Leighton Contractors Pty Limited v Belmont 16ft Sailing Club Limited

[2008] NSWSC 723

CITATION:	Leighton Contractors Pty Limited v Belmont 16ft Sailing Club Limited [2008] NSWSC 723 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	2 July 2008
JUDGMENT OF:	Hammerschlag J
EX TEMPORE JUDGMENT DATE:	2 July 2008
DECISION:	Application for stay of arbitration refused. Plaintiff to pay defendant’s costs of the proceedings.
CATCHWORDS:	CONTRACT – arbitration provision in building contract – construction - whether claims in tort and under Trade Practices Legislation covered by submission to arbitration
LEGISLATION CITED:	Trade Practices Act 1974 (Cth)
CASES CITED:	IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 Hide & Skin Trading v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310
PARTIES:	Leighton Contractors Pty Limited (ACN 000 893 667) Belmont 16ft Sailing Club Limited (ACN 001 020 471)
FILE NUMBER(S):	SC 55018/2008
COUNSEL:	M. Orlov (Plaintiff) I.D. Faulkner SC (Defendant)
SOLICITORS:	J. Morton (In-house) (Plaintiff) P. Hines (Defendant)

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
TECHNOLOGY & CONSTRUCTION LIST

HAMMERSCHLAG J

2 JULY 2008

55018/2008 LEIGHTON CONTRACTORS PTY LTD –V- BELMONT 16FT SAILING CLUB LTD

EX TEMPORE JUDGMENT

1 HIS HONOUR: The plaintiff building company (“the Contractor”) and the defendant sailing club (“the Principal”) entered into a building contract on 29 October 1991 (“the contract”) under which the contractor was to design and construct alterations and additions to the Principal’s club house on the shores of Lake Macquarie at Belmont in the State of New South Wales.

2 The contract was in the terms of a form produced by the Master Builders Association of New South Wales known as “Decon 1 May 1988”, together with some Special Conditions.

3 The works reached practical completion, and notice of that fact was given, on 20 December 1991.

4 Clause 40 provided for a Defects Liability period of 26 weeks from practical completion. That period expired on 19 June 1992.

5 Clause 41 of the contract is in the following terms:

“41. (a) Upon the expiration of the Defects Liability Period or upon completion of the rectification of any defects which may have appeared and been notified to the Contractor in accordance with Condition 40 (whichever is the later date) the Contractor shall give notice thereof to the Principal and the Principal shall, within five (5) days of the receipt of that notice, release his interest in the Retention Fund or do all things that may be necessary to secure the release of any security held by the Principal in lieu of the Retention Fund. This notice shall be known as the Final Notice.
(b) Together with or after giving the Final Notice the Contractor may issue a final account to the Principal containing particulars of the moneys remaining due to the Contractor and the account shall be paid by the Principal within ten (10) days.
(c) At any time after payment of any moneys referred to in Condition 41(b) the Contractor, upon request in writing, shall release to the Principal all consents, approvals, licences and certificates obtained in respect of the Works on behalf of the Principal.
(d) Except in the case of fraud, dishonesty or fraudulent concealment relating to the Works, (and subject to what may be awarded in any arbitration proceedings founded on a notice of dispute given by either party to the other at any time prior to the expiration of fifteen (15) days after the giving by the Contractor of the Final Notice), the giving of the Final Notice by the Contractor and the payment of the Final Account (if any) by the Principal shall be conclusive evidence of the discharge of the Contractor of its obligations under the terms of this Contract. ” (emphasis added)

6 Clause 8(a) contains the following provision:

“8. (a) In case any dispute or difference shall arise between the Principal and the Contractor, either during the progress of the Project or after the determination, abandonment or breach of the Contract, as to the construction of the Contract or as to any matter or thing of whatsoever nature arising thereunder or in connection therewith , then either party shall give to the other notice in writing of the dispute or difference and at the expiration of the period specified elsewhere in this agreement or if no period is specified then five (5) days, unless it shall have been otherwise settled, the dispute or difference shall be and is hereby submitted to the arbitration of the person or persons specified in Schedule 8. …” (emphasis added)

7 Under Special Condition 42(f) the Contractor was to provide security for its performance in the form of an insurance bond. The condition stated:

“The security shall be released to the Contractor upon expiration of the Defects Liability Period.”

8 Security in the form of such a bond was provided on 4 November 1991. That security was ultimately released, as is referred below, on 27 August 1992.

