Hassell v Silent Vector Pty Ltd t/a SIZER HOMES

Case •

[2002] WASC 250

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   HASSELL & ANOR -v- SILENT VECTOR PTY LTD t/a SIZER HOMES [2002] WASC 250

CORAM:   BARKER J

HEARD:   17 OCTOBER 2002

DELIVERED          :   4 NOVEMBER 2002

FILE NO/S:   ARB 14 of 2002

BETWEEN:   IAN ROBERT HASSELL

CHRISTINE ANNE HASSELL
Applicants

AND

SILENT VECTOR PTY LTD t/a SIZER HOMES
Respondent

Catchwords:

Commercial arbitration - Application for leave to appeal - Error of law - Whether "manifest" or "strong evidence" as to - Effect of "making good defects" clause on common law right to claim damages

Legislation:

Commercial Arbitration Act 1985 (WA), s 38

Result:

Leave to appeal granted

Category:    B

Representation:

Counsel:

Applicants:     Mr P G McGowan

Respondent:     Mr M J Hawkins

Solicitors:

Applicants:     Kevin Burgoyne

Respondent:     Godfrey Virtue & Co

Case(s) referred to in judgment(s):

Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203

Qantas Airways Ltd v Joseland & Gilling (1986) NSWLR 327

UDR Equipment Pty Ltd v Afkos Industries Pty Ltd [2000] WASC 57; (2000) 22 WAR 221

Case(s) also cited:

Leighton Contractors Pty Ltd v Kilpatrick Green Pty Ltd [1992] 2 VR 505

Roberts v Roberts (1982) 8 WAR 170

  1. BARKER J:  This is an application for leave to appeal against part of an Arbitrator's award. 

The requirement for leave to appeal

  1. Section 38(4) of the Commercial Arbitration Act 1985 (WA) permits an appeal to the Supreme Court on any question of law arising out of an award where the other parties to the arbitration agreement consent or, subject to s 40, the Supreme Court grants leave. In this case, the other party to the arbitration agreement does not consent to the appeal. This is not a case where s 40 has any application.

  2. Section 38(5) provides that the Court shall not grant leave under subs (4) 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 ¾

    (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."

  3. The circumstances in which the Court may grant leave pursuant to s 38(5) have been the subject of considerable judicial comment over a number of years. The history of the current leave provision was traced and discussed by Steytler J in UDR Equipment Pty Ltd v Afkos Industries Pty Ltd [2000] WASC 57; (2000) 22 WAR 221 and I need not repeat it here. His Honour found guidance in what the New South Wales Court of Appeal had to say on the equivalent provision of that State's Commercial Arbitration Act in Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203. In essence, the so‑called Nema guidelines were adopted.  They are referred to in the reasons of Steytler J at WAR 231 ‑ 232. 

  4. In Promenade Investments at 225 ‑ 226, Sheller JA said:

    "'Manifest error' is an expression sometimes used in reference to reasons given by judges or the approach taken by juries: see, eg, s 107(c)(iii) of the Supreme Court Act 1970 and the judgments of Kirby P in Azzopardi v Tasman UEB Industries Ltd (at 151) and Otis Elevators Pty Ltd v Zitis (1986) 5 NSWLR 171 at 181. It is used to indicate something evident or obvious rather than arguable: see generally per McHugh JA in Larkin v Parole Board (1987) NSWLR 57 at 70 ‑ 71. Nothing more is to be learnt from the language used but of course the discretion of the court as to whether or not it will grant leave remains and regard must be had to the requirement of subs (5)(a). The matters referred to by Lord Diplock in The Nema remain important factors in determining whether leave should be given.

