated 15 June 1999” from the defendant, and (b) “Spreadsheet Response to Above Document – Rev A” by the plaintiff. In paragraph 2 of Review the following appears:

Drawing schedule dated 6/1/99. It cannot be included as Civil & Civic document transmittals for these drawings were made out on the 8/1/99,the day after WGE’s final offer was submitted. WGE processed these drawings on 11/1/99. Replace with Drawing Schedule faxed to WGE on 22/12/98.

23 The second document – the Spreadsheet – contained the response:

2

Drawing Schedule dated 6. Requested to change with that dated 22.12.991.99

Noted that the drawing register is per the letter of Intent

OK

24 Although the date in the first column of the Spreadsheet is peculiar, it is obviously intended to refer to the drawing schedule faxed to the defendant on 22 December 1998. It appears from all the evidence before me that the Letter of Intent was a reference to the Letter dated 8/1/99 which has also been referred to as the Letter of Acceptance. That letter referred to the schedule of drawings dated 6 January 1999.

25 The Arbitrator referred to the “C&C Invitation to Tender, Scope of Work and Schedule G” which comprised the tender documentation. The tender drawings – referred to as the “Tender Documents” and the “First Post Tender Set” were found by the Arbitrator to be respectively the drawings issued to the defendant for the purpose of tendering and “on or shortly after, 8 January 1999” (K4.4). The Arbitrator also made the following findings:

The contract was not signed until 11 August 99 – in the interim the Tender Documents together with the Letter of Acceptance of 8 January 99 constituted it (K4.12).

It is, though, my very firm view that even after 11 August 99, one cannot just go to the contract documents as specified in the contract to decide what is within scope, as an after the event operation (K4.13).

It can, of course, be contended that, whatever went before, WGE bound itself to the contract documents and that, if it had wished to, it could have reviewed them first and adjusted the price accordingly. That ignores the reality of the situation on 8 January 99. The price had been negotiated on the basis of the tender information (which included all the information passed back and forth up to that date). As a final step, BLL had twisted WGE’s arm to secure a substantial discount of close to 4% of the price based on three FLs, in return for a contract covering 21 FLs (K4.14).

The price was thus based on the known information plus a speculation on the future. The preparation of a letter of acceptance, signed by BLL with a request to sign on the dotted line, effectively meant that BLL had made up its mind. In the obvious pressure to get the work under way, the adoption of the conventional procedure (go through the new drawings, then come up with a list of changes and new items, price them, and start negotiations again), was, in my view, not on (K4.15).

26 The Arbitrator also found:

could only be based on the information supplied to WGE at 4 January 99 (K10.6).

Mr Norman and others, WGE were asked to price a further seven links. In addition, Mr Norman put the squeeze on WGE for a discount of $400,000. Subsequently $350,000 was agreed on. On the face of the evidence, there is no indication that this figure was arrived at prior to the meeting of 8 January 99, or that WGE was aware of the estimated lengths of the last seven links, before then (K10.7) .

…

The only possible conclusion is that the contract was entered into on 8 January 99 at a price based solely on information in the possession of WGE prior to that date. The WGE statements of position in these “scope of works” claims frequently say “The competitive lump sum tender by WGE, submitted on 4 January 99, was based on the scope of works detailed on the drawings made available at that time” (cf. paragraph K6.1 above). Properly viewed, that was undoubtedly the last tender submitted by WGE (K10.17).

It is undoubtedly correct, as WTP has noted, that subsequently, on 12 January 99, WGE gave BLL a letter submitting “our offer” etc. for 21 links at a contract price of $9,114,441. However that was no more than a confirmation of the agreement of 8 January 99. To the extent that the subsequent documentation, now said to be part of the contract, differs from the former, it does not represent the agreement (K10.18).

It is therefore my conclusion that any drawings handed over on or after 8 January 99, to the extent that they differ from details supplied by BLL prior to that date, represent a variation to the agreement, and WGE cannot be deemed to have allowed for them, even for drawings handed over between 8 January and 12 January 99 (K10.19).

