Decor Ceilings Pty Ltd v Cox Constructions Pty Ltd
[2005] SASC 146
•15 April 2005
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
DECOR CEILINGS PTY LTD v COX CONSTRUCTIONS PTY LTD
Judgment of The Honourable Justice Besanko
15 April 2005
APPEAL AND NEW TRIAL - APPEAL - PRACTICE AND PROCEDURE - SOUTH AUSTRALIA
ARBITRATION - THE AWARD - APPEAL OR JUDICIAL REVIEW - POWERS OF COURT
Application by appellant for an order striking out a notice of contention filed by respondent - where appellant and respondent were parties to an arbitration - where both parties appealed against the arbitration award - where leave to appeal was granted to the appellant but not to the respondent - where respondent filed a notice of contention in the appellant's appeal challenging various aspects of the arbitration award - whether the notice of contention is an abuse of process - whether the notice of contention contravenes s 38 of the Commercial Arbitration Act 1986 - whether the notice of contention is authorised by the Supreme Court Rules 1987 - held that the notice of contention is not an abuse of process - held that a respondent may file a notice of contention raising a question of law, providing it is raised in a purely defensive way and is not dependent on a challenge to findings of fact made by the arbitrator - application allowed and notice of contention struck out, but respondent given liberty to apply to file a new notice of contention consistent with these reasons.
Commercial Arbitration Act 1986 s 38; Arbitration Act 1979 (UK) s 1; Supreme Court Rules 1987 rr 3, 97, 120; Civil Procedure Rules (UK) RSC Ord 73 r 5, referred to.
Decor Ceilings Pty Ltd v Cox Constructions Pty Ltd 545/04; Cox Constructions Pty Ltd v Decor Ceilings Pty Ltd 566/04 [2004] SASC 243; Promenade Investments Pty Ltd v New South Wales (1991) 26 NSWLR 203; Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust (1994) 63 SASR 444; Natoli v Walker (Unreported, NSW Court of Appeal, 26 May 1994, judgment no 40351); Sabemo (SA) Pty Ltd v AIW Engineering Pty Ltd (1992) 9 BCL 280; Vitol SA v Norelf Ltd [1994] 1 WLR 1390; Vitol SA v Norelf Ltd (The Santa Clara) [1996] QB 108; Vitol SA v Norelf Ltd (The Santa Clara) [1996] AC 800, considered.
DECOR CEILINGS PTY LTD v COX CONSTRUCTIONS PTY LTD
[2005] SASC 146Civil
BESANKO J: This is an application by the appellant for an order striking out a notice of contention filed by the respondent in an appeal proceeding in this Court. The appeal is brought by the appellant pursuant to leave granted under s 38 of the Commercial Arbitration Act 1986 (“CAA”). The respondent filed a notice of contention in the appeal on 25th October 2004 and the appellant seeks an order striking out that notice.
The appellant is Décor Ceilings Pty Ltd (“Décor Ceilings”) and it was a party to an arbitration in which an interim award was made by an arbitrator on 12th May 2004 (“the award”). The respondent is Cox Constructions Pty Ltd (“Cox Constructions”) and it was the other party to the arbitration. Each party wished to challenge aspects of the award, and each sought leave to appeal from the award. Leave to appeal is required by reason of the provisions of the CAA and in particular, s 38. A Judge of this Court (Anderson J) heard the applications for leave to appeal, and he granted the appellant’s application and refused the respondent’s application. The respondent has sought leave to appeal to the Full Court from the decision of Anderson J refusing leave to appeal under s 38. That application has not yet been determined. The respondent has also filed the notice of contention in the appellant’s appeal. In broad terms, on the application before me the appellant seeks an order striking out the notice of contention on the grounds that it is an abuse of process of the Court and/or contrary to s 38 of the CAA and/or not authorised by the rules of Court (Supreme Court Rules 1987) (“SCR”). The appellant’s application raises a number of novel points.
The Award
The respondent entered into a contract with the Minister for Government Enterprises on 18th December 1998 and the contract related to the construction of a training and development centre at Hindmarsh in the State of South Australia.
The respondent as the head contractor and the appellant as a subcontractor entered into a contract on 31st March 1999. I will refer to this as the contract. Under the contract the appellant was required to carry out work relating to ceilings, partitions and wall linings for the project. There were a number of disputes between the respondent and appellant about each party’s obligations and their performance under the contract and those disputes were referred to arbitration.
