Energy Australia v Active Tree Services P/L

[2004] NSWSC 1156

CITATION:	Energy Australia v Active Tree Services P/L [2004] NSWSC 1156
HEARING DATE(S):	24/11/04
JUDGMENT DATE:	2 December 2004
JUDGMENT OF:	White J
DECISION:	1. Summons dismissed; 2. Plaintiff to pay the defendant's costs; 3. Exhibits may be returned after 28 days.
CATCHWORDS:	Application to seek leave to appeal from arbitrator - Question decided by arbitrator whether obligation placed on defendant to maintain one metre clearance of cables was an obligation imposed by law or by plaintiff - No manifest error of law by arbitrator - Resolution of issues not to add substantially to certainty of commercial law - Leave to appeal refused - No question of principle.
LEGISLATION CITED:	Commercial Arbitration Act 1984 (NSW) Construction Safety Regulations 1950 Electricity (Workers' Safety) Regulation 1992
CASES CITED:	Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203 Pioneer Shipping Ltd v B T P Tioxide Ltd (The Nema) [1982] AC 724
PARTIES :	Energy Australia v Active Tree Services Pty Limited
FILE NUMBER(S):	SC 55037/04
COUNSEL:	Plaintiff: Mr P H Greenwood SC & Mr P Jones Defendant: Mr F C Corsaro SC & Mr S Goldstein
SOLICITORS:	Plaintiff: Minter Ellison Respondent: Colin Biggers & Paisley

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

WHITE J

Thursday, 2 December 2004

55037/04 Energy Australia v Active Tree Services Pty Limited

JUDGMENT

1 HIS HONOUR: The plaintiff seeks leave pursuant to s 38(4)(b) of the Commercial Arbitration Act 1984 to appeal on certain questions of law arising out of an award of Mr Robert Hunt delivered on 7 July 2004.

Background

2 On 28 June 1995 the plaintiff accepted the defendant’s tender dated 10 May 1995 for the maintenance of tree clearances around the plaintiff’s electricity supply system in the Northern Region of the Sydney Electricity District. The contract was for a period of three years from 1 July 1995 to 30 June 1998. The defendant was required to trim the branches of trees around the plaintiff’s electricity poles and wires.

3 The principal issue which brought the parties to arbitration arose from the installation of Optus and Telstra cables which were slung from pole to pole along the plaintiff’s electrical distribution network. That cabling was installed from about August 1995 to December 1996 in the Northern Region where the defendant was carrying out its tree trimming.

4 Initially the parties treated the Optus cables as being “dead”, that is, as carrying a voltage of less than 32 volts. That was the point at which the applicable Regulations would require the defendant to take safety measures to guard against the hazards posed by electrical apparatus. However in correspondence from the plaintiff to the defendant on 31 May 1996 the plaintiff said that such cable should be treated as having an “earth potential” and on 13 March 1997 it advised that the Optus and Telstra cables should be treated as being “live” at all times. The effect of treating the cables as “live” was that the tree-cutters had to maintain a clearance of one metre from those cables when cutting trees.

The Arbitrator’s Findings

5 The defendant made a claim upon the plaintiff for the extra costs involved in tree-cutting and for loss of productivity arising from the changed working practices which it adopted following receipt of the plaintiff’s correspondence and instructions to treat the cables as live. There were many grounds of claim. One was that the cable rollout involving the presence of one or more of Optus and Telstra’s cable systems on the plaintiff’s power poles constituted physical conditions on the Site or its surroundings which differed materially from the physical conditions which would reasonably have been anticipated by the defendant at the time of tender. This was known as the “Latent Conditions” claim. Where the defendant became aware of a Latent Condition it was required to give written notice of it to the superintendent. If a Latent Condition caused the defendant to carry out additional work or incur extra cost which it could not reasonably have anticipated at the time of tendering, a valuation was required to be made under clause 40.2 of the General Conditions of Contract.

6 The arbitrator found that the cable rollout was a Latent Condition, but that the defendant was not entitled to have the extra cost valued as a variation under GCC clause 40.2 because it failed to give written notice forthwith upon becoming aware of the Latent Condition.

7 However the defendant succeeded on two other grounds. The first was that the letters from the plaintiff of 31 May 1996 and 13 March 1997 to treat the Optus and Telstra cables as “live” rather than “dead” constituted a variation to the work under the contract within the meaning of GCC 40.1 to be valued under GCC 40.2. The arbitrator found that the direction to treat the cables as “live” was a change in the character or quality of work and a direction to execute additional work. It increased the work which the defendant was required to perform by necessitating the maintenance of a safety clearance of one metre from the cables.

