Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust No. SCGRG 94/1380 Judgment No. 5006 Number of Pages 26 Arbitration Building Contract
[1995] SASC 5006
•24 April 1995
COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA KING(1) CJ, MATHESON(2) AND MILLHOUSE(3) JJ
CWDS
Arbitration - building contract - words and phrases "manifest" - Commercial Arbitration Act 1986 (SA) s 38(5) - Promenade Investments Pty Ltd v NSW (1991) 26 NSWLR 184, Pioneer Shipping Ltd v BTP Tioxide ('The Nema') (1982) AC 724, discussed.
HRNG ADELAIDE, 6 February 1995 #DATE 24:4:1995 #ADD 26:6:1995
Counsel for appellant: Mr T A Gray QC with Mr R F Floreani
and Mr M N Rice
Solicitors for appellant: Robert Floreani
Counsel for respondent: Mr J M Wilkinson with
Mr R D Ross-Smith
Solicitors for respondent: Thomsons
ORDER
Application for leave to appeal dismissed.
JUDGE1 KING CJ The appellant applied to the Supreme Court for leave to appeal against an award of an Arbitrator in respect of claims and disputes arising out of a building contract. The application was dismissed by Debelle J. The appellant pursued the application before the Full Court pursuant to Rule 94.
2. The provision for appeal is contained in s38 of the Commercial ArbitrationAct. The appeal is to the Supreme Court and is confined to questions of law arising out of an award. An appeal may only be brought with the consent of all parties or by leave of the Supreme Court. Subsection (5) is as follows:
"(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."
3. The appellant founded its application for leave to appeal upon manifest error of law on the face of the award. As a finding of manifest error of law could well be determinative not only of the application for leave but also of the appeal itself, the Full Court directed that the argument on the application for leave and the substantive appeal be heard concurrently.
4. The appellant is a major building contractor. It contracted with the respondent to erect a $35M office building at 45 Pirie Street, Adelaide. The contract consisted of the Standard Joint Construction Agreement form, modified to some degree and in particular by alterations to Clauses 9.01, 9.02 and 15 thereof. These alterations were made to implement the evident intention of the parties that in consideration of a premium over and above the tender sum, the appellant, would undertake certain increased responsibility and risk in order to give the respondent greater certainty of final cost and the timing of the rental stream.
5. The contract was dated the 15th May 1987. It stipulated February 6th 1989 as the date for Practical Completion. This was extended to February 22nd by extensions of time certified by the Architect. The works were in fact brought to practical completion according to the certificate of the Architect on 13th April 1989 although the applicant contended that they were complete by 7th April. The contract provided for a "contract programme" "in the form of a critical path time scale network" according to which the builder was required to carry out the works. The agreed programme provided for a final clean up and handover on 12th September 1988 and completion by 13th October 1988. The appellant was to be entitled to a bonus for completion before the date for practical completion stipulated in the contract.
6. Disputes arose between the parties as to variations and delays and the unresolved disputes were submitted to arbitration. The appellant's claim consisted of costs of delays which were alleged to be the responsibility of the respondent, bonuses, variations, finance charges, interest, and administration costs. The total claim was $24,993,486. The respondent claimed for defective works. The Arbitrator's award was to reject the appellant's claims and to order the appellant to pay the sum of $438,617 plus interest in respect of the respondent's claims.
7. The grounds of appeal set out what the appellant claims to be manifest errors of law on the face of the award and I proceed to consider each of those grounds.
8. The first ground relates to the claim for costs resulting from delays. In order to understand the issues raised by this ground of appeal, it is necessary to consider a number of the provisions of the contract.
9. Clause 6.05 requires the builder to comply with official and legal requirements. Clause 6.05.03 is as follows:
"Should compliance with any such requirement necessitate a
Variation then the Builder shall promptly and before
proceeding with the Variation give written notice to the
Architect setting out the circumstances, including any time
requirement for compliance, and requesting his instructions.
The Architect shall, as soon as practicable after receiving
the Builder's written notice, give to the Builder such
proper instructions as he thinks fit. Should such
instructions be not given as soon as practicable after
receipt by the Architect of the Builder's written notice
then provided the Builder gives a further notice in writing
to the Architect of his intention to proceed with the Works
so as to comply with such requirement as necessitates a
Variation then the Builder may after the expiry of ten (10)
days from the date of receipt by the Architect of the
Builder's further written notice proceed with the execution
of the Works so as to comply with that requirement."
10. Clause 6.10 deals with the Architect's requirements:
"6.10 The Architect may instruct Variations and the Builder
shall carry out the same subject to the following:
6.10.01 Unless otherwise agreed all Variations shall be
within the general scope of this Agreement so as to be of a
character and extent contemplated by and capable of being
executed under the applicable conditions of this Agreement.
6.10.02 The Contract Sum shall be subject to any
appropriate adjustment under Clause 10.16 and the Date for
Practical Completion shall take into account any extra time
or reduction of time under clause 9.07 and 9.08
respectively.
6.10.03 All such Variations shall be authorised in
writing by the Architect and certified by the Proprietor
before the variation work is commenced. The provisions of
Clause 5.04 shall be read and construed subject to the
provisions of this paragraph."
11. Claims for delay are dealt with in Clauses 9 and 15 and I set out portions of those clauses:
"9.01 If progress of the Works is delayed by reason of any
event specified in Clause 15.09 but not otherwise the
Builder shall, if he desires to claim an extension of time
for Practical Completion of the Works, not later than ten
(10) working days after the cause of delay arose give a
notice in writing to the Architect stating the nature, the
cause and, where possible, the extent of delay.
9.02 Not later than ten (10) working days after the Builder
gives notice to the Architect pursuant to Clause 9.01 the
Builder shall give a further notice in writing to the
Architect stating a fair and reasonable time by which in his
opinion the time for Practical Completion of the Works
should be extended.
9.03 Subject to the Builder having complied with the
provisions of Clauses 9.01 and 9.02 the Architect shall as
soon as practicable after receiving the Builder's notice
pursuant to Clause 9.02 determine what, if any, extension of
time for Practical Completion of the Works shall be granted
to the Builder and shall thereupon notify in writing the
Builder accordingly.
9.04 If the Architect does not notify the Builder in terms
of Clause 9.03 the time for Practical Completion of the
Works shall be deemed to be extended by the time stated in
the Builder's notice given under Clause 9.02.
9.05 Notwithstanding that the Builder has not given either
of or both notices pursuant to Clauses 9.01 and 9.02 the
Architect may at any time by notice in writing addressed to
the Builder extend the time for Practical Completion of the
Works if in his opinion the Builder would otherwise be
entitled to such an extension.
9.06 Notwithstanding the preceding provisions of this
Section 9 the Builder shall not be entitled to any extension
of time unless he shall have taken proper and reasonable
steps both to preclude the occurrence of the cause of delay
and or to avoid or minimise the consequences thereof.
9.07 If the execution of a Variation is likely to cause a
delay in the Works reaching Practical Completion the Builder
shall notify the Architect in writing prior to commencing
the execution of that Variation or as soon as the likelihood
of delay becomes or should reasonably have become evident to
the Builder of the extent or likely extent of that delay and
then:
9.07.01 If an extension of time is agreed either when the
Variation is instructed or subsequently the time for
Practical Completion of the Works shall be deemed extended
by the agreed extension of time.
9.07.02 Failing such agreement the Builder shall be
allowed an extension of time determined in the same way as
an extension of time is determined under Clauses 9.03 or
9.04 as if the Builder's notice under Clause 9.07 were the
Builder's notice referred to in Clause 9.02 and the
provisions of Clause 9.01 had been complied with by the
Builder.
....