27 In consequence of these findings the Arbitrator found that the defendant was entitled to certain variations. In respect of item 22.5, Curved node steel (single links), the Arbitrator allowed $185,600 of a claimed $309,312. In relation to item 22.7, Communication Risers, the Arbitrator allowed $204,608, the whole amount claimed. In relation to item 22.15, Engineer’s Hut, the Arbitrator allowed $94,038, the whole amount claimed. In relation to item 22.18, Dektite flashing, the Arbitrator allowed $18,515 (erroneously identified in the Summons as $94,308) of a claimed amount of $19,624. In relation to item 22.19, Sheeting to underside of arrivals corridors, the Arbitrator allowed $179,000 of the claimed amount of $215,606. In relation to item 22.20, Expansion joints on roofs and walls, the Arbitrator allowed $79,409, the whole amount claimed. In relation to item 22.26, Curved node steel (double link), the Arbitrator allowed $62,500 of the claimed amount of $104,240. The total of these amounts allowed by the Arbitrator is $823,670.

28 The plaintiff claims that the Arbitrator fell into error in construing the Letter of Acceptance and the subcontract, by failing to give effect to the express terms of the written contract and that this is a manifest error of law on the face of the Award.

29 The defendant submitted that no error, manifest or otherwise, is to be found on the face of the Award. It is submitted that paragraphs K10.6 and K10.7 of the Award are findings of fact and do not contain any statement of law and do not contain any manifest error of law. It is submitted that paragraph K10.19 is a conclusion that follows logically and consequently from the earlier paragraphs including paragraphs K10.6 and K10.7. It is submitted that paragraph K10.10 does not contain any error of law.

30 The plaintiff accepted in its written submissions that the determination as to what constitutes contract terms is a question of fact: Natoli v Walker

State of NSW v Coya (Constructions) Pty Ltd

Natoli v Walker

It was in the province of the arbitrators to decide which documents made up the agreement between the parties. If they determined that one document by reference incorporated another, such determination was purely factual.

31 Mahoney JA referred to the fact that a significant part of the argument in the appeal had been devoted to the reconciliation or integration of the standard form of contract provisions and the specification provisions and said at page 8:

Questions, even if they be questions of law, which involve merely the reconciliation of disparate documents of this kind will, in my opinion, seldom warrant leave to appeal … But where, as here, the isolation of the question of law involves the melding of documents and the consideration of factual issues, ordinarily the case will not be one for leave to appeal.

32 Mr Bathurst submitted that the Arbitrator ignored the express terms of the subcontract and Letter of Acceptance. In particular it was submitted that the drawings in the register dated 6 January 1999 were specifically and expressly included in both documents. Mr Bathurst also submitted that it appeared this error may have occurred because the Arbitrator was of the view, as expressed in the Award, that the plaintiff had “put the bite on” the defendant and had twisted its arm during the contract negotiations. It appeared that the Arbitrator may have been motivated by a sense of fair play to do what he thought was fair in the circumstances to ameliorate the “bite” he thought the defendant had suffered. Whatever be the motivation, the plaintiff submitted that to ignore the express terms of a contract in the process of deciding whether variation claims should be allowed, is a manifest error of law.

33 What has to be decided is whether, on the face of the Award, the Arbitrator ignored express terms of the contract in the process of construing the contract, or whether he had regard to the whole of the documents and concluded, as a matter of fact, which documents constituted the contract. These alternatives represent the positions of the plaintiff and the defendant respectively on this issue.

34 The Arbitrator considered the contention that whatever went before, the defendant bound itself to the contract documents on 11 August 1999. However, he expressed the view that to find that the defendant bound itself to the contract on 11 August 1999, would be to ignore what he referred to as “the reality” of the situation on 8 January 1999. It was in this context that the Arbitrator referred to the fact that the plaintiff “as a final step” had twisted the defendant’s arm in order to secure a “substantial discount” (K4.14).

