Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust

[1995] HCATrans 236

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A14 of 1995

B e t w e e n -

LEIGHTON CONTRACTORS PTY LTD

Applicant

and

SOUTH AUSTRALIAN SUPERANNUATION FUND INVESTMENT TRUST

Respondent

Application for special leave to appeal

DEANE J
TOOHEY J
GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT ADELAIDE ON MONDAY, 21 AUGUST 1995, AT 1.31 PM

Copyright in the High Court of Australia

MR T.A. GRAY, QC:   May it please the Court, I appear with DR M.A. PERRY for applicant. (instructed by R. Floreani, Coates & Co)

MR J.M. WILKINSON:   If the Court pleases, I appear with MR R.D. ROSS-SMITH for the respondent. (instructed by Thomsons)

DEANE J:   Thank you.  Mr Gray.

MR GRAY:   May it please the Court, following the arbitral award Leighton Contractors had two basic complaints.  One was that the arbitrator has misconducted himself in the sense of making findings and drawing on his own experience rather than evidence, and not hearing the applicant, and, secondly, that he made major errors of construction of the contract.  Under the Arbitration Act which, as the Court would understand, is effectively a national Act, one has to get the leave to proceed in regard to the matter of errors of law in regard to the construction of the contract under section 38.

TOOHEY J:   But if your principal complaiant was of misconduct, why did you seek leave to appeal and not simply attack the award on the basis of the arbitrator’s misconduct?

MR GRAY:   Because both matters were being advanced.  On the one hand there are errors of law on construction.  On the other, misconduct, and the two did not entirely overlap and the applicant had to, under section 38, seek leave to appeal and under section 42 it had a right of appeal in regard to misconduct. 

The practice in regard to this area is not clear.  The practice book suggests that it is appropriate that both applications when they come to be finally determined are before the Court at the one time and one does not, for example, lie by with one complaint or the other.

TOOHEY J:   Yes, I understand that, Mr Gray, but that does not really answer the question of why one would not bring either two applications or one application bifurcated so that, to the extent that leave was necessary, it would seek leave and to the extent that it was not necessary, as in the case of misconduct, it would not seek leave.

MR GRAY:   If the Court pleases, that was in substance done because the applicant made application for leave in regard to the errors of construction and gave notice that in the event of an appeal proceeding it would rely on section 42.

GAUDRON J:   Where does one find that?

MR GRAY:   It is in book 4 at page 533.  At page 523 the Court has the application for leave.  At page 533 is the last page of the affidavit in support, and at line 17, in paragraph 14 of the affidavit it was identified that:

If leave is granted to Appeal, Leighton would seek to have the Award set aside on the ground of the Arbitrator’s misconduct pursuant to Section 42 of the Act.

TOOHEY J:   I would have thought that in any event, or what one would say in paragraph 14 is that in any event the appellant seeks to have the award set aside on the ground of misconduct.

MR GRAY:   Yes.  If the Court pleases, it was seen that leave was unnecessary except in regard to the construction matter and at the same time contemporaneous notice was given that when the matter proceeded by way of appeal section 42 would be relied upon.

GAUDRON J:   But only if leave is granted.  There was no separate application under section 42 to set aside the award.

MR GRAY:   If the Court pleases, an event occurred that rendered that unnecessary.  The procedure in South Australia is that an application for leave is made to a single judge and that was made and Justice Debelle refused leave.  The application was then renewed, as is the applicant’s right, to the Full Court, and the same papers were presented.  The Full Court at first heard the matter in private, as is their practice, and then directed the matter into open Court for further oral argument.

Shortly before that oral argument at a callover, the Chief Justice directed that the appeal and application for leave proceed together and the respondent consented to that course.  So, in fact, in the events that occurred, the Court directed the hearing of the appeal and the application for leave.

GAUDRON J:   Yes, but that was application for leave to appeal.

MR GRAY:   No, the substantive appeal in the construction argument was heard.  As the Chief Justice says in his reasons at page 598, line 30, at the end of the penultimate paragraph ‑ ‑ ‑

TOOHEY J:   What page was that?

MR GRAY:   I am sorry, page 596, at the end of the penultimate paragraph, line 30:

the Full Court directed that the argument on the application for leave and the substantive appeal be heard concurrently.