Before the arbitrator each party made a number of claims against the other. The arbitrator’s financial summary of the award is as follows:
$ Contract Sum 689,800.00 Progress Payments (625,752.00) Agreed Variations and Back-charges Net 18,093.00 The Subcontractor’s Delay Claim 40,655.00 The Subcontractor’s Additional Hours Claim 0 The Contractor’s Damages Claim 0 The Contractor’s Indemnity Claim 0 Variations and Backcharges CV280 Credit for Wall Linings 0 IV90 Repairs for External Flashings 0 IV147, 148 Insulation 0 IV32 (Part) Stair 2 (1,855.00) IV32 (Part) The Front Canopy 0 IV32 (Part) HE Sugars Labour (9,360.00) IV29 Columns 0 CV274 Insulation Batts (2,760.00) IV146 Fire Shutters (5,938.00) Balance due to Subcontractor
102,883.00
The award resulted in an order that the respondent pay the appellant the sum of $102,883 and interest to apply at the Supreme Court rate. The arbitrator adjourned the question of costs.
I will use the arbitrator’s description of the various claims made by the parties.
The appellant complained of the arbitrator’s decision not to allow the appellant’s additional hours claim, for which the appellant claimed the sum of $202,803.90, and his decision to allow the backcharges claim of $9,360. The two claims are related. For its part, the respondent complained of three aspects of the arbitrator’s decision. First, it complained of the arbitrator’s decision to allow the appellant’s delay claim of $40,655. Secondly, it complained of the arbitrator’s decision as to what constituted the contract between the parties and it said, as I understand it, that had the arbitrator made what it said was the right decision on this point, no allowance would have been made for the appellant’s delay claim and no allowance would be made for the appellant’s additional hours claim. Thirdly, it complained of the arbitrator’s decision to disallow the respondent’s damages claim.
The CAA and the relevant rules of Court
Section 38 of the CAA provides that, subject to the right of appeal conferred by the section, the Court shall not have jurisdiction to set aside or remit an award on the ground of error of fact or law on the face of the award. It is not in dispute that the arbitrator’s award in this case is an award for the purposes of s 38. Subject to obtaining leave from the Supreme Court or the consent of all the parties to the arbitration agreement, an appeal shall lie to the Supreme Court “on any question of law arising out of an award” (s 38(2) and (4)). The criteria for the granting of leave are contained in s 38(5) which 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.
The Court may impose such conditions as it considers appropriate on the grant of leave. The Court’s powers on an appeal are set out in s 38(3) which provides as follows:
(3) On the determination of an appeal under subsection (2) the Supreme Court may, by order—
(a) confirm, vary or set aside the award;
or
(b)remit the award, together with the Supreme Court's opinion on the question of law which was the subject of the appeal, to the arbitrator or umpire for reconsideration or, where a new arbitrator or umpire has been appointed, to that arbitrator or umpire for consideration,
and where the award is remitted under paragraph (b) the arbitrator or umpire shall, unless the order otherwise directs, make the award within three months after the date of the order.
Rule 120 of the SCR deals with proceedings under the CAA. Rule 120.07 provides as follows:
120.07 (1) Any appeal under Section 38 of the Act and any action under Section 42 of the Act shall be instituted within 14 days of the making of the award to which the appeal or the action relates provided that where an appeal is brought pursuant to leave the time shall only run from the granting of the leave.
(2) Where an appeal is brought under Section 38 (4) (a) of the Act by consent of all other parties to the arbitration:
(a) The notice of appeal shall state that it is brought with such consent;
(b) An affidavit shall be filed with the notice of appeal verifying such consent.
(3) Unless the Court otherwise directs such an appeal is to be heard by a single Judge pursuant to Rule 97.
Rule 120.07(3) provides that unless the Court otherwise directs an appeal is to be heard by a single Judge pursuant to r 97. At this stage the appellant’s appeal will be heard by a single Judge pursuant to r 97.
