Built Environs Pty Ltd v Saunders International Ltd - [2012] SASC 111

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 1188; Abigroup Contractors Pty Ltd v Sydney Catchment Authority (2004) 208 ALR 630; Oil Basins Ltd v BHP Billiton Ltd (2007) 18 VR 346; Gordian Runoff Ltd v Westport Insurance Corporation (2010) 267 ALR 74; Bremer Handelsgesellschaft mbH v Westzucker GmbH (No 2) [1981] 2 Lloyd's Rep 130; Hunter v Transport Accident Commission (2005) 43 MVR 130; Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251; Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11; Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; Pickersgill & Harvey v Tsoukalas [2009] SASC 357; Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149; Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; Franklins Pty Ltd v Metcash Trading Ltd (2009) 264 ALR 15; County Securities Pty Ltd v Challenger [2008] NSWCA 193; Graziano v Graziano [2010] SASCFC 76; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; Kriketos v Livschitz [2009] NSWCA 96; Pitcher v Langford (1991) 23 NSWLR 142; Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669; Australian Energy Ltd v Lennard Oil NL (1986) 2 Qd R 216; Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647; Symbion Medical Centre Operations Pty Ltd v Thomco (No 2113) Pty Ltd [2009] SASC 65; Factory 5 Pty Ltd v State of Victoria (2010) 276 ALR 523; Winks v WH Heck & Sons Pty Ltd [1986] 1 Qd R 226; Masters v Cameron (1954) 91 CLR 353; Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622; GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631; Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310; Tern Minerals NL v Kalbara Mining NL (1990) 3 WAR 486; Brunninghausen v Galvanics (1999) 46 NSWLR 538; John R Keith Pty Ltd v Multiplex Constructions (NSW) Pty Ltd [2002] NSWSC 43; Telstra Corporation v Australis Media Holdings (1997) 24 ACSR 55; Decor Ceilings Pty Ltd v Cox [2005] SASC 483; Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382, considered.

BUILT ENVIRONS PTY LTD v SAUNDERS INTERNATIONAL LIMITED
[2012] SASC 111
INDEX
Introduction……………………………………………………………………..     3
Principles Relating to Adoption ………………………………………………..     4
Duty to Give Proper Reasons ………………………………………………….    10
Adoption in Part or with Variations ……………………………………………    15
The Issues Before the Arbitrator ……………………………………………….   15
The Contract Formation Issue ………………………………………………….   17
     A Brief Chronological History …………………………………………….. 17
     The Parties’ Contentions as to Contract Formation ………………………     23
     The Arbitrator’s Findings …………………………………………………            24
     BE’s Challenges to the Findings on the Contract Formation Issue ……… 25
     General Principles …………………………………………………………   26
     Post-Contractual Conduct …………………………………………………   27
     Errors by the Arbitrator ………………………………………………….     29
     Masters v Cameron ………………………………………………………     30
     Inadequate Reasons ………………………………………………………     33
     Was a Contract Concluded by 4 October 2007? …………………………    33
     Conclusion on the Contract Formation Issue …………………………….    38
The Scope Issue ……………………………………………………………….     38
     The Terms of the Draft Contract ………………………………………….    40
     The Arbitrator’s Reasons Concerning Scope ……………………………..   41
     Could S-36 Apply to the Tanks? …………………………………………..    43
              S-36 Applies to Fabrication ………………………………………………    45
              Does S-36 Apply Only to the Fabrication of Equipment? ……………………     45
              Rubber Lining In-situ ……………………………………………………     47
              Conclusion – the Ability of S-36 to Apply …………………………………     48
     Inferences from the Documents ……………………………………………   49
              The Notes on the Drawings ……………………………………………...     49
              No Price for Surface Preparation …………………………………………    52
              No Reference to Surface Preparation in Draft Contract ……………………..   54
              S-36 Not Included in Listed Specifications ………………………………..     54
              Meaning of Surface Preparation ………………………………………….    55
              Provision for Resolution of Inconsistencies ………………………………..     56
     Conduct of the Parties before Contract Formation ………………………   57
              Omission of BE to Demarcate the Work …………………………………..    57
              Mr Ciccarello’s Letter of 31 May 2007 …………………………………...     58
              Saunders’ Contract Memorandum ………………………………………...    59
              Meeting of 26 October 2007 ……………………………………………..     62
     The Post-contractual Conduct ……………………………………………     64
              BE’s Contracts with BHPB and PHR ……………………………………..   64
              Approved Inspection Test Plans did not Refer to S-36 ………………………    66
              Saunders’ Post-contractual Conduct ………………………………………    67
     Conclusion on Scope Issue ……………………………………………….     68
Manner of Proceeding ………………………………………………………..     69
Civil

WHITE J.
Introduction
This decision concerns the adoption by this Court of an arbitrator’s award as the judgment of the Court.
In May 2007, BHP Billiton (BHPB) invited tenders for the upgrade of its leaching circuit at Olympic Dam. The plaintiff (BE) was the successful tenderer.
BE’s contract with BHPB involved five separable portions, two of which involved the fabrication, rubber lining and painting of two 15m high steel tanks (Tanks 6 and 7) and of a smaller tank (the Repulp Tank) (collectively “the Tanks”). BE sub-contracted the fabrication and painting of the Tanks to the defendant (Saunders).
Saunders commenced the fabrication work in January 2008. Almost from the start, BE and BHPB’s quality assurance consultant, Rema Tip Top (RTT), expressed concerns about the quality of its work. Saunders undertook considerable rectification work but eventually declined to do any more. On 14 September 2008 BE directed Saunders to leave the construction site and, on 19 September 2008, gave Saunders notice of termination of its contract.
On 5 March 2009, BE commenced the current proceedings seeking damages or, in the alternative, restitution.
On 20 March 2009, at the request of both parties, a Master made an order under s 66 of the Supreme Court Act 1935 (SA) (SCA)[1] referring for trial by an arbitrator “the issues referred to in the Statement of Claim and all other issues between the parties in connection with [Saunders’] work at or in connection with the Tails Leach Project at Olympic Dam”. The Master also ordered that, in the conduct of the arbitration, the arbitrator was to have the powers of an arbitrator under the Commercial Arbitration and Industrial Referral Agreements Act 1986 (SA) (the CAIRA Act).[2] The parties then chose the Arbitrator.
[1] Section 66 provides:
(1)The court may refer a civil proceeding or any issues arising in a civil proceeding for trial by an arbitrator.
(2)The arbitrator may be appointed either by the parties to the proceeding or by the court.
(3)The arbitrator becomes for the purposes of the reference an officer of the court and may exercise such of the powers of the court as the court delegates to the arbitrator.
(4)The court will, unless good reason is shown to the contrary, adopt the award of the arbitrator as its judgment on the action or issues referred.
(5)The costs of the arbitrator will be borne, in the first instance, equally by the parties or in such other proportions as the court may direct, but the court may subsequently order that a party be reimbursed wholly or in part by another party for costs incurred under this subsection.
[2] With effect from 1 January 2012 the CAIRA Act has become the Industrial Referral Agreements Act 1986 — See Commercial Arbitration Act 2011 (SA) Sch 1, cl 3 — and the legislative provisions concerning commercial arbitrations are now found in the latter Act. However, the provisions of the CAIRA Act, to the extent to which they are applicable, continue to apply to this arbitration.
The Arbitrator then conducted an extensive arbitration extending over some 53 hearing days. This culminated in the Arbitrator making two interim awards: one on 2 June 2011 in which he awarded Saunders $1,219,437.71 (the First Interim Award), and the second on 8 August 2011 in which he made awards in favour of Saunders with respect to interest and the GST (the Second Interim Award). Even now, the arbitration has not yet been finalised.
Saunders now seeks the adoption by this Court of the whole of the First Interim Award and of all but part of the Second Interim Award. BE seeks orders that the Court not adopt either of the two Interim Awards but acknowledges that if its objection to the first fails, its objection to the second should also fail. No point was taken at the hearing about the Court being asked to consider the adoption of the awards as its judgment in the action at a time when the arbitration has not been completed.
Principles Relating to Adoption
Section 66(4) of the SCA provides that the Court will, “unless good reason is shown to the contrary,” adopt “the award” of the arbitrator as its judgment on the action or issues referred. It was common ground that s 66(4) has the effect that BE has the onus of persuading the Court not to adopt either of the Interim Awards, and that Saunders has the onus of persuading the Court not to adopt that part of the Second Interim Award to which it objects. There was, however, some debate at the hearing about the proper effect of s 66(4).
If one puts to one side the authorities to which the parties referred, I consider that there would be a good deal to be said for the view that s 66(4) creates a strong presumption in favour of adoption and that the threshold for the existence of “good reason to the contrary” is reasonably high. That is because a hearing by an arbitrator following a court-ordered referral is the trial of the action or issues so referred. It is in effect a delegation of the conduct of the trial to a person with a particular expertise.[3] As Stephen J observed in Buckley v Bennell Design and Constructions Pty Ltd:
In such a reference the court’s procedures of adjudication are not abandoned in favour of extra-curial settlement of the dispute by arbitration. Instead the court directs that, for a better resolution of the particular proceedings initiated before it, resort should be had to this special mode of trial which the legislation has made available.[4]
[3] Leighton Contractors (SA) Pty Ltd v Hazama Corporation (Australia) Pty Ltd (1991) 56 SASR 47 at 54.
[4] (1978) 140 CLR 1 at 15.
Further, s 66(4) contemplates that the award of the arbitrator will be adopted by the Court as its judgment, ie, as a final determination of the parties’ respective rights and liabilities on the issues referred for arbitration. It is not sensible to suppose that s 66 contemplates the Court, on an adoption hearing, retrying the issues referred, or that an adoption hearing should be some form of review at large of an arbitrator’s award.
It is arguable that the remedy of a party who asserts error by an arbitrator is an appeal, once the award has been adopted as the judgment of the Court, using the same rights of appeal under s 50 of the SCA as apply to other judgments of the Court. For this purpose the award adopted as the judgment of the Court is to be treated as the judgment of a single Judge. [5]
[5] On one view, the terms of s 50(1) of the SCA may preclude any appeal against the award of an arbitrator, even when it is adopted as the judgment of the Court. Section 50(1) contemplates appeals against the judgments of single Judges and Masters only.