    However I have difficulty in defining the significance of an error of law by reference to whether it is apparent to a judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument.  I understand the views expressed that decisions on questions of law should be left to the arbitrator with minimal interference by the courts unless the arbitrator may be establishing an erroneous precedent on a matter of law which may affect other cases between other parties as for example where the question concerns the construction of a contract in standard terms.  But the paragraph requires a determination as to whether or not there is a manifest error on the face of the award and I do not see why a judge should be required to do that without adversarial argument.  If the judge concludes after argument that there is not such an error of law an application based on this ground fails.  If there is such an error of law, a question arises as to whether as a matter of discretion leave should be granted  …  .

    … However as McHugh JA pointed out 'manifest', in the context of the subsection, which contemplates the grant of leave before an appeal can be pursued, connotes an error of law that is more than arguable.  There should, in my opinion, before leave is granted be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law.

    Assuming that there is not a manifest error of law on the face of the award it may be argued that there is 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.  The requirement that the question be one the determination of which may add substantially to the certainty of commercial law indicates that it should be one of wider and greater importance than, for example, the construction of a one‑off clause in the context of a particular agreement between the parties."

  5. Steytler J considered that this Court should adopt what was said in Promenade in considering s 38(5) of the Act. I agree.

The Interim Award

  1. The applicants seek leave to appeal in respect of the Arbitrator's failure to make an award in their favour in respect of each of items Part C01, 8, 9, 10, 19, 20, 22, 23, 24 and 25 of the Scott Schedule the subject of the arbitration.  The matters in issue can most conveniently be identified by addressing the finding that the Arbitrator made in respect of item number C01.

  2. Item C01 was framed in the following terms:

    "Powder coated Aluminium Window Frames:

    Powder coated aluminium window frames, subframes and trims are defective in that they do not meet contract specifications.

    The powder coat on the aluminium window frames, subframes and trims had lost adhesion (flaking and peeling off) and in places does not meet minimum coating thickness requirements.  The aluminium window frames, subframes and trims show signs of corrosion. 

    Builders past attempts to partially rectify by painting have failed."

  3. In the Interim Award, the Arbitrator drew a distinction between the identified problem in respect of "curved windows" and that in respect of "straight windows".  He found that, pursuant to cl 6.8 of the building contract between the parties, the architect had notified the builder in writing of the problem with the curved windows before the end of the Defects Liability Period stated in Item E of the Appendix to the contract, but that the architect had not done so in respect of similar problems in respect of the straight windows.

  4. It appears from the chronology of relevant events as set out in the Interim Award, and other findings made by the Arbitrator that the problem with the straight windows identified in Item C01 of the Scott Schedule did not become apparent in the Defects Liability Period.  It is conceded on each side, as it was before the Arbitrator, that the claimed problem was not notified in writing by the architect in the Defects Liability Period.  It seems the particular problem identified in Item C01 in respect of straight windows did not come to light until well after the expiration of the 26‑week Defects Liability Period specified in the contract and was not notified by the architect to the builder until the architect wrote to the builder a letter dated 12 October 2001 in which the problem was specifically identified. 

  5. The contract in this case is in a standard form described as "Lump Sum Contract for simple building works Edition 2 (Second Print - February 1992) SPW - 2".  By cl 1.3, the "Builder's obligations" are stated in the following terms:

    "The Builder shall:

    1.3.1Upon being given possession of the Site thereupon commence the Works;

    1.3.2regularly and diligently execute and complete the Works in accordance with this Agreement to the reasonable satisfaction of the Architect;

    1.3.3bring the Works to Practical Completion by the Date for Practical Completion."

    Most of those words or phrases that commence with a letter printed in the upper case are the subject of definition in the contract.

  6. By cl 5.2 of the contract, the "Architect's Authority" is stated in the following terms:

    "The Proprietor and the Builder expressly agree that the Architect is hereby authorised:

    5.2.1To issue instructions to the Builder where this Agreement so requires or provides;

    5.2.2to supply to the Builder copies of any documents pursuant to clause 2.1 and to furnish setting‑out information to the Builder pursuant to clause 6.4; and

    5.2.3to act as the assessor, valuer or certifier where this Agreement so requires or provides."