Rule 97 of the SCR deals with appeals which proceed before a single Judge. Rule 97.08 provides as follows:
97.08 Where a respondent to an appeal governed by Rule 97 wishes to contend that the decision of the Court or tribunal appealed from should be affirmed on grounds other than those relied upon by that Court or tribunal he or she must not less than three clear days before the first day of the appeal sittings for which the appeal is listed:
(a) File a notice of his or her contention stating the grounds relied upon in support thereof;
(b) Serve copies on each other party to the appeal.
The decision on the leave to appeal applications
Anderson J granted leave to appeal to the appellant in relation to its challenges to the arbitrator’s decisions to disallow the additional hours claim of $202,803.90 and to allow the respondent a credit for backcharges of $9,360 respectively (Décor Ceilings Pty Ltd v Cox Constructions Pty Ltd 545/04; Cox Constructions Pty Ltd v Décor Ceilings Pty Ltd 566/04 [2004] SASC 243). The appellant has leave to appeal in relation to the following grounds of appeal:
The Reasonableness of Décor’s Tender Price
1.The learned arbitrator erred as a matter of law and misdirected himself about the nature of evidence necessary to establish reasonableness and in particular he:-
1.1 found it was necessary for the appellant to call evidence of an independent and expert nature in addition to the evidence given by Décor’s estimator (Mr Erbsland) and his tender “take-offs” file. (Reasons pp 72-73);
1.2 erred in treating the extra judicial commentary of Justice Byrne as prescriptive and confused the ability to call more evidence with an obligation to call more evidence. (Reasons p 72); and
1.3 failed to consider effect of the decision of ACT Supreme Court in Chadwick Industries ats Concrete Constructions which was referred to the learned arbitrator by the appellant.
The Back-charge for H E Sugars & Co Labour - $9,390
2.In the event that this Honourable Court makes an order in terms of ground 1 above then there is no legal basis upon which the respondent is entitled to a credit for the cost of another contractor providing labour which the appellant would otherwise have provided. As a consequence the learned arbitrator should not have reduced the Interim Award to the Appellant by $9,360.
It is unnecessary to discuss the reasons of Anderson J for granting leave to appeal to the appellant. His decision in that regard is not subject to challenge.
Anderson J refused leave to appeal to the respondent in relation to the following grounds of appeal:
1.The Learned Arbitrator erred as a matter of law in awarding the Respondent the sum of $40,655 for its delay claim (reasons p76). The learned Arbitrator should have found that the lack of proper notices given to the Appellant by the Respondent prevented the Respondent from succeeding on its delay claim.
2.The Learned Arbitrator erred as a matter of law and fact in finding that the subcontract between the Appellant and the Respondent was comprised of:
(A number of documents are then identified in this ground which it is unnecessary for me to set out having regard to the issues on this application.)
(Reasons p 51).
The learned Arbitrator should have found that the subcontract between the Appellant and the Respondent included the subcontract agreement that the Appellant sent to the Respondent on 8 July 1999, as varied by the letter from the Appellant to the Respondent dated 10 September 1999 and in any event, that the “nil damages” clause in the subcontract with respect to Extensions of Time applied.
3.The Learned Arbitrator erred as a matter of law and fact in finding that the Appellant’s damages claim failed for the period after about late-December 1999 (reasons p 77). The Learned Arbitrator should not have made such a finding, as:
3.1 the Respondent had sufficient resources to progress the subcontract works as agreed and contracted for an insufficient time within which to complete those works; and
3.2 the Respondent made various promises to the Appellant with respect to its resources and work rate; and
3.3 the Respondent did not produce evidence that there were insufficient work areas available to it to progress the subcontract works as agreed, nor evidence as to any breaches of the subcontract by the Appellant from that time; and
3.4 the Respondent still took longer to carry out the subcontract works than the time provided for the whole works under the head contract.
In relation to ground one, the Judge noted that the appellant’s delay claim and additional hours claim were pursued as claims for breach of contract and not pursuant to notices given under clauses 35.5 and 36 of the contract. He was not satisfied that there was a manifest error of law on the face of the award or strong evidence that the arbitrator made an error of law. He refused leave in relation to ground one.
In relation to ground two, again the Judge was not satisfied that there was a manifest error of law on the face of the award, or strong evidence that the arbitrator made an error of law. He said damages were not awarded on the basis of clauses 35.5 and 36 of the contract and that as far as adding substantially to the certainty of commercial law was concerned, the law was well settled in terms of how a court decides what documents make up a contract. He refused leave in relation to ground two.