On this basis, the circumstances which may constitute “good reason to the contrary” should be reasonably confined. They would be akin to the circumstances contemplated by s 38(5) of the CAIRA Act, ie, manifest or strong evidence of an error of law or plain error of fact or misunderstanding of the evidence. If circumstances of that kind are not shown, the award is to be adopted, and the parties then left to their appeal rights.
An approach of this kind would avoid or limit the necessity for what occurred in this case; a five‑day hearing in which the Court was asked to review material comprised in 33 lever arch volumes as well as other material, to consider numerous alleged errors of law and approach, simply for the purpose of determining whether the interim awards should be adopted as the judgment of this Court.
Neither party contended that I should adopt such a stringent approach. Each made submissions on the basis that a more extensive consideration by the Court at this stage is appropriate and that any appeal would lie against a decision to adopt, or not adopt, as the case may be, the awards as judgments of the Court. Each relied on New South Wales authorities for this purpose.
Until 2005, a rule of the Supreme Court of New South Wales permitted that Court to “adopt, vary or reject the report in whole or in part”, to require an explanation by way of report from the referee, to remit the matter to the referee for further report, and to decide any matter on the evidence taken before the referee, with or without additional evidence, and to give such judgment or make such order as the Court sees fit.[6] That rule was accordingly materially different from s 66(4). Those differences should be kept in mind when considering the utility of the New South Wales authorities in the context of s 66.
[6] Supreme Court Rules 1970 (NSW) Part 72 r 13.
Both parties referred the Court to the summary of the principles adopted in relation to the New South Wales rule made by McDougall J in Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd:[7]
[7] [2005] NSWSC 784 at [7].
(1)An application under Pt 72 r 13 is not an appeal either by way of hearing de novo or by way of rehearing.
(2)The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised.
(3)The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest.
(4)In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh.
(5)Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report.
(6)If the referee’s report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than “unsafe and unsatisfactory”.
(7)Generally, the referee’s findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence.
(8)The purpose of Pt 72 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based.
(9)The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire.
(10)Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub para (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.
(11)Referees should give reasons for their opinion so as to enable the parties, the Court and the disinterested observer to know that the conclusion is not arbitrary, or influenced by improper considerations; but that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved. The reasoning process must be sufficiently disclosed so that the Court can be satisfied that the conclusions are based upon such an intellectual exercise.
(12)The right to be heard does not involve the right to be heard twice.
(13)A question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised “by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it”. The real question is far more limited: “to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence”.
(14)Where, although the referee’s reasons on their face appear adequate, the party challenging the report contends that they are not adequate because there was very significant evidence against the referee’s findings with which the referee did not at all deal, examination of the evidence may be undertaken to show that the reasons were in fact inadequate because they omitted any reference to significant evidence.
(15)Where the court decides that the reasons are flawed, either on their face or because they have been shown not to deal with important matters, the court has a choice. It may decline to adopt the report. Or it may itself look at the detail of the evidence to decide whether or not the expense of further proceedings before the referee (which would be the consequence of non adoption) is justified.

These principles were drawn from a number of the earlier authorities and in subsequent cases have been regarded as authoritative. They indicate that New South Wales courts have a discretion in relation to the adoption of an award but that there is a disposition in favour of adoption.
In relation to issues of law, I draw particular attention to the principle numbered (4), and in relation to issues of fact, I draw particular attention to the principles numbered (5)-(10) inclusive. Principle (6) is similar to the approach which, considering the matter anew, I would consider appropriate, but the other principles indicate that these are not the only circumstances in which the Court may decline to adopt an arbitrator’s award.
It is appropriate to refer also to one of the authorities upon which McDougall J relied. In Super Pty Ltd v SJP Formwork (Aust) Pty Ltd,[8] Gleeson CJ reviewed the New South Wales Rule, and its history, in some detail and concluded:
What is involved in an application under Pt 72, r 13 is not an appeal, whether by way of a hearing de novo or a more limited re-hearing. This is consistent with the right of the referee to conduct the reference as the referee thinks fit and unconstrained by the rules of evidence. Rather, the judge, in reviewing the report and deciding whether to adopt, vary or reject it, has a judicial discretion to exercise in a manner that is consistent both with the object and purpose of the rules and with the wider setting in which they take their place.
That wider setting is a system for the administration of justice according to law. In so far as the subject matter of dissatisfaction with a referee’s report is a question of law, or the application of legal standards to established facts, then a proper exercise of discretion would require a judge to consider and determine that matter afresh. … That conclusion is entirely consistent with the history of the rules and the reasoning of the High Court in Buckley which, although the case related to different provisions is also instructive as to the present provisions.
Subject to what has just been said, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised. … The nature of the complaints made about the report, the type of litigation involved, and the length and complexity of the proceedings before the referee, may all be relevant considerations. The purpose of Pt 72 is to provide, where the interests of justice so dictate, a form of partial resolution of disputes alternative to orthodox litigation, and it would frustrate that purpose to allow the reference to be treated as some kind of warm-up for the real contest. On the other hand, if the referee’s report reveals some error of principle, some absence or excess of jurisdiction, or some patent misapprehension of the evidence, that would ordinarily be a reason for rejecting it: ... So also would perversity or manifest unreasonableness in fact‑finding.[9]
(Emphasis added) (citations omitted)
Gleeson CJ also observed that it would be inconsistent with the object and purpose of the rules, and potentially productive of delay, expense and hardship, that the practical effect of appointing a referee should be simply to add an extra level to the hierarchy of decision‑makers in a given case.[10] That consideration is also apposite in the South Australian context.
[8] (1992) 29 NSWLR 549.
[9] Ibid at 563-4.
[10] Ibid at 563.
I note that in Buckley v Bennell Design and Constructions Pty Ltd,[11] the majority of the High Court held in relation to the then New South Wales counterpart to s 66 that awards made following a court‑ordered referral to arbitration (such as the present awards) are subject to review by the Court on wider grounds than are available when the Court reviews an award following a private arbitration.[12] Each of Stephen and Jacobs JJ (with both of whom Aickin J agreed) held that in cases of the former kind a court may refuse to act on an award which is erroneous as being against the evidence or the weight of the evidence or which results from an error of law.[13]
[11] (1978) 140 CLR 1.
[12] Ibid. See also Leighton Contractors (SA) Pty Ltd v Hazama Corporation (Australia) Pty Ltd (1991) 56 SASR 47 at 52-3.
[13] Buckley v Bennell Design and Constructions Pty Ltd (1978) 140 CLR 1 at 22 (Stephen J), at 38 (Jacobs J).
The provision considered in Buckley did not include the words “unless good reason is shown to the contrary”. Accordingly, it does not bind the Court presently.
In my opinion, the requirement in s 66(4) of the SCA that this Court “will, unless good reason is shown to the contrary, adopt the award of the arbitrator as its judgment” indicates that this Court has a much more confined discretion than is contemplated by the New South Wales Rule. Instead of a disposition, s 66 creates a positive presumption in favour of adoption, and, for the Court not to adopt an award, good reason must be shown. The application in this Court of the New South Wales principles must keep this fundamental difference firmly in mind.
I consider that a party wishing to displace the presumption established by s 66(4) must establish to the level of “strong conviction”[14] in the Court some error by an arbitrator which has affected materially the outcome of the arbitration. That error may be one of law or principle, a failure to discharge a function of the arbitrator, a plain misapprehension of the evidence and, perhaps more rarely, may be found in perversity or manifest unreasonableness in fact-finding. It must be of a kind which makes it quite inappropriate for the award to be adopted as the judgment of the Court as a court of law. Ultimately, however, formulations of this kind must not obscure the fact that s 66(4) requires that good reason be shown for the Court not to adopt the award as its judgment.
[14] Cf the use of this expression in the context of appellate courts departing from the decision of an earlier appellate court: Green v The Queen [2011] HCA 49 at [84]; (2011) 86 ALJR 36 at 55.
Considerations of legislative history confirm the appropriateness of this approach. Section 66 has been in its present form since 1996. Before 1996, s 65 of the SCA had permitted the Court to refer to a referee for enquiry or report any question arising in any civil action, and s 66 had permitted the Court to order that an action, or an issue in an action, be tried before a special referee or arbitrator. Section 67(2) had provided that the report or award of an official or special referee or arbitrator on any reference under ss 65 or 66 was, unless set aside by the Court, equivalent to the verdict of a jury.
Section 67 of the SCA is the current provision permitting the Court to refer a question arising in a civil proceeding for investigation and report by a referee who is an expert in the relevant field. In contrast to s 66(4), s 67(3) provides simply that “[t]he Court may adopt a report obtained under this section in whole or part”. Section 67(3) does not include the words “unless good reason is shown to the contrary”.
Clearly enough, the legislature intends the Court’s discretion under s 66(4) to be much more confined than it is under s 67(3). As indicated, s 66(4) establishes a presumption that an arbitrator’s award following court referral to arbitration will be adopted as a judgment of the Court and, in an action in which all issues are referred to arbitration, as the judgment of the Court.
Duty to Give Proper Reasons
One of BE’s complaints is that the Arbitrator failed to give appropriate reasons for the First Interim Award. At first blush, this is a surprising submission as the reasons for the First Interim Award extend over 291 pages and comprise 1,353 separate paragraphs. In addition, the Arbitrator attached eight substantial annexures. All in all, the First Interim Award comprises some four and a half lever arch volumes.
The Arbitrator considered that he was bound by s 29(1)(c) of the CAIRA Act[15] to provide a statement of reasons for his award and construed the extent of his obligation to provide reasons by reference to that provision. Section 29 refers to arbitrations conducted pursuant to a contractual regime for the referral of disputes to arbitration. It was inapplicable to this arbitration. This was a court‑ordered arbitration, and the CAIRA Act could apply to it only if this Court made an order to that effect.[16] No such order was made.
[15] Section 29(1) of the CAIRA Act as in force at relevant times provided:
(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.
[16] CAIRA Act s 3(6).
There are some relevant differences between a court-ordered arbitration, on the one hand, and a consensual submission to arbitration, on the other.