15.09 Extensions of Time and Time Adjustments
15.09.01 Interpretation
The provisions of Section 9 of the General Conditions shall
be read construed and interpreted as being subject in all
respects to the provisions of this sub-section 15.09.
15.09.02 Extensions
For the purposes of sub-section 9.01 of Section 9 the
Builder may only give a notice pursuant to that sub-section
and seek an extension of time pursuant to Section 9 if the
progress of the Works is delayed by reason of either:-
(a) An industrial dispute strike or lock-out which also
occurs at a state and/or national level (but not a dispute
occurring only in respect of the Site or other building
sites or works elsewhere upon which the Builder is engaged);
or
(b) Subject to paragraph (e) hereof a Variation authorized
or requested by the Architect in accordance with Clause
6.10.03 other than pursuant to Clause 15.06.02(c); or
(c) Subject to paragraph (f) hereof the failure or neglect
of the Architect to issue instructions to the Builder within
fourteen (14) days of being requested so to do by the
Builder in writing where the absence of such instructions
delays the progress of the Works; or
(d) Fire (other than arising from the wilful or negligent
act or omission of the Builder or any person claiming
through the Builder), storm, tempest, earthquake or act of
god or force majeure;
(e) A Variation authorized by the Architect pursuant to
Clause 6.05 other than that referred to in Clause 6.05.06;
(f) The failure of the Architect:-
(i) to issue a response of the type mentioned in Clause
15.11.03 hereof to a notice issued by the Builder in
accordance with Clause 15.11.02 hereof; or
(ii) to issue an instruction concerning a matter which
would but for the provisions of the exception to Clause
1.06.11 constitute a variation;
within such period of being requested so to do as is
determined in the manner herein set out where the absence
of such a response delays the progress of the Works and
for which purpose it is agreed:-
(iii) the Builder may nominate in a notice given by the
Builder under Clause 15.11.02 or in a written request for
an instruction of the type mentioned in placitum (ii)
hereof, as the case may be, a period of less than fourteen
(14) days within which, in the opinion of the Builder, a
response to the same should be provided having regard to
the likely effects of a failure to issue the same
expeditiously; and
(iv) The Architect shall forthwith assess the request made
under paragraph (iii) hereof having regard to the relevant
circumstances, including the cause of the urgency and the
conduct of the Builder in relation thereto and either
accept or adjust the time in which such a response is to
be made or determine that it shall be provided within
fourteen (14) days thereof.
15.09.03 Industrial Disputes
(a) The Builder shall only be entitled to seek and be
granted an extension of time pursuant to paragraph (a) of
sub-section 15.09 hereof where the aggregate of all delays
occasioned by reason of all relevant events defined in
paragraph (a) of sub-section 15.09.02 has exceeded Fifteen
(15) days and then the Builder shall only be entitled to
claim an extension of time pursuant to paragraph (a) of
sub-section 15.09.02 aforesaid in respect of and to the
extent that the aggregate of all delays occasioned as
aforesaid shall exceed Fifteen (15) days (herein called 'the
Industrial Extension Threshold');
(b) Upon the occurrence of any event referred to in
paragraph (a) of sub-section 15.09.02 which occasions any
delay the Builder shall give notice in writing thereof to
the Architect within seven (7) days of such occurrence
specifying the nature the cause and where possible the
extent of the delay and within thirty (30) days of the first
mentioned notice (and where appropriate each thirty (30)
days thereafter) the Builder shall notify the Architect in
writing as to what period of time the Builder should be
allowed towards the Industrial Extension Threshold;
(c) Upon receipt of any of the second mentioned notices
referred to in paragraph (b) hereof the Architect shall
consider and determine what reasonable period of time the
Builder should be allowed (if any) towards the Industrial
Extension Threshold and shall certify to the Proprietor and
the Builder the period so determined by the Architect
together with the aggregate to date of all periods
previously certified pursuant to this paragraph (c);
(d) If the Builder considers that the Architect's
determination pursuant to paragraph (c) hereof is
unreasonable the Builder shall within seven (7) days
following service of notice thereof by the Architect upon
the Builder notify the Architect in writing of the Builder's
disagreement thereunder and the reasons therefor and the
service of such notice shall be a condition precedent to the
pursuit by the Builder of all of its other legal rights and
remedies in respect of such determination pursuant to this
Agreement or otherwise howsoever arising;
(e) The Builder shall be deemed to have accepted a
determination of the Architect pursuant to paragraph (c)
hereof if the Builder shall fail or neglect to serve a
notice pursuant to paragraph (d) hereof within the period
therein appointed.
15.09.04 Time and Notices
(a) Time shall be of the essence as regards the service by
the Builder of all notices required to be given by the
Builder pursuant to Section 9 of the General Conditions and
this sub-section 15.09;
(b) The service by the Builder upon the Proprietor and/or
the Architect of any notice or notices required to be given
by the Builder pursuant to Section 9 of the General
Conditions and this sub-section 15.09 within the respective
times thereby appointed shall be conditions precedent to the
substantiation and pursuit by the Builder of any claim for
an extension of time in respect of the relevant event or
delay which is required to be the subject of such notice or
notices.
15.09.05 Basis of Extensions
(a) The extension of time (if any) for Practical Completion
of the Works or any to be granted to the Builder under
subclause 9.03 of the General Conditions shall be fair and
reasonable having regard to all relevant facts and
circumstances known to the Architect at the time of making
his determination;
(b) The Architect may defer the making of his determination
for such period as he may reasonably require to ascertain
facts and circumstances which he considers may be relevant,
and the Builder shall promptly furnish to the Architect all
such information as he may reasonably require for the
purposes of such determination.
15.09.06 Variations
(a) The Builder shall not be entitled to any extension of
time under paragraph 9.07.02 of the General Conditions
unless the Variation directly affects one or more activities
which can be shown to be critical to the maintenance of
progress in the execution of the Works so as to achieve
Practical Completion of the Works by the relevant date for
same as adjusted from time to time.
(b) Upon the issue by the Architect of instructions to the
Builder to undertake a Variation in accordance with Clause
6.10.03 hereof or a Claimed Variation in accordance with
sub-clause 15.11.03(a)(ii) hereof whether the Architect
proposes to allow to the Builder an extension of time and if
practicable and ascertainable the extension of time which
the Architect proposes to grant (if applicable);
(c) If the Builder shall not within seven (7) days of
receipt of a notice pursuant to paragraph (b) notify the
Architect in writing that the Builder disputes the refusal
of an extension of time by the Architect or the extent if
any of the extension of time proposed to be granted by the
Architect in respect of the relevant Variation or Claimed
Variation the Builder shall be deemed to have accepted the
same and shall thereafter be estopped from making any claim
for any extension of time in respect of that Variation or
Claimed Variation in excess of that proposed by the
Architect in the aforesaid Notice from the Architect;
(d) Time shall be of the essence as regards the giving of
any notice required to be given by the Builder pursuant to
paragraph (c) hereof;
(e) The giving of a notice required pursuant to
paragraph (c) hereof shall be a condition precedent to the
enforcement by the Builder of its rights or claimed rights
pursuant to Section 9 and/or Section 13 of the General
Conditions;
(f) The provisions of Section 6Section 9 and Section 13 of
the General Conditions shall be read and construed as being
subject in all respects to the provisions of this clause
15.09.06 and the duties and obligations of the Builder
hereunder shall be separate and distinct from its
obligations pursuant to those provisions of the General
Conditions.
...