8 The second ground upon which the defendant succeeded was under clause 14.1 of the General Conditions of Contract. It relevantly provided that:

“The Contractor shall comply with the requirements of -
….
(c) Ordinances, regulations, by-laws, orders and proclamations under the Acts and Ordinances.
…
If a requirement necessitates a change to the Works …… or method of working as may be specified in the Contract, the superintendent shall order a variation under clause 40.1”

9 The arbitrator found that the minimum approach distances required by Table B of the Workcover Authority Certificate of Exemption No. 5099 was a requirement imposed under an Act or Regulation of the State of NSW, the compliance with which necessitated a change to the Works, by the issue of the direction contained in the plaintiff’s letters of 31 May 1996 and 13 March 1997 to treat the cables as “live”.

10 The arbitrator found that the defendant was entitled to be paid $2,627,100 in respect of the “live wire” claim plus interest giving a total award in respect of that claim to 7 July 2004 of $4,088,605.14.

The Requirement for Leave

11 An appeal lies to the Supreme Court only on questions of law arising out of the award and, unless the defendant consents, only if leave to appeal is given. (Commercial Arbitration Act s 38(2) and (4)). The defendant did not consent to an appeal being brought.

12 Sub-section 38(5) provides:

“38 Judicial review of awards
……

(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.”

13 There was no debate about s 38(5)(a). Having regard to the size of the award, it was clear that the determination of the questions of law which the plaintiff contended were raised by the award and which would be raised on the appeal could substantially affect the rights of the parties.

14 The plaintiff relied on both of the sub-paragraphs of s 38(5)(b). The parties accepted that a “manifest” error of law meant something more than what was arguable and meant something evident or obvious which could be demonstrated without prolonged adversarial argument. (Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203 at 205-206).

15 The plaintiff identified six alleged manifest errors of law as follows:

“23. The errors of law by the Arbitrator that are manifest were:
(a) the failure to have regard to the material fact that ATS had a legal obligation, pursuant to legislation and the contract, prior to 31 May 1996 (and 13 March 1997) to ascertain the voltage of cables that its employees were working near in order to determine and notify its employees of the safe minimum working distance permitted pursuant to the relevant legislation and Workcover exemption;
(b) the failure to have regard to the material fact that the relevant legislation required ATS to treat the Optus cables as ‘live at all relevant times and ensure its employees maintained the safe minimum working distance permitted pursuant to the relevant legislation and Workcover exemption;
(c) treating the letters from EnergyAustralia as having the legal effect of imposing upon ATS a statutory requirement to ensure that its employees did not breach the safe minimum working distance permitted pursuant to the relevant legislation and Workcover exemption;
(d) treating the letters from EnergyAustralia as having the legal effect of requiring ATS to change the character or quality of the work that it was required to perform pursuant to the contract and requiring additional work to be executed;
(e) the failure to have regard to the material fact that the letters from EnergyAustralia did not require ATS to change the character or quality of the work it was required to perform pursuant to the contract, nor that they required additional work to be executed;
(f) failing to identify any change to the character or quality of the work ATS was required to perform pursuant to the contract, or any additional work that it was required to executed (sic) as a result of the correspondence from Energy Australia.”

16 The plaintiff submitted that the defendant’s obligation to maintain a one metre clearance between its personnel and the Optus and Telstra cables was a requirement imposed by law, not by any direction made by the plaintiff. There were two applicable laws. The first was Regulation 133A of the Construction Safety Regulations 1950 as modified in its application to the defendant by a Certificate of Exemption issued by the WorkCover Authority on 15 February 1995. The second was the Electricity (Workers’ Safety) Regulation 1992.

The Regulations

17 Regulation 133A (5) of the Construction Safety Regulations provided that:

“A person shall not:
…
(d) perform any work of erecting, setting up, placing in position …. an appliance
in such a manner or place that any part of the appliance …. comes into …… close proximity of, or approaches any electrical apparatus in a manner that might endanger the safety of any person.”

18 An “appliance” includes a crane, a hoist or a plant. It would include the elevated work platforms used to position the tree-cutter and his observer. If the Optus and Telstra cables were “electrical apparatus” within the meaning of the Regulation, the elevated platform would be within “close proximity” of it if it were within three metres. This results from the definition of “close proximity” in sub-regulation of 133A(1). The Optus and Telstra cables would be “electrical apparatus” for the purposes of the Regulation if they fell within the following definition; namely:

“(a) any live aerial electrical conductor … ,

(b) any machine …. in which there are live conductors used or designed for use for the conveyance of electricity, being bare conductors or conductors which are not effectively covered with insulating material … ,

but [not including] any electrical apparatus where the difference in potential between its conductors, or to earth, does not exceed 32 volts.”