In relation to ground three, the Judge referred to the arbitrator’s findings and said that the ground raised a pure question of fact. He said that there was no manifest error of law on the face of the award and no strong evidence that the arbitrator made an error of law. He refused leave in relation to ground three.
As I have said, the respondent has sought leave to appeal to the Full Court against the decision of Anderson J to refuse leave under s 38 of the CAA.
The notice of contention in the appellant’s appeal
Although it is lengthy, in order to properly understand the appellant’s application and the submissions made in relation to it, it is necessary for me to set out the Notice of Alternative Contentions filed by the respondent:
Upon the hearing of the appeal, the Respondent will contend that those portions of interim award of the Arbitrator subject of the appeal should be upheld for the reasons given by him, and in the alternative, and additionally also, upon the following grounds:
1.That the terms of the sub-contract between Cox Constructions Pty Ltd (“Cox”) and Décor Ceilings Pty Ltd (“Décor”) (“the subcontract”) excluded Décor’s claim for damages for disruption.
2.In particular, material to alternative contention 1 above, that the contract provided for notices to be given for Décor’s claim as a condition precedent to any entitlement, which notices were not given.
3.Material to alternative contention 2 above, that the requirement for notices and Décor’s failure to give notices was sufficiently pleaded by Cox.
4.In particular, material to alternative contention 1 above, that the amount of damages agreed between Cox and Décor and provided for in the subcontract in respect of Décor’s disruption claim was nil (“the nil damages term”).
5.Material to alternative contention 4 above, that the nil damages term was included as part of the subcontract terms.
6.That the disruption claim made by Décor is dependant on an implied term, which implied term was not made out by Décor.
7.That Décor failed to keep the promises that it made to Cox throughout the works, which failure precludes Décor recovering on the disruption claim.
8.That Décor failed to maintain sufficient progress in carrying out the subcontract works, which failure precludes Décor recovering on the disruption claim.
9.That Décor failed to deploy sufficient resources to progress the subcontract works according to Décor’s subcontract obligations, which failure precludes Décor recovering on the disruption claim.
10.That Décor’s access claim was not made out.
11.That Décor’s efficiency claim was not made out.
12.That Décor’s scaffolding claim was not made out.
13.That Décor did not prove the matters necessary for a global claim – the disruption claim being a global claim.
14.Material to alternative contention 13 above, that Décor did not show that Cox was responsible for the whole of Décor’s lateness in completing the subcontract works.
15.Material to alternative contention 13 above, Cox repeats alternative contentions 7, 8, 9, 10, 11 and 12 above.
16.That Décor is not entitled to damages for the claimed disruption in the disruption claim, because Décor was responsible for its lateness in completing the subcontract works, either wholly or partly.
17.More particularly, that Décor failed to show the following (each being an element of its claim):
17.1That the claim is permitted by the terms of the subcontract.
17.2That Schedule 4 was a contract term.
17.3 That (notwithstanding Schedule 4 is a contract term), Annexure Part A and Annexure Part B do not operate between Cox and Décor (and notwithstanding that Décor initialled those pages).
17.4 That Schedule 7 was not agreed as the program for the carrying out of the subcontract works, notwithstanding the Décor letter of 20 July 1999.
17.5 That the contract commencement date is that given in Schedule 4; that is, 28 June 1999.
17.6 That Décor gave the required notice of delay for each claimed disruption event.
17.7 That Décor gave the required notice of extension of time for each claimed disruption event.
17.8 That Décor gave the required notice of breach of the subcontract for each alleged breach within 28 days after the first day upon which Décor could reasonably have been aware of the breach.
17.9 That the contract terms that are crucial to Décor’s claim can be implied when there are comprehensive written contractual terms.
17.10 That the necessary terms can be implied when the detailed written terms deal with the same topic.
17.11 That the claim can succeed on the implied contract terms, whereas the claim is excluded under the written contract terms.
17.12 That Décor has been delayed for 30 weeks by breaches by Cox; and that these delays (for each event) were because of events that delayed Décor in the progress of its work to completion along the critical path.
17.13 That it was impossible for Décor to show in the usual way, the period of delay to the completion of the whole of the subcontract works caused by each claimed delay event.