15.11 Delay and Delay Costs
15.11.01 Failure of Builder to Notify or Await Architect's
Response
In the event that the Builder shall commence to carry out
any Works otherwise than in accordance with the Contract
Documents as varied in accordance with this contract without
giving a notice in writing to the Architect in accordance
with sub-clause 15.11.02 hereof or, having given a notice as
aforesaid, without having first received response in
accordance with paragraphs (i) and (ii) of sub-clause (a) of
Clause 15.11.03 hereof then the Builder shall be precluded
from claiming at any time thereafter that the Works so
commenced included or constituted a Variation.
15.11.02 Builder to Notify Potential Variations
The Builder shall within fourteen (14) days of the Builder
becoming aware of any act matter or thing, including but
without limiting the generality of the foregoing any
instruction by the Architect, which constitutes in the
opinion of the Builder a Variation (hereinafter in this
clause called 'the Claimed Variation') give notice in
writing to the Architect specifying in reasonable detail:-
(a) those acts matters or things which constitute the
Claimed Variation; and
(b) any consequential changes which in the Builder's
reasonable opinion should be made to the Contract
Programme; and
(c) the period of delay or gain in time (if any) arising
from such Claimed Variation as estimated by the Builder the
change to the Date for Practical Completion of the whole of
the Works and the extensions of time to which the Builder
may be entitled; and
(d) the order of magnitude of cost of the Claimed Variation;
AND the Builder shall request the Architect's instructions
in respect thereof.
15.11.03 Architect's Instructions Concerning the Builder's
Notice
(a) the Architect shall as soon as is practicable but in any
event within fourteen (14) days or such lesser period as may
be determined in accordance with paragraph (f) of Clause
15.09.02 hereof respond to the Builder's Notice given under
sub-clause 15.11.02 hereof in writing:-
(i) accepting the Builder's claim and issuing an
appropriate authorisation by the Architect and Certified
by the Proprietor in accordance with Clause 6.10.03
hereof; or
(ii) not accepting the Builder's claim and issuing an
authorisation by the Architect and a certificate by the
Proprietor requiring the Builder to give effect to the
Claimed Variation without prejudice to the Builder's
entitlement to arbitrate the dispute and the Builder shall
forthwith thereafter give effect to that authorisation and
certification; or
(iii) issuing an instruction not to do the act matter or
thing which is the Claimed Variation.
(b) The provisions of Section 6Section 9 and Section 13 of
the General conditions shall be read and construed as being
subject in all respects to the provisions of this paragraph
15.11.02 and the duties and obligations of the Builder
hereunder shall be construed accordingly;
(c) For avoidance of doubt the Builder is not expected to
make any change to the program or order and method of work
until such time as an appropriate Proprietor's certificate
if any is received by the Builder.
15.11.04 Effect of Issue of Proprietor's Certificate
The issue of a certificate by the Proprietor to effect a
Variation in accordance with clause 6.10.03 shall constitute
a waiver of the obligation of the Builder to give a notice
in respect of that Variation in accordance with clause
15.11.02 hereof."
12. The basic contention of the appellant was that the introduction of the concepts of the contract programme and critical time path by Clause 15.08 and the reference to "activities which can be shown to be critical" in Clause 15.09.06 has rendered inapplicable the provisions of Clause 9 as to extensions of time and that a different procedure for extensions of time is necessarily implied. The appellant produced a delay analysis which purported to demonstrate the effect of variations and other causes of delay for which the appellant was entitled to allowance, upon the contract programme. This was done by a process of computerized sequential modelling. The theoretical delaying effect of each cause of delay was estimated. The delay analysis purported to demonstrate that the practical completion date should be regarded as delayed to 1st December 1989. The appellant claimed to be entitled to costs based on a notional delay until that date. Moreover as the work had been completed by April 13th 1989, the appellant claimed to be entitled to the bonus provided in the contract for early completion notwithstanding that the date of actual completion was almost two months after the contractual date for practical completion as duly extended in consequence of Architect's certificates.
13. The Arbitrator held that there were no inconsistencies in the express contractual provisions as to delay and that the delay analysis propounded by the appellant had no basis in the contract. The process of sequential modelling upon which the delay analysis was based disregards the actual delay. It takes no account of actual events on site such as the fact that actual progress did not keep pace with the programme, nor of losses of time through non claimable delays associated with inclement weather and industrial action.
14. I think that the provisions of the contract with respect to delay are clear. The builder is entitled to damages for delays beyond its control pursuant to Clause 10.09 subject to Rule 10.12. The latter sub-clause limits the right to damages to cases where an extension of time has been made or should be made under Clause 9.03. Clause 15.09.02 limits the grounds upon which extension may be granted under Clause 9.03 to the specific grounds stipulated in Clause 15.09.02. Clause 15.09.06 further limits them in the case of variations to variations which directly affect "one or more of the activities which can be shown to be critical to the maintenance of progress in the execution of the works so as to achieve Practical Completion of the Works by the relevant date for same as adjusted from time to time." These provisions are plainly concerned with actual delays, that is to say the extent to which the works are actually delayed by the causes for which the builder is entitled to claim. If the delay which could be expected to be caused is offset by other factors so that no, or only reduced, delay is caused, only the actual delay can be the subject of an extension of time and damages. That is confirmed by the procedures, including the notices, required by Clause 9.
15. There is no warrant in the contract for the production of a delay analysis after practical completion of the kind produced by the appellant. Mr Gray QC referred us to an Article by Mr Davenport entitled "Extensions of Time - A New Approach", 36 ACLN 18, in which the following passage appears:
"Presently, extensions of time are almost invariably but
illogically tied to a hypothetical critical path. If an
event causes suspension of an item of work on the
hypothetical critical path, an extension of time is granted
even though the contractor's workforce is fully engaged in
performing other work under the contract. Extensions of
time are granted even though work is not suspended. The
consequence is that the contractor recovers additional
overheads and sometimes 'loss of profit' for periods when
the contractor's workforce is fully engaged in performing
work under the contract."
16. Mr Gray has argued that the approach described in the passage is necessitated by the adoption of computerized contract programming. Be that as it may, the approach described in the Article can only be adopted if authorized by the contract. It plainly is not authorized by this contract. Clause 9.01 authorizes a claim by the builder for extension of time "(i)f the progress of the Works is delayed by reason of any event specified in Clause 15.09 but not otherwise." There must therefore be actual delay caused by the specified event.
17. The Arbitrator's interpretation of the contract in this respect was correct. There was no error, manifest or otherwise. The claim for damages for delay and for the bonus based upon the delay analysis was therefore bound to fail.
18. The rejection of the basis of the appellant's construction of the contract as to measurement of time disposes of the claim for bonus for early completion and must be fatal to much, although perhaps not all, of the appellant's claim for delay costs. In order to succeed in such claim for delay costs and variations which might otherwise be justified, however, it was necessary for the appellant to have complied with the provisions of the contract as to the giving of notices. The second ground of appeal challenges the Arbitrator's construction of the provisions of the contract requiring the giving of notices.
19. Clause 6.09.02 enables the builder, if it considers that an instruction amounts to a variation, to refer the matter to arbitration but only if it has given notice prior to carrying out the instruction. This is reinforced by Clause 15.11.01 which provides categorically that if notice is not given the builder is precluded from claiming for variation. Mr Gray contended that the Arbitrator erroneously interpreted Clause 6.09.02 as making the time for notice of the essence of the contract. This seems to me to be something of an irrelevance. According to the Award, it was the appellant which raised this issue with a submission that "time is not of the essence according to the intention of the parties." The Arbitrator rejected this contention. But the submission was irrelevant. The stipulation in Clause 6.09.02 and 15.11.01 is that notice be given prior to carrying out the work. That is not a time stipulation. The giving of notice prior to commencing the work is a condition precedent to claiming for the work as a variation. No question of time arises. The stipulation is mandatory and the right to claim for variation is contingent upon compliance.