As noted earlier, a hearing by an arbitrator following a court-ordered referral is a trial of an action commenced in this Court, or at least of certain issues in such an action. The referral may be made with or without the parties agreement so that, in some cases, it may be a form of trial imposed on one or other or both parties. Arbitrators conducting a trial of an action commenced in this Court but referred for arbitration do so as officers of this Court. Their awards, when adopted, become the judgment of the Court and therefore determinative, in a final way, of the rights and liabilities of the parties. Although the Rules of Court do not specifically require it, it seems implicit in the process contemplated by s 66 that, on the completion of an arbitration referred by the Court, arbitrators will at least inform the Court of that fact and of the result of the arbitration. None of these features exist in relation to disputes submitted to arbitration under contractual provisions.
The reasons of an arbitrator in a court-ordered arbitration are amenable to much greater scrutiny and supervision by this Court than in the case of a consensual arbitration.[17] In the first instance, this Court must make a decision under s 66(4) whether to adopt the award of an arbitrator as its judgment on the action or issues referred. By itself that suggests that the reasons of an arbitrator must be able to satisfy the Court that the arbitrator has conducted the arbitration in accordance with the relevant law, has addressed appropriately both the issues raised in the arbitration and the parties’ evidence and submissions concerning those issues. In this respect I refer to principle numbered (11) in Chocolate Factory,[18] quoted above.
[17] See CAIRA Act ss 38 and 42.
[18] [2005] NSWSC 784.
It is also to be remembered that an arbitrator’s reasons may again be subject to scrutiny in the judicial process, in the event of an appeal against a decision for or against the adoption of the award. Subject to the issue about s 50 of the SCA to which I referred earlier, it will be the decision (and therefore the reasons) of the Judge or Master in question which will be the subject of the appeal,[19] but in most cases that will also require appellate consideration of an arbitrator’s reasons.
[19] Cf Abigroup Contractors Pty Ltd v Sydney Catchment Authority [2004] NSWCA 270 at [16]; (2004) 208 ALR 630 at 634 and the authorities referred to therein.
These differences mean that the principles which are developing in relation to the reasons required in the latter context should not be applied without qualification in the case of a court-ordered arbitration.
In Westport Insurance Corporation v Gordian Runoff Ltd[20] French CJ, Gummow, Crennan and Bell JJ reviewed the inter‑relationship between a consensual arbitration under the Commercial Arbitration Act 1984 (NSW) and the exercise of powers by the Supreme Court. The plurality then emphasised the exercise of public authority involved in such an arbitration:
These statutory provisions indicate that the making of an award in arbitration proceedings is more than the performance of private contractual arrangements between the parties which yields an outcome which rests purely in contract. They also suggest the importance which the provision of reasons by arbitrators has for the operation of the statutory regime. That statutory regime involves the exercise of public authority, whether by force of the statute itself or by enlistment of the jurisdiction of the Supreme Court. It also, as explained later in these reasons, displays a legislative concern that the jurisdiction of the courts to develop commercial law not be restricted by the complete insulation of private commercial arbitration.
No doubt it is true to say that the provision of an award under the Arbitration Act lacks distinctive hallmarks of the exercise of judicial power, namely the maintenance of public confidence in the manner of its exercise and in the cogency or rationality of its outcomes, and the operation of the appellate structure and of the case law system. However, it is going too far to conclude that performance of the arbitral function is purely a private matter of contract, in which the parties have given up their rights to engage judicial power, and is wholly divorced from the exercise of public authority.[21]
(Citations omitted)
[20] [2011] HCA 37; (2011) 85 ALJR 1188.
[21] Ibid at [19]-[20]; 1194.
The exercise of public authority to which the plurality referred is much more obvious when this Court, by order, requires the parties to submit their dispute, or part of their dispute, for trial by an arbitrator in the context of a presumption that the award of the arbitrator will become the judgment of the Court.
A difference has emerged in the Courts of Appeal in Victoria and New South Wales in relation to the extent of the reasons required to satisfy the counterparts in those States of s 29(1)(c) of the CAIRA Act. In Oil Basins Ltd v BHP Billiton Ltd[22] the Court of Appeal said of the obligation to give reasons under s 29(1)(c):
[22] [2007] VSCA 255; (2007) 18 VR 346.
[W]hat is needed to satisfy that requirement will depend upon the particular circumstances of the case. If a dispute turns on a single short issue of fact, and it is apparent that the arbitrator has been chosen for his or her expertise in the trade or calling with which the dispute is concerned, a court might well not expect anything more than rudimentary identification of the issues, evidence and reasoning from the evidence to the facts and from the facts to the conclusion. …
Contrastingly, however, in complex commercial arbitrations, it may appear that the determination of the dispute demands reasons considerably more rigorous and illuminating than the mere ipse dixit of a "look-sniff" trade referee. And in cases like the present, which involve an intellectual exchange with reasons and analysis advanced on either side, conflicting expert evidence of a significant nature and substantial submissions, the parties to the dispute are almost certain to be left in doubt as to the basis on which an award has been given unless the reasons condescend to an intelligible explanation of why one set of evidence has been preferred over the other; why substantial submissions have been accepted or rejected; and, thus, ultimately, why the arbitrator prefers one case to the other. Hence, in our view, the reasons in this case should have been of that standard.[23]
(Citations omitted)
However, in Gordian Runoff Ltd v Westport Insurance Corporation,[24] Allsop P expressed a different view:
That some difficult and complex arbitrations tend to mimic the procedures and complexities of court litigation may be a feature of some modern arbitration, but that can be seen perhaps more as a failing of procedure and approach rather than as reflecting any essential character of the arbitral process that would assist in a conclusion (erroneous in principle) that arbitrations should be equated with court process and so arbitrators should be held to the standard of reasons of judges.
Subject to agreement to the contrary, there is, however, a requirement for a reasoned award in arbitration. As expressed by the Model Law, Art 31(2) and the CA Act, s 29(1)(c), it is a statement of reasons for making the award, not a statement of reasons for not making a different award. The essential requirement mandated by s 29(1)(c) and Art 31(2) is a statement of reasons for making the award that was made. This will require a statement of factual findings and legal or other reasons which led the arbitrators to conclude as they did. These provisions do not in terms require the arbitrators to resolve other issues or deal with other matters not necessary to explain why they have come to the view that they have. What is required in any particular case may be a question open to debate. However, nothing in the terms of the Model Law or in the reported history of its negotiation or in any contemporary writings of jurists, practitioners or scholars from before agreement on the Model Law to the present day leads to the legitimacy of any conclusion that Art 31(2) (and so the CA Act, s 29(1)(c)) mandates in law a standard of reasons equivalent to those required of a judge at common law, in particular one subject to appellate review on questions of fact and law.[25]
Later Allsop P said:
The above is sufficient to explain why I disagree with the view of the Court in Oil Basins if that conclusion can be taken from the reasons that the legal obligation of an arbitrator to give reasons is to be equated with a judge in the common law system.[26]
[23] Ibid at [57]; 367.
[24] [2010] NSWCA 57; (2010) 267 ALR 74.
[25] Ibid at [217]-[218]; 113-4.
[26] Ibid at [222]; 114.
Allsop P also expressed the view[27] that the applicable standard is that stated by Donaldson LJ in the Court of Appeal in Bremer Handelsgesellschaft mbH v Westzucker GmbH (No 2):[28]
All that is necessary is that the arbitrators should set out what, on their view of the evidence, did or did not happen and should explain succinctly why, in the light of what happened, they have reached their decision and what that decision is. This is all that is meant by a “reasoned award”…
[27] Ibid at [220]; 114.
[28] [1981] 2 Lloyd’s Rep 130 at 132-133.
The High Court in Westport Insurance Corporation v Gordian Runoff Ltd[29] did not resolve this difference of approach, although the plurality did endorse the statement of the Court of Appeal in Oil Basins to the effect that what is required to satisfy s 29(1)(c) will depend upon the nature of the dispute and the particular circumstances of the case.[30]
[29] [2001] HCA 37; (2011) 85 ALJR 1188.
[30] Ibid at [53]; 1199.
In my opinion, a number of features of the present arbitration indicate that reasons in some detail were required. In addition to the indications arising from the fact that this was a court‑ordered arbitration, those features include the fact that the Court referred all issues arising in the action for arbitration, and not just issues of a technical or limited kind; that the Arbitrator was an experienced legal practitioner; that the arbitration was conducted in the manner of a conventional court trial with both parties represented by legal counsel; that the arbitration involved issues of some legal and factual complexity; and that it was a lengthy and hard fought arbitration.
BE submitted that the Arbitrator was required to give reasons of the kind stated in the judgment of Nettle JA (with whom Batt and Vincent JJA agreed) in Hunter v Transport Accident Commission:[31]
When a judge decides an application under s 93(4)(d) of the [Transport Accident Act 1986 (Vic)] the judge is under a duty to provide reasons for his or her decision. Furthermore, while the extent of the reasons will depend upon the circumstances of the case, the reasons should deal with the substantial points which have been raised; include findings on material questions of fact; refer to the evidence or other material upon which those finding are based; and provide an intelligible explanation of the process of reasoning that has led the judge from the evidence to the findings and from the findings to the ultimate conclusion. It should also be understood that the requirement to refer to the evidence is not limited to the evidence that has been accepted and acted upon. If a party has relied on evidence or material which the judge has rejected, the judge should refer to that evidence or material and, in giving reasons which deal with the substantial points that have been raised, explain why that evidence or material has been rejected. There may be exceptions. But, ordinarily, where a judge rejects or excludes from consideration evidence or other material which is relevant and cogent, it is simply not possible to give fair and sensible reasons for the decision without adverting to and assigning reasons for the rejection or exclusion of that material. Similarly, while it is not incumbent upon the judge to deal with every argument and issue that might arise in the course of a case, where an argument is substantial or an issue is significant, it is necessary to refer to and assign reasons for the rejection of the argument or the resolution of the issue. Above all the judge should bear steadily in mind that reasons are not intelligible if they leave the reader to wonder which of a number of possible routes has been taken to the conclusion expressed. Failure to expose the path of reasoning is an error of law.[32]
(Citations omitted)
[31] [2005] VSCA 1; (2005) 43 MVR 130.
[32] Ibid at [21]; 136-7.

In my opinion this passage should not be regarded as indicating the minimum content of adequate reasons in all court‑ordered arbitrations. It does of course provide some guidance but, in my respectful opinion, the approach suggested by Allsop P referred to above, with its emphasis on succinctness, has much to commend it.