17.14 That Décor is entitled to extensions of time of 30 weeks based on a 10-week contract period when its own communicated plan was for 12 weeks.
17.15 That Décor is entitled to payment for additional hours based on the late access claim when Décor was not on site.
17.16 That Cox breached the contract terms for the provision of scaffolding.
17.17 That Cox was negligent in the provision of scaffolding; that is, that Cox breached a duty of care owed to Décor about scaffolding outside of and additional to the contract terms.
17.18 That Décor was delayed because of scaffolding breaches.
17.19 That Décor will succeed on the scaffolding claim notwithstanding the contemporaneous record for the agreements made for scaffolding;
17.20 That Décor had sufficient resources available to complete the subcontract works in 10 weeks; or 12 weeks.
17.21 That Décor can succeed on the claim in efficiency when it did not have the resources for the job.
17.22 That there were not work areas available for Décor to progress the subcontract works with the resources Décor had on and for the site.
17.23 That Décor has shown it had sufficient resources and was held up notwithstanding that there is no contemporaneous communication from Décor to Cox about insufficient work areas.
17.24 That Décor can succeed in the claim in efficiency notwithstanding what is recorded in the minutes of the subcontractor co-ordination meetings.
17.25 That Décor can succeed on its global claim in efficiency when it has to show that there is no other explanation for the disruption (including its provision of resources).
17.26 That Décor can succeed in the global claim for efficiency by proving that it was impossible to show the effect of the delay or disruption events in the usual way.
17.27 That Décor can succeed on its claim in efficiency despite taking resources from the TDU for the Motorola project.
17.28 That the additional hours incurred all because of wrongdoing by Cox were the hours claimed.
17.29 That the additional hours claim is proved notwithstanding that there is no evidence from Décor that the original resources plan of 17 men over 12 weeks was appropriate.
17.30 That Décor is entitled to profit in respect of the additional hours.
The appellant seeks a number of orders in the alternative in its application. First, it seeks an order that the respondent’s Notice of Alternative Contentions filed on 24th October 2004 be struck out. Secondly, and in the alternative, it seeks an order that a number of paragraphs listed in the application be struck out as an abuse of process because they raise matters which were the subject of the respondent’s unsuccessful application for leave to appeal. Thirdly, and in the alternative to the first order sought, it seeks an order that a number of paragraphs listed in the application be struck out because they do not of themselves support the ground upon which the arbitrator rejected the appellant’s additional hours claim and because they seek to challenge findings of fact or law made by the arbitrator in his award. Fourthly, and in the alternative to the first order sought, it seeks an order that a number of paragraphs listed in the application be struck out because they seek to challenge findings of fact or law made by the arbitrator in his award. Finally, the appellant seeks an order that insofar as the respondent is permitted to maintain any grounds by way of “alternate” contentions at the hearing of the appeal, the respondent should be “constrained” to findings of the arbitrator as disclosed on the face of the award.
Under r 3.04(c) of the SCR the Court may strike out or dismiss any step in a proceeding which is vexatious, frivolous or an abuse of the process of the Court. Any step in a proceeding includes the filing of a notice of contention in an appeal under s 38 of the CAA.
In considering the appellant’s application, it is convenient to briefly discuss the relevant principles in relation to s 38 of the CAA. A detailed discussion is not necessary because the relevant principles are not in dispute. The Court shall not have jurisdiction to set aside or remit an award of an arbitrator on the ground of error of fact or law on the face of the award. In terms of an appeal from the award of an arbitrator, the only right is that given by s 38. The right of appeal is limited to a question of law arising out of an award and there is no right of appeal on a question of fact. Furthermore, unless both parties consent, the right of appeal on a question of law arising out of an award is conditioned on a grant of leave by the Court. Leave may only be granted in limited circumstances. Leave may only be granted if two requirements are satisfied. First, the Court must be satisfied that 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. Secondly, there must either be a manifest error of law on the face of the award, or there must be strong evidence that the arbitrator 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. A manifest error of law is one that is more than arguable; it is one that is evident or obvious. As Sheller JA said in Promenade Investments Pty Ltd v New South Wales (1991) 26 NSWLR 203 (at 226):
There should … be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law.
