Decor Ceilings Pty Ltd v Cox Constructions Pty Ltd - [2006] SASC 85

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
DECOR CEILINGS PTY LTD v COX CONSTRUCTIONS PTY LTD
Reasons for Ruling of The Honourable Justice Besanko
27 March 2006
ARBITRATION - THE AWARD - APPEAL OR JUDICIAL REVIEW - POWERS OF COURT
Application for leave to appeal against award of arbitrator as to costs - relevance of Calderbank offer - whether manifest error of law on face of award - relevant principles - held, any error not manifest - application refused.
Commercial Arbitration Act 1986 s 38, referred to.
Decor Ceilings Pty Ltd v Cox Constructions Pty Ltd; Cox Constructions Pty Ltd v Decor Ceilings Pty Ltd (No 2) [2005] SASC 483; Calderbank v Calderbank [1976] Fam 93; Morris v McEwen (2005) 92 SASR 281; Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203; Minister for Industrial Affairs v Civil Tech Pty Ltd (1998) 70 SASR 394; Natoli v Walker (1994) 217 ALR 201, considered.

DECOR CEILINGS PTY LTD v COX CONSTRUCTIONS PTY LTD
[2006] SASC 85
Civil

BESANKO J: This is an application for leave to appeal in relation to what is said to be a question of law arising out of an award. The application is brought by Decor Ceilings Pty Ltd (“Decor Ceilings”) pursuant to s 38(2) of the Commercial Arbitration Act 1986 (“CAA”), and it has been made ex parte. The proposed grounds of appeal are as follows:
1.The learned arbitrator erred as a matter of law in failing to have any, or any proper regard to the Calderbank offer made by Decor and rejected by Cox.
2.The learned arbitrator erred as a matter of law in characterising Cox’s rejection of Decor’s offer as reasonable. His reasons failed to acknowledge that elements of Decor [sic] claim (namely the balance of the contract sum, variations, back charges and site overheads during a period of delay) which Cox’s past submissions have described as “well known”, “usual” and “conventional”, are commonplace in constructions claims and amounted to an award of $130,000 compared to an offer of $91,000.
The dispute between Decor Ceilings and Cox Constructions Pty Ltd (“Cox Constructions”) has a long history. At least part of that history is summarised in my reasons for judgment in Decor Ceilings Pty Ltd v Cox Constructions Pty Ltd; Cox Constructions Pty Ltd v Decor Ceilings Pty Ltd (No 2) [2005] SASC 483. In that case, I considered appeals from the interim award of the arbitrator. I remitted the interim award to the arbitrator to be reconsidered in the light of my reasons. This application for leave relates to that reconsideration by the arbitrator and one of the orders which forms part of the arbitrator’s final award.
The order that is the subject of the application for leave is an order allowing Decor Ceilings its costs of the reference on the basis of party and party costs.
Decor Ceilings submitted to the arbitrator that it should have been awarded costs on a party and party basis up to February 2003, but on a solicitor and client basis thereafter. It based that submission on the fact that on 26 February 2003 it wrote to Cox Constructions offering to settle all of the disputes with it for a payment in its favour of $91,000. On 28 February 2003, that offer was rejected by Cox Constructions. As a result of the interim award and the final award, the balance judgment in favour of Decor Ceilings was in the vicinity of $375,000.
Decor Ceilings submitted that its letter dated 26 February 2003 was in the nature of a Calderbank offer (Calderbank v Calderbank [1976] Fam 93) and that it should have led to an award of costs in its favour on a solicitor and client basis after the offer. The effect of a Calderbank offer in the case of an action in the District Court was considered by the Full Court of this Court in Morris v McEwen (2005) 92 SASR 281.
In rejecting the submission of Decor Ceilings, the arbitrator said:
The Subcontractor pointed to case law that supported the view that an “unreasonable” rejection of an offer to settle should attract a superior costs order, and the Subcontractor said that the Contractor’s rejection of the offer was unreasonable. In particular, the Subcontractor pointed to the significant difference between the offer, and payments due to the Subcontractor in the Interim and Final Awards, and, further the Subcontractor said that it was unreasonable for the Contractor to pursue a delay claim against the Subcontractor, in a sum in excess of $200,000.00 when in a letter written to the Principal in February 2000, prior to Practical Completion, the Contractor said that matters other than the performance of the Subcontractor on site had caused delay. For its part, the Contractor said that its rejection of the Subcontractor’s offer to settle in late February 2003 was reasonable, and, in this matter I agree with the Contractor. I find, as a matter of fact, that in February 2003 there were a number of important issues, contractual, legal and factual, holding the parties apart, and that there was more to the dispute than the Contractor’s delay claim against the Subcontractor. It is my view, based on my experience with building disputes, that this particular dispute was complex, rather than simple or even complicated, and it was that complexity that allowed the Contractor reasonably to reject the Subcontractor’s offer to settle in February 2003. Accordingly, I disallow the Subcontractor’s claim for an order for solicitor client costs after 28^th February 2003.