I consider that the duty to provide adequate reasons required as a minimum that the Arbitrator address each of the substantial points raised by each party; to make material findings of fact and, at least in relation to each issue, to indicate the important parts of the evidence which he accepted or rejected and, at the least, the principal parts of the parties’ respective submissions which he had either accepted or rejected.
In the present case, having regard to the length of the Arbitrator’s reasons, I doubt that his misunderstanding as to the source of his obligation to provide adequate reasons had any material effect on the extent of the reasons which he provided.
I will address later in these reasons some particular complaints of BE concerning the adequacy of the Arbitrator’s reasons.
Adoption in Part or with Variations
It was common ground at the hearing that the Court may adopt the Interim Awards in whole or in part and with, or without, variation.
The Issues Before the Arbitrator
BHPB intended that the Tanks would hold hot acid. This meant that the internal surfaces of the Tanks had to be rubber lined in order to protect the steel from corrosion. Those internal surfaces and the welding joints required careful preparation for this purpose. They had to be flat and smooth with the corners curved to a minimum radius to facilitate the adhesion of the rubber lining. Any pockets of air under the rubber lining would detract from the adhesion, allowing the rubber to lift.
BHPB issued a specification, referred to in the arbitration by the shorthand “S-36”, containing the details of the surface preparation required. S-36, which had the title “Installation of Rubber Lining”, incorporated by reference two Australian and two British Standards, one of which (BS EN 14879-1) (the British Standard) is of present significance. Some of the surface preparation was clearly an incident of the rubber lining work, but a major issue in the arbitration was whether the scope of Saunders’ fabrication work also included aspects of that preparation.
Initially, BHPB, BE and Saunders had all contemplated that Saunders’ contract would include the rubber lining and that Saunders would engage a contractor for that purpose. However, ultimately the rubber lining was not part of Saunders’ scope and, in April 2008, BE contracted with Port Hunter Rubber Pty Ltd (PHR) for it to carry out the rubber lining.
During the performance of its work and indeed, until part way through the arbitration, Saunders had accepted that its contract with BE had required it to meet some of the requirements in S-36.
As noted earlier, disputes between BE and Saunders commenced soon after Saunders commenced work in January 2008. Saunders acknowledged at that time that some of its welding was “awful” and “too bad to be true,”[33] and subsequently it spent significant time and money on rectification work.[34] However, in June 2008, Saunders refused to do any further preparation work on the internal surfaces of the Tanks without variation to its contract. It contended that it had met the S-36 standard and that RTT and BE were, without agreeing to any contractual variation, requiring it to do more than its contract required. BE then provided its own labour for this purpose and eventually completed the work itself.
[33] First Interim Award at [16].
[34] Ibid at [18].
On 14 September 2008, BE dismissed Saunders from the site and, on 25 September 2008, informed Saunders that it was terminating the contract.[35] The parties were in disagreement, however, as to when and how their contract had terminated.
[35] CB 9.247.
BE and Saunders never signed a written contract. A number of the disagreements between the parties are attributable to that fact.
The Arbitrator identified a number of “key” issues[36] for his determination:
[36] First Interim Award at [39].
1.Was there a contract? If so, what was it and when was it made? (The Contract Formation Issue).
2.What was the scope of fabrication work required of Saunders? (The Scope Issue).
3.Was Saunders entitled to an extension of time in which to carry out its work? If not, was BE entitled to liquidated damages in respect of periods of delay? (The Extension of Time Issue).
4.What was the effect of the termination mid September 2008? (The Termination and Discharge Issue). BE contended that it had terminated the contract on 25 September 2008 under a “Termination for Convenience” clause or, alternatively, that the contract had terminated on 25 September 2008 on its acceptance of Saunders’ repudiation of contract. Alternatively again, BE contended that the contract was discharged on 30 September 2008 by the mutual abandonment by the parties. Saunders, on the other hand, contended that the contract remained on foot until 12 August 2009 when it gave notice that it accepted BE’s termination of contract.
Having determined these key issues the Arbitrator then addressed the following further issues:
5.In the event that the contract contained the terms and conditions for which Saunders contended, BE’s claim that it should be rectified so as to include in the list of specifications a requirement for Saunders to comply with S-36 and the British Standard. (The Rectification Issue).
6.BE’s claim that Saunders was estopped from asserting that its scope of work did not include an obligation to perform surface preparation or other work on the internal surfaces of the Tanks so as to comply with the requirements of S-36 and the British Standard. (The Estoppel Issue).
7.Saunders’ claims for variations which BE disputed, and BE’s claims for restitution of overpayments which it said it had made in relation to agreed variations. (The Variation Issue).
8.BE’s claims for backcharges. (The Backcharges Issue).
The Arbitrator also noted that both parties made alternative claims for a quantum meruit, but ultimately he did not determine those claims. His failure to do so formed the basis of Saunders’ objection to this Court adopting a portion of the Second Interim Award. (The Quantum Meruit Issue).
As will be seen, I do not consider it necessary at this stage to address all these issues.
The Contract Formation Issue
The Arbitrator found that the contract was concluded in early January 2008 by Saunders mobilising to site to commence work and was on the terms of the draft contract provided by BE on 19 November 2007 subject to the modifications set out in Saunders’ response of 22 November 2007.
A Brief Chronological History
In order to understand the respective claims of the parties, the Arbitrator’s determination and the challenges which BE now makes to the Arbitrator’s findings, it is necessary to record some matters of history. These matters were, in the main, non‑contentious.
On 21 May 2007, BHPB issued tender invitations for Stage 1 of an upgrade to its leaching circuit at Olympic Dam. One invitation was sent to BE, and another to Saunders. Stage 1 of the upgrade included the fabrication and installation (including rubber lining) of Tanks 6 and 7 and the Repulp Tank.
Tanks 6 and 7 were large: 15m in diameter and 15.28m high. The Repulp Tank was 7m in diameter and 11.5m high. Each tank was to be fabricated from metal panels welded together so as to form a series of strakes. In Tanks 6 and 7, most of the metal panels were 10m or 11m long and 2.2m high. This meant that approximately 30 panels were required for the walls of each of Tanks 6 and 7. In addition, the Tanks were to have metal floors and tops which, as I understand it, were also to be fabricated using metal panels.
Section C of BHPB’s tender invitation identified the scope of work. In a part headed “General”, Section C indicated that the project involved two stages: Stage 1A (fabrication and pre-assembly at Port Augusta and then transport to Olympic Dam); and Stage 1B (installation and construction at Olympic Dam). It then continued:
The following Scope of Work of Stage 1A defines the minimum requirements for the works and will include, but not be limited to the following:
·Supply, fabrication, surface treatment, transportation, erection and installation of steel tanks;
·Supply and installation of rubber lining in consultation with BHP Billiton Olympic Dam’s nominated QA/QA consultant – Rema Tip Top;
…[37]
The same part of Section C also specified:
The supply, fabrication, surface treatment, transportation and erection of steel tanks, equipment, rubber lining, piping, structural steelwork and minor steelwork must include the whole of the works set out on the Drawings, Specifications, this Scope of Work and, [the] further details and instructions as may be issued by the EPCM Contractor.[38]
[37] CB 16.21.
[38] CB 16.22.
Later parts of Section C described each element in the scope of work in more detail. Clause 2.3 of Section C, under the heading “Work Included”, provided:
In addition to the general requirements of the Scope of Work, the specific Scope of Work in detail includes, but is not limited to the following items which are described more fully in section 3.0 of this document.
·Supply, fabricate, surface treatment, rubber line, transportation to site and erection of all Tanks shown on the drawings including pipe rack modules, beams, columns, bracing and all associated connection bolts and protective coatings;
…[39]
By these provisions, Section C repeatedly distinguished the aspects of fabrication, surface treatment and rubber lining. It did not, however, use the expression “surface preparation”.
[39] CB 16.26.
Clause 3 of Section C identified the work associated with the construction of the Tanks. The elements of the work for each tank were relevantly the same (although the drawings identified for Tanks 6 and 7 were different from those for the smaller Repulp Tank). Section 3 identified the work as follows:
·Workshop drawings, weld preparation details, plate rolling, fabrication [of the identified] Tank including doors and associated internal and external fit out;
·Weld testing;
·Rubber lining surface preparation;
·Rubber lining;
·Three baffles and baffle supports [for each Tank] – these items are constructed from saf2507;
·Lifting lugs which will become permanently fixed to the [T]anks.[40]
The use of the words “surface preparation” in the composite expression “rubber lining surface preparation” appears to be the first occasion on which they were used by any party in a document having contractual significance. The listed specifications in relation to each tank included S-36.
[40] CB 16.30-1.
Clause 8 of Section C provided:
All work shall be performed in strict accordance with Specifications and Drawings included in Annexure 1 – Drawings and Annexure 2 – Specifications.[41]
Nine of the drawings referred to in Annexure 1[42] provided expressly in notes, or by cross‑reference, that “all fabrication and surface preparation shall comply with BHPB specification [S-36] Installation of Rubber Lining”. In most cases this was in Note 8 to the Drawings.
[41] CB 16.47.
[42] CB 16.16.
However, the specifications referred to in Annexure 2[43] did not include S-36. This was apparently an oversight by BHPB, which it made good on the following day, by sending a copy of S-36 to each of BE and Saunders (and others).[44]
[43] CB 16.17.
[44] Application Book (AB) M.189.
Finally, the tender invitation set out the form of the contract proposed by BHPB between it and the successful tenderer.[45]
[45] CB 16.48.
Although on its face it appeared that BHPB was inviting Saunders to tender for all the Stage 1 work, it was in fact seeking a tender from it for only Tanks 6 and 7 and the Repulp Tank.
On 30 May 2007, BE invited Saunders to make an offer to carry out all aspects of the tank construction including fabrication, rubber lining and surface treatment.[46] BE also sought a “take out price” in respect of both the rubber lining and surface treatment of the Tanks.[47] BE listed for Saunders the relevant drawings and specifications but did not provide a separate copy of those documents. Its list used the BHPB numbering and did not include S-36. However, on the following day, Mr Ciccarello (BE’s Industrial Procurement Manager) sent a letter to Mr Patterson (Saunders’ Operations Manager) which included the following:
Further to our previous request for quotation … we enclose an additional Installation of Rubber Lining Specification [S-36] for your information only as rubber lining does not form part of this scope.