35 The Arbitrator then concluded that the price was based on the known information “plus a speculation on the future”. He also found that the obvious pressure to get the work under way precluded the adoption of the conventional procedure of going through the drawings, coming up with a list of changes and starting negotiations again after the changes were priced. This approach focuses on what happened on 8 January 1999 as opposed to the events of 11 August 1999 when the parties agreed to the terms of the subcontract and specifically to the inclusion of the drawings listed in the Register dated 6 January 1999 being part of the subcontract. It is also significant that the Arbitrator accepted that between 8 January 1999 and 11 August 1999, in fact no later than 12 January 1999, the defendant received the drawings included in the Register dated 6 January 1999.

36 The defendant’s letter to the plaintiff dated 12 January 1999 advised the plaintiff of the “final revised lump sum price” for the 21 fixed links. The letter of 8 January 1999 was clearly a contractual document and its express terms included the drawings in the register dated 6 January 1999, with a date on the last page recorded as “7/01/99”. The Arbitrator’s finding at paragraph B20 of the Award was in clear and unambiguous terms. It recognised that the “formal contract”, that is, the subcontract, was not executed until 11 August 1999. It also recognised that “until the formal agreement was executed”, the Tender Documents and the Notice of Acceptance, that is the letter dated 8 January 1999, constituted the contract. However the Arbitrator failed to give recognition to the express contractual terms of the letter of 8 January 1999 and failed to recognise that once the parties executed the “formal contract”, it was just that – a “formal” written contract with express terms that the parties were entitled to rely upon.

37 When properly analysed it is my view that the process embarked upon by the Arbitrator was not simply a process of deciding what documents constituted the contract, a matter of fact, but rather construing the terms of the letter of 8 January 1999 and the subcontract executed on 11 August 1999, matters of law. By this process the Arbitrator concluded that the plaintiff was not entitled to rely upon an express term within the contract, notwithstanding that both parties had agreed to and accepted the terms of the letter and signed the subcontract.

38 I am satisfied that the Arbitrator fell into error in this regard and that such is an error of law. I am also satisfied that it is manifest or obvious on the face of the Award.

39 The next question to be decided is whether the proper determination of the question of law concerned could substantially affect the rights of the plaintiff in the Arbitration proceedings. The consequence of this error is that the plaintiff was found liable to the defendant for an additional $823,670. That was an amount additional to the lump sum of $9,114, 441. I am of the view that there can be little argument that the amounts at stake are substantial. The plaintiff submitted that in those circumstances the plaintiff’s rights are substantially affected.

40 The defendant submitted that the court would not find that the plaintiff’s rights could be affected in any substantial manner by such an error because the Arbitrator found that the plaintiff had induced the defendant to enter into the contract by misleading and deceptive conduct, a finding which is not challenged. It is submitted that if the defendant does not receive payment for the variations, valued at $823,670, then it would have incurred a loss which would not have been incurred if the contract had not been entered into and the plaintiff will gain a corresponding windfall.

41 It is also submitted that if the defendant was induced by reason of the plaintiff’s misleading and deceptive conduct into entering the contract it would be entitled to be compensated for that loss. Accordingly the defendant submitted that the plaintiff’s rights remain unaffected by the error of law.

42 The plaintiff submitted that none of the Arbitrator’s findings of misleading and deceptive conduct related to the subcontract issue. It was pointed out that the defendant never sought to avoid, rescind or impugn the express terms of the subcontract by reason of any misleading or deceptive conduct. It was also submitted that there was no misrepresentation alleged in respect of the schedule of drawings. It is apparent that the only misleading or deceptive conduct alleged by the defendant was that pleaded in paragraph 28 (a) and (b) of the Amended Points of Claim. That pleading alleged that the plaintiff had falsely represented that the information supplied by the plaintiff would be sufficient to enable the defendant to shop draw in accordance with the contract program and that the design drawings for off-site fabrication would be provided to the defendant immediately after 8 January 1999.

43 It is apparent from paragraph M15 of the Award that the Arbitrator concluded that if the representations were made they were deemed to be part of the contract. The Arbitrator recorded his earlier conclusion that the representations were made “though possibly not completely to the extent” that the defendant contended (M16). There does not appear to me to be any finding that the plaintiff made any representations that were misleading or deceptive in respect of the subcontract issue. I reject the defendant’s submission that the plaintiff’s rights would remain unaffected.