  7. The "Architect's Instructions" are then set out in cl 5.3 as follows:

    "Any instruction which may be given by the Architect and which involves a Variation or an adjustment to the Contract Sum shall be in writing, and signed by the Architect, and shall be within the general scope of the Works as contemplated by this Agreement … "

  8. Clause 5.4 of the Agreement provides that "the Builder shall comply promptly with all Architect's Instructions".

  9. Clause 6.6 of the Contract deals with "Materials and Workmanship" and materially provides that:

    "All materials and standards of workmanship shall be in conformity with this Agreement … "

  10. Clause 6.8 of the Contract then deals with "Making Good Defects" in the following terms:

    "Any defects excessive shrinkages and other faults due to materials or workmanship not in accordance with this Agreement, which are apparent and notified in writing by the Architect to the Builder after the Date of Practical Completion and before the end of the Defects Liability Period stated in Item E of the Appendix shall be made good by the Builder at the Builder's own cost unless the Architect shall otherwise instruct.  Should the Builder fail to comply the provisions of clause 5.5 shall apply."

  11. By cl 9.1, the Architect has the responsibility to decide the date when in the Architect's opinion the Works reached a stage of Practical Completion and when that decision is taken, the Architect must then notify in writing the proprietor and the builder accordingly.  The Defects Liability Period identified in Item E of the Appendix is stated to be 26 weeks after Practical Completion. 

  12. Section 10 of the Contract makes provision for payment and adjustment of the contract sum, including progress payments.  Section 11 deals with the "final certificate and final payment".  By cl 11.2, headed "Final Claim", it is provided that:

    "On the expiration of the Defects Liability Period or on the completion of making good any defects pursuant to clause 6.8, whichever shall be the later, the Builder shall submit to the Architect a final claim which shall include … "

  13. By cl 11.3, it is provided: 

    "Within 10 days of the Builder's final claim the Architect shall issue a Final Certificate to the Builder and a copy to the Proprietor."

  14. The effect of the Final Certificate is specified in cl 11.8 in the following terms:

    "Unless disputed by notice in writing within the 15 days of its issue, the Final Certificate shall be evidence that the Works have been completed in accordance with the terms of this Agreement and any proper adjustments made to the Contract Sum except in the case of:

    11.8.1Fraud, dishonesty; or

    11.8.2any defect in or omission of any of the Works not apparent at the date of issue of the Final Certificate; or

    11.8.3any error in computation of the amounts due."

  15. A clause in terms such as 11.8 has been a common feature of such standard form building contracts for many years.  Plainly, it is intended to limit the capacity of the proprietor, such as the applicants in this case, to later contest the fact that the works have been completed in accordance with the terms of the contract.  To ensure that the final certificate does not have such effect as provided for by cl 11.8, it is necessary, should there be a desire by the proprietor to dispute that fact, that a notice in writing of the dispute be served within 15 days of the final certificate.  In this case, as appears from the facts and the chronology laid out in the Arbitrator's Interim Award, the Architect has not issued a final certificate.  Thus, the occasion for issuing a notice of dispute to prevent the effect of the final certificate as provided for in cl 11.8 has not arisen.  Rather, what appears to have happened is that, following the issuing of a number of "instructions" by the Architect by the letter referred to earlier dated 11 April 2000, the parties fell into dispute and the applicants commenced the arbitration.  In that regard, cl 13.1 of the Contract provided that:

    "If any dispute or difference concerning this Agreement shall arise between the Proprietor, or the Architect on the Proprietor's behalf and the Builder then either party may give to the other written notice sent by certified mail."

  16. In the Interim Award, in relation to Item C01, the Arbitrator ordered and directed that the builder remove the defective powder coated aluminium curved window frames, subframes and trims and replace them with new in accordance with contract specifications and make good any damage.  The Arbitrator made this finding on the basis that, so far as the problem identified in C01 concerned the curved windows, the defect in question had been notified in writing within the Defects Liability Period by the Architect, had not been complied with by the builder and was reasonably given. 