Please review the specification for any specific details which you may need to consider during the fabrication of tanks to meet the rubber lining acceptance criteria for fabrication.
Although BE’s letter to Mr Patterson drew attention to a number of matters which Saunders should address in its tender, it did not include any statement as to the terms of the contract on which Saunders should base its tender.
[46] CB 1.208.
[47] CB 1.209.
Saunders did not itself perform rubber lining work. On 31 May 2007, it sought a quote from a rubber liner (Rubbertex) for that part of its tender. Saunders informed Rubbertex that the work had to be performed in accordance with S-36 and provided Rubbertex with a copy of that specification.[48]
[48] CB 1.213-1.
BHPB issued a further set of drawings on 15 June 2007. As I understand it, several of those drawings included a note in terms of Note 8.
After receiving Rubbertex’s quote, Saunders provided to each of BHPB and BE a tender of $7,421,490 for the construction of the Tanks (to BE on 25 June and to BHPB on 27 June).[49] Each tender included “take out” prices for the rubber lining in relation to each tank and a “Schedule of Departures and Qualifications” to the terms and conditions required by BHPB. This Schedule was in (relevantly) identical terms in each tender.
[49] CB 1.220, 1.231.
Neither BHPB nor BE accepted Saunders’ tender at that time.
On 8 and 9 August 2007, BHPB invited Saunders and BE to submit revised tenders taking account of amendments to the scope of the proposed work. The requests, although not identical, were similar.[50] One of the revisions was that BHPB now required the fabrication work to be carried out at Olympic Dam. BHPB provided a package of information including “Rubber Application Specification S-0036”. Again, many of the revised drawings included a note in terms of Note 8.
[50] CB 1.422, 424.
As I understand it, BE did not separately request Saunders to provide a revised tender. It may, however, have been implicit in the BHPB invitation that Saunders was to provide tenders in identical terms to each of the contractors (including BE) from whom BHPB was seeking tenders.
On 16 August 2007 Saunders provided revised tenders to each of BHPB and BE.[51] The two tenders were (relevantly) the same and nominated a price of $4,562,590. A significant change was that the tenders did not include the installation of the rubber lining in any of the Tanks. Saunders had received late notification that Rubbertex was now declining to submit a tender for the work and it provided its tenders on the basis that the rubber lining would be performed by others. The tenders indicated that Saunders’ quoted price included “all requirements contained within the Scope of Work” and “[s]urface treatment of all items in accordance with the requirements detailed in the scope of work or specifications, including all surface preparation, touch-up treatment, repair of paint damage required as a result of transport, delivery and erection”.[52]
[51] CB 1.428.
[52] CB 1.432.
In early September BHPB announced that BE was the successful tenderer and that Saunders was approved as the sub-contractor to BE. The Arbitrator found that on 19 September 2007, BE accepted Saunders’ tender.[53] The evidence did not disclose precisely how that acceptance was communicated to Saunders, but the Arbitrator’s heading at p 35 of the First Interim Award is “[BE] accepts Saunders’ Tender Subject to Suitable Contract Terms”.
[53] First Interim Award at [168].
Thereafter both BE and Saunders prepared to carry out the work for which they had tendered. On 19 September 2007, Mr Morrison, BE’s Off Site Procurement Manager, asked Saunders to make the following assumptions:
·Contract award date to Saunders, subject to prior agreement to suitable contract T&C’s of the 1^st October 2007. It is expected that the contract between [BE] and Saunders will be a back-to-back contract in the form of a varied standard BHP Billiton contract.
·Site mobilisation on 10^th December 2007. Basically this is to ensure a “flier” upon re-start after New Year.
·[Approved for construction] drawings to be issued on 2^nd October 2007 with some minor holds.[54]
and on that basis sought some specified information from it.
[54] CB 2.2.
On 21 September 2007 Mr Patterson sought a draft of the “proposed back-to-back T&Cs” to which Mr Morrison had referred in order that he could review them.[55] Mr Morrison responded to that request on 26 September 2007 saying:
I was originally of the opinion that we would be providing you with a back to back contract, but have since been advised by our commercial manager that this will not be the case. I hope to be able to forward to you our proposed terms and conditions later this week.[56]
In the events that happened, Mr Morrison’s stated expectation as to when proposed terms and conditions would be provided was not realised.
[55] CB 2.7.
[56] CB 2.16.
Mr Morrison wrote to Saunders on 4 October 2007 saying “We are pleased to confirm that we have approval to proceed with the critical works associated with the Tails Leach Tanks Project”.[57] He referred to a number of drawings which BE had provided to Saunders which, although not yet finalised, “should ensure that you can maintain your fabrication schedule”. Mr Morrison then said that a Purchase Order would be issued to cover the costs of procurement of certain steel and the detailed design of some doors and continued:
Purchase Order Number: P128901 will be issued on the basis that it will be subject to the final terms and conditions of the contract and that the costs associated with this PO will be deducted from the Contract price.[58]
BE did issue the Purchase Order to which Mr Morrison had referred. The Purchase Order, dated 4 October 2007, included the handwritten notation “Terms and Conditions will be in accordance with the conformed contract which will be issued in due course”.[59]
[57] CB 2.22.
[58] Ibid.
[59] CB 2.24.
On 26 October 2007 a meeting of representatives of BE, Saunders, RTT and BHPB took place. BE relied upon aspects of that meeting and it will be necessary to return to it later.
The next significant event occurred on 19 November 2007. BE’s Contracts Administrator (Mr Annandale) sent to Saunders “a draft copy of a sub-contract document for [their] review and comment”.[60] The draft contract was not in the form of a “back-to-back” contract with BHPB, but instead incorporated the general conditions of an Australian Standard (AS2455-1993). A matter which assumed some significance in the arbitration was that Section 7 of the draft contract, which listed the drawings and specifications to which the sub-contract referred, did not include S-36.
[60] CB 2.117.
On 22 November 2007 Saunders responded, indicating that it required nine of the proposed contractual provisions to be deleted or varied. BE did not respond directly to this email and, as noted earlier, the parties did not ever execute a formal contract.

Despite this, on 20 December 2007, Mr Annandale issued an “Authority to Mobilise” to Saunders. The Arbitrator also found that on 14 December Mr Owens (BE’s Operations Manager) had given Saunders an oral direction to “mobilise”.[61] It seems that Saunders proceeded thereafter to organise its workforce and materials for a commencement at Olympic Dam in the first week of January 2008.
[61] First Interim Award at [226].
BE did not execute a contract with BHPB until 25 February 2008. The reasons for the delay are not clear but may have been associated with delays by BHPB in finalising some of the drawings relating to the work.
On 21 March 2008, Mr Chmielewski, BE’s Project Manager, sent a form of sub-contract to Mr Patterson at Saunders and sought Saunders’ signature to the document.[62] The sub-contract was similar, although not identical, to the sub‑contract which BE had sent to Saunders on 19 September 2007. At the time Mr Chmielewski sent this letter, BE and Saunders had been in dispute about Saunders’ work performance for some weeks.
[62] CB 5.248.
The letter had a self-serving character in that Mr Chmielewski said that, if after receipt of the letter, Saunders did any work in performance of the sub‑contract at the direction of either BE or BHPB’s representative, then his letter and the sub‑contract attached would constitute the terms and conditions upon which that work was performed. He also asked Saunders to inform him, within five days of 21 March 2008, if Saunders did not accept the sub-contract offered.
Saunders did not respond to Mr Chmielewski’s letter until 21 May 2008.[63] Mr Patterson asserted that the drawings attached to BE’s draft sub‑contract incorporated significant changes to those drawings upon which its tender was based and objected to a number of the other terms. BE drew attention to the fact that while Mr Patterson raised some objections to BE’s description of the scope of work, it did not challenge BE’s inclusion of S-36 in the specifications forming part of the scope of work.
[63] CB 6.380.
The Parties’ Contentions as to Contract Formation
BE’s pleaded case was that by 4 October 2007 Saunders and it had entered into a conditional sub-contract under which, amongst other things, Saunders had agreed to undertake the work on the Tanks and BE had agreed to pay Saunders $4,562,590. The sub-contract was conditional on it and BHPB formally executing a head-contract.[64] This occurred on 25 February 2008 so that the sub‑contract became unconditional at that time.[65] BE pleaded further that the conditional sub-contract was varied in late 2007 by the parties agreeing that the terms contained in AS2545-1993 were to apply in substitution for the Contract Administration Terms and Conditions (as defined) found in the documents attached to BHPB’s original invitation to tender of 21 May 2007.
[64] Fifth Further Amended Statement of Case (FFASC) at [15G]-[15H].
[65] FFASC at [34B].
BE’s submission to the Arbitrator[66] was that, on an appropriate characterisation of the communications between the parties, they had, by 4 October 2007, concluded a contract of the fourth Masters v Cameron[67] kind. Its claim was that, by reference to the terms and conditions contained in the BHPB invitation to tender of 21 May 2007 and to the terms and conditions contained in Saunders’ tender of 16 August 2007, Saunders and it had agreed on the essential terms of the contract, albeit on the understanding that a formal sub-contract consistent with those terms and conditions would be executed by the parties upon BE entering into a head contract with BHPB.
[66] First Interim Award at [168]-[170].
[67] (1954) 91 CLR 353.
Saunders, on the other hand, pleaded that the contract between it and BE had been concluded in early January 2008 whereby, in consideration of BE agreeing to pay the sum of $4,562,590, it agreed to carry out the fabrication and assembly of the Tanks. Saunders pleaded that the contract was constituted partly by writing, partly by words, and partly by conduct.[68]
[68] Fifth Further Amended Counterclaim (FFAC) at [5].
Saunders also pleaded that from about early January 2008 the parties had conducted themselves in relation to the fabrication of the Tanks on the basis or assumption that the contract pleaded in the FFAC had been concluded between them and governed their respective rights, and that BE was estopped from denying the existence of a concluded contract on the terms which it (Saunders) alleged.
BE had pleaded and pursued in the arbitration a claim in the alternative to the effect that the contract was constituted by the documents it provided to Saunders on 21 March 2008.[69] BE complained that the Arbitrator had not addressed this alternative claim,[70] but ultimately did not contend that the Arbitrator had erred in failing to find the existence of such a contract.[71]
[69] Ibid at [39B].