44 I am satisfied that leave should be granted to the plaintiff to appeal from the Award and that on the subcontract issue the appeal should be allowed. There is a requirement to decide the variation claims on the basis that the drawings in the register dated 6 January 1999 referred to in paragraph (q) are part of the contract agreed to in the letter of 8 January 1999 and form part of the subcontract executed on 11 August 1999. I am not satisfied, however, that the court should, in consequence, substitute its findings for that of the Arbitrator. The matter requires proper assessment of those drawings and all the evidence in relation to those drawings as they affect the various variation claims. I am satisfied that the appropriate course to adopt is to remit the matter to the Arbitrator for proper determination.

The Transport Issue

45 As I have already said, when executing the subcontract on 11 August 1999 the defendant did so on the premise that such execution was “based on the inclusion of” two documents, namely (a) “review of proposed contract document dated 15 June 1999” from the defendant, and (b) “spreadsheet response to above document – rev 4” by the plaintiff. The Arbitrator made no express reference in the Award to those two documents. The two documents were attached to a letter from the defendant to Lend Lease Projects Pty Ltd dated 11 August 1999. However that letter was in response to a letter from Lend Lease Projects to the defendant of the same date. The Lend Lease Projects letter was in the following terms:

RE: SYDNEY AIRPORT 2000

CONTRACT

contained Item 12C as follows:

12C

WGE to Opportunity to re-engineer elements

Also that WGE take on the costs of small variations as discussed with RN & TG
Note that transport is the responsibility of WGE
Negates item 11A, 8B

OK

46 In the Review document (2 pages) included in the defendant’s response, Item 12 referred to the Letter of Acceptance dated 8/1/99 and at paragraph C stated “WGE to have to opportunity to re-engineer elements within design intent, based on 100% savings to WGE Pty Ltd. Civil & Civic will determine such.” Item 8B of the Spreadsheet provides: “Units will be transported ion 20-22# lengths”. This is a statement that was also contained in the letter of 12 January 1999 from the defendant to the plaintiff in which the defendant provided its revised final lump sum. Item 11A stated “Structures to be redesigned to allow ‘normal’ transport. This design is the responsibility of C & C”. The reader is then referred to Item 12C. Item 12C is in the same terms as Item 12C in the Spreadsheet attached to the Lend Lease Projects letter.

47 A document in evidence before me is a letter the defendant wrote to Lend Lease Projects on 4 September 1999 which included the following:

Re: LLP response against item 12C in the spreadsheet attached to WGE’s contract review.

In checking the correspondence for this contract, I noticed the entry for the above states: “Note that transport is the responsibility of WGE. Negates Items 11A, 8B”.

These codes reference conditions in our offer. ie 11A – Structures are to be redesigned to allow normal transport. This design is the responsibility of C&C; 8B – Units will be transported in 20-22 metre lengths.

48 Lend Lease Projects responded by letter dated 6 September 1999 in terms which included the following:

Transportation is the responsibility of WGE, any modifications to the structure required for transport must be identified by WGE. As agreed, these will be reviewed and signed off by Lend Lease Projects’ consultants. We note that this process was implemented prior to the installation of the first links.

Any structural certification required for transport, that is the jinker sign off or clarification of interim structural modification required for transport, is the responsibility of WGE.

49 The plaintiff submitted that the negation of Item 11A means that the design responsibility that the defendant sought to impose on the plaintiff to re-design the fixed links to normal transport had not been agreed to. The Arbitrator allowed the defendant’s variation claim 22.12 in the sum of $1,353,167 .