The manifest error of law must appear on the face of the award. The other criterion (ie., strong evidence that the arbitrator 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) can only be satisfied if the question raised is of wider and greater importance than, for example, the construction of a one-off clause in the context of the particular agreement between the parties. I refer generally to the discussion of the provisions of s 38 of the CAA by Debelle J in Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust (1994) 63 SASR 444 at 447 – 449.
The important policy reasons behind the provisions of s 38 of the CAA were identified by Kirby P (as he then was) in Natoli v Walker (unreported, New South Wales Court of Appeal, 26 May 1994, judgment number 40351). Three passages are relevant (at 2, 25 and 28):
As will be explained, that Act amended s38 of the Commercial Arbitration Act 1984 to confine most narrowly the cases in which appeals to the Supreme Court from an award of an arbitrator would be permitted. The policy behind the amendment, as explained in Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 203 (CA), 221ff was to promote the finality of arbitral awards even at the price of denying a party its usual entitlement to the determination of the dispute by a court of law, ie the precise assignment of the parties’ legal rights after a detailed scrutiny of the relevant facts and application of the relevant law.
…
Obviously, there is a difficulty in the word “manifest”. What may be “manifest” to one judicial officer may fail to persuade another. The criterion cannot be the swiftness of mind of the sharpest intellect. Nor can it be the perception of one whose whole career has been devoted to examining and reflecting upon building contracts. An objective, not a subjective, test for what is “manifest” is contemplated. But the word will not go away. Against the background of its history in this context it requires swift and easy persuasion and rapid recognition of the suggested error. Otherwise, Parliament has taken the decision that it is better for the community as a whole that the parties should be held to their arbitral award. The price of lengthy exploration and reconsideration may prove warranted in a particular case. But, in the administration of justice as a whole, it is not. Expressed in economic terms, the marginal utility of the variations which will be achieved in particular cases is outweighed by the marginal cost of the delays, frustrations, uncertainties, inconvenience and legal and other expenses thereby necessitated.
…
Judges, whose lives are devoted to the painstaking examination of facts and the scrupulous application of the law, necessarily react with hesitation at the very thought that, by refusing leave, they may be countenancing a legal injustice. I understand that reaction. But the lesson of this case is that judges must steel themselves to that thought. Parliament has decided that, viewed as a whole, it will ordinarily be best to hold parties to their arbitral awards. The interventions of the courts must be strictly limited. When they are, parties will be spared the fourfold litigation that has occurred in this case. They will be spared the delays, the uncertainties and the costs of further litigation. The signal must be sent quite clearly. Otherwise litigants, like Dr Walker, will be burdened, as he must be now, with extremely onerous cost obligations. Those costs constitute an important reason behind the legislation which Promenade, and now this decision, are designed to uphold.
The appellant submits that the respondent has no right to file a notice of contention. Alternatively, the appellant submits that the respondent has no right to file a notice of contention raising questions of fact. In the further alternative, the appellant submits that the respondent has no right to file a notice of contention raising matters unrelated to the appellant’s additional hours claim. The respondent submits that it has a right given by r 97.08 of the SCR to file a notice of contention which complies with that rule and that leave having been granted under s 38 of the CAA the provisions of that section are simply not relevant to that right.
It seems to me to be clear enough that the provisions of r 97 of the SCR must be read subject to the CAA. For example, r 97.07 which deals with cross appeals cannot operate in a way which is inconsistent with the provisions of s 38 of the CAA. A cross appeal is relevantly an appeal for the purposes of s 38 and cannot be filed without the leave referred to in that section. Mullighan J proceeded on that basis in Sabemo (SA) Pty Ltd v AIW Engineering Pty Ltd (1992) 9 BCL 280, and in my respectful opinion he was correct to proceed in that way. There are other subrules in r 97 which I will mention in due course that cannot operate in a manner inconsistent with s 38 of the CAA. It is not a matter of the Court otherwise directing under r 120.07(3). The Court has no discretion in the matter; the Rules of Court cannot operate in a manner which is inconsistent with the provisions of the CAA.