19 An aerial electrical conductor is “live” if it is connected to a source of electrical power and has a voltage differing from that of the general mass of earth.

20 The WorkCover Authority Certificate of Exemption exempted any crane or item of plant owned by or leased to a person or organisation carrying out works at the request of an electricity supply authority. That would cover the platforms of the defendant. The exemption, however, was subject to conditions. One of the conditions was that the plant should not approach closer to live electrical apparatus to carry out non-electrical work (such as trimming of trees) than a minimum of one metre where the nominal voltage of the live electrical apparatus was up to 650 volts. Nor should the persons carrying out the work from an elevating work platform allow any part of their body or hand to come closer than one metre to an exposed live electrical apparatus.

21 Thus the effect of Regulation 133A and the WorkCover Authority’s Certificate of Exemption was that if the Optus and Telstra Cables were live electrical apparatus, by force of the Regulation the defendant was required to ensure that its workers kept at least a metre away from the cables in carrying out their work. If the difference in potential between the conductors in the cable and the earth did not exceed 32 volts it would not be considered an “electrical apparatus” within the meaning of the clause.

22 The Electricity (Workers’ Safety) Regulation 1992 imposed a similar requirement. Clause 27 of the Regulation prohibited an employee from allowing any part of his or her body coming within 500 millimetres of any part of any live exposed conductor having a nominal voltage of up to 650 volts. However the question of whether this Regulation has any application is of some difficulty and is not a question which the arbitrator addressed. Sub-clause 5(1) of the Regulation described the work to which the Regulation applied. It included in sub-paragraph (a) work carried out near high voltage exposed conductors, meaning conductors with a voltage normally exceeding 1000 volts alternating current or 1500 volts direct current. This would include the high voltage electricity lines on the top of the electricity poles. Sub-paragraph 5(1)(b) provided that the Regulation applied to work carried out near low-voltage exposed conductors owned by an electricity supply authority for supply of electricity to the public. Again the tree trimming work was carried out near such low-voltage conductors.

23 The Optus and Telstra cables would not however fall within any of the paragraphs of sub-clause 5(1) and there may be a question as to whether the reference to a “live exposed conductor” in Regulation 27 is to any of the high or low-voltage conductors to which sub-clause 5(1) refers.

24 In any event, sub-clause 5(2) of this Regulation provides that it does not apply to the construction, maintenance and operation of electrical apparatus operated at extra-low voltage. “Extra-Low Voltage” means voltage normally not exceeding 32 volts alternating current, or 115 volts direct current.

The Plaintiff’s Correspondence

25 The arbitrator found that until the plaintiff sent the letter on 31 May 1996 the parties had been treating the cables as “dead”, not as “live”. The arbitrator referred to the evidence given by a Mr Gibson of the plaintiff, responsible for administering the contract in the Chatswood, Dee Why and Hornsby districts. He gave evidence that the plaintiff’s draft policy for the attachment of communication cables dated 26 September 1994 stated that the voltage level of the communication system earthing should be maintained at a level less than 32 volts above the mass of the earth which meant that one could consider the Optus cable as being “dead”. He thought that the Optus cable was not connected to any electrical system. His view changed when he received a copy of the letter dated 31 May 1996. After 31 May 1996 Mr Hobbs of the defendant discussed with Mr Gibson the need to maintain clearances from cables to be treated as “live”. Officers of the defendant were instructed to treat the cables as live. Thereafter the trimming crews who previously had been working right up to the cables were instructed to maintain a minimum personal safe clearance of one metre.

26 The letter of 31 May 1996 addressed to the defendant stated that the overhead telecommunication cables belonging to Optus and Telstra were earthed and should be treated as an earth potential. It required that workers wear insulating gloves on both hands.

27 The letter of 13 March 1997 sent to the defendant enclosed a copy of an internal Energy Australia document relating to possible hazards involved in working in close proximity to Optus or Telstra cables. It stated that the Optus Vision Catenary Steel Conductor which supported the Optus cable system was electrically tied to the plaintiff’s low-voltage network neutral conductor and that as part of a live low-voltage system the neutral and Optus strand conductors should be considered as a live conductor under the Electricity (Workers’ Safety) Regulation 1992. The letter also stated that the Optus coaxial cable could have 90 volts alternating current on its core conductor in addition to a TV high frequency signal and that the Optus coaxial cable should be treated as live at all times. The Optus service cable and the Telstra main coaxial cable were also to be treated as live at all times. The letter stated that the Telstra main coaxial cable presently carried 48 volts of alternating current on its centre conductor and this might be increased in the future to a similar voltage to the Optus system. The letter attached a copy of an Optus Vision document providing guidelines for its cable. That document stated that the Optus Vision cable carried low-voltage power, currently 90 volts, which could be hazardous due to the difficulty of differentiation from electricity supply cables and the Optus Vision cables should be treated in the same way as electricity lines.