[70] BE’s Outline of Submissions at [107].
[71] T220-1.
The Arbitrator’s Findings
The Arbitrator rejected BE’s claim that a conditional sub-contract of the fourth Masters v Cameron kind had been concluded by 4 October 2007 and accepted instead the submission of Saunders.[72] His conclusions as to contract formation appear in the following paragraphs:
[72] First Interim Award at [196], [205].
[230]The requirements contained in [BE’s] draft sub-contract of 19 November 2007 to which Saunders objected:
[230.1] were not part of the tender invitation by [BE],
[230.2]were specifically and firmly objected to by Saunders, whose email of 22 November 2007 must be taken to have stated the terms upon which it was prepared to perform the contract,
[230.3]were not pressed by [BE], prior to [BE] directing Saunders to proceed with site mobilisation.
[231][BE] must be taken to have directed Saunders to mobilise and commence work on the basis of the terms required by Saunders, and its direction to so commence must be taken as an acceptance of Saunders’ terms. Accordingly, the proper conclusion is that a contract was concluded on the basis of the draft contract provided by [BE] on 19 November 2007 as modified by Saunders’ email of 22 November 2007, and I so find.
[232]The contract was concluded on the terms of the November draft sub-contract subject to the objections of Saunders. I find for the reasons set out in detail in the preceding sections of these reasons that this occurred in early January 2008 upon Saunders mobilising to site to commence work. The mobilisation followed [BE’s] direction to mobilise at the 14 December meeting confirmed by Mr Annandale’s email to Mr Marino with authority to mobilise on 20 December 2007.
In short, the Arbitrator found that the parties concluded a contract upon Saunders mobilising to commence work in early January 2008 and that the terms of their contract were contained in the draft contract provided by BE on 19 November 2007 but modified in the manner requested by Saunders in its email of 22 November 2007.
Although, given that finding, it was not strictly necessary for him to do so, the Arbitrator went on to find that BE was estopped from denying that, at the time of mobilisation, a contract had been formed on the terms agreed between the parties between November and the mobilisation.[73]
[73] Ibid at [235].
BE’s Challenges to the Findings on the Contract Formation Issue
BE made some 13 separate challenges to the Arbitrator’s findings on the Contract Formation Issue. These challenges include complaints that the Arbitrator had erred in law; had misstated or misunderstood BE’s case and submissions, and so had not addressed the case appropriately; had failed to provide adequate reasons; and had made findings of fact which were so much against the weight of the evidence as to be perverse or manifestly unreasonable.
For reasons which will become apparent, I do not consider it necessary to address directly all of these challenges.
General Principles
The parties were in agreement that they had concluded a contract, but in disagreement as to when and how their contract had come into existence, and as to its terms. In this context the Arbitrator was required to make an objective assessment of the circumstances pertaining between the parties (as distinct from any uncommunicated subjective reservations or intentions which either may have had).[74] Their legal rights and obligations turned upon what their words and conduct would have been reasonably understood to convey, and not on their actual beliefs or intentions.[75]
[74] Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8 at [25]; (2002) 209 CLR 95 at 105. See also County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [150].
[75] Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55 at [34]; (2004) 218 CLR 471 at 483; Toll (FGCT) Pty Ltdv Alphapharm Pty Ltd [2004] HCA 52 at [40]; (2004) 219 CLR 165 at 176.
The circumstances to be considered by the Arbitrator comprised in the main the communications between the parties (which were for the most part written) as well as the commercial context, and the object and purpose of the putative contract.[76] Their intention to create a legally binding contract could be proved by what they said and did as well as by what they wrote.[77] McLelland J in Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd[78] said:
In determining whether the communications between the parties constitute a contract the court is not confined to a consideration of the terms or manner in which the communications were made: they must be interpreted by reference to the subject matter and the surrounding circumstances including, inter alia, the nature of, and the relationship between, the parties, and previous communications between them, as well as to standards of reasonable conduct in the known circumstances.[79]
[76] Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548.
[77] Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 337-8.
[78] (1979) 1 BPR 9251.
[79] Ibid at 9255.
It can be inappropriate, at times, for a court to seek to resolve issues about how and when a contract was formed using the conventional analysis of offer and acceptance. Such an analysis is often inconsistent with the way in which the parties themselves have acted during the course of a developing relationship. I refer in this respect to the judgment of McHugh JA (with whom Hope and Mahoney JJA agreed) in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd:[80]
It is often difficult to fit a commercial arrangement into the common lawyers’ analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of “offer”, “acceptance”, “consideration” and “intention to create a legal relationship” which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship … A bilateral contract of this type exists independently of an indeed precedes what the parties do. Consequently it is an error “to suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed” … Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words. … The question in this class of case is whether the conduct of the parties, viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract …[81]
(Emphasis added and citations omitted)
Later McHugh JA observed that the parties may reach a concluded agreement even though the precise time at which they did so cannot be identified.
Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties’ subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.[82]
(Emphasis added and citations omitted)
[80] (1988) 5 BPR 11,110.
[81] Ibid at 11,117. See also Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833 at [369]; (2001) 117 FCR 424 at 525; Pickersgill & Harvey v Tsoukalas [2009] SASC 357 at [70].
[82] Integrated Computer Services Pty Ltd v Digitial Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,118.
It is also appropriate to keep in mind the observation of Giles JA in Sagacious Procurement Pty Ltd v Symbion Health Ltd, that in business it is not uncommon for persons to act upon anticipated contractual relationships prior to the actual formation of the contract. [83]
[83] [2008] NSWCA 149 at [117].
Post-Contractual Conduct
Many of BE’s complaints concerned the appropriate use of post-contractual conduct.
Both parties submitted that later conduct of the other amounted to an admission, particularly in relation to the Contract Formation and Scope Issues. BE relied on an uncommunicated admission.
Although evidence of post‑contractual conduct is not generally admissible as an aid in contractual construction,[84] it is admissible for the purpose of ascertaining whether and when a contract was formed and the terms of the contract;[85] as providing probative evidence of antecedent surrounding circumstances; and as providing probative evidence of facts relevant to rectification and estoppel.[86]
[84] Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57 at [35]; (2008) 238 CLR 570 at 582; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 at [6]-[12], [318]-[322], (2009) 264 ALR 15 at 21-3, 88-90. See also County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [20], [161]-[162].
[85] Graziano v Graziano [2010] SASCFC 76 at [59]; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 at [13], [326]; (2009) 264 ALR 15 at 23, 90; Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 at [25]-[26], (2001) 53 NSWLR 153 at 163-4; Kriketos v Livschitz [2009] NSWCA 96 at [109].
[86] Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 at [13]; (2009) 264 ALR 15 at 23.
Evidence of the later conduct of the parties, or of one party, may be probative in a number of different ways. At a level of generality, it may be evidence from which an inference may be drawn as to the circumstances existing at an antecedent time. The evidence may be inconsistent with a party, considered objectively, having intended to be immediately bound at a particular time or, conversely, evidence of the party’s intention to be so bound.
The later conduct may evidence an admission by words or conduct of a party’s assent to be bound, of the existence of a contractual relationship,[87] of the presence in the contract of a particular term,[88] or that there were still important terms of the contract to be agreed upon.[89] The admission may be of fact, or of facts giving rise to a legal conclusion.[90] As observed by McColl JA in County Securities Pty Ltd v Challenger Group Holdings Pty Ltd,[91] admissions may be made whether or not the admitting party has personal knowledge of the matter admitted, although the extent of the relevant actor’s knowledge is likely to be very relevant when determining whether it is proper to act upon an admission.[92]
[87] Pitcher v Langford (1991) 23 NSWLR 142 at 160; Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 at 684.
[88] Australian Energy Ltd v Lennard Oil NL (1986) 2 Qd R 216 at 237; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 at 9255.
[89] Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 670.
[90] County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [162]-[165]; Symbion Medical Centre Operations Pty Ltd v Thomco (No 2113) Pty Ltd [2009] SASC 65 at [41].
[91] County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [162]-[165].
[92] Ibid at [163].
Evidence may be given of a party’s later conduct constituting an admission even though that admission remained uncommunicated. The general principle concerning uncommunicated admissions is that stated by Phipson on Evidence:[93]
It is, in general, immaterial to whom the admission was made. Thus, an admission made to a stranger is as receivable as one made to an opponent. So, private memoranda, never communicated to the opposite side, or to third persons, are evidence against a party; as are admissions made to himself in mere soliloquy.[94]
[93] Hodge M Malek et al (eds), Phipson on Evidence (17^th ed, 2010).
[94] Ibid at 90.
Although the issue did not strictly speaking arise for determination in Sagacious Procurement Pty Ltd v Symbion Health Ltd,[95] Giles JA discussed the topic in relation to post‑contractual admissions:
The basis of subsequent communications as admissions is very different. It does not depend on communication between the parties, and that basis gives scope for evidence of, for example, a party’s internal memoranda saying or less directly conveying there is or is not a concluded contract. Admissions bearing upon contractual intention present difficulties. As Gleeson CJ said in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd at 550, “it will often be necessary to identify with some care the fact which is said to have been admitted”. What is said to be admitted may be a relatively straightforward fact, for example that A discussed with B the price for goods. But if a matter of mixed law and fact is involved, or the application of a legal standard, admissibility may be more contentious.[96]
[95] [2008] NSWCA 149.
[96] Ibid at [106]. See also Factory 5 Pty Ltd v State of Victoria [2010] FCA 1229 at [95]-[96]; (2010) 276 ALR 523 at 541.
It is not always easy to determine whether particular conduct amounts to an admission, on the one hand, or is merely evidence of one party’s belief, on the other.
Later conduct may also provide evidence of what the parties themselves thought it necessary to agree upon before they had a concluded agreement. Gleeson CJ spoke of this use in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd:[97]
In a case where a court is required to make a judgment concerning the intention of the parties in relation to what might broadly be described as a Masters v Cameron ((1954) 91 CLR 353) dispute, it would normally be of importance that the court have an understanding of the commercial context in which the dispute arises, and a most significant feature of that context will relate to the subject which the parties regard, or would ordinarily be expected to regard, as matters to be covered by their contract. … In many cases … there is a need for evidence in one form or another as to what subjects would be regarded as requiring agreement between the parties. In this case the best evidence on that subject is to be found in the actual communications between the parties and, in particular, in the issues which they in fact addressed when they set about drafting their detailed contract.[98]
[97] (1988) 18 NSWLR 540.