9 On 26 July 2007 the Principal (through its solicitors) gave notice to the Contractor of a dispute under cl 8 (“the notice of dispute”) arising out of what it alleges is the failure of concrete decking over Lake Macquarie (which was part of the construction carried out under the contract). More detailed assertions of this failure had been communicated on behalf of the Principal to the Contractor by solicitor’s letter dated 10 January 2006.

10 In the notice of dispute the Principal called for arbitration.

11 By summons sued out of this Court on 25 February this year, the Contractor seeks a declaration, that on the true construction of the contract and in the events that have happened, the notice of dispute is invalid. It also seeks an injunction restraining the Contractor from acting upon the notice of dispute or taking any further step in the arbitration of the dispute or difference which is the subject of it.

12 The claim which the Principal proposes to make in the arbitration for damages is in tort or for an asserted contravention by the Contractor of the Trade Practices Act 1974 (Cth).

13 The Contractor, for which Mr M Orlov of counsel appeared, put as its first submission that once the Project is no longer in progress (that is after its completion) for a dispute or difference to fall within cl 8(a) it must (relevantly) be founded upon an allegation of breach of contract, and no such allegation is made here.

14 Its second submission was that, on the facts, a claim based on breach of contract could not be sustained because Final Notice as contemplated by cl 41 of the contract had been given some time in 1992, 15 days had elapsed since it was given (either in writing or orally) and accordingly the Contractor is conclusively presumed to have discharged its obligations under the terms of the contract.

15 The first submission involves only the proper construction of cl 8(a) as affected (if affected) by cl 41. The second submission involves whether on the proper construction of cl 41 Final Notice can be given orally and the factual question whether either written notice or oral notice (if permissible) was given.

16 I will deal with each in turn.

17 For the Contractor it was put that if a dispute arises other than “during the progress of the Project” cl 8(a) only applies where there has been “determination, abandonment or breach of the contract”. Hence only disputes which arise in the context of one of those events fall to be arbitrated. The reference in the clause to “after” those occurrences is, it was put, not a temporal reference but rather a reference to a substantive limit to the operation of the provision to disputes which have a nexus to determination, abandonment or breach of contract. Therefore, one of those must be asserted initially to enliven the clause.

18 There are a number of fundamental difficulties with this submission.

19 Firstly, the phrases “either during” and “or after” refer to particular times. On the other hand, the disputes or differences covered extend to ones “as to the construction of the contract or as to any matter or thing of whatsoever nature arising thereunder or in connection therewith”.

20 The phrases “arising thereunder” and “in connection therewith” have been the subject of extensive judicial consideration and are words of the widest import: see for example IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 at 475 and following; Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160. Such phrases have been held to comprehend claims made under relevant Trade Practices legislation.

21 Clause 8(a) makes neither grammatical nor rational sense if there must first be determination, abandonment or breach of the contract but thereafter there is to be arbitrated any dispute or difference as to any matter or thing of whatsoever nature arising under or in connection with the contract.

22 One of the illogical consequences of that construction is that it would be sufficient to enliven the provision to assert a determination, abandonment or breach of contract when the true dispute bore no relationship to the assertion.

23 Secondly, as Gleeson CJ pointed out in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways at 165:

“When the parties to a commercial contract agree, at the time of making the contract, and before any disputes have yet arisen, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly. They are unlikely to have intended that different disputes should be resolved before different tribunals, or that the appropriate tribunal should be determined by fine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument.”

24 The construction contended for would mean that during the progress of the Project the arbitration provision would comprehend a far greater area of dispute than it would after its completion, when only disputes relating to determination, abandonment or breach of contract would be covered.

25 Mr Orlov put that there was a sound commercial basis for a builder (or both parties to a building contract) wanting to limit the operation of an arbitration provision after discharge of the contract by performance.

26 It is not clear why this should be so especially if after completion of the project some claims could still be brought to arbitration (i.e. if determination, abandonment or earlier breach were alleged) and the arbitrator must determine whether there was a breach or the contract had been discharged by performance.

27 In any case on the construction contended for the operation of the clause would (for no discernible rational reason) be much wider if the notice of dispute merely alleged determination, abandonment or breach even if none were ultimately made out.

28 The parties chose arbitration as their forum during the progress of the Project and there does not appear to be any rational or commercial reason why it would not be as appropriate after completion of the Project.

