Eden Construction Pty Ltd v Snowy River Shire Council

[2004] NSWSC 886

CITATION:	EDEN CONSTRUCTION PTY LTD v SNOWY RIVER SHIRE COUNCIL [2004] NSWSC 886
HEARING DATE(S):	20, 21 September 2004
JUDGMENT DATE:	21 September 2004
JURISDICTION:	Commercial List
JUDGMENT OF:	Bergin J
DECISION:	Leave to appeal refused
CATCHWORDS:	[COMMERCIAL ARBITRATION] Application for leave to appeal from an Arbitrator's Award pursuant to s.38 of the Commercial Arbitration Act 1984 (NSW) - Whether manifest error on face of Award
LEGISLATION CITED:	Commercial Arbitration Act 1984 (NSW)
CASES CITED:	Natoli v Walker NSWCA 26 May 1994 Promenade Investments v The State of New South Wales (1992) 26 NSWLR 203 State of New South Wales v Coya (Constructions) Pty Ltd NSWCA 4 August 1995
PARTIES :	Eden Construction Pty Ltd (Plaintiff) Snowy River Shire Council (Defendant)
FILE NUMBER(S):	SC 50007/04
COUNSEL:	Mr T. Bland (Plaintiff) Mr P.W. Gray SC (Defendant)
SOLICITORS:	Johninfo Lawyers (Plaintiff) Minter Ellison (Defendant)

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BERGIN J

21 September 2004

50007/04 - EDEN CONSTRUCTION PTY LTD v SNOWY RIVER SHIRE COUNCIL

JUDGMENT

1 This is an application brought by the plaintiff, Eden Construction Pty Ltd, for leave to appeal pursuant to s 38 of the Commercial Arbitration Act 1984 (NSW) from the award of an Arbitrator, Bryan Ahern, of 22 October 2003, entitled “Interim Award” in relation to a dispute between the plaintiff and the defendant, Snowy River Shire Council, concerning construction works on a Water Supply Reservoir at Eucumbene Cove, New South Wales.

2 The parties were required to file evidence and an outline of submissions prior to the commencement of this hearing however the case changed quite drastically on the first day of the trial. The trial commenced on Monday 20 September 2004 when Mr T Bland of counsel appeared for the plaintiff and Mr PW Gray SC appeared for the defendant, Snowy River Shire Council.

3 The contract between the plaintiff and the defendant for the construction of the Water Supply Reservoir at Eucumbene Cove contained an arbitration agreement and when disputes arose between the parties, including the defendant taking the works out of the hands of the plaintiff, such disputes were referred to arbitration before Mr Ahern. An arbitration hearing took place on 30 and 31 July 2003. Mr Ahern delivered the Interim Award on 22 October 2003 and a Final Award in respect of costs of the arbitration and the legal costs of the defendant was delivered on 2 November 2003.

4 The Interim Award refers to the history of the disputation and the conduct of the arbitration. Under the heading "The Issues" on page 7 the Arbitrator referred to one major issue and three minor issues. The major issue was identified as the question of whether the plaintiff had achieved Practical Completion and whether the work was validly taken out of the plaintiff's hands. The minor issues were whether the plaintiff's claims for release of the charge taken over its plant, for delay costs in possession of the site, and for costs of pumping water were made out.

5 The drastic change to the case to which I have referred that occurred on 20 September 2004 was that Mr Bland limited the way in which his client identified what was described as manifest error on the face of the award. That limitation was that there were only four areas of the award in respect of which submissions were to be made, as opposed to the submissions made by the applicant filed on 10 September 2004.

6 The first challenge was to the Arbitrator’s statement on page 10 under the heading “6.2.2 Findings” as follows:

The parties did not disagree that the contract was wholly in writing, and that it comprised:
(i) the letter of 16 January 2002, signed on 22 January 2002;
(ii) documents included at tab 2 of Mr Broder's statement;
(iii) the terms of General Conditions of Contract AS 43001 995;
(iv) Eden's tender dated 10 January of 2002.

7 Mr Bland submitted that the Arbitrator made a manifest error in that the parties did disagree in relation to the contract. When asked to identify the material upon which the plaintiff relied in respect of that matter Mr Bland was unable to do so. There was a submission that the plaintiff had entered into a Deed or Scheme of Company Arrangement and that the administrator was notified of the defendant's knowledge of that matter. There is in evidence before me material indicating that the original arrangement between the parties was “revoked” and that on the evidence of Mr Filardo, as he put it, the contract was “re-given” to the plaintiff. Notwithstanding that arrangement it is apparent that the parties still approached the contract on the basis as stated by the Arbitrator and that they “did not disagree”.