[98] Ibid at 548.
Later conduct may also provide evidence that the parties must, by some earlier date, have reached agreement.[99]
[99] Winks v WH Heck & Sons Pty Ltd [1986] 1 Qd R 226 at 238.
Errors by the Arbitrator
The Arbitrator summarised the principles which he considered should guide him on the issues of contract formation and interpretation in [127]-[131] of the First Interim Award. He noted, correctly, that the determination of whether, and if so on what terms, a contract is concluded is a question to be determined having regard to the objective effect of the conduct of the parties and not by reference to their subjective intentions or understanding.[100]
[100] First Interim Award at [127].

It is to be remembered that BHPB also had supplied Saunders with a copy of S‑36. It had done so without any accompanying statement of the kind made by Mr Ciccarello. S‑36 could hardly have meant one thing in relation to the BHPB invitation to tender, but something more qualified in the parallel BE request.
Accordingly, the Arbitrator erred, in my opinion, in his understanding of the significance to Mr Ciccarello’s statement.
Saunders’ Contract Memorandum
BE relied upon the contents of the “Contract Memorandum”[150] to which I referred in relation to the Contract Formation Issue. This was the document which Mr Patterson said he had commenced preparing on 3 July 2007 but had completed after receiving BE’s Purchase Order of 4 October 2007.
[150] CB 1.232.
Much of the content of the Contract Memorandum must have been prepared after Saunders learnt that it was the successful tenderer and that it would be sub‑contracting to BE and not to BHPB. The reference to the Purchase Order of 4 October 2007 and to a contemplated handover meeting on 10 October 2007 indicates that this is so.
The Contract Memorandum summarised the scope of work as being the fabrication and construction of three leaching circuit process tanks. Under the heading “Scope of Work Details” Mr Patterson identified the work scope as including:
·Preparation of detailed fabrication drawings;
·Supply of all materials;
·Workshop fabrication;
·Off‑site surface preparation and painting;
·Fabrication and assembly at Olympic Dam assembly yard;
·Internal finishing of welds to suit rubber lining (ground flushed);
·On‑site external surface prep and finish painting;
·…
The same section of the document contained a statement of matters not included in Saunders’ scope of work. Relevantly for present purposes, this included “rubber lining”.
The contract prices shown in the Contract Memorandum corresponded with the prices in Saunders’ tender of 16 August 2007. This is consistent with Mr Patterson’s statement in evidence to the Arbitrator:
It was my understanding at the time that we took possession of the site that the Scope of Work was referrable to the drawings and subsequent transmittals that were included in the tender sum.[151]
[151] Application Book L at 666 [39].
Mr Patterson included in the Contract Memorandum a statement as to the place at which Saunders would carry out the fabrication.
We have planned for all Tank fabrication to be done in our workshop.
Under the heading “QA Requirements”, Mr Patterson included the following statements:
Quality Plan To be submitted in 3 weeks of Award.
Special Requirements: Tanks are to be rubber lined by others but we are required to finish internal surfaces in accordance with [S‑36].
Inspection and Testing: As first specification Teel Tanks [S‑27].
QA Audits : MA to schedule with BE
…
BE emphasised Mr Patterson’s statement of the special requirement that Saunders finish the internal surfaces in accordance with S‑36, contending that it constituted an admission by a senior Saunders’ employee that compliance with the relevant portions of S‑36 was within Saunders’ scope of work.
The Arbitrator rejected that submission. First, he considered that as the Contract Memorandum had not been provided to BE during the course of contract negotiations it could not form part of the communications on which the parties’ conduct was to be assessed objectively to determine contract formation and the contractual terms.[152] Secondly, the Arbitrator seems to have considered that the entry “Special Requirements” may have been inserted by Mr Patterson when he first prepared the document in July 2007 and that he had overlooked revising it after August 2007 when rubber lining had ceased to be part of its scope of work.[153] Thirdly, the Arbitrator thought that there was an inconsistency between the special requirement, on the one hand, and the earlier statement that the work scope included “internal finishing of welds to suit rubber lining (ground flushed)”, on the other.[154]
[152] First Interim Award at [242.8.8].
[153] Ibid at [242.8.10].
[154] Ibid at [242.8.11].
In my opinion, there are difficulties with each of these lines of reasoning.
In the first place, Mr Patterson’s statement opposite the words “Special Requirements” is capable of being construed as an admission that the scope of work for which Saunders had tendered did include compliance with the relevant aspects of S‑36. Whether it should be so construed is of course dependent upon the second and third matters mentioned by the Arbitrator. However, if it is properly understood as a pre‑contractual admission as to Scope, then the fact that it had not been communicated to BE before the contract was formed was immaterial. As noted above at [108] and [109], an admission does not have to be communicated to an opposing party or its privies in order to be effective as an admission. The Arbitrator was therefore in error in [242.8.8] in holding that it was not part of the parties’ conduct to which he could have regard in determining the proper scope of Saunders’ work.
The Arbitrator’s statement, at [242.8.11], that Mr Patterson may have overlooked revising cl 10 headed “QA Requirements” after submitting the August 2007 tender to take account of the fact that Saunders was no longer contracting for the rubber lining work is, with respect, speculation on his part which is unsupported by evidence. The unstated implication is that the content of cl 10 of the Contract Memorandum is attributable to oversight, being referable to the scope of Saunders’ work under its first tender, but inapplicable to the scope which was the subject of its August 2007 tender.
I have described this part of the Arbitrator’s reasons as involving speculation because Mr Patterson, as the author of the document, did not in his evidence before the Arbitrator make any claim to this effect. That was so even though he was cross‑examined about the content of cl 10.
In any event, the content of cl 10 seems inconsistent with the Arbitrator’s speculation. As can be seen, in relation to “QA Audits” Mr Patterson referred specifically to BE, a reference which would have been inapplicable in July 2007 as Saunders did not know at that stage with which entity it may be contracting. It could have been BHPB itself or with any one of the other entities which, like BE, it had invited to tender. That suggests strongly that cl 10 was revised after BE was selected as the contractor by BHPB and after it had indicated that it accepted Saunders’ tender. It is also, to my mind, unlikely that Mr Patterson would have used the expression “Tanks are to be rubber lined by others” as a means of referring to an entity with which Saunders was itself sub‑contracting.
The Arbitrator seems to have regarded the statement of Special Requirements in cl 10 as inconsistent with the statement in the Scope of Work Details: “internal finishing of welds to suit rubber lining (ground flushed)”. There is, to my mind, no necessary inconsistency. In the first place, the Arbitrator overlooked other entries in the Scope of Work Details, in particular “workshop fabrication”, “offsite surface preparation and painting” and “fabrication and assembly at Olympic Dam assembly yard”, each of which was capable of requiring reference to S‑36. For example and for the reasons already given, the process of fabrication involved elements of surface preparation. Further, the statement concerning the internal finish of welds can also be construed as a statement of emphasis, ie, as highlighting for Saunders’ staff this particular requirement.
I mention one other matter. The Arbitrator did not make any finding as to the source of the requirement for welds to be “ground flushed”. It appears to be the British Standard as incorporated by S‑36. In other words, the statement in the Contract Memorandum regarding the grinding flush of welds may, by itself, be an admission by Saunders that it was bound by S‑36. However, it is not necessary to rest my present conclusion on this basis.
For these reasons, I consider that the Arbitrator’s treatment of the Contract Memorandum was wrong with the effect that he disregarded a significant item of evidence concerning Saunders’ scope.
Meeting of 26 October 2007
The Arbitrator attached significance to the evidence concerning a meeting of the various entities involved in the Olympic Dam Project in Sydney on 26 October 2007.[155] In my opinion, he was correct to do so and, subject to some qualifications, the evidence concerning that meeting does support his conclusion on the Scope Issue.
[155] Ibid at [268].
The meeting took place at the office of Saunders in Sydney. It was attended by four representatives of BE, three representatives from each of BHPB and PHR (the rubber liner), two representatives from Saunders and one from RTT. The minutes prepared by one of the BHPB representatives indicate that the major topic of the meeting was the rubber lining in the tails leach circuit upgrade project. Particular agenda items included the requirements of S‑36 and the “steel finishing surface preparation for rubber lining”.
The minutes contain 15 separate “discussion points”, identifying, in relation to each the action required, the entity to take the necessary action and the date by which that action would be taken. Saunders was identified as the entity responsible for taking action on one only of the 15 discussion points, that being the matter of “radius finish”. Many of the duties on the other “discussion points” were allocated to BE and PHR but, notably, not to Saunders.
The first discussion point related to the requirements of S‑36. BE and PHR (but not Saunders) were identified as the entities to take the necessary action. This may be explicable because the particular actions identified seemed to relate to the application of the rubber lining itself and not to the surface preparation prior to abrasive blasting.
The fourth discussion point concerned the issue of a revised form of S‑36. This was identified as a responsibility of KBR. It is noteworthy that the contemplated action was the provision of the revised S‑36 to BE without any mention of subsequent provision to Saunders.
I agree with the Arbitrator that if Saunders’ responsibility for aspects of surface finish had been identified by those at the meeting, it is likely that it would have featured more frequently and prominently in the minutes taken by the BHPB representative.
Mr Patterson gave evidence that at the meeting of 26 October the RTT representative presented a “slide show” of more than 100 slides relating to the different kinds of surface imperfection which would have to be addressed as part of surface preparation. The provision of such a slide show is consistent with the purpose of the meeting and the large number of senior personnel who were present. It suggests that close attention was given to S‑36 at the meeting. Further still, the seventh discussion point indicated that a site visit was to be arranged for BE, Saunders, RTT and PHR “to review finish requirements”.
However, as I understand it, Mr Patterson was the only witness in the arbitration who was also present at the meeting who recalled the slide show. It is possible that his recollection about this is mistaken and that he was confusing it with another meeting which took place in February or March 2008. The Arbitrator made no findings at all about this slide show nor its potential significance in relation to the identification of Saunders’ scope of work.