50 The plaintiff claims that the Arbitrator failed to construe or have any regard to the contractual obligation upon the defendant for “design” to ensure that the corridors were transportable as identified in Item 12C which stated “note that transport is the responsibility of WGE.” During the Arbitration the plaintiff submitted that the defendant had allowed for fixed link 59 and, because the other links were priced at the same rates, the defendant had obviously allowed for site assembly for the whole project. Of this submission the Arbitrator said:

The argument is undoubtedly logical. However it is unsafe to assume that ordinary logic applies to the way tenders are put together. It would not be the first time in recent history that an estimate has been compiled on certain assumptions, one of which has been found to be wrong at a time when it still would be possible to revise the offer. The choice is whether to do so or to accept a probable loss in that item. Usually it depends on the magnitude of the probable loss measured against the desirability of the contract otherwise, and the chance of missing out if the tender price is changed. In my experience in making the choice, there is a weighting in favour of accepting the probable loss on that item to make sure of the job – the “bird in hand” factor (L108).

51 The Arbitrator referred once again to the plaintiff’s letter of 27 November 1998 in which it referred to the revised price reflecting the “construction of the steel units offsite in modules and clad” and the Tender Package of 26 November 1998 which recorded that it was the intention to “construct the steel for the arrivals and departures corridors into modules offsite and clad, including bondek such that they can be transported” (L95).

52 The Arbitrator also found that in the course of the formation of the contract it was recognized that it was not possible to transport all the fixed links to the site as then designed in the way envisaged in the Invitation to Tender, particularly in relation to the arrivals corridor of the single fixed links. The Arbitrator concluded:

I do not think, then, that there is any doubt that the contract was entered into on the basis put forward by BLL to WGE, ie. that fabrication into modules, including cladding, would be done completely in Wollongong, followed by the transportation of the completed modules to Mascot, where they would be lifted into place beside other modules, and connected up, requiring the minimum of finishing onsite, in the awkward conditions of a working airport (E11).

53 The Arbitrator also referred to the fact that the parties recognized that the exigencies of the programme were such that it was too late to alter the design of fixed link 59, “the rider being that it would have to be erected and clad onsite” (L98). The Arbitrator also concluded that attempts were made to modify the design of the fixed links and a part solution was arrived at, leaving substantially more work to be done onsite, after delivery (L99).

54 The plaintiff claims that the Arbitrator expressly reversed the contractual obligation that had been imposed on the defendant to be responsible for the transport of the fixed links. The subcontract, Scope of Works revised on 9 January 1999, included the following provisions:

1.0 INTRODUCTION

2.2 TRADES
The Scope of Works includes but is not limited to the following:

- Manufacture, delivery & erection of FIXED LINKS to the Sydney Airport 2000 …

55 It is submitted that the failure by the Arbitrator to refer to or construe the express terms of the Spreadsheet was a manifest error of law on the face of the Award.

56 The defendant submitted that there is nothing on the face of the Award to indicate that the Arbitrator did not take the Review and the Spreadsheet into consideration. It is also submitted that it is not a manifest error of law for an arbitrator not to have regard to documents which at least one of the parties did not contend were contract documents. In this regard it was submitted that at the arbitration proceedings the plaintiff did not contend that the Review and Spreadsheet were contract documents. It was further submitted that even if the Arbitrator had made express reference to the Spreadsheet, there was nothing within it that would have been likely to affect the Arbitrator’s determination of this issue.

57 The defendant focuses upon the nature of the claim that is the subject of challenge. Although the plaintiff characterised it as a variation for transportation costs of the fixed links, the claim 22.12, is a claim for “On Site Assembly of Single Link Arrivals Corridors”. It was submitted that this was for payment for assembling some, but not all, single link arrival corridors onsite. It was also submitted that it is important to note that the defendant made a corresponding claim based on allegations of misleading and deceptive conduct by the plaintiff.

58 The defendant emphasised the Arbitrator’s finding that the parties recognised during the course of progressing towards the formation of the contract that it was not possible to transport all the fixed links to site, as they were then designed, in the way envisaged in the Invitation to Tender. Reliance was placed upon the Arbitrator’s reference to the “part solution” that was arrived at that still left substantially more to be done onsite, after delivery, than could have been apparent at the pre-tender stage.

59 In response to this submission the plaintiff asks, “So what”? This was a contract in which the defendant agreed to be responsible for “transportation”. That meant that the defendant was obliged to manufacture the fixed links and to transport them to the Airport for installation. That was agreed within the lump sum. As it turned out the defendant was not able to manufacture the fixed links and transport them in the manner in which it was agreed and it therefore had to expend energies and costs in assembling the fixed links at the Airport that would not otherwise have been expended.