20. Mr Gray has contended that the Arbitrator misunderstood the relationship between Clauses 9.01 and 9.02 on the one hand and Clause 9.07 on the other and that that misunderstanding vitiated his approach to the time for giving of notice seeking extension of time as a result of variations. I do not think so. The Arbitrator understood that if the Architect had not initiated the procedure prescribed by Clause 15.09.06 indicating at the time of the instructions whether he proposed to allow an extension of time, the builder could give notice even after the commencement of the work involved if that were done "as soon as the likelihood of delay becomes or should reasonably have become evident to the Builder" (Clause 9.07). He understood the appellant's contention that the appellant could only have become aware of the effect on the critical path and therefore the contract programme, after completion of the building, but he rejected it. He found as a matter of fact that the appellant "could have issued notices, and assembled full details of the claims brought to the Arbitration, in a timely manner but that he didn't because the Delay Analysis had not even occurred to him when the delay events were said to have commenced." He added: "Concerning Leighton's proposition that time limits for Clause 9.07 Notices cannot be met until all of the delay events have worked through the Approved Programme, I will put this submission to the test for the particular claims, and this will show that Leighton could have given Notices much earlier than it did, and generally in accordance with the Agreement. Again, the effect of this determination is that Leighton cannot be relieved of its Notice obligations." These findings of fact effectively undermine the basis of the contention that the notice provisions are inconsistent with the Contract Programme provisions. It is notable that Clause 15 which introduces the concept of Contract Programme and critical path also contains Clause 15.09.04 which makes the giving of the Notices under Clauses 9 and 15.09 "within the respective times thereby appointed" a condition precedent to the substantiation of a claim for extension of time. Clearly the intention of the parties as disclosed by the Agreement is that the appellant is required to comply with the Notice provisions according to their terms whatever difficulties that might thereby be caused.
21. I can find no error in the Arbitrator's interpretation of the Notice provisions.
22. The third ground of appeal alleges a manifest error in the Arbitrator's interpretation of Clause 15.23 providing for the bonus for early completion. The failure, however, of the appellant's contentions regarding measurement of time disposes of this ground.
23. The fourth ground asserts that the Arbitrator erred in law in rejecting the delay analysis. That ground also falls with the rejection of the appellant's contentions as to measurement of time. Both this ground and the sixth ground raise contentions of misconduct on the part of the Arbitrator in denying natural justice to the appellant by making findings on matters not raised at the hearing and without notice to the appellant and without hearing the appellant, and making findings not based upon the evidence and not put in issue. Nothing in these contentions establish an "error of law on the face of the award" (emphasis added) as required by s38.
24. The fifth ground of appeal relates to a claim for delays of 111 days in respect of the concrete floors but falls with the failure of the contentions as to measurement of time.
25. The seventh ground of appeal complains that the Arbitrator erred in law in failing to properly interpret the Agreement as it relates to various claims for delay as a result of alleged breaches of the Agreement by the Proprietor or its agent the Architect. But the failure of the appellant to give timely notice of claims for extensions on these grounds is fatal. Clause 10.12 provides that the "entitlement of the builder to recovery of damages or reimbursement of any costs and expenses incurred by him as a result of delay in the progress of the Works shall be subject to compliance with all of the following conditions: 10.12.01 An extension of time has been made or should properly have been allowed pursuant to Clause 9.03." No extension of time was made. It should properly have been allowed pursuant to Clause 9.03 only if there had been a Builder's Notice pursuant to Clause 9.01. The builder is entitled to give that notice only on the grounds specified in Clause 15.09.02. The time in Clause 9.01 is of the essence by virtue of Clause 15.09.04. There being no Notice there was no basis upon which an extension could have been granted. The Arbitrator was correct in his conclusion that the Agreement precluded the acceptance of these claims.
26. The eighth ground of appeal raises the issue of whether the Agreement, properly construed, entitled the appellant to recover the cost of re-execution of the work of installation of paver tiles and of concrete flooring. The Arbitrator held that on the true construction of the contract both these claims failed because of a failure to give to the Architect the notice required by Clause 6.09 before compliance with the Architect's instruction to re-execute the works. The complaint is that the Arbitrator construed Clause 6.09.02 as though time was of the essence. As I have pointed out in another connection, the stipulation in Clause 6.09.02 as to the stage at which the notice must be given, is not a time provision. It is a mandatory requirement that the notice be given before the instruction is complied with and is a condition precedent to arbitration of a claim for an alleged variation. Clause 15.24 suspends arbitration pending an adjudication under that clause, but that does not affect the notice requirement of Clause 6.09.02. The Arbitrator found as a fact that the required notices were not given. There is no error of law.
27. The ninth ground of appeal relates to the direct costs of the re-execution of the concrete flooring and falls with the eighth ground.
28. In my opinion no errors of law on the face of the award, have been demonstrated. It is therefore unnecessary to engage in the qualitative assessment which would be required to determine whether a demonstrated error of law should be regarded as "manifest".
29. The application for leave to appeal should be dismissed.
JUDGE2 MATHESON J King CJ has described the contract between the appellant and the respondent, being an amalgam of the Standard Joint Construction Agreement (with minor alterations thereto) and an additional clause, called Section 15. I agree, in general, with his Honours reasons, subject to what I propose to say about the appellant's claim for the direct costs incurred with respect to the concrete floors, a topic which has caused me some concern. It is raised in ground of appeal numbered 9 in the affidavit of Mr R F Floreani, solicitor for the appellant, sworn on 26 August, 1994, which reads:
"9. Direct Costs incurred by Builder - Concrete Floors
The Ninth Ground of Appeal relates to the claim made by
Leighton for direct costs incurred with respect to Concrete
Floors and the failure of the Arbitrator to make any finding
as to Leighton's entitlement to direct costs constituting a
manifest error of law on the face of the Award.
9.1 at Page 250 of the Award the Arbitrator finds that
Leighton had some entitlement to the direct costs but not an
entitlement to the total claim because on the evidence
although some areas of floor were finished properly and in
accordance with the Specifications, not all the floors were
finished properly.
9.2 having made the determination that Leighton was entitled
to some of its direct costs, the Arbitrator rejects
Leighton's claim on the basis that although the direct costs
have been made out in evidence, he cannot differentiate
between the costs which were to Leighton's account and the
costs which should have been met by SASFIT, and by that
means rejects the whole of the claim made by Leighton.
9.3 at page 262 the Arbitrator determined that Leighton was
able to show in the arbitration that it had incurred costs
in excess of $300,000.00 purchasing materials and employing
contractors to do the work."
2. In his Award, the Arbitrator introduced this part of the appellant's claim as follows:
"The dispute which Leighton brings to the Arbitration about
the concrete floors is easily the most important of the
issues between the parties, measured in terms of the
magnitude of financial claims, the amount of costs incurred
by the parties, and hearing time involved in establishing
their respective positions. The dispute involves the
'finishing' of the concrete floors, which are now covered by
nearly two hectares of carpet. I did not see any of the
concrete floors," (there were seventeen) " either during
construction or immediately prior to carpeting, and the only
concrete floor now visible is the southern tenancy area on
the ground floor which concrete floor has been repaired by
Leighton to Woodhead's satisfaction." (Woodhead Australia
Pty Ltd ("Woodhead") was the respondent's architect.)