Nor did the Arbitrator make any findings about the possible significance of Saunders having hosted the meeting on 26 October 2007 at its offices in Sydney. That circumstance may have suggested that Saunders understood that it had some role in the elimination of surface imperfections.
Nevertheless, I consider that the evidence of this meeting does support the Arbitrator’s conclusion on the Scope Issue.
The Post-contractual Conduct
BE’s Contracts with BHPB and PHR: [242.6]
The Arbitrator drew inferences as to the scope of Saunders’ work from the contracts into which BE later entered with BHPB and the rubber liner, PHR. He considered those contracts were “complementary” with the contractual position for which Saunders contended.[156]
[156] First Interim Award at [242.6].
BE executed the formal contract with BHPB on 19 February 2008.[157] Although the scope of work specified in the contract on 19 February was substantially similar to that proposed by BHPB in its May 2007 tender invitation, there were some relevant differences. In particular, unlike the contract attached to the tender invitation, the specification in subs 2.2 of the Scope of Work included an express reference to compliance with S‑36 in relation to the rubber lining aspects of the work. There was no corresponding reference to S‑36 in relation to the fabrication work in either document.[158] The “Area Work Scopes” in the two documents were, in material respects, identical.
[157] CB 13.34.
[158] CB 13.196, CB 16.22.
Although the Arbitrator did not say so expressly, it seems that he drew two inferences from the BHPB-BE contract of 19 February 2008. The first arose from the specific reference to S‑36 in relation to the rubber lining aspects of BE’s work and the absence of any corresponding reference in relation to the fabrication aspects. The second was the distinction between fabrication, rubber lining surface preparation and rubber lining in the Area Work Scopes.[159]
[159] First Interim Award at [242.6.2].
In my opinion, neither of these matters amounted to a form of post‑contractual admission which could support the Arbitrator’s conclusion. As to the first, it is plain that BHPB was insisting upon compliance by BE with the requirements of S‑36 in relation to the rubber lining. BE’s execution of the contract on 19 February indicated an express acceptance by it of that obligation.
However, as the authorities to which I referred earlier indicate, it is necessary to identify with care the fact said to be admitted. In this respect there is a certain looseness of language and concepts in the Arbitrator’s use of the word “complementary”.
In the present case one would have to be able to conclude that BE’s entry into the contract with BHPB was an admission that it regarded all of the various kinds of surface preparation to be within the rubber liner’s scope and none within Saunders’ scope. BE’s execution of the BHPB contract cannot reasonably be construed as an admission of that kind. Nor can it be reasonably construed as an admission by BE that it regarded the removal of the surface imperfections which was necessary to achieve compliance with S‑36 as outside the scope of work of its contracted fabricator.
In relation to the distinctions in the Area Work Scopes, I refer to my earlier reasons.[160] In the face of the express statements in the Notes to the drawings upon which Saunders had tendered, I do not consider that the distinctions drawn in the Area Work Scopes support the conclusion that surface preparation is an activity which is separate and distinct from fabrication. Nor do they amount to an admission that surface preparation is an activity in respect of which the fabricator does not have responsibility.
[160] [63].
In fairness to the Arbitrator, it should be observed that he attached more significance to the terms of BE’s contract with the rubber liner, PHR, than he did to the BHPB-BE contract.
BE entered into the contract with PHR on 16 April 2008. The Arbitrator attached significance to the statement of PHR’s scope of work which was as follows:
The provision of all plant, equipment, and personnel required for the surface preparation and treatment, rubber lining, checking, and testing of [the Tanks].[161]
(Emphasis added)
In addition, at the adoption hearing, counsel for Saunders drew attention to the inclusion of both S‑36 and the British Standard in the list of specifications in the PHR contract.
[161] CB 6.177.
Again, I have difficulty in understanding how the acceptance (and probable earlier formulation) of these terms by BE can constitute a relevant admission by it as to the scope of Saunders’ work. As the Arbitrator himself pointed out, by the time BE entered into the contract with PHR, disputes about the quality of Saunders’ work and its failure to meet the standard specified in S‑36 had arisen. That makes it natural that BE would, in its contract with its rubber liner, have been concerned to make express the obligation of PHR to comply with S‑36 to the extent that it was applicable to its work.
Moreover, it is to be remembered that at the time BE concluded its contract with PHR, Saunders was accepting that it was obliged to comply with S‑36. BE was working on‑site in accordance with that acceptance by Saunders. In that circumstance, it is not readily to be supposed that BE’s contract with PHR constituted an admission at that time that the work which it was requiring Saunders to carry out was not properly a part of Saunders’ scope.
Counsel for Saunders emphasised the inclusion of the British Standard in the list of specifications in the PHR contract. As previously noted, that Standard is directly concerned with the removal of imperfections in the surface of the substrate to be rubber lined. This indicated, he submitted, an acknowledgement by BE that the work to which the British Standard referred was properly work of the rubber liner.
Again, one must pay close regard to identifying the fact said to have been admitted. BE’s concern to ensure that PHR accepted responsibility for removal of surface imperfections cannot, in my respectful opinion, amount to an admission that the contract which it had concluded at an earlier time with its fabricator did not contain a like term.
Approved Inspection Test Plans did not Refer to S‑36: [242.7]
On 21 December 2007, Saunders provided to BE the Inspection Test Plans (ITPs) which it had prepared in relation to the performance of its work. None of these contained any express reference to S‑36 and none, other than in limited respects, referred to the standard of work required by S‑36.
The Arbitrator received evidence indicating that it was customary for ITPs to be provided in relation to a project such as the upgrade at Olympic Dam. An ITP is a document in which the relevant contractual criteria for acceptance of each of the important steps in the completion of the scope of work by a contractor are identified, together with the specifications and standards for acceptance.[162] An ITP also indicates the various points during the course of the work at which inspection, checking and approval should occur and, in many instances, provides that further work is not permitted until such inspections have occurred and approval to proceed given.
[162] First Interim Award at [242.7.3].
The ITPs provided by Saunders on 21 December 2007 specified the steps in the fabrication work by reference to the Standard API 650 and, as noted, did not refer to S‑36 or the British Standard.
On 20 March 2008, both BE and KBR accepted the ITPs submitted by Saunders on 21 December 2007. The Arbitrator concluded that BE’s conduct in accepting the ITPs in the form in which they had been submitted was “consistent” with Saunders’ scope not including surface preparation or surface preparation for rubber lining in accordance with S‑36 and, further, with the view that those activities fell within the contract scope of the rubber liner, PHR.[163]
[163] Ibid at [242.7.10].
Subject to some qualifications which I will mention shortly, I consider that this reasoning was open to the Arbitrator and that it does support his conclusion.
The qualifications are these. First, Saunders did accept, by its conduct on the site, that it was necessary for it to comply with S‑36 and it attempted to meet the requirements of RTT in that respect. The conduct of BE in accepting the ITPs upon which the Arbitrator relied has to be understood in the light of that positive conduct by Saunders, which was known to BE at the time.

Secondly, the reference to the Standard API 650 does not explain matters satisfactorily. API 650 does not contain specifications as to the standard of finish of fabricated surfaces of the kind specified in S‑36, the British Standard, or the Notes to the drawings. Its subject matter is directed to the manner of construction of welded steel oil storage tanks. This suggests that the focus of the ITPs prepared by Saunders may have been more on the manner of construction or erection of the Tanks rather than on the suitability of the internal surfaces for rubber lining.
However, in general, I agree that the omission of BE to insist upon the ITPs containing check points in relation to compliance with S‑36 is significant and is capable of constituting a form of implied admission that removal of the surface imperfections of the kind contemplated by S‑36 and the British Standard did not form part of Saunders’ scope.
Saunders’ Post‑contractual Conduct: [242.9]
In the arbitration, BE relied on conduct of Saunders in early 2008. It contended that that conduct amounted to an acceptance by Saunders that compliance with S‑36 was part of its scope.
The Arbitrator rejected that reliance holding that “subsequent conduct has no relevance to the proper construction of the contract and Saunders’ scope”.[164] For the reasons given earlier,[165] the Arbitrator’s understanding in that respect in relation to the Scope Issue is incorrect. The Arbitrator also seems to have overlooked the inconsistency in his reasoning on this topic arising from his reliance on BE’s post‑contractual conduct on 21 March 2008 of accepting the ITPs provided by Saunders.
[164] Ibid at [242.9.2].
[165] [105]-[107].
The Arbitrator found that BE’s requirement for the surface finish work and compliance with the British Standard was made clear to Saunders only after it had mobilised to the site in January 2008.[166] He found that the requirements of RTT and BHPB in relation to the internal surface finish were first explained to Saunders’ staff on 14 February 2008 at a demonstration conducted by Mr Lynch of RTT.[167] The Arbitrator found that Saunders had thereafter sought to meet the requirements of S‑36 but that its activities in that respect were properly characterised as a variation to its scope. However, it was not until June 2008, as I understand it, that Saunders asserted that the surface preparation it was performing went beyond the required scope of its contract.[168]
[166] First Interim Award at [242.9.4].
[167] Ibid at [242.9.5].
[168] CB 7.257.
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.
In summary, I consider that BE has, by reference to the Arbitrator’s findings on the Scope Issue, demonstrated to the requisite standard good reason for the First Interim Award not to be adopted. I have a strong conviction to that effect.
This conclusion makes it unnecessary to consider at this stage BE’s submissions concerning the issues of rectification and estoppel.
Manner of Proceeding
As indicated, I am satisfied that the First Interim Award should not be adopted as the judgment of this Court. As the Second Interim Award is consequential upon the First, it too should not be adopted.
That gives rise to the question of how the Court should proceed from here.
I did ask the parties to address all of the issues so that the Court could, so far as possible, address all aspects of the adoption application in the one decision. The parties did make submissions on that basis. However, the Court received only limited submissions on the way in which it should proceed if it decided that the First Interim Award not be adopted because of the Arbitrator’s determination of the Scope Issue.
The Arbitrator’s conclusions on this issue pervade his determination of most, if not all, the remaining issues.
In these circumstances, I consider it appropriate to publish at this stage these reasons and to announce my decision not to adopt the Interim Awards as the judgment of this Court. I will hear from the parties as to how the Court should now proceed.
I will also hear from the parties as to the costs of the adoption hearing.