60 The defendant submitted that during the arbitration no express term imposing the obligation upon the defendant to bear the costs for assembly onsite by reason of the inability to transport the links as designed, was pleaded and no express term indeed exists. It was also submitted that any such term would need to have been carefully spelt out to avoid putting the defendant in an impossible position. It was submitted that an obligation to the effect that the defendant would have to propose designs that the plaintiff had no obligation to accept, so that the defendant was responsible for all additional costs and delays pending rejection of the design, would be an impossible situation in which to place the defendant.

61 The defendant referred to the Arbitrator’s reference to one of the plaintiff’s witnesses’ statement to the defendant’s representatives that the plaintiff was relying on the defendant’s expertise for transportation and fabrication of large and complex structures and the suggestion that the defendant would have to familiarise itself with the similarities or differences for the final price. Emphasis and reliance was placed upon the Arbitrator’s comments that it is a little hard to familiarise oneself with the similarities or differences between something which has been seen and something which has not and indeed which was not at that time designed, prior to quoting a final price.

62 It is necessary to set out in some detail the Arbitrator’s finding in respect of this claim. Relevant findings on this issue are scattered throughout the Award and include the following:

What comes through is that the concept encompasses standardisation of dimensions and of the units themselves coupled with fabrication in a factory with on-site work being merely “slotting” the units into position, with minimal work… (D13)

The view of witnesses for BLL, particularly that of Mr Bob Jones, who is particularly experienced in architectural and engineering drawings, is that any reasonable examination of the drawings available around the time of the tender would have shown the expectations of largescale standardisation were unrealistic, based on the drawings available for the first three fixed links. (D16)

I would be inclined to agree with that, if the tender drawings constituted all there was to go on. However I take the last paragraph of the quotation in paragraph D15 to be saying “in order to keep the program on track, we want you to price the three links and nodes (Nos. 56/63 , 60/61 and 59) as they are shown on the drawings while we ‘project engineer’ the other fixed links”. The term “to project engineer” means to me the concept of fine tuning the design for optimum constructability, which is one of the claims commonly advanced in favour of project management. (D17)

As the design stood at the time, it was quickly realised that there was a problem with any “modular cum transportable” concept especially with the single fixed link, FL59, of the three whose drawings were available. This was because, with a departures corridor on one side only of the arrivals corridor, the external wall of the latter would be 8 metres or so high. Height restrictions on road transport made it impossible to transport this as a single module of a corridor. (D18).

63 The Arbitrator referred to the evidence of one of the plaintiff’s witnesses, Ms Campbell, in which she referred to certain “options” that were being investigated by the parties after this problem was identified. These options included using barges on the Cooks River and using a crane and an extended pier. There was also investigation of constructing the truss in an area just outside the Airport for transportation across the runway and delivery to site as a fully welded truss (D19/20).

64 The Arbitrator concluded from Ms Campbell’s evidence that the plaintiff was hopeful that the solution could be found without splitting the truss “which would validate asking WGE to tender on the basis of modules being constructed “offsite & clad” and then transported to site” (D21). The Arbitrator also found that the plaintiff ran out of ideas under the pressure of its own program and left any solution for the defendant to propose and for the plaintiff designers to dispose. This was the construction that the Arbitrator placed upon the terms of the contractual letter dated 8 January 1999, in particular the following:

WGE Pty. Ltd. will have the opportunity to re-engineer elements of the fixed links, within the design intent, based on 100% savings to WGE Pty Ltd. Civil & Civic will determine whether the re-engineering elements are within the design intent of the fixed links.