8 I am afraid that this ground is not made out mainly because the plaintiff was unable to point to any basis upon which the Arbitrator had misrepresented the position of the parties not disagreeing about the contract. Indeed, it was submitted by Mr Bland that it was the Arbitrator's obligation, even if the parties did agree, to go and look through the documents to see if that agreement was justified in the circumstances. The point raised in respect of the Deed or Scheme of Company Arrangement is not one that demonstrates to me that there is a manifest error on the face of the award or any evidence that the Arbitrator made an error of law. In those circumstances I would not grant leave under s 38(4)(b) of the Commercial Arbitration Act.

9 The next area of attack made by the plaintiff was related to the matters outlined at page 11 of the Interim Award. The specific sentence that was challenged appears in the last paragraph on that page, however for an understanding of the context it is appropriate to set out the following portion of the Interim Award:

It was very clear that the Contract required the Specifications to be met by any design provided by the Contractor - not superseded by any such design unless specifically accepted as such by the Principal.

There was a meeting on 22 April 2002 where many aspects of the design were discussed. [Broder tab 39]. Mr Broder issued a Fax dated 1 May 2002 [Broder tab 40] in which he stated: “ Please be advised that the drawings revised and submitted by Connell Wagner for the Eucumbene reservoir are now accepted and approved ”. However a handwritten notation signified that Connell Wagner would have to certify that the drawings comply with the Specification. There was dispute as to whether the handwritten message was conveyed. In any event this matter of certification is a requirement in Preliminaries section PD-02. It is noted that AS 4300-1995 Clause 48 WAIVER OF CONDITIONS states:
Except as provided at law or in equity or elsewhere in the Contract, none of the terms of the Contract shall be varied, waived, discharged or released, except with the prior consent in writing of the Principal in each instance.

It was made clear that the plans did not comply with the specification and this certification has not occurred. Accordingly, the plans were never finally accepted and approved. Even if plans were approved AS 4300 1995 Clause 8.4 "Supply of Documents by Contractor" states:
The Principal’s or the Superintendent's receipt of, or review of, or comment on, the Design Documents and any other documents provided by the Contractor, shall not relieve the Contractor from responsibility for the Contractor's errors or omissions or departure from the Contractor's Design Documents or other requirements of the Contract.
The abovenoted 'approval and acceptance' occurred when the works had been virtually completed and there was no argument advanced that this late 'approval' misled Eden in proceeding with any particular design.

10 Mr Bland conceded that certification was a requirement pursuant to the Preliminaries section PD-02. He submitted that the manifest error appears from a letter that he tendered from Connell Wagner to Eden Construction dated 8 April 2002. It is on that letter that the plaintiff based its claim that the sentence in the Award as extracted above, “It was made clear that the plans did not comply with the specification and this certification had not occurred”, was wrong and amounted to a manifest error.

11 What was required, as has been conceded, was a certification that the drawings complied with the Specifications. That is what the Arbitrator referred to in the portion of the Interim Award extracted above. It can be seen that the context in which the Arbitrator referred to the drawings not having been certified as complying with the Specifications, relates back to a meeting of 22 April 2002. It is apparent that it was a question of disputation as to whether the handwritten notation was conveyed but that is not in issue here. What is in issue is the claim that the Connell Wagner letter of 8 July 2002 was evidence that the drawings had been certified as complying with the Specification and whether the Arbitrator failed to take that into account and committed a manifest error of law in concluding that the certification had not occurred.

12 The letter of 8 July 2002 from Connell Wagner to Eden Construction was in the following terms:

Eucumbene Cove Reservoir.

We, Connell Wagner Engineers, being structural engineers, hereby certify that we are responsible for the structural design of the reinforced concrete reservoir shown on Drawing Numbers C 333/99, S 001, S 002, S 003 and S 004.
This work was designed in accordance with relevant Australian Standards, including AS 3735 ‘Concrete Structures For Retaining Liquids’, and in accordance with accepted engineering practice and principles.

13 Mr Gray SC submitted that the letter of 8 July 2002 is not a certification that the drawings complied with the Specifications. I agree. That letter is a certification that Connell Wagner were responsible for the structural design and that it was designed in accordance with the relevant Australian Standards and with accepted engineering practice and principles. What the defendant required and what the contract required, as has been conceded, was a certification that the drawings complied with the Specifications. On the evidence before me it has not been established that the certification had occurred and it has not been established in the circumstances that the Arbitrator’s finding that certification has not occurred was a manifest error of law on the face of the award. Accordingly, that ground is not one upon which I would grant leave under s.38(4)(b) of the Commercial Arbitration Act. I am not satisfied that there is evidence, and certainly not strong evidence, that the Arbitrator made an error of law.