  17. However, the Arbitrator found there was no similar obligation in respect to the straight windows because they had not been the subject of the Architect's instruction and notification in writing during the Defects Liability Period.  Notwithstanding that at the arbitration there were expert witnesses who testified in a variety of ways concerning the defects in the straight windows, and there were tendered in evidence expert reports and the Australian Standards AS 2047‑2048‑1977, Aluminium Windows and AS 3715‑1989, Metal Finishing - Thermoset Powder Coatings for Architectural Applications, the Arbitrator found, in respect of such evidence, that "none of it has any bearing" on the facts demonstrated to him.

The "error of law" contended for

  1. The applicants say the Arbitrator erred in law in two respects in making the latter finding:

    (1)The Arbitrator erred in law in concluding that an instruction issued by the architect after the expiration of the defect liability period had no contractual foundation;

    (2)Even if the Arbitrator was right in so finding, the matter before him that required determination was the claim in the Scott Schedule for damages for breach of the contract; that is, was the work complained about completed in accordance with the terms of the contract?

    In respect of the second issue, the applicants point out that in the Scott Schedule the applicants sought both specific performance and damages.  This plainly is so.  The Arbitrator seems to have recognised this at par 2.32 of his Interim Award.  In par 2.33, the Arbitrator then made reference to s 24 of the Act, which empowers the Arbitrator to make an award ordering specific performance of any contract if the Supreme Court would have power to order specific performance of that contract, unless a contrary intention is expressed in the arbitration agreement, and found that, as there was no contrary intention expressed, he could award specific performance.  In so finding, it seems to me that the Arbitrator did not, initially at least, reject the proposition that he had the power to award damages, but chose to approach the dispute on the basis that he would, where possible, endeavour to order specific performance. 

  2. Nonetheless, the Arbitrator was content to order specific performance where he found in favour of the applicants in the arbitration and had no occasion to consider an award of damages. 

  3. In the Scott Schedule, a number of items, C01‑C29, were the subject of claim.  The applicants were successful in obtaining awards for specific performance in respect of a number of item numbers, but not in respect of the following:

    Part C01, 8, 9 10, 19, 20, 22, 23, 24 and 25.

    In the case of each of these items not allowed, the Arbitrator applied the reasoning that the defect complained of was not notified in the time and manner provided for by cl 6.8 of the contract.

The Arbitrator's reasoning

  1. The reasoning of the Arbitrator in not making any award in respect of the straight windows owes itself directly to the Arbitrator's finding that the Architect did not have the power under the contract to issue any effectual instruction in respect of the alleged defect of the straight windows after the expiration of the Defects Liability Period.  The Arbitrator referred to two Advisory Notes issued by the Royal Australian Institute of Architects in respect of the standard contract used in this case.  The first of these, AN16.08.400 is entitled "A power of the Architect after defects liability but before final certificate" and was relied upon for this proposition:

    "It would appear that an architect has the power up until the issue of the Final Certificate to order that a builder complete work which has been omitted or is unfinished but which remains his obligation pursuant to the terms of the contract.  The exception to this general rule relates to work which has been characterised as possessing faults, defects or shrinkages under the Defects Liability Provision."

    The second, AN16.08.800, is entitled "Omitted works after defects liability but before final certificate" and was relied upon as stating a proposition to be derived from the decision of the New South Wales Court of Appeal in Qantas Airways Ltd v Joseland & Gilling (1986) NSWLR 327:

    "A recent decision in the NSW Supreme Court has drawn attention to the powers of an Architect to issue instructions during the period between the expiration of the Defects Liability Period and the issue of the final certificate. 