The respondent relied heavily on a decision of the House of Lords dealing with the filing of a notice of contention in an appeal against the award of an arbitrator. In Vitol SA v Norelf Ltd (The Santa Clara) [1996] AC 800 a dispute between the buyers of a cargo of propane and the sellers was referred to arbitration. The buyers rejected the cargo and repudiated the contract upon the sellers allegedly acting in breach of a condition of the contract. The arbitrator found that the buyers had performed an anticipatory breach of contract and that the sellers’ failure to take any further steps to perform the contract constituted sufficient communication of acceptance of the buyers’ repudiation of the contract. The buyers appealed against this second finding. The appeal by the buyers was dismissed by Phillips J in Vitol SA v Norelf Ltd [1994] 1 WLR 1390.
The buyers appealed to the Court of Appeal (Vitol SA v Norelf Ltd (The Santa Clara) [1996] QB 108). The Court noted that the buyers could only appeal to the High Court if the relevant issue raised a question of law arising out of the award and leave was given by the High Court (s 1(2) and (4) of the Arbitration Act 1979 (UK)). The English Rules of Court provided that the respondent to an application for leave to appeal to the High Court could file a notice contending that the award should be upheld on grounds not expressed or not fully expressed in the award (RSC Ord 73 r 5(9)). The Court noted that there was no corresponding rule on appeals to the Court of Appeal. Furthermore, on an appeal from the High Court to the Court of Appeal, s 1(7) of the Arbitration Act 1979 (UK) was relevant and it provided as follows:
(7) No appeal shall lie to the Court of Appeal from a decision of the High Court on an appeal under this section unless ¾
(a) the High Court or the Court of Appeal gives leave; and
(b) it is certified by the High Court that the question of law to which its decision relates either is one of general public importance or is one which for some other special reason should be considered by the Court of Appeal.
In the Court of Appeal the buyers were successful in their argument that the sellers had not accepted the buyers’ repudiation of the contract by merely failing to perform their contractual obligations. The sellers had filed a notice contending on the hearing of the appeal that the Judge’s decision should be upheld on alternative grounds, namely that acts other than the mere non-performance of their contractual obligations constituted acceptance by them of the buyers’ repudiation of the contract. They were not permitted to rely on these grounds before the Court of Appeal. Hirst LJ said (at 978 – 979) that the sellers should not be permitted to raise in the Court of Appeal uncertified issues of law, let alone issues of mixed fact and law. The sellers could only ask for the appeal to be dismissed on other grounds if they had a certificate.
The House of Lords reversed the procedural ruling of the Court of Appeal. Lord Steyn said (at 202 – 203):
The primary purpose of the 1979 Act was to reduce the extent of the court’s supervisory jurisdiction over arbitration awards. It did so by substituting for the special case procedure a limited system of filtered appeals on questions of law. The change was intended to tilt the balance toward greater emphasis on the finality of arbitration awards. Now postulate a respondent in the Court of Appeal who at first instance won on the main point but lost on a sound alternative argument. He loses on the main point on appeal. If he requires a certificate to argue the alternative case there is a risk that he may not obtain a certificate. A perfectly good award may then be set aside. In a very relevant sense such a risk would imperil the finality of arbitration awards. It would also be a manifestly unfair consequence in cases when the respondent has a good alternative argument which does not pass the test of being a question of general public importance, for example the construction of a “one off” exception clause. And it is no answer to say that in some cases a judge may grant a certificate for some other special reasons.
The respondent relied heavily on these remarks by Lord Steyn to support its argument that it is entitled to rely on the matters set out in the notice of contention. The appellant sought to distinguish the decision on the ground that the English Rules of Court specifically provide for a notice of contention. It is the case that the English Rules provide for a notice of contention to be filed by a respondent to an application for leave to appeal under s 1(2) of the Arbitration Act 1979 (UK) (o 73 r 5(9)). I will return to this decision and the extent to which I have relied on it.
As I have said, the points raised by the appellant’s application are novel ones and they are not the subject of any decided Australian authority. I start with some observations about the scope of r 97.08 leaving to one side for the moment s 38 of the CAA. A notice of contention asserts that the decision of the Court should be affirmed on grounds other than those relied upon by the Court. In this case, the notice of contention could not lead to a reduction in the award in favour of the appellant of $102,883. How it could be used in a case like this is to say that the arbitrator’s refusal to award any greater amount to the appellant could be supported by grounds other than those relied on by the arbitrator. Therefore, the respondent could say the additional hours claim or the claim in relation to backcharges should be rejected on a ground not relied on by the arbitrator. A more difficult question is whether the respondent could rely on a ground relating to a claim where the appellant was successful (eg., the delay claim) or a claim where it was unsuccessful (eg., the damages claim) in order to repel or negate (in whole or in part) an increase in the award by reason of the allowance of the appellant’s additional hours claim. For reasons I will give, I do not need to decide this more difficult issue in this case.