TOOHEY J:   Yes, but I must say, I took that to mean the argument under section 38.  In other words in order to determine whether leave should be granted the Court really needed to hear argument on the merits, and, therefore, the direction was that the argument on the application for leave under section 38 and the substantive appeal, if leave were to be granted, should be heard together, but as having no bearing on an appeal under section 42.

MR GRAY:   If the Court pleases, from the applicant’s position this was the case: the applicant had given notice that in the event of the appeal proceeding it would rely on section 42 as well as section 38.  That was in the initiating documents.  The Court directed that the substantive appeal be heard at the same time as the application for leave, and as far as the applicants concerned it had given notice it was relying on section 42.

TOOHEY J:   This was only a formal defect.  It would not be a matter of any great concern, but the problem is that the matter went through the courts below on the basis that misconduct was not really at the heart of the application.

MR GRAY:   Not so, if the Court pleases.  The Court would have to understand that the practice here was to allow limited time for oral argument in these matters, and a day was allowed for this case for the entire argument, and we are dealing with, obviously, a very voluminous contract.  But, in particular, as is evident from the reasons of the Chief Justice he did direct himself to the issue of misconduct.  And, if one goes back through the written submissions the Court will see that it has all been presented as misconduct not on the face of the record. 

We are talking about something that did not occur and would not be found on the face of the record, and there was an affidavit of Mr Floreani that deposed to the fact, the fact that these things did not happen.  If the Court goes, for example, to page 611 in the judgment of the Chief Justice ‑ ‑ ‑

DEANE J:   Mr Gray, can you just answer the question precisely.  You had a right to appeal under section 42?

MR GRAY:   Yes.

DEANE J:   You did not exercise that right?

MR GRAY:   If the Court pleases, the answer is we did, in the unusual circumstances that occurred.  There was no separate document ‑ ‑ ‑

DEANE J:   Where is the notice of appeal exercising your right under section 42?

MR GRAY:   The only notice of appeal is contained, and it forms the affidavit in support of the application ‑ ‑ ‑

DEANE J:   Was that the one you have taken us to?

MR GRAY:   Yes, in particular the one at page 533.  It commences at page 524, and the procedure that was followed was that the solicitor deposing to the affidavit set out in the body of the affidavit the nine grounds of appeal and then added some factual comments in regard to each of the grounds.

DEANE J:   But that is in support of the application for leave to appeal on the constructions points.

MR GRAY:   If the Court pleases, that was the applicant’s position until the callover when the Chief Justice directed that the substantive appeal be heard, but there never has been ‑ ‑ ‑

DEANE J:   I mean, that is not what was involved.  It was an application for leave to appeal.  The Full Court took the common step of saying, “We’ll hear the substance of the appeal.  Proceed on the basis that leave has been granted and we’ll determine the question of leave in the light of the way the substance turns out”.

MR GRAY:   We accept that entirely.  The unusual feature of this case is that there never was a notice of appeal lodged ‑ ‑ ‑

DEANE J:   Which has had the effect that the construction point which you place in the forefront of your application for leave never properly arose in the courts below because at no stage in the courts below did you assert the right to appeal pursuant to section 42 which you now say is the first point which would arise in an appeal to this Court.

MR GRAY:   Yes.  We can only say that it was identified in the affidavit in support expressly to be relied on in the event that the appeal proceeded.  That is as far as we can go.

DEANE J:   I follow that, yes.

MR GRAY:   We accept that there was no notice of appeal lodged.  In the way this case was handled there was no notice of appeal on either ground.  The court proceeded to advance the matter on the basis of the affidavit.

DEANE J:   I mean the problem in that is that if the court had granted leave to appeal under section 38 in a context where an appeal as of right lay under section 42, there would be a very large question whether the leave to appeal under section 38 could reconfer a right of appeal under section 42 which had existed but had not been exercised.

MR GRAY:   Yes, if the Court pleases, undoubtedly the procedure followed here was unusual and unsatisfactory ‑ ‑ ‑

DEANE J:   I would have said wrong.