    The court held that the wide powers granted under Architect's Instructions allow the Architect to issue instructions during the period between the expiry of the Defects Liability Period and the issue of the final certificate as to any failure to execute, carry out and complete the whole of the Works in accordance with the contract.  Such instructions, however, must not be in respect of a defect, shrinkage or other fault within the meaning of the Defects Liability clause. 

    It would appear that an Architect has the power up until the issue of the Final Certificate to order that a builder complete work which has been omitted or is unfinished but which remains the Builder's obligation pursuant to the terms of the contract.  The exception to this general rule relates to works which have been characterised as possessing faults, defects or shrinkages under the Defects Liability Provision."

  2. Relying on these Advisory Notes, the Arbitrator held that the Architect's instructions issued in respect of a number of the matters the subject of the Scott Schedule were made after the expiration of the Defects Liability Period specified in the contract and so could not be the subject of his award.  At par 2.17 of the Interim Award, the Arbitrator supported this conclusion by expressing his view as to the need for finality in building contracts.  He said:

    "It is clear, I think, that the authors of this standard contract did not intend that it would be used in such a way as to allow a party or the Architect to avoid finality or deprive a party of finality.  It seems to me that the parties themselves, when they entered into the contract, did not intend that either.  That is what is evident from the clauses … "

  1. The Arbitrator then added that:

    "The contract does not give the Architect unlimited time in which reasonably to satisfy himself.  No builder could be expected to tender for the work if this were otherwise.  There would be no assurance of finality ever being achieved."

  2. In short, the view taken by the Arbitrator was that the inability of the Architect to give any instructions in respect of the type of defects referred to in cl 6.08 beyond the defect liability period specified in the contract, meant that the Proprietor was forever precluded from making a claim in respect of such defects, whenever they may have been found to exist. 

Whether cl 6.08 supplants a common law claim for damages

  1. The applicants contend that whatever be the true ruling of the Court in Qantas Airways Ltd v Joseland & Gilling, (supra), the case does not support the proposition that a proprietor is unable to claim damages for breach of the contract and thereby gain compensation outside the terms of cl 6.8 of the contract.

  2. Put another way, a question of construction may arise whether rights under a making good defects clause, such as cl 6.8 in this contract, are intended to supplant the right to damages at common law.  It was explicitly recognised in Qantas Airways v Joseland & Gilling that there is an independent right to claim damages for breach of contract, notwithstanding a making good defects clause.  In Qantas Airways, condition 1 of the contract gave the architect the power to issue directions "from time to time".  The instructions could be given concerning the "works" for the "execution of any work to be carried out under this contract whether or not the works are practically complete as referred to in clause 25 of these conditions".  The primary obligation of the builder under the contract in that case was to "execute and complete the whole of the works shown upon the contract drawings and/or described by or referred to in the said specifications".  That obligation was stated to be "upon and subject to the conditions".  Similar clauses are found in the contract under consideration in the present case.  For example:

    •Clause 1.3.2 of the contract clearly imposes on the builder the obligation to "execute and complete the works in accordance with this Agreement to the reasonable satisfaction of the Architect".

    •Clauses 5.2 and 5.3 empower the Architect in broad terms to issue instructions "where this Agreement so requires or provides".  In that regard, the expression "so requires" appears to create a broad discretion in the Architect to determine whether the instruction is necessary in order to meet the requirements of the Agreement.

    •Clause 6.8 reflects condition 26 discussed in Qantas Airways.  The same expressions, "any defects, excessive shrinkages and other faults due to materials or workmanship", are employed in cl 6.8.

  3. In Qantas Airways, the Court of Appeal noted at 334 that it was conceded that, if the works are not completed in accordance with the drawings and specifications, "the proprietor may recover damages for the breach". The Court concluded at 335 ‑ 336 that:

    "In our opinion, the powers conferred by condition 1 operate according to their terms.  Nothing prevents the architect giving instructions in respect of the non‑performance of work after the expiration of the defects liability period provided that it is not a variation or a defect, shrinking or fault within the meaning and operation of condition 26."