"The competing positions of the parties in this complex
matter can be summarised as follows:- Leighton, for its
part, says that the concrete floors were properly placed and
properly finished by its concrete subcontractor Albert
Sommariva Pty. Ltd. in accordance with the Specification, to
the extent that it was in fact possible to build to the
Specification. The Specification called up pre-cambered
floors which could only be tested as to their position, and
compliance with the tolerance requirements of the
Specification, when they were 'in form'. Further, Leighton
said that any tests for position and tolerance requirements
after stripping the formwork, when the floors had settled
under their own weight, and had been subject to construction
loads, were inappropriate and that, in any event, it had
finished the floors in accordance with the Specification
which required that the floors be finished to a 'regular
even surface, humoured to avoid sharp discontinuities in
slope between camber points'.
Leighton says that Mr Lewis," (he was the Project Architect
employed by Woodhouse) "in using a straightedge on the
floors many months after they were poured, and immediately
prior to carpet laying, was in fact measuring the residual
effects of camber and deflection, that he could not expect a
'flat' floor, and that his instruction to repair the floors
prior to carpeting was wrongful, and constituted a variation
to the Works, for which Leighton seeks a direct cost
Variation and delay entitlement.
Sasfit, for its part, says that Leighton has no entitlement
in this matter. It says that Leighton failed to finish the
floors in accordance with the Specification; that the finish
of the floors was unacceptable for the installation of the
carpet; that Mr Lewis's inspections revealed problems with
the finish of the floors which must have been incorporated
into the floors on the day that they were poured; that his
use of a straightedge was an appropriate method of locating
areas in the floor which were not finished in accordance
with the Specification; that Mr Lewis made proper allowance
for the pre-camber in his inspections; that Leighton had no
claim for a direct cost variation because the costs that
were incurred were the result of a proper instruction given
under Clause 6.09 to undertake remedial works; and that
Leighton had no access to a delay claim because there was no
actual delay occasioned to the Works, with the floor repairs
being completed between October 1988 and mid-March 1989, and
not affecting any critical activity, especially the critical
commissioning of the air-conditioning systems."
3. Later on at p250 of his Award, the Arbitrator said:
" However, the parties have invested significant time
and money on this issue, and in the interests of a complete
award, I proceed to a determination and I find that Leighton
does not have an entitlement to the direct costs of the
variation that it sought in the Arbitration, in the sum of
$317,219.00. My view, which is explained in the Reasons
which follow, is that Leighton has some entitlement but not
an entitlement to the total claim because, on the evidence,
although some areas of the floor were finished properly and
in accordance with the Specification, not all the floors
were finished properly.
I find that the inspection processes which Mr Lewis adopted,
and the standards that he applied, were excessive for
certain areas of the floor, calling for standards of
'flatness' in excess of those which Leighton was obliged to
produce. However, I also find that certain areas of the
floors, particularly at the perimeters of the building and
in some lift lobbies, were not acceptable, and that the cost
of repairs in these areas was properly to Leighton's
account. If Leighton had acknowledged that a significant
part of the remedial work was to its account and if, in the
Arbitration, it had sought only the extra over costs of
repairs resulting from the application of inappropriate
testing procedures and excessive demands for 'flatness',
which on the evidence, Mr Lewis made, then it may well have
been successful in a monetary award. However, Leighton
sought reimbursement for all the costs of the floor repairs
and, from the evidence, I am unable to differentiate in a
quantitative way the costs which were to Leighton's account,
and the costs should have been met by Sasfit.
I could make my own assessment, but that would involve
giving evidence to myself, which would constitute technical
mis-conduct and provide grounds for an application to the
Supreme Court to have this award set aside. In these
circumstances, the only available finding is that there is
no award available for Leighton, and that is my
determination."
4. I interrupt my references to the Award here to say that it was suggested by counsel that this last paragraph indicates that the Arbitrator was probably influenced by the decision of Sabemo (SA) Pty Ltd v AIW Engineering Pty Ltd 1993 BCL 280. In that case the appellant was the builder of the Mark Oliphant Building at Bedford Park ("the project"). The respondent carried on business as a fabricator and supplier of steel. By a building sub contract, it agreed to fabricate and install, inter alia, the structural steel wall frames of the project.
5. Upon a subsequent arbitration, the respondent, inter alia, claimed that the wall frames which were delivered and installed on site were required to be erected with a tolerance as to straightness which was far more restrictive than was required by the specifications, thereby causing additional work and delays for which a claim was made.
6. The Arbitrator decided that the respondent was entitled to the tolerances variation. It had claimed $72,023.66 but the appellant always maintained that the amount was unreasonable and had to be substantiated. Despite the appellant informing the respondent that it had given insufficient reasons and substantiation for the claim, the respondent provided no further particulars of the amount or basis for the calculation and declined to do so. The Arbitrator said:
"However, as I have said the work was a variation, and the
Sub-contractor has an entitlement, and I am left with no
alternative but to make my own assessment; my assessment
must be arbitrary, to some extent, but following Chief
Justice Bray I take into account 'all the contingencies,
probabilities, and chances involved'.
My assessment is that the Sub-contractor should be
compensated for the Tolerances Variation in the sum of
$50,000.00 and that is my determination. The assessment does
not arise out of a particular arithmetic exercise; rather,
it is based on an assessment of the extent to which the
Sub-contractor's estimate of the value of the work may be
tainted by a need to recover from what was clearly a project
with emerging financial problems, and by the inclusion of
work which was actually involved with the welding of end
verticals, as well as work necessary to overcome the
Sub-contractor's own deficiencies, both in relation to the
frames, and the fascias, in the early period. The Builder
warned me against 'guessing'; I say that this is not a guess
but a best assessment that I can make in the circumstances".
7. He did not disclose the basis of his estimate in his award or during the course of the arbitration, and at p284 Mullighan J said:
"... the Arbitrator heard the evidence and the final
submissions of counsel. The appellant's counsel made it
clear that his submission was that there was no proof of the
costs of the variation or their value and the Arbitrator
could not guess what the position might be. The Arbitrator
gave no indication that he proposed to make an estimate or
as to what that estimate might be ..."
8. And at 285 his Honour continued:
"(The Arbitrator) could not use any special knowledge to
make good any deficiency in the evidence. If he had a
basis for an estimate, he should have disclosed it and given
the appellant's counsel the opportunity of meeting it with
argument ... In my view, there was no evidence and the
Arbitrator must have made his assessment upon his own view
of what the cost may, or could have been, without a
necessary foundation in the evidence."
9. I think the case at Bar is dissimilar to the Sabemo case. It is clear that here the appellant called evidence of its entitlement in the event of the Arbitrator deciding that none of the work with respect to the concrete floors was defective. The appellant could not know in advance of the award how much, if any, of the work the Arbitrator would decide was defective. Leaving to one side for the moment any problems the appellant may have with regard to notice, it is clear that it was entitled to a substantial award in respect of the re-concreting, and, in my opinion, the difficulty of assessment was no reason for refusing an award (see McGregor on "Damages" 15th Edn pp214-215, and Carter and Harland, "Contract Law in Australia" 2nd Edn p714). In my opinion, at the very least, the Arbitrator should have informed the parties of his findings about the concrete floors, and given them an opportunity to call further evidence and/or to address him as to quantum.
10. At p262, the Arbitrator said:
"... the remedial work was completed between late September
1988 and mid March 1989, and Leighton was able to show in
the Arbitration that it incurred costs in excess of
$300,000.00 purchasing materials and employing contractors
to do this work."
11. Mr Hodson was the appellant's chief witness, and at p274, the Arbitrator said:
"Mr Hodson was a reliable witness, and an experienced
building foreman, and he said that the floors reflected good
standards of workmanship. He provided a detailed Statement,
backed by a contemporaneous diary notes, and his evidence
about the floors, the inspection processes, and the remedial
work, was consistent and largely unchallenged in his
cross-examination."
12. Later he added "... it was clear to me that Mr Hodson was a very experienced building foreman and I was able to rely on his evidence."
