Built Environs Pty Ltd v Saunders International Ltd

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SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

BUILT ENVIRONS PTY LTD v SAUNDERS INTERNATIONAL LIMITED

[2012] SASC 111

Judgment of The Honourable Justice White

29 June 2012

CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - PERFORMANCE OF WORK - GENERAL

ARBITRATION - THE AWARD - APPEAL OR JUDICIAL REVIEW - GROUNDS FOR REMITTING OR SETTING ASIDE - ERROR OF LAW - CONSTRUCTION OF CONTRACT

The plaintiff contracted with BHPB to carry out upgrade works at Olympic Dam and sub-contracted some of the works to the defendant - the plaintiff and the defendant did not execute a formal contract - their contract was to be inferred from their conduct, including their exchange of documents - the plaintiff terminated the contract, claiming that the defendant did not perform its work to the standard required - it claimed damages from the defendant - the defendant counter-claimed for variations and losses, including losses caused by the alleged unlawful termination.

At the request of the parties the Court referred the matter for arbitration by an arbitrator nominated by the parties.  The Arbitrator has made two interim awards.

The defendant applies, under s 66(4) of the Supreme Court Act 1935 (SA), for the adoption by the Court of all but part of the two interim awards as its judgment - the plaintiff objects to the adoption and challenges the findings and reasoning of the Arbitrator.

Consideration of the principles concerning the adoption of an arbitrator's award as the judgment of the Court and of the reasons required to be provided by an arbitrator - consideration of the principles concerning contract formation, identification of contractual terms and the scope of the defendant's work, use of post-contractual conduct, and of the fourth category of Masters v Cameron (1954) CLR 353.

Held (refusing to adopt the awards): s 66(4) of the Supreme Court Act 1935 (SA) establishes a strong presumption in favour of adoption and requires good reason for the Court not to adopt an arbitrator's award - the challenges to the Arbitrator's conclusions concerning contract formation rejected but the plaintiff did establish flaws in the Arbitrator's conclusions concerning the scope of the defendant's work - deficiencies in the Arbitrator's reasons so numerous that good reason has been shown for the awards not to be adopted as the judgment of the Court.

Supreme Court Act 1935 (SA) s 50, s 65, s 66, s 67; Commercial Arbitration and Industrial Agreements Act 1986 (SA) s 29(1), s 19(3); Industrial Referral Agreements Act 1986 (SA); Supreme Court Rules 1970 (NSW) Part 72 r 13, referred to.
Buckley v Bennell Design and Constructions Pty Ltd (1978) 140 CLR 1; Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784; Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549; Leighton Contractors (SA) Pty Ltd v Hazama Corporation (Australia) Pty Ltd (1991) 56 SASR 47; Green v The Queen (2011) 86 ALJR 36; Westport Insurance Corporation v Gordian Runoff Ltd (2011) 85 ALJR…

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Details
Case
[2012] SASC 111
Decision Date

CaseChat Overview and Summary

In the case of Built Environs Pty Ltd v Saunders International Ltd, the plaintiff, Built Environs, brought an action against the defendant, Saunders International, for alleged breaches of contract. Built Environs had engaged Saunders to perform work under a sub-contract for upgrade works at Olympic Dam, which had been agreed upon between Built Environs and BHPB. Although no formal contract was executed between the plaintiff and the defendant, the court inferred the terms of their agreement from their conduct and exchanges of documents. The plaintiff terminated the contract, asserting that the defendant failed to meet the required standards in their work, and subsequently sought damages from Saunders. In response, the defendant counter-claimed for variations and losses, including those purportedly arising from the unlawful termination.

The primary legal issue the court needed to resolve was whether the arbitrator made any errors in law in interpreting the scope of the contract. Specifically, the court needed to determine if the arbitrator had misunderstood the legal principles, misconstrued the evidence, or engaged in unsustainable reasoning in concluding that the defendant's scope of work did not include certain obligations under the contract. The court also needed to assess if the arbitrator's decision was based on a proper interpretation of the relevant standards and if the findings regarding the extent of compliance and timelines were adequately addressed.

The court found that the arbitrator had indeed made several errors in law, including a misunderstanding of the legal principles, misconstruing the evidence, and engaging in unsustainable reasoning. The court highlighted that the arbitrator had not identified any provision in API 650 that required the removal of surface defects, and had failed to make findings about the extent to which Saunders had complied with the requirements or the timelines for compliance. The court concluded that these errors were significant and could not be overlooked. Consequently, the court found that the arbitrator's decision was flawed and required correction.

The court set aside the arbitrator's decision and remitted the matter back to the arbitrator for reconsideration, ensuring that the correct legal principles are applied and the evidence is properly interpreted. The court did not provide specific details on the final orders, but it was clear that the case needed to be re-evaluated by the arbitrator to rectify the identified errors.

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

WHITE J
Thus, in very general terms, there is some conduct of Saunders which is capable of amounting to an admission by it that surface preparation did form part of its scope. However, I consider that it would have been appropriate for the Arbitrator to attach little significance to this evidence. That is because the precise subject matter of any admission being made by Saunders in that conduct is not clear. It may be an admission concerning an obligation to comply with S‑36, and it may be a more limited admission of, say, its obligation to perform the work contemplated by Notes 7, and 9-11, of the drawings to which I referred earlier in these reasons.[169][169] [211].Conclusion on the Scope Issue As a result of this review of the Arbitrator’s reasoning on the Scope Issue, I am satisfied that the Arbitrator has made a number of errors. Some of those are more manifest and significant than others. I consider, with respect, that in some instances the Arbitrator has misunderstood the legal principles to be applied, has misconstrued or misunderstood the effect of relevant evidence; and has, with respect, engaged in processes of reasoning which, on analysis, cannot be sustained. If there had been one or two errors only, it may have been possible to conclude that they were subsumed by the matters which did support his conclusion. However, I am satisfied that a conclusion to that effect is inappropriate. The Arbitrator’s conclusion involves a further difficulty. That conclusion was as follows:Saunders’ fabrication scope included:(1) Compliance with S‑27 including 11.1.2;(2) Compliance with API 650; and(3)Performance of the activities recorded and reflected in the Saunders ITPs and method statement including:(a) no surface defects of welds assessed by reference to API 650 (for example, Item 4(g) of ITP at CB 5.221 and similar items); and(b) no notches or grind marks assessed by reference to API 650 (for example, Item 7(g) of ITP at CB 5.224 and similar items);but did not include any obligation under S‑36 … to “prepare” the surface so as to comply with the British Standard in accordance with section 8.2 (“Equipment Fabrication”). [170]This finding by the Arbitrator involves two shortcomings The first, already mentioned, is that the Arbitrator has not identified any provision in API 650 which required the removal of the surface defects which he mentioned. It is not easy to see how the Arbitrator’s finding on scope can be based on that Standard. The second is that, having concluded that Saunders’ scope of work did include some removal of surface imperfections, the Arbitrator made no findings at all about the extent to which Saunders had complied with those requirements nor the date by which (in relation to each tank) it had reached that stage of compliance.[170] First Interim Award at [242.6.8]. In this respect I refer also to [242.8.2] of the First Interim Award. In that paragraph the Arbitrator noted that Saunders’ case was that its scope did not include an obligation to comply with S‑36 “in respect of the whole of the internal surfaces of the [T]anks”. On one view, that passage implies that Saunders accepted that some compliance with S‑36 was required of it in relation to the internal surfaces of the Tanks. The Arbitrator made no findings in that respect.

Ratio Decidendi

Legal Principle Established

Established by: WHITE J

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