29 What the contract did legislate for was an irrebuttable presumption in favour of the Contractor of discharge by it “of its obligations under the terms” of the contract if Final Notice was given and final payment was made by the Principal.

30 In a claim for breach of contract compliance with the requirements of cl 41(d), if established, would be a defence. Whether that did or did not occur might ultimately affect the outcome of the arbitration but it does not determine the ambit of its jurisdiction.

31 Thirdly, in my view the phrase “either during the progress of the Project or after the determination, abandonment or breach of the Contract” was intended to cover the field of when the dispute might arise, namely whilst the works were on foot on the one hand and after the work was completed on the other. It was not directed to circumscribing the ambit of the disputes which might arise and be arbitrated.

32 The construction contended for, in my view, is not the commercially sensible construction, but the one contended for on behalf of the Principal namely, that the dispute involves a matter or thing arising under or in connection with the contract, is: see for example Hide & SkinTrading v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-314.

33 For these reasons, in my view, the matters which are the subject of notice of dispute are susceptible to arbitration within cl 8(a) even in the absence of an allegation of breach of contract.

34 On the construction I have found the issue as to whether cl 41 has brought about the irrebuttable presumption of discharge by the Contractor of its obligations, does not arise.

35 Nevertheless, it is appropriate to deal with it.

36 Although cl 41 probably does not permit oral notice even accepting the Contractor’s evidence at its highest, the giving of oral notice, has not been established.

37 During the hearing the Contractor (with leave) amended its summons to plead in the alternative the giving of oral notice “of the expiration of the Defects Liability Period at some time after 19 June 1992 and on or before 27 August 1992”.

38 For the giving of notice the Contractor relied on the evidence of Mr Blackie, its construction manager Newcastle at the time. Mr Blackie gave affidavit evidence as to his usual practice, in the following terms:

“If there were no defects identified at the final inspection, or once any defects that had been noted were rectified, my usual practice was to send a letter to the client to confirm that the Defects Liability Period had ended and requesting the return of any security. If for some reason there was a problem or delay with obtaining the return of security I would follow the matter up with the client. I regarded a contract as closed out once the security had been returned.
I can not think of any reason why I would not have followed the practise that I have described above in relation to the Defendant’s project.”

39 He was cross-examined. Nothing in his affidavit or oral evidence established any oral communication which might suffice as Final Notice.

40 With respect to written notice Mr Faulkner of senior counsel who appeared for the Principal, put that cl 41(a) contemplated two alternative situations which might be the subject of Final Notice; firstly, notification of the expiration of the Defects Liability Period, and secondly, notification of completion of the rectification of any defects which may have appeared and been notified to the Contractor in accordance with the contract.

41 In this case it is clear that there had been notification of defects before expiry of the Defects Liability Period and that the Contractor rectified them. In a letter dated 12 May 1992 the Contractor wrote that a series of outstanding defects should be completed by 25 May 1992.

42 The letter concluded in the following terms:

“To conclude we are very pleased to have been associated with yourself and your Club with this project and wish the Club all the success in its future operation and hope that we can be of assistance in any of the Club’s future expansion.”

43 Mr Blackie accepted that work was being done after 19 June 1992. The security was returned on 27 August 1992.

44 Hence Mr Faulkner put that if there was to be notice under cl 41(a) in this case, it would had to have come after rectification of any defect and that would have been after the expiry of the Defects Liability Period so that the Final Notice would not have been a complying one if it had confirmed the Defects Liability Period had ended (as Mr Blackie states in his affidavit) rather than stating that notified defects had been rectified.

45 Part of the difficulty is that records of the Contractor have in the ordinary course been destroyed and it no longer has copies of any notice which might have been given.

46 The letter dated 12 May 1992 concludes in terms which arguably point to the Contractor having notified that it considered that it had done its bit.

47 Whilst the return of the security is consistent with a request for its return having been made it may have been returned unsolicited once the building had been completed.

48 I accept the evidence of Mr Blackie as having been honestly given. But the present state of the evidence does not enable me to be satisfied on the probabilities that a notice in sufficiently clear terms so as to comply with cl 41 in the circumstances which had arisen, and which would have brought about the conclusive presumption in favour of the Contractor for which the clause provides, was given.

49 In the circumstances the summons is dismissed.

50 The plaintiff is to pay the defendant’s costs of the proceedings.

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