Decor Ceilings submitted that in his approach to this issue the arbitrator erred in law.
Section 38(5) of the CAA provides as follows:
(5)The Supreme Court shall not grant leave under subsection (4)(b) unless it considers that -
(a)     having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement;
and
(b)     there is –
(i)    a manifest error of law on the face of the award;
or
(ii)strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.
On the application for leave to appeal, Decor Ceilings submits that the arbitration occupied a considerable period of time, and that the difference between party and party costs and solicitor and client costs after February 2003 was substantial, and, therefore, it could be said that the determination of the question of law concerned could substantially affect the rights of Decor Ceilings: s 38(5)(a). I accept that submission.
Decor Ceilings must also satisfy subsection (b)(i) or (b)(ii). It relies on (b)(i) and submits that there is a manifest error of law on the face of the award.
Two issues arise in relation to the requirement that there be a manifest error of law on the face of the award. First, the subsection is framed in terms which suggest that I must be satisfied that there is a manifest error on the face of the award. This is an application for leave made ex parte and not the hearing of the appeal itself. What is the test in those circumstances? Secondly, what is meant by the requirement that the error of law be a “manifest” error of law on the face of the award?
In Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203, Sheller JA said (at 225):
The expression “error of law on the face of the award” is one of a type well-known to courts. The award having been examined the question is whether there is apparent (and such is the denotation of the word “manifest”) an error of law. “Manifest error” is an expression sometimes used in reference to reasons given by judges or the approach taken by juries: see, eg, s 107(c)(iii) of the Supreme Court Act 1970 and the judgments of Kirby P in Azzopardi v Tasman UEB Industries Ltd (at 151) and Otis Elevators Pty Ltd v Zitis (1986) 6 NSWLR 171 at 181. It is used to indicate something evident or obvious rather than arguable: see generally per McHugh JA in Larkin v Parole Board (1987) 10 NSWLR 57 at 70-71.
A little later, he said (at 226):
However as McHugh JA pointed out “manifest”, in the context of the subsection, which contemplates the grant of leave before an appeal can be pursued, connotes an error of law that is more than arguable. There should, in my opinion, before leave is granted be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law.
These passages were cited with approval by Bleby J (with whom Doyle CJ and Lander J agreed) in Minister for Industrial Affairs v Civil Tech Pty Ltd (1998) 70 SASR 394 and they contain the test which I will apply on this application.
I am prepared to assume in favour of Decor Ceilings that the reasons of the arbitrator form part of the award. However, I think the applicant’s submission falls down because even if there be an error it is not “manifest” in the sense that there are powerful reasons for considering on a preliminary basis that there is, on the face of the award, an error of law. It is well-established that the discretion as to costs is a broad one. The making of a Calderbank offer will, in the ordinary case, be a relevant factor in terms of the appropriate order as to costs. There is nothing in the arbitrator’s reasons to suggest that he did not understand these propositions. Furthermore, a Calderbank offer is relevant because it goes to the reasonableness of the conduct of the parties, particularly, the offeree who rejects the offer. Clearly, the arbitrator was alive to this consideration because he referred to the reasonableness of the conduct of Cox Constructions.
There might have been grounds in this case for making the order Decor Ceilings sought, but there is nothing to suggest that the arbitrator did not understand the basic principles. The policy of the CAA in terms of restricting appeals against awards has been referred to in a number of authorities. It is sufficient for me to refer to the reasons for judgment of Kirby J sitting as a judge of the New South Wales Court of Appeal in Natoli v Walker (1994) 217 ALR 201. In the result, I do not think that there are powerful reasons on a preliminary basis for considering that there is a manifest error of law on the face of the award. In those circumstances, the application for leave to appeal must be refused and I dismiss the application.