  4. At 337, the Court said:

    "If the architect forms the view that the Agreement has not been properly performed, subject to conditions 25(h) and 26, it is open to him to refuse to issue a final certificate and to give instructions pursuant to condition 1."

  5. The Court of Appeal then provided answers to a number of questions that had earlier been put to an arbitrator by reference to the proceedings in the Supreme Court.  The first question, without repeating it in detail here, was whether the architect had the power to issue instructions during the period between the expiry of the defects liability period and the issue of the final certificate concerning defects where the defect had become evident after the expiry of the defects liability period.  The answer given is in these terms:

    "Yes as to any failure to execute, carry out and complete the whole of the works in accordance with the building contract or in accordance with the building contract to the reasonable satisfaction of the first defendants (the architects); but no insofar as the failure is a defect, shrinkage or other fault within the meaning of condition 26."

  6. It appears that the Court of Appeal found that the architect had no power under the making good defects clause where the defect was one that fell "within the meaning of condition 26", even though it had not become evident until after the expiry of the defects liability period.  Whether this is a proper understanding of the answer given is not entirely clear.  This is particularly so when one has regard to the answer given to question 1A.  Question 1A is in respect of the power of the architect to issue an instruction during the period between the expiry of the defects liability period and the issue of the final certificate in respect of defects where the defect became evident before the expiry of the defects liability period.  In this case, the answer given by the Court is in the following terms:

    "Yes as to any failure to execute, carry out and complete the whole of the works in accordance with the building contract or in accordance with the building contract to the reasonable satisfaction of the first defendants but insofar as the failure is a defect, shrinkage or other fault within condition 26 only if the defect, shrinkage or fault was notified in writing by the architect to the builder within the defects liability period."

    In this case, the instruction can be given, but only if the defect was notified within the defects liability period.  This seems sensible.  However, it does raise the question whether the Court of Appeal intended to indicate in their answer to question 1 that a defect that becomes evident after the expiry of the defects liability period cannot be the subject of an instruction simply because it is a defect of a type that falls within the meaning of condition 26. 

  7. The recognition by the Court of Appeal in Qantas Airways that the entitlement of a proprietor to recover damages for breach is a separate question from whether or not an architect is prevented by a contract from giving instructions in respect of the non‑performance of work after the expiration of a defects liability period, reflects the general law. As the Court of Appeal said at 336:

    "As we have said the builder conceded that it was liable in damages for the non‑performance of work whether or not it came within condition 26."

    "Hudson's Building and Engineering Contracts" (11th ed) by I N Duncan Wallace (1995) at pars 5.052 and 5.053 supports this view and states as follows:

    "In the 8th and 9th editions of this book, it was submitted that, where the contract does not provide to the contrary, as, for example, through a binding final certificate, there will be nothing to prevent an owner, although he cannot insist upon the contract to making good defects which appear after the period expires, from bringing an action for damages in respect of the defect for the full period of limitation, and this view has now been authoritatively confirmed [the text refers to Hancock v Brazier (Anerley) Ltd [1966] 1 WLR 1317, per Diplock LJ; affirmed by the Court of Appeal].

    It is always a question of construction whether the rights under the maintenance clause are intended to supplant the right to damages at common law altogether.  In the absence of express provision, the remedies under these clauses are in addition to and not in substitution for the common law rights [Hudson, "Building Contracts" (4th ed) vol 2 page 176 is here referred to], and even where the defects have appeared within the period the owner may sue for damages rather than call on the contractor to do the work, subject, in that event, to the possibility of the owner's damages being limited, if he has acted unreasonably in the light of the discussion in the preceding paragraphs, to the cost of the contract or of doing the work at that time (see par 5.057), rather than the possibly greater cost of bringing in another contractor either then or at a later date. 