MR GRAY:   Yes.  In essence, if the Court pleases, the end result is that Leighton Contractors has not been heard in regard to major arguments in regard to a very major building contract and we say in circumstances where simply for the administration of justice the matter should be remitted and heard out fully.

TOOHEY J:   But even that is not right, is it, because if you look at the Chief Justice’s judgment at page 611, at about line 5, the Chief Justice says that the grounds that he refers to, that is the fourth and sixth ground:

raise contentions of misconduct -

and then he identifies them, but then concludes that paragraph:

Nothing in these contentions establish and “error of law on the face of the award” -

In other words to the extent as seen by the Full Court, apparently, questions of misconduct were raised only in the context of whether there was an error of law on the face of the record.

MR GRAY:   That is one possible construction, and if that is so, the Full Court was in error, because when we go into the outline of argument, it is not just grounds four and six that raise misconduct, it is grounds four, five and six.

TOOHEY J:   That is not really the crux of it.

MR GRAY:   No.

TOOHEY J:   It is the fact that these grounds are seen as reflections of the argument that there was an error of law on the face of the record, not as constituting an independent head of appeal.

MR GRAY:   If the Court pleases, we accept that is a possibility, but from the applicant’s point of view it was talking about misconduct that you would never find on the face of the record.  But by definition we were complaining about denials of natural justice that the arbitrator had gone off on a whim of his own, so you would not find that on the face of the record.

DEANE J:   I think we all appreciate the full force of that.  What is the Chief Justice had said, “The applicant has not exercised its right of appeal under section 42.  That being so, leave in relation to misconduct can only be granted under section 38 if it involves error of law on the face of the record”.  There is a lot to be said for that as a proposition of law, I would have thought.

MR GRAY:   If that point had arisen, obviously the matter would have been stood down and we would have made an immediate application to launch an appeal.

DEANE J:   For an extension of time?

MR GRAY:   As far as we were concerned, and as our written arguments demonstrate, we were putting two contentions, one is the errors of construction in this rather difficult contract, but, secondly, the arbitrator had approached the whole matter with serious departures of natural justice.  In that regard Mr Floreani’s affidavit deposed to the facts of these matters and the written argument that was developed specifically identified this as a separate matter. 

Can I just draw it to the Court’s attention.  It is page 589, your Honour, in a written submission that was put to the Court - and this is a submission that was prepared and filed before it was directed that the substantive appeal be heard - and if the Court looks at grounds 4, 5 and 6 at the foot of page 589 and the Court reads through to page 591, the Court will simply see, with respect, a fairly traditional type argument in regard to natural justice through not being heard, acting on non-evidentiary material.

GAUDRON J:   But what about Mr Justice Debelle’s analysis that grounds 4, 5 and 6 were only relevant in any event if you established your construction point.

MR GRAY:   If the Court pleases, Justice Debelle dealt with the matter strictly as an application for leave, and the section 42 matter was not advanced before his Honour.

GAUDRON J:   But the fourth, fifth and sixth grounds of appeal were, and at page 558, what his Honour says of them:

that they are claims which are founded on the validity of Leighton’s Delay Analysis and Leighton’s interpretation of the Contract.

MR GRAY:   If the Court pleases, the answer is that if one goes to grounds 4, 5 and 6, they are drawn in a compendious way.  For example, ground 4 appears on page 529, and it starts out by being an assertion that the arbitrator - this is line 20 on page 529:

the Arbitrator erred in law in rejecting the Leighton Delay Analysis based on what Leighton maintains is the measurement of the effects of various events the subject of claim on the critical path of the Approved Programme.

Then there are a series of subparagraphs that the deponent deals with.  4.2, for example, is a very clear case of a complaint about natural justice, as is 4.3.

GAUDRON J:   What if your construction is rejected?  Once your construction point is rejected those points do not arise, do they?

MR GRAY:   It is difficult to disengage the two.  If the Court goes to grounds 4, 5 and 6, the complaints that are being made permeate the entire hearing and lead entirely to, we would say, a different circumstance in which the contract would be considered.  For example, the arbitrator on credit rejected Leighton’s principal witness because the arbitrator said he was putting untenable propositions.  This whole arbitration, we say, is flawed by reason of these denials; it is not just one or two incidences, it is a major matter.