65 The Arbitrator also found:

The only solution that WGE says it could see lay into splitting the truss into a top and bottom section (so that any one section could be kept within the height restrictions for road transport) and then assembling them on site. (D23)

This, of course, took time, including time required to obtain a determination of whether “the re-engineering elements were within the design intent of the fixed links” (both architecturally and structurally). This added to the already existing pressure on time arising out of the slow production of shop drawings. (D24)

Mr Jones, at some point - I think at the conclave - expressed the view that firstly it would as recognised, by 22 December 98 (cf. paragraph E16), that the first single fixed link would have to be finally assembled and clad onsite (through pressure of time). Secondly it has been said that there was no indication, in the WGE tender workings, that the price for the first link was any different from that of the subsequent ones. Hence the conclusion was that WGE had accepted that all the single fixed links would be treated similarly. (D25)

However, while the tender workings (Tab 6 in Exhibit 82 BLL) are anything but detailed, they give no indication that the estimator considered other than what the tender enquiry advised was to be done. Thus there is an alternative explanation, which is at least as plausible and, I think, more likely. This is that Mr Gallo, once he realised the problem, was prepared to go ahead on the basis that the first single fixed link would be constructed and erected as a “special” and that he was prepared to accept the extra cost. The history of contracting is littered with examples of contracts entered into on the “she’ll be right” basis. (D26)

66 The Arbitrator referred to Mr Gallo’s evidence, as Managing Director of the defendant, and also to that of Mr Norman and Mr Edgar of the plaintiff (E1-E8). It was after considering this evidence that the Arbitrator concluded:

In terms of transportability and truss heights, the “standard” of 3.3 metres could, from enquiries, be accommodated quite readily. Where greater heights were required (as in the external wall of the arrivals corridor in the single links) there was an obvious possible solution in splitting the trusses into an upper truss and a lower truss. At the pre-contract stage, the question of splitting the truss was certainly raised. Ms Campbell, in her 20 December 00 statement (Exhibit 54/BLL) at paragraph 151, says that, at the meeting of 22 December 98 it was said that WGE would want to cut the truss for transportation and agrees with Mr Gallo that she replied “this is your responsibility, Tom, you will make the decisions on where you will want to cut it and advise us”. They do not agree on what was said next, as to responsibility for the cutting, but it is clear that there was no dispute that it could be done, subject to a check by the design engineer to ensure that the design intent would not be compromised. (E16)

Ms Campbell says that she said it was too late to alter the three links which were the subject of the initial tender. Mr Gallo acknowledges that it was said of FL59, with the rider that it could be done on the later links, for transport purposes. The latter, as a single FL was in any event the one most affected by the transportation issue. (E17)

It also seems to be accepted that Mr Gallo asked if the further 11 links under discussion as at 22 December 98 were the same as the three whose drawings were available and which had already been priced, and was at least told that they would be similar but that the links and angles to the building would be different. (E18)

for transport and fabrication of large and complex structures’

Under the circumstances, I would take “similar” to mean “essentially the same, other than for differing angles of entry to the terminal building and differences in length”. This would, I believe, apply even more strongly to a situation in which Party B, having been shown drawings for three units, was asked to submit a price for a further eleven, based on a rate per lineal metre for the first three. This applies particularly if the method of measurement of lineal metres can have the effect that some lineal metres are greater than others in their impact on costs. This is a risk which Mr Gallo says, in his paragraph 13, that he recognised in the proposed system of measurement. (E20)

67 The Arbitrator analysed in great detail the drawings for the fixed links in section H of the Award. After dealing with other variation claims, the Arbitrator analysed the basis of the defendant’s variation claim 22.12 entitled “On Site Assembly of Single Link Arrivals Corridors” in paragraphs L92-L125 which included the following:

There is no suggestion that Mr Gallo believed that because FL59 could not be altered, the effect would flow through to all other single FLs. Indeed, if that was the situation, there would have been no point in persisting with attempts to find a solution to the problem. (L109)

68 In the light of this finding the Arbitrator identified the understanding of the parties that the main problem was with the single fixed links (L112). He then identified the values claimed for the site structural assembly of the fixed links (L115) and concluded that the total claim in this regard was $1,119,692 (L116). To that was added the cost of site sheeting at $98,175 and the extra cost due to site EBA of $135,300 to make a total of $1,353,167 which he allowed. There were a number of fixed links that the Arbitrator found had been wholly or partially assembled onsite by reason of the undoubted delays to the work as a whole (L114).