13. On p282, the Arbitrator said:
"I determine on the balance of probabilities that general
floor areas which were the subject of extensive remedial
work were in fact finished to the Specification on the day
that they were poured, which areas should have been the
subject of only the minor repair work required in the normal
course. In these circumstances, some part of Woodhead's
Clause 6.09 instruction was in fact a variation, but I am
unable, on the evidence, to value it, and I therefore make
no award."
14. He concluded this part of his award with the following passage at pp289-290:
" I can now confirm my earlier finding in relation to
the finishing of floor surfaces other than those identified
at the perimeters of the building and in some lift lobbies,
and that is that the floors were finished in a proper and
workmanlike manner by Sommariva and that, with repair work
in the normal course, these floors would have been suitable
for carpeting.
This conclusion is based on the balance of probabilities
arising out of the limited factual evidence that was
presented to me in the hearing, and it is reinforced in
terms of logic by the fact that the inspection procedures
which Mr Lewis adopted found no support, either in
theoretical or practical building terms.
That completes these Reasons in relation to concrete floors,
and I confirm that Leighton has no access to a delay claim,
and that its claim for a variation is disqualified by its
failure to notify an intention to arbitrate the floor matter
before proceeding with the re-execution of the work which
Woodhead said was defective. If Leighton did have access to
a variation claim, then the costs that it proved in the
Arbitration would not be the award in its favour, and in
these circumstances no award would be available in any
event."
15. On 3 November, 1988, Woodhead wrote to the appellant in the following terms:
"Despite constant reminders you have delayed rectification
work on the floors, placing pressure on finishing standards.
The floors do not meet with the specified standards required
as a sub-base for carpets under 220/200/02.2 and
220/600/02.3. We cannot accept the standard achieved to
date and we remind you of your obligation to provide a
satisfactory carpet installation with a 10 year warranty.
This cannot be achieved on a substandard sub-base ...
Accordingly, we ask for your immediate action to ensure that
the required standard will be achieved."
16. On 6 December, 1988 Woodhead wrote to the appellant in the following terms:
"We have by letter of November 3rd 1988 formally instructed,
pursuant to Clause 6.09 of the Conditions of Contract, that
re-execution of work is required in respect of floors and
respond to your request made by letter of November 15th 1988
for an instruction in respect of this work. We refer you to
our letter of November 3rd 1988 and reiterate the
instructions given there that floors shall be brought to a
standard required by the Specification or otherwise
approved, noting that currently floors 3, 7, 9, and 11 to 17
do not comply with the Specification, nor have been accepted
pursuant to 591-5(a). Your letter of November 15th 1988
foreshadows claims for extensions of time and costs from
November 3rd 1988. We advise that our instruction does not
incur any variation nor result in any delay for which the
Builder is entitled to claim."
17. The Arbitrator did not quote from the appellant's letter of 15 November, but he said that Woodhead had referred to Clause 6.09 twice in their correspondence of 21 December, 1988, and he said "none of this correspondence caused Leighton to lodge the notice required under Clause 6.09.02". Then the Arbitrator said
"I now confirm my earlier findings, determining that
Leighton's failure to lodge the Clause 6.09.02 notice
disqualifies it from access to a Variation claim".
18. I note, however, that at p257 of his award, the Arbitrator said "on November 9th 1988 Leighton wrote to Woodhead as follows:
'We refer to your letter of November 3rd 1988 ... and advise
at this stage the contents to be a variation to the contract
...' "
19. Clause 6.09, to which the Arbitrator several times referred, states:
"6.09 Should the Architect consider that the quality of any
work or materials is not in accordance with the requirements
of this Agreement then:
6.09.01 The Architect may instruct the Builder to remove
and/or re-execute and/or replace any such work or materials
or to make good any defect, and
6.09.02 notwithstanding the provisions of paragraph 5.02.03
the Builder shall be obliged to carry out any such
instruction but shall be entitled, provided that prior to
carrying out the instruction he shall have given to the
Architect written notice of his intention so to do,
thereafter to refer to arbitration under Section 13 the
question of whether he should be allowed payment for such
removal, re-execution, replacement, amendment or making good
as a Variation.
20. The Arbitrator did not refer to section 15.11 which was clearly relevant. It states:
"15.11 Variations
15.11.01 Failure of Builder to Notify or Await Architect's
Response
In the event that the Builder shall commence to carry out
any Works otherwise than in accordance with the Contract
Documents as varied in accordance with this contract without
giving a notice in writing to the Architect in accordance
with sub-clause 15.11.02 hereof or, having given a notice as
aforesaid, without having first received response in
accordance with paragraphs (i) and (ii) of sub-clause (a) of
Clause 15.11.03 hereof then the Builder shall be precluded
from claiming at any time thereafter that the Works so
commenced included or constituted a Variation.
15.11.02 Builder to Notify Potential Variations
The Builder shall within fourteen (14) days of the Builder
becoming aware of any act matter or thing, including but
without limiting the generality of the foregoing any
instruction by the Architect, which constitutes in the
opinion of the Builder a Variation (hereinafter in this
clause called 'the Claimed Variation') give notice in
writing to the Architect specifying in reasonable detail:-
(a) those acts matters or things which constitute the
Claimed Variation; and
(b) any consequential changes which in the Builder's
reasonable opinion should be made to the Contract Programme;
and
(c) the period of delay or gain in time (if any) arising
from such Claimed Variation as estimated by the Builder the
change to the Date for Practical Completion of the whole of
the Works and the extensions of time to which the Builder
may be entitled; and
(d) the order of magnitude of cost of the Claimed Variation;
AND the Builder shall request the Architect's instructions
in respect thereof.
15.11.03 Architect's Instructions Concerning the Builder's
Notice
(a) The Architect shall as soon as is practicable but in any
event within fourteen (14) days or such lesser period as may
be determined in accordance with paragraph (f) of Clause
15.09.02 hereof respond to the Builder's Notice given under
sub-clause 15.11.02 hereof in writing:-
(i) accepting the Builder's claim and issuing an
appropriate authorisation by the Architect and certificate
by the Proprietor in accordance with Clause 6.10.03
hereof; or
(ii) not accepting the Builder's claim and issuing an
authorisation by the Architect and a certificate by the
Proprietor requiring the Builder to give effect to the
Claimed Variation without prejudice to the Builder's
entitlement to arbitrate the dispute and the Builder shall
forthwith thereafter give effect to that authorisation and
certification; or
(iii) issuing an instruction not to do the act matter or
thing which is the Claimed Variation.
(b) The provisions of Section 6Section 9 and Section 13 of
the General Conditions shall be read and construed as being
subject in all respects to the provisions of this paragraph
15.11.02 and the duties and obligations of the Builder
hereunder shall be construed accordingly;
(c) For avoidance of doubt the Builder is not expected to
make any change to the program or order and method of work
until such time as an appropriate Proprietors' certificate
if any is received by the Builder."
21. I also refer, for the sake of completeness, to sections 2.02 and 15.02.02(f) of the Contract, and set them out hereunder:
"2.02 Should the Contract Documents contain any discrepancy
or inconsistency then they shall be accorded the precedence
interpreted as set out in Section 15 ..."
"15.02.02 (f) in the event of any inconsistency between the
provisions of this Section 15 and any other provision of
this Agreement the former shall prevail"
22. Mr Gray QC, counsel for the appellant, argued that the Arbitrator's award was relevantly flawed by his view that clause 6.09.02 made time "of the essence" as regards the giving of any notice. I agree with King CJ that this is really a red herring, and that the clause contains not a time stipulation, but a condition precedent.