If the Court pleases, obviously the applicant wished to advance both arguments and the two intertwine.  This is a case where the arbitrator found that, in fact, Leighton Constructions had done a very major variation.  It was a pouring of 17 floors of concrete, involving hundreds of thousands of dollars in direct costs, let alone indirect costs, and in the circumstances nothing was allowed, nothing at all, because the arbitrator found he could not dissect precisely the quantum of damage.  There are obviously complications.  The construction arguments go to a number of terms of the contract.

TOOHEY J:   Yes, but your entitlement, it was said, turned upon particular construction of the contract and, on the construction adopted by the Full Court, whatever, in a sense, merit there might have been in the claim for extras, you lost your entitlement or the entitlement did not arise because of particular clauses of the contract.

MR GRAY:   Well, that is the other matter on which we seek special leave and the very short point there is that this is not essentially a one‑off contract although in one sense it is, it does contain a scheme for dealing with delays and prolongations based on hypothetical considerations that is now the norm in regard to building contracts.  And for that reason the question of construction is of major public importance and is not free from doubt. 

The words “actual delay” do not appear in this contract.  Rather, this whole contract is designed around a hypothesis.  There is a hypothetical formula that the parties agreed to fix their rights to avoid the very problem of delays on site.  Now, the Court has Mr Davenport’s affidavit designed to assist the Court in assessing the public importance of the issue.  These contracts will always be one offs in the sense that every contract will differ slightly, but the essential thrust of what we are talking about here has its roots in both European and American building practice.  That is where it stemmed from, and it is now the norm, and the issue is in this case is there here a hypothetical critical path scheme for determining the party’s rights or not, and that is a major point of construction affecting most major building contracts in this country.

If the Court pleases, just to perhaps illustrate that point, on the applicant’s case this contract defines a working day to be an eight hour period.  It is open to the applicant to work three eight hour periods in any one calendar day and to work it, for example, with three shifts of men.  So, this applicant, under this contract, can turn a contract day into, effectively, nine contract days, all in one calendar day.

On the construction that has so far been upheld the applicant would get one days allowance for that despite the fact that it had done nine contract days work.  The American authorities ‑ and there are American authorities on this type of clause ‑ allow for recovery, compensible days, in excess of actual days.

TOOHEY J:   That may mean no more than that the contract is not adequately tailored to the circumstances of this particular transaction.

MR GRAY:   It may mean that, if the Court pleases, or it may mean that  there has been an error construction of the contract and of material import, and the Court is not going to, with respect, get a better vehicle to decide this point.  The next case that comes up will be, again, a one‑off contract.

DEANE J:   Of course, it may mean, that if this case stands people will have to draft their contracts a little more carefully.

MR GRAY:   Well, that would be unfortunate when we can take the Court, if the occasion arises, into the European and American precedents to show this is a well established matter.  And the Court has seen in Mr Davenport’s affidavit that this is a common matter that has been around for quite some years.  May it please the Court.

DEANE J:   Thank you, Mr Gray.  The Court need not trouble you, Mr Wilkinson.

In his written summary of argument the applicant identified four distinct issues as “leave or special leave questions”.  The first of those questions related to the proper construction of section 42 of the Commercial Arbitration Act (1986) SA (“the Act”)  That question would not seem to have been raised for the consideration of the courts below nor, in our view, would it really arise in an appeal to this Court in circumstances where the applicant’s application to the Supreme Court was brought pursuant to section 38 seeking leave to appeal from the award and not pursuant to section 42 of the Act where leave is not required.

The second question relates to the construction of section 38(5)(b)(i) of the Act.  It does not involve any question of general principle.  Nor, in our view, is it otherwise a question which would appropriately attract a grant of special leave to appeal to this Court. 

The third and fourth questions turn on the construction and effect of the building contract between the parties.  They involve no question of general principle and are not of a nature to attract a grant of special leave.

Accordingly, the application for special leave is refused.

MR WILKINSON:   I ask for costs, if your Honours please.

MR GRAY:   Nothing to put.

DEANE J:   The application is refused with costs.

AT 1.54 PM THE MATTER WAS CONCLUDED