14 The next area of attack relates to Practical Completion. The Arbitrator dealt with this matter commencing at page 12 of the Interim Award. He firstly set out the definition of Practical Completion. There is no issue in relation to the accuracy of that definition. The Arbitrator then referred to the admissions made by Mr Filardo and another person on behalf of the plaintiff that there were omissions and defects, noting that the plaintiff had argued that they did not contravene the definition of Practical Completion in that they did not prevent the works from being reasonably capable of being used for their stated purpose or that they would not prejudice the convenient use of the works.

15 The Arbitrator continued:

In some respects the reservoir as constructed by Edens was capable of being used for a stated purpose as it did ‘hold water’ to some extent however:

(a) the omissions and defects were not all 'minor' in that:

(i) they did prevent the Works from being reasonably capable of being used for their stated purpose as that 'reasonably capable' must be for the design life of the structure . Such defects included:

(a) leaks through the snap ties and construction joints;

(b) steel components not hot dip galvanised; and

(c) the design and construction of the roof, ladders, cage and landing not conforming to the specification.
(ii) the Superintendent did not determine that the Contractor had reasonable grounds for not promptly rectifying the admitted omissions and defects.
(iii) rectification of the omissions and defects would prejudice the convenient use of the works as:
(a) the roof structure, ladder, and cage would have to be removed and replaced,

(b) the bolts and other components that were required to be hot dipped galvanised would have to be removed off site or replaced, and significantly

(c) the reservoir would have to be emptied to rectify the leaks and the internal ladder thus preventing any use at all.

16 The Arbitrator found that Practical Completion of the works was not achieved up to 26 November 2002, being the latest time for which the plaintiff was responsible for the unfinished works. It was at that stage that the works were taken out of the hands of the plaintiff and Practical Completion was achieved the following year in April after an alternative contractor had been retained.

17 Mr Bland submitted that the finding by the Arbitrator that the defects were not all minor was a manifest error. He submitted hat the defects were all minor. However, to make good such a challenge I have not been taken to any evidence that establishes that the matters identified above by the Arbitrator were in fact not minor.

18 It must be remembered that in this process of judicial review of awards under s 38 of the Commercial Arbitration Act when application for leave to appeal is made, the Court has to be satisfied that there has been a manifest error of law on the face of the award. The Arbitrator identified the defects in subpara (a), (b) and (c) as being “not all minor”. The question is, was it open to him to find that leaks in a water reservoir and steel components not being hot dipped galvanised and certain aspects not conforming to the Specifications were in fact not minor? It seems to me on a reading of the whole of the Award and the material that was before the Arbitrator to which he referred, that he was entitled to find that at the very least one or indeed all of those defects were “not minor”. There is nothing that presents to me as erroneous in that finding and certainly does not present as a manifest error of law on the face of the Award.

19 In those circumstances I will not grant leave under s. 38(4)(b) as I do not consider that there is a manifest error of law on the face of the Award.

20 The final ground upon which a challenge is made is that there was a denial of natural justice to the plaintiff. On this aspect the matter required some evidence and although it was opposed by the defendant I allowed it. This challenge is focused on what appears on page 17 of the Award under the heading “6.4 Possession of Site”. That was as follows:

6.4.1 Claim:

Eden's Statement of Claim at paragraph 12 claims possession of site would be given on 22 February 2002 and referred to a letter dated 28 February 2002 to support that. This letter was not put into evidence though there was reference to a fax on 28 February 2002 in the fax from ITS dated 28 February 2002 [refer Broder tab 17].

21 The Arbitrator then continued under heading “6.4.2 Findings” to state that there was “no evidence presented to establish that the letter of 28 February 2002 formed part of the contract”. On the claim for delay costs in respect of possession of the site the Arbitrator found that Eden had no entitlement to the cost of delays in possession of the site because such delay of possession of the site was due to Eden's own defaults in relation to the professional indemnity insurance not having been taken out at a particular time. The focus of the challenge was on the Arbitrator’s statement that the letter of 28 February 2002 was not put into evidence.

22 Malcolm Montague van Gelder was the solicitor representing the plaintiff at the hearing before the Arbitrator. Mr van Gelder had prepared a folder of documents and on 25 July 2003 had sent a fax to the Arbitrator with a copy to the defendant’s solicitor referring to the fact that “lists of documents were “agreed” and that “there are separate bundles generally agreed”. Mr van Gelder gave evidence before me that the bundle of documents was “presented” or “tendered” at the arbitration for the use of the Arbitrator and to be referred to by Mr van Gelder during the conduct of the arbitration hearing.