69 The Arbitrator found that representations had been made by the plaintiff as to “modularity, transportability and similarity” that induced the defendant to enter the contract and that such representations amounted to misleading and deceptive conduct (M19). The subcontract scope of works referred to “manufacture, delivery and erection” of the fixed links “to the Sydney Airport 2000”. The defendant’s letter of 12 January 1999 referred to the transportation in 20-22 metre lengths. Transportation was made possible after the “part solution” was found and the work that the defendant performed to make the transportation possible is not part of the variation claim 22.12. It is the onsite assembly and onsite cladding consequential upon this solution being adopted that are included in the claim.

70 It is apparent that during the arbitration proceedings the plaintiff did not accept that the Review and the Spreadsheet formed part of the subcontract. This is not surprising having regard to the terms of clause 2.7 of the subcontract referred to earlier in this judgment. In any event the Arbitrator was obviously considering whether the defendant was obliged to meet the cost for the additional work that had to be carried out on site by reason of the inability to transport the fixed links as the contract envisaged. Part of what is contained in the Review and Spreadsheet is contained in the Letter of Acceptance and the Arbitrator approached the task of deciding the variation claim in the light of an apparent obligation for transportation upon the defendant. In this regard it is apparent that although not expressly referring to the Spreadsheet the Arbitrator probably had regard to its contents.

71 The approach the Arbitrator adopted as outlined in the various paragraphs of the Award referred to above was to construe the terms of the Letter of 8 January 1999 and conclude that its terms permitted the process of redesign for transportation. It seems to me that on the face of the Award the conclusion the Arbitrator reached in respect of the variation claim was one that was open. With the benefit of adversarial argument, the process envisaged in Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203 per Sheller JA 225, I am not satisfied that there is an error of law that is manifest or obvious on the face of the Award. I am satisfied that leave to appeal from the Award on the transport issue should be refused.

72 The orders are (1) leave to appeal from the Award on the subcontract issue is granted; (2) the appeal on the subcontract issue is upheld; (3) the subcontract issue is remitted to the Arbitrator for determination requiring the Arbitrator to consider the variation claims on the basis that the drawings contained in the register dated 6 January 1999 form part of the letter of 8 January 1999 and the subcontract executed on 11 August 1999; (4) leave to appeal from the Award on the transport issue is refused. If the parties are unable to agree on a costs order I will hear argument on a date to be fixed.

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Last Modified: 06/28/2002

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Bovis Lend Lease Pty Ltd v WGE Pty Ltd [2002] NSWSC 566

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Ainger v Coffs Harbour City Council (No 2) [2007] NSWCA 212

CITATION:	Bovis Lend Lease Pty Ltd v WGE Pty Ltd [2002] NSWSC 566
CURRENT JURISDICTION:	Equity Division Technology and Construction List
FILE NUMBER(S):	SC 55013/02
HEARING DATE(S):	3 June 2002
JUDGMENT DATE:	26 June 2002
PARTIES :	Bovis Lend Lease Pty Ltd (Plaintiff) WGE Pty Ltd (Defendant)
JUDGMENT OF:	Bergin J

COUNSEL :	T.F. Bathurst QC leading M.R. Gracie (Plaintiff) T.J. Davie (Defendant)
SOLICITORS:	Freehills (Plaintiff) Colin Biggers & Paisley (Defendant)
CATCHWORDS:	[ARBITRATION] - Application for leave to appeal from the Interim Award of an Arbitrator - Whether there is a manifest error of law on the face of the Award - Whether the proper determination of the question of law concerned could substantially affect the rights of the Plaintiff in the Arbitration proceedings.
LEGISLATION CITED:	Commercial Arbitration Act 1984 (NSW)
CASES CITED:	Natoli v Walker, NSWCA, unreported, 26 May 1994, Kirby P, Mahoney and Meagher JJA Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203 State of New South Wales v Coya (Constructions) Pty Ltd, NSWSC, unreported, 4 July 1994, Rolfe J
DECISION:	See paragraph [72].