    Although, therefore, a defects liability clause in a typical construction contract will not usually affect the normal period of limitation in which the owner may complain of defective work, and may even extend it in the case of notified 'appearing' defects in the case of 'developer' contracts (or house in the course of erection as they are usually termed) where the contracts are frequently couched in the terms of a contract for the sale of land with a defects clause drafted onto it, the rule of "caveat emptor" if the house is completed at the time of the sale, may result in the defects clause being the only and exclusive right available to the purchaser [Hudson, "Building Contracts" (4th ed) vol 2 p 176].  Certification provisions may also have this effect.  It will be seen that there has been a marked changed in the attitude of the courts, as in the case of certification provisions, however."

  8. In the case of the contract presently under consideration, the certification provision, so far as the final certificate is concerned, has been set out above.  No final certificate has yet been issued by the Architect.  In any event, if a final certificate had been issued, cl 11.8 provides that it will be evidence that the works have been completed except, inter alia, in the case of "any defect in or omission of any of the works not apparent at the date of issue of the final certificate".  In other words, any defect in the works (which must include the same type of "defect" to which cl 6.8 applies) may be the subject of a later claim in respect of the non‑completion of the works, where it was "not apparent" at the date of issue of the final certificate.  This clause plainly raises the prospect that a final certificate might not be issued because a "defect" in the works has arisen between the expiration of the Defects Liability Period and the date at which the Architect is called upon to issue a final certificate.  While an argument may be advanced that the Architect may decide not to issue a final certificate (cl 11.7 contemplates that the Architect may so decide) only because the defects notified pursuant to cl 6.8 have not been satisfied, it would be a strange outcome that the only defects that could not be the subject of complaint by an owner would be those that had become apparent after the expiration of the Defects Liability Period and before the grant of the final certificate.

  9. In my view, the contract, particularly having regard to cl 6.8 and when read in the light of Qantas Airways, strongly suggests that the Architect can only issue an instruction in respect of those "defects" that become apparent during the Defects Liability Period.

  10. However, this view does not deny the applicants' contention that it was open to the applicants in this case to claim that they were entitled to damages for the alleged failure of the respondent to remedy defects they had complained about and which only became apparent after the expiration of the Defects Liability Period.  The applicants claimed in the alternative in their notice of dispute to the Arbitrator, as set out in the Scott Schedule, that they were entitled to "damages" for the items listed.  This plainly indicated a claimed entitlement to damages for breach of the contract independent of an entitlement to have defects made good pursuant to cl 6.8 of the contract.  The decision of the Arbitrator not to consider these claims for damages in respect of the matters complained of, was, in my opinion, an error of law.  His determination effectively was that the rights under cl 6.8 were intended to supplant the right to damages at common law.  In my opinion, in the absence of an express provision to that effect, the remedies under cl 6.8 (and cl 5.5 that it picks up) are in addition to and not in substitution for the common law rights.  Indeed, as Hudson's "Building and Engineering Contracts" (supra) states, even where the defects have appeared within the defects liability period, the owner may sue for damages rather than call on the contractor to do the work.  Accordingly, it does not matter whether the particular items in respect of which the Arbitrator refused to make an award were apparent within or after the expiration of the Defects Liability Period.  They could properly be made the subject of the notice of dispute.

Conclusion and Order

  1. In these circumstances, I consider that leave to appeal should be granted pursuant to s 38(4) in respect of the second ground raised by the applicant and referred to above. I consider that s 38(5)(a) is satisfied, as is s 38(5)(b)(i). I also consider that the issue raised is such that there is strong evidence that the Arbitrator made an error of law and that the determination of the question on appeal is likely to add substantially to the certainty of commercial law. Thus, I consider s 38(5)(b)(ii) is also satisfied.

  2. I would, therefore, grant leave to the applicants to appeal.  I will hear from the parties as to what amendments to the minute of proposed notice of appeal dated 13 September 2001 may be appropriate for this purpose. 

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