The Rules of Court including r 97.08 must be read subject to the provisions of the CAA. In my opinion, there is no right to file a cross appeal without leave. There is no right in an appellant to amend his notice of appeal without regard to the provisions of the CAA. There is no right in an Appeal Court to draw inferences of fact if there is no appeal on a question of fact. Rule 97 of the SCR purports to give these rights but they must be read subject to the CAA.
In my opinion, the right to file a notice of contention must be subject to a restriction in the case of an appeal from an award of an arbitrator that there is no jurisdiction to interfere with the award on the ground of error of fact. The effect of s 38 of the CAA is that a finding of fact of an arbitrator may not be challenged. Section 38(1) provides that the Court shall not have jurisdiction to set aside an award on the ground of error of fact or law on the face of the award. To my mind, that must also include an error of fact not apparent on the face of the award. One can confidently assume that Parliament did not wish to leave open to challenge an error of fact not apparent on the face of the award. In any event, the only right of challenge given by s 38 is in relation to a question of law arising out of the award.
Although a respondent to an appeal cannot by way of a notice of contention raise a challenge to the arbitrator’s findings of fact, I do not think that there is anything in the terms of s 38 of the CAA which prevents the raising of a question of law in a notice of contention as long as the question of law is used in a purely defensive way. The considerations identified by Lord Steyn in the passage set out above are important and I think a respondent can raise a question of law in a notice of contention provided it is used in a purely defensive way and its effect is not dependent on overturning any of the arbitrator’s findings of fact. For example, if a successful party before an arbitrator succeeded in showing a contract was void for illegality but did not succeed on its alternative argument that there was no contract because there was no offer and acceptance faces an appeal with leave by the unsuccessful party, then, providing the question of law about no offer and acceptance does not arise only if findings of fact are overturned, I see no reason why it cannot be raised in a notice of contention.
Turning to the facts of this case, if there is a ground in law upon which the additional hours claim could have been rejected or the arbitrator erred in not rejecting it on the relevant ground, then providing it is a basis for upholding the rejection of additional hours claim without disturbing any findings of fact, then that question of law can be raised in a notice of contention. I need not address the claim for backcharges separately because it is linked to the additional hours claim. I do not think I need address the issue of whether the respondent can raise a question of law in relation to the appellant’s delay claim or its own damages claim. I say that because in relation to the delay claim if there is a question of law it is the same question of law as arises in relation to the additional hours claim. If it succeeds that will lead to the rejection of the additional hours claim and in a notice of contention a respondent can go no further. It cannot ask for the award to be reduced. As to the respondent’s damages claim, it seems clear enough from the arbitrator’s reasons that that claim failed on factual grounds.
I would not strike out the respondent’s notice of contention on the ground that it is prohibited in any circumstances from filing such a notice. I would not strike out the notice of contention, or particular paragraphs in it, on the basis that it is an abuse of process to pursue matters which were the subject of the unsuccessful application by the respondent for leave to appeal. It seems to me that ordinarily a party is not precluded from utilising a particular procedure otherwise available to him because he has earlier pursued unsuccessfully another procedure.
It seems to me that a number of paragraphs in the respondent’s notice of contention impermissibly raise challenges to findings of fact made by the arbitrator. Other paragraphs in the notice of contention may raise a question of law decisive of the appellant’s additional hours claim, but if there is a question of law it is not clearly identified in the notice as a question of law. Furthermore, the notice of contention is not drafted in a way which enables me to be satisfied that any question of law is not dependent on the respondent overturning findings of fact made by the arbitrator.
In the circumstances I propose to strike out the notice of contention but to give the respondent liberty to apply within 10 days to file a new notice of contention consistent with these reasons.
Conclusion
I will make the following orders:
1The Notice of Alternative Contentions filed by the respondent on 25th October 2004 is struck out.
2The respondent is at liberty to apply within 10 days for leave to file a new notice of contention consistent with these reasons.
I will hear the parties as to costs and any other appropriate orders.
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