23. The court was not informed when the appellant carried out the architect's instruction about the concrete floors which, having regard to the wording of 6.09.92, could have been very material. Apart from that aspect, I incline to the view that the appellant's letter of 9 November, 1988 to Woodhead - only portion of which was quoted by the Arbitrator in his award - amounted to the necessary notice to the architect under 6.09.02. I acknowledge that so much of the letter as is quoted does not state that the appellant intended to refer the matter to arbitration, but the appellant has, in my view, a greater obstacle with the requirement of notice under section 15.11.02. Unfortunately the Arbitrator does not appear to have considered this aspect, but it seems reasonable to infer from what he did say, and from the arguments of counsel, that the appellant gave no such notice, and in my view its failure to do so precluded any claim to a variation.
24. My conclusion stated shortly, therefore, is that the Arbitrator erred in declining to quantify the costs thrown away in regard to the work performed by the appellant unnecessarily, and that if the appellant had no problem in regard to giving notice, I would have held that the award did contain manifest error on its face. Because of the appellant's omission to give notice at least in compliance with section 15.11.02, however, the application must fail. I, too, would dismiss the application for leave to appeal.
JUDGE3 MILLHOUSE J This appeal is from the refusal of Debelle J to give leave to appeal in a building dispute which had been to arbitration.
2. The appellant built a big building in Pirie Street for the respondent. The total contract price was getting on for $36m. Disputes arose between owner and builder. The parties went to arbitration. The arbitrator was Mr Neil Sarah. He sat for 116 days. He published his award four and a half months later. It ran to 404 pages. Mr Sarah awarded the respondent nearly $440,000 with interest. The appellant was not happy.
3. Thankfully I will not have to go into the facts. I set out the grounds of appeal. They are in the affidavit of Mr Robert Floreani, solicitor for the appellant. I omit the particulars of each ground:-
" 1. Measurement of Time in the Contract:
The First Ground of Appeal relates to a finding by the
Arbitrator with respect to the construction or
interpretation of the terms of the Agreement in that the
Arbitrator has made a manifest error of law on the Award in
failing to properly construe clause 15.08 of the Special
Conditions whereby the parties agreed to establish an
Approved Programme for the measurement of the critical path
of the project as it was affected from time to time by
events which affected activities on the critical path.
...
2. Notices
The Second Ground of Appeal is that the Arbitrator erred in
law on the Award in failing to properly construe the
provisions of the Agreement as they relate to the time
within which Notices were to be given with respect to claims
for extensions of time. In particular, the Arbitrator made
a manifest error in law in failing to properly construe the
provisions of the Agreement as they relate to the giving of
Notices with reference to clauses 9.01, 9.02. and 9.07 of
the Standard Form Contract and clauses 15.09.02 and
15.09.06(a) of the Special Conditions to the Agreement.
...
3. Bonus Entitlements
The Third Ground of Appeal is that the Arbitrator erred in
law on the Award in failing to properly construe the
provisions of the Agreement as they relate to Leighton's
entitlement to a Bonus under the provisions of clause 15.23
(the Bonus Clause) of the Agreement.
...
4. Builder's Delay Analysis
The Fourth Ground of Appeal is that 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.
...
5. Concrete Floor Delays of 111 Days
The Fifth Ground of Appeal is that the Arbitrator erred in
law in criticising Leighton's claim for an extension of time
of 111 days for the concrete floor claim and that the
Arbitrator's rejection of the claims made by Leighton with
respect to the concrete floors based on the Builder's Delay
Analysis constitutes a manifest error of law on the
Award
...
6. Builder's Analysis of Extra Resources and Cycle Times
(Appendix D)
The Sixth Ground of Appeal is that the Arbitrator erred in
law in the condemnation of Leighton's summary of
contemporaneous events as set out it Appendix 8, Exhibit No
...*
7. Alternative Claims
The Seventh Ground of Appeal is: that the Arbitrator erred
in law in failing to properly construe the terms of the
Agreement as they relate to the alternative claims made by
Leighton under paragraph 14 of the Points of Claim and in
particular sub-paragraphs 14.1 14.2 14.3 14.4 14.5 and 14.6
(see pages 122-141).
...
8. Construction of Clause 6.09
The Eighth Ground of Appeal relates to the findings by the
Arbitrator that with respect to each of the claims made by
Leighton for variations, extensions of time and costs as set out
at pages 151 to 318, Leighton is not entitled to either any of
the direct costs of the variation, or any of the costs
associated with extensions of time.
...
9. Direct Costs incurred by Builder - Concrete Floors
The Ninth Ground of Appeal relates to the claim made by
Leighton for direct costs incurred with respect to Concrete
Floors and the failure of the Arbitrator to make any finding
as to Leighton's entitlement to direct costs constituting a
manifest error of law on the face of the Award.. "
4. Debelle J on the application for leave, heard argument from both sides and has written a most helpful set of Reasons explaining his refusal of leave.
5. Section 38 of the Commercial Arbitration Act 1986 (SA) governs leave to appeal:-
"38.(1) Without prejudice to the right of appeal
conferred by subsection (2), the Court shall not have
jurisdiction to set aside or remit an award on the ground of
error of fact or law on the face of the award.
(2) Subject to subsection (4), an appeal shall lie to the
Supreme Court on any question of law arising out of an
award.
(3) On the determination of an appeal under subsection (2)
the Supreme Court may, by order -
(a) confirm, vary or set aside the award;
or
(b) remit the award, together with the Supreme Court's
opinion on the question of law which was the subject of the
appeal, to the arbitrator or umpire for reconsideration or,
where a new arbitrator or umpire has been appointed, to that
arbitrator or umpire for consideration,
and where the award is remitted under paragraph (b) the
arbitrator or umpire shall, unless the order otherwise
directs, make the award within three months after the date
of the order.
(4) An appeal under subsection (2) may be brought by any of
the parties to an arbitration agreement -
(a) with the consent of all the other parties to the
arbitration agreement;
or
(b) subject to section 40, with the leave of the Supreme
Court.
(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.
(6) The Supreme Court may make any leave which it grants
under subsection (4)(b) subject to the applicant complying
with any conditions it considers appropriate.
(7) Where the award of an arbitrator or umpire is varied on
an appeal under subsection (2), the award as varied shall
have effect (except for the purposes of this section) as if
it were the award of the arbitrator or umpire."
6. The learned Judge found that in relation to each of the nine grounds there was no "manifest error of law on the face of the award" as required by s38(5)(b)(i). He went on, almost at the end of his Reasons:-
" I have, out of an abundance of caution, also considered
whether there is any ground on which Leighton could rely on
para (ii) of s38(5)(b). Leighton did not advance any
evidence, strong or otherwise, to suggest that there was
such an error of law. I have been unable to find strong
evidence of an error of law sufficient to justify leave to
appeal. In this respect, it is relevant to note that, as a
standard form contract which has been extensively modified
by Clause 15, the Building Contract falls within the
category of a "one-off" contract, not a standard form
contract, see The Nema (1982) AC 724 at 742-743.
For all of these reasons I refuse the application for leave
to appeal."
7. Section 38(5) in its present form came into effect on 1 January 1993. It was a uniform amendment to legislation, uniform throughout Australia or at least common to several of the States. The policy behind the amendment is to cut down the number of appeals from arbitrators so that with some qualifications, their awards are final, unappealable.