23 In cross-examination Mr van Gelder admitted that when he sought to refer to those documents during the arbitration hearing, counsel for the defendant objected to such reference because such documents were not in evidence. Mr van Gelder said that he recalled the gist of the objection to the effect that if the plaintiff did not tender the documents as part of an affidavit or some other way of bringing the documents into evidence, they were objected to.

24 On the evidence of Mr van Gelder I am satisfied that those documents, including the letter of 28 February 2002, which is accepted to have been in the folder, were not put into evidence before the Arbitrator. Indeed, at page 36 of the transcript Mr van Gelder said:

The best of my recall is that the arbitrator noted the objection of counsel for council and noted any objection we had to the other party objecting to the bundle of documents as being in evidence. He then put them to the side and failed or refused to refer to any of the documents.

Mr van Gelder also admitted that they were not marked as an exhibit.

25 After the hearing before the Arbitrator on 30 and 31 July 2002 the parties entered into a regime of written submissions. Mr van Gelder's submissions in fact referred to various documents as being “exhibits”. The defendant took objection to that description of those documents and Mr van Gelder responded yet again by written submission as follows:

Whilst the use of the term “exhibit” was unfortunate, and there was no intention on the part of the Claimant to confuse the exhibits tendered in evidence during the hearing, and the Claimant's annexures, the Claimant asks that the documents described as “exhibits” E, F, H and L should be considered as part of the arbitration.

26 Those so-called “exhibits’, E, F, H and L, do not include the letter of 28 February 2002. The letter of 28 February 2002 was before me and submissions were made in respect of it. Mr Bland conceded that there was nothing in the letter of 28 February 2002 about the claim in the Statement of Claim that possession of the site should have been given on 22 February 2002. Having recognised that, Mr Bland submitted that there may have been an error in the pleading. I then asked Mr Bland whether that letter was relied on as being part of the contract, remembering that the Arbitrator has found that there was no evidence presented to establish that such letter formed part of the contract and Mr Bland conceded that it was not part of the contract, however, it was referred to as a claim under the contract.

27 It is clear that whether or not that letter was in evidence before the Arbitrator, the Arbitrator dealt with the plaintiff’s claim for costs of delay in possession of the site and on the evidence before him found that it had no entitlement, for the reasons stated on page 17 of the Interim Award. I am not satisfied that that the letter of 28 February 2002 was in evidence before the Arbitrator. It is apparent from the evidence before me that the parties approached the arbitration hearing in a particular way. In that regard the plaintiff relied on a number of affidavits of Cesare Filardo of 8 April 2004, 13 April 2004 and 20 September 2004. Mr van Gelder's affidavits were dated 11 May 2004 and 20 September 2004. In response the defendant's affidavits were those of Wayne Leslie Sharwood sworn 31 August 2004 and 15 September 2004.

28 It is clear from a reading of that evidence and in addition the evidence given orally by Mr van Gelder, that the parties approached the arbitration hearing on the basis that if the Arbitrator was to take evidence into account it was evidence tendered before him at the hearing. On the evidence called from Mr van Gelder I am not satisfied that he tendered the material contained in the folder which was marked MFI 2 before me. He took the forensic decision, and it appears when reminded by the objections made by counsel for the defendant at the arbitration, did not press for the tender of that material in a formal sense.

29 In any event, the letter of 28 February 2002 is not a document that takes the plaintiff's case any further than it was as before the Arbitrator. As I have said, the Arbitrator did consider the plaintiff’s claim for delay costs in relation to the possession of the site. There is nothing on the face of the Award that is demonstrative of an error, let alone manifest error.

30 In each of the grounds to which I have referred I have concentrated on whether or not there was a manifest error of law on the face of the Award. It is, of course, to be remembered that the approach of this Court in respect of whether or not leave should be granted to appeal from an arbitral award is a two pronged process. Under s. 38(5) the Court has regard to all the circumstances and whether the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement. In this case I have not dealt with that matter as I have, to the benefit of the plaintiff, taken the view that I should move to the second limb of s.38(5) on the assumption that there may be a substantial effect on the rights of the plaintiff. It is true that in the scheme of things the amount of money in question in this case is a very small amount compared to the majority of cases in this List. However that does not mean that the rights of one or more of the parties would not be substantially affected.

31 The policy underlining s 38 of the Commercial Arbitration Act is to promote finality of arbitral awards: Natoli v Walker NSWCA 26 May 1994; Promenade Investment v The State of New South Wales (1992) 26 NSWLR 203 and State of New South Wales v Coya (Constructions) Pty Ltd NSWCA 4 August 1995. That policy requires that there be identified a manifest error of law on the face of the award in the manner described in those cases. In this case that has not occurred and I refuse leave to appeal from the award of Bryan Ahern dated 22 October 2003. The plaintiff is to pay the defendant's costs.

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Last Modified: 09/24/2004