GCC Clause 40.1

28 Clause 40.1(b) of the General Conditions of Contract provided that the Superintendent might direct the Contractor to change the character or quality of any material or work. Clause 40.1(d) provided that the Superintendent might direct the Contractor to execute additional work.

29 The arbitrator characterised the letters of 31 May 1996 and 13 March 1997 as directions to treat the cables as live which was a change in the character or quality of work and a direction to execute additional work. It was submitted for the plaintiff that the correspondence was not a direction at all. If the cables were live aerial conductors, or electrical apparatus, within the meaning of either of the Regulations, the correspondence did no more than draw the defendant’s attention to the requirements of the law with which it was required to comply. Technical specification D4.11 required the contractor to comply with the requirements of all Acts of Parliament of New South Wales and of any Regulations made thereunder. Therefore, bringing the defendant’s obligation under the law to its notice and insisting on compliance could not amount to a direction to change the character or quality of work, or to execute additional work.

30 That submission might be correct, but it is not obviously correct. Its correctness would depend upon a more detailed examination of what the Contract provided would be the method of working which the defendant should adopt. Any such provision, if ambiguous, would need to be construed against the objective matrix of facts known to the parties. If the Contract stipulated a method of working which could no longer be adhered to once the Optus and Telstra cables became “live”, it may well be that a direction from the plaintiff which implicitly required changing the method of working was a direction that fell within GCC Clause 40.1(b) or (d). That is so notwithstanding the requirement in clause D 4.11 requiring the defendant to comply with the regulations. It would be necessary to consider that clause in context with the other contractual provision describing the scope of works and the method of working, together with any extrinsic evidence of mutually known facts which was admissible to identify the scope of works and method of working which the contract required.

31 On the application for leave to appeal the parties did not seek to tender such materials. Clause D 5.1 of the Technical Specification provided that annexure 3 detailed the general tree-trimming techniques “which are to be adopted for the duration of the contract.” The annexure was not tendered. Nor was it referred to in the arbitrator’s interim award.

32 The plaintiff’s submission assumed that the Optus cables were in fact “live”, that is to say, that they carried current with a voltage of in excess of 32 volts. If they were not “live”, then a direction by the plaintiff to treat them as live and to carry out the work accordingly could clearly constitute a variation under clause 40.1.

33 The arbitrator did not deal with the question as to whether the cables were in fact “live”, but I think it is clear from his treatment of GCC clause 14.1 that he assumed that the cables were. It was submitted for the defendant that the evidence before the arbitrator did not establish that the cables were in fact “live”. However there was evidence to support the arbitrator’s assumption that they were. It is not on this ground that I consider there was not a manifest error.

GCC Clause 14.1

34 GCC clause 14.1(c) has been set out at paragraph 8 above. The arbitrator found that the imposition of the minimum approach distances required by Table B of the WorkCover Authority’s Certificate of Exemption No. 5099 was a “requirement” within the meaning of that sub-paragraph. That finding was not challenged. Nor I think could it be disputed that compliance with the requirements of Regulation 133A as modified by the Certificate of Exemption necessitated a change in the defendant’s method of working. Having to keep a metre away from the cables made the manoeuvring of the elevated working platforms more complex and slower so that it took longer to trim the trees.

35 Prima facie the question of whether the defendant was entitled to a variation pursuant to clause 14.1 depended upon whether the requirement in the Regulation and Certificate of Exemption necessitated a change to the method of working as was specified in the contract. Neither party referred to any such specification. The arbitrator’s process of reasoning was somewhat different. He said that it followed from the imposition of the minimum approach distances required by the Certificate of Exemption being a “requirement” within the meaning of clause 14.1(c), that “compliance with the Certificate of Exemption necessitated a change to the Works, by the issue of the direction contained in Energy Australia’s letters dated 31 May 1996 and 13 March 1997 to treat the cables as ‘live’”. I think it clear enough however from earlier parts of his interim award that the arbitrator regarded the change which was required as being a change to the required method of working. He elsewhere described the direction to treat the cables as “live” as being a change in the character or quality of work, and a direction to execute additional work. It is in that sense I think that the arbitrator used the expression that the requirement necessitated a change to the Works.