8. Rogers CJ Comm D explained the policy in Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 184 at 192:-
" The somewhat unusual phraseology and verbiage of the new
s38(5) can only be understood in the light of the
legislative and judicial backdrop to the provision. First,
the amendment represents an obvious desire to tighten up and
further restrict the scope for judicial supervision of
arbitral awards. Secondly, it adopts the philosophy of the
English courts that an application for leave should not
involve a major and lengthy examination of the award but
rather that the argument for grant of leave should be so
strong and so apparently compelling that a fairly rapid
examination should disclose that the requirements of the Act
have been satisfied. Thirdly, it is necessary to look at
how the former provision was construed and it will be clear
why the phraseology was adopted in order to put to rest any
doubt that there may have been as to the correct approach to
be made to an application for leave.
It is clear that the legislature intended to reject the
broad discretionary approach prescribed by the judgment in
Qantas."
9. "Qantas" is Qantas Airways Ltd v Joseland and Gilling (1986) 6 NSWLR 327, decided before the amendment. It adopted a much broader, easier test for granting leave to appeal. This was in contrast to the stricter test in England. The English test was explained in Pioneer Shipping Ltd v B.T.P. Tioxide Ltd (The Nema) (1982) AC 724. Lord Diplock said (at 742-743):-
" Where, as in the instant case, a question of law involved
is the construction of a `one-off' clause the application of
which to the particular facts of the case is an issue in the
arbitration, leave should not normally be given unless it is
apparent to the judge upon a mere perusal of the reasoned
award itself without the benefit of adversarial argument,
that the meaning ascribed to the clause by the arbitrator is
obviously wrong. But if on such perusal it appears to the
judge that it is possible that argument might persuade him,
despite first impression to the contrary, that the
arbitrator might be right, he should not grant leave; the
parties should be left to accept, for better or for worse,
the decision of the tribunal that they had chosen to decide
the matter in the first instance."
10. Pretty clearly that passage is the origin of the present s38(5).
11. A headache, though, for the Courts is in the word "manifest" in
(5)(b)(i). What is the difference between "a manifest error of law" and just "an error of law"? There must be some difference. Otherwise the word "manifest" has no work to do. Various judges have tackled the answer to the question and described a difference in their own ways.
12. Kirby P said in Natoli v Walker (unreported NSW Court of Appeal delivered 26 May 1994 at p25):-
" Obviously, there is a difficulty in the word `manifest'.
What may be `manifest' to one judicial officer may fail to
persuade another. The criterion cannot be the swiftness of
mind of the sharpest intellect. Nor can it be the
perception of one whose whole career has been devoted to
examining and reflecting upon building contracts. An
objective, not a subjective, test for what is `manifest' is
contemplated. But the word will not go away. Against the
background of its history in this context it requires swift
and easy persuasion and rapid recognition of the suggested
error. Otherwise, Parliament has taken the decision that it
is better for the community as a whole that the parties
should be held to their arbitral award. The price of
lengthy exploration and reconsideration may prove warranted
in a particular case. But, in the administration of justice
as a whole, it is not. Expressed in economic terms, the
marginal utility of the variations which will be achieved in
particular cases is outweighed by the marginal cost of the
delays, frustrations, uncertainties, inconvenience and legal
and other expenses thereby necessitated.
This will seem a harsh decision to those who can show error
in an arbitrator's award. It will seem particularly harsh
where an error of law can be shown. It may even seem
intolerable where an arguable, but not `manifest', error of
law is demonstrated. But that is the choice which
Parliament has deliberately taken. Judges must be faithful
to that choice. They must obey it, even where their
inclinations suggest that a detailed and painstaking review
of the facts and the law might ultimately persuade them that
the arbitrator has erred."
13. Before I read the authorities I thought "manifest" probably equates to "obvious". I have had a look in Roget's Thesaurus. The closest (in the sense of being the most appropriate) of the many synonyms, shades of meaning, of the adjective "manifest" look to be, "stare in the face", "loom large".
14. I had to consider s38(5) in Opat Decorating Service (Aust) Pty Ltd v Hansen Yuncken (SA) Pty Ltd (1993) 171 LSJS 261. It is not a particularly helpful judgment, at least for present purposes, because I side-stepped
(5)(b)(i) and decided the application on (5)(b)(ii)]
15. Others have done better. Amongst the several expositions of the meaning of s38(5)(b)(i) I refer only to the words of Sheller JA in Promenade Investments at 222:-
" The added requirements of manifest error of law on the
face of the award or strong evidence that the arbitrator
made an error of law and that the determination of the
question may add substantially to the certainty of
commercial law suggest that the draftsman was seeking to
constrain the exercise of court control over arbitral awards
in the manner described by the House of Lords in The Nema.
A manifest error of law on the face of the award may be an
error which would be apparent to the judge upon a mere
perusal of the reasoned award itself without the benefit of
adversarial argument. A determination which adds
substantially to the certainty of commercial law may be a
determination of a question of the construction of a
contract in standard terms rather than the construction of a
one-off clause. In such a situation, strong evidence that
the arbitrator made an error of law may equate with a strong
prima facie case that the arbitrator had been wrong in his
construction."
16. The most apposite sentence is, "A manifest error of law on the face of the award may be an error which would be apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument."
17. However one defines "manifest", however one describes the test, it is and Parliament meant it to be, a very difficult test for a would-be appellant to pass.
18. Mr Thomas Gray QC with Mr Robert Floreani and Mr Rice for the appellants argued his case, as usual, fully and skilfully.
19. Although there were the nine grounds of appeal Mr Gray concentrated, before us, on three points. The first is that through a mistaken interpretation of some clauses in the building contract the arbitrator took an adverse view of the credit of the principal witness for the appellant, Mr Johnston: thereafter he took a set against the appellant: as a result the whole award is unsafe.
20. The second point concerned a dispute over what the arbitrator described as "easily the most important of the issues between the parties", the pouring of the concrete floors - nearly two hectares of them - whether the subsequent work on the floors was rectification or variation and the consequences of the delay caused by the extra work which had to be done.
21. The third consisted of what Mr Gray said were errors by the arbitrator in the construction of the contract.
22. At one point during his address I said to him:
" ... you've got to show a manifest error of law on the face
of the award. You've spent nearly two hours now trying to
explain to us the error or errors. Can you then bring it
within a manifest error of law on the face of the award that
won't take so long to explain? There are definitely errors
- I concede that - but are they manifest on the face of the
orders (sic - probably "the award")? That's only really
putting in concrete terms my problem. When it needs such a
long explanation, or an explanation at all, is it manifest
on its face?"
23. Mr Gray gave this answer:-
" The only reason why the court needs an explanation is that
to read it cold, without assistance, is a very difficult
task and is no doubt the reason why the court directed some
hearing on oral evidence, because the court is dealing with
terms and matters that it is not very familiar with and even
though there are 400 pages of reasons, there still is the
need for background explanation."
24. That was, I expect, about the best answer Mr Gray could have given but it did not satisfy me. If counsel must take so long to explain his case it is not easy to accept that any error made by the arbitrator was "manifest". I concede that Mr Sarah may have made errors - I express no decided opinion -but if he did there were certainly not "manifest errors" in the sense of staring me in the face, looming large. They don't jump out at one reading those nine grounds of appeal] Nor does the first point Mr Gray argued, that the arbitrator took such a set against the appellant that the award is unsafe.
25. As for the other requirement of s38(5) Mr John Wilkinson, with Mr Richard Ross-Smith for the respondent accepted, at least tacitly that the appellant satisfied (a). Mr Gray did not rely on (b)(ii) because this was a "one-off" contract. Therefore its construction is unlikely to "add ... substantially to the certainty of commercial law."
26. On none of Mr Gray's points nor on any of the grounds of appeal does manifest error of law shew. That means the appellant fails to satisfy the requirements of s38(b)(i) or (ii) and should not have leave. Debelle J was quite right to refuse it.
27. I suggest that leave to appeal be refused and the appeal dismissed.
54
2
0