36 In its written submissions the plaintiff contended that the arbitrator was in error because the requirement in question under the Regulations and the Certificate of Exemption had always existed. However, that is not the point. Once the existing requirement was triggered by the installation of live cables, that requirement necessitated a change to the character or quality of the work and how much work had to be done. It is true that the arbitrator assumed that a requirement of an existing law could necessitate a change to the works notwithstanding that the law was in existence at the date of contract. I do not think that is an error. I agree with that conclusion.

37 Then the plaintiff attacked the arbitrator’s conclusion that the way in which the Certificate of Exemption had necessitated the change was by the issue of the directions in the plaintiff’s letters of 31 May 1996 and 13 March 1997 to treat the cables as “live”. There is substance in the attack on the arbitrator’s method of expression. If the Regulation and Certificate of Exemption applied, the compliance which necessitated a change to the defendant’s work was not dictated by the issue of the plaintiff’s letters, but by the terms of the Regulation and the Certificate and the fact that live cables were installed. However the attack is only as to the arbitrator’s method of expression, not as to the substance of his reasoning. It was the letters which drew to the defendant’s attention that the cables were “live”. As a matter of fact as distinct from legal obligation, what brought about the need for the defendant to change its working practices was that it learned that the cables were “live”. It learnt this through the plaintiff’s letters. It is in that sense that the arbitrator found that the issue of the direction in the letters to treat the cables as “live” brought about the need for compliance with the Certificate of Exemption which necessitated a change to the Works.

38 If criticism is to be made of the arbitrator’s reasoning at this point it is that he found that is was the “Works” rather than a “method of working as may be specified in the Contract” which had to be changed. However the plaintiff made no attempt to show that compliance with the Certificate of Exemption did not require a change to whatever was the method of working as was specified in the Contract. As I have said, the parties did not tender before me that part of the Contract which specified the tree-trimming techniques which the Contract required be adopted. Nor was this the ground upon which the arbitrator’s reasons were attacked. If there be an error in the arbitrator’s reasons in this respect it could not be described as manifest.

39 For these reasons I do not consider that the plaintiff has demonstrated a manifest error of law on the face of the award.

Section 38(5)(b)(ii)

40 Nor, for the same reasons, do I think there is strong evidence that he made an error of law, although I think it arguable that he did so.

41 Against the possibility that I might find that although there was no manifest error of law on the face of the award there was nonetheless strong evidence of an error of law, the plaintiff contended that the determination of the question might add or may be likely to add, substantially to the certainty of commercial law. The plaintiff’s solicitor deposed that the text of clauses 14 and 40.1 of the General Conditions of Contract were widely used and that when a particular work under a construction contract constitutes a variation, or whether a variation has been instructed, are questions which often arise. Doubtless that is so. However it does not follow that the resolution of the present issues would add substantially to the certainty of commercial law. I consider this case to be one involving “one-off” events to which standard clauses fall to be applied. (As to which see Pioneer Shipping Ltd v B T P Tioxide Ltd (The Nema) [1982] AC 724 at 743). The resolution of an appeal would not be likely to add substantially to the certainty of commercial law.

42 For these reasons neither s 38(5)(b)(i) nor (ii) is satisfied. Leave to appeal must therefore be refused. Discretionary considerations do not arise.

Discretionary Considerations if Section 38(5)(b) had been Satisfied

43 Had it been necessary to exercise my discretion I would not have been inclined to exercise it favourably to the plaintiff. By choosing arbitration the parties showed their preference for finality of outcome, rather than meticulous legal accuracy. Even if the arbitrator were in error it does not appear to me that his award was unjust. Before contracting with the defendant the plaintiff had made an agreement with Optus which contemplated that its cables would be erected along the plaintiff’s electricity poles. It did not disclose its plans and intentions to the defendant before contracting with the defendant. The defendant was undoubtedly put to extra cost and suffered a loss of productivity from having to work around the cables, more particularly once they were found to be live cables. There is no injustice in its being compensated for its extra costs and loss of productivity. The defendant only failed on its latent conditions claim because it failed to give timely notification of the conditions about which of course the plaintiff was always well aware. Had I had to exercise my discretion, I would have refused leave on the ground that in the present circumstances finality of decision making which has produced a just, even if legally incorrect result, is to be preferred to legal accuracy. A just and final solution is what the parties intended by agreeing to submit their disputes to arbitration.

44 For these reasons I dismiss the summons. I order the plaintiff to pay the defendant’s costs. Exhibits may be returned after 28 days.

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Last Modified: 12/14/2004