Minister for Industrial Affairs v Civil Tech P/L (No 5) No. Scgrg-99-883

[2000] SASC 214

MINISTER FOR INDUSTRIAL AFFAIRS v CIVIL TECH PTY LTD (NO 5)
[2000] SASC 214

Civil

1. DEBELLE J.     This is an application for leave to appeal from the decision of an arbitrator.

2. On 18 September 1990 the Minister entered into a contract with the defendant, Civil Tech Pty Ltd (“Civil Tech”), for the construction and installation of underwater pipes at West Beach.  The contract was called the “West Beach Marine Research Laboratory – Sea Water Intake – Contract”.  The general conditions of the contract were what is known as the National Public Works Contract (NPWC), edition 3 (1981).  Clause 45 of the contract contained an arbitration agreement.

3. Disputes arose between the Minister and Civil Tech relating to the entitlements of Civil Tech under the contract.  The disputes were referred to arbitration.  The arbitration commenced on 1 February 1995 when a preliminary conference was held.  The hearing of the respective claims and counterclaims did not begin until 23 September 1996. 

4. On 25  November 1996, the arbitrator delivered an interim award (“the 1996 award”) concerning the issue whether Civil Tech was bound by a document called “the letter of release” dated 14 February 1992.  That letter had been executed by both parties in the course of the construction of the works.  That letter stated that Civil Tech had agreed to accept a payment of $343440 in full settlement of its claim for removal of certain obstructions which had been encountered in the work and for consequential delays and had released the Minister from its claims.  The arbitrator decided in the 1996 award that the letter of release was voidable on several grounds, namely, economic duress, unconscionability and absence of accord and satisfaction.  In his reasons the arbitrator also found that the letter of release was voidable on the grounds of common mistake and misrepresentation, which grounds had not been pleaded by Civil Tech.

5. The Minister sought leave to appeal from the 1996 award.  Leave to appeal was refused.  The Minister then obtained from the Full Court leave to appeal from the decision refusing leave to appeal.  Pursuant to that leave, the Minister then applied to the Full Court for leave to appeal against the 1996 award.  On 26 February 1998, the Full Court allowed the appeal against the decision refusing leave to appeal and also allowed the appeal against the 1996 award.

6. The Full Court examined the manner in which the issues before the arbitrator had been pleaded.  The letter of release had been raised by the Minister in his defence.  In its reply, Civil Tech raised a number of pleas in answer to any reliance by the Minister upon the letter of release and challenged the validity of the letter on several grounds including the absence of accord and satisfaction, duress, unconscionability, waiver and estoppel.  The Minister rejoined by alleging that Civil Tech was estopped on the ground that it had not challenged the validity of the letter before it had filed its reply, that the Minister had paid the amount referred to in the letter, and to that extent had acted to his detriment.  The Full Court called this plea of estoppel “the affirmation plea”.  I will set out the plea in more detail a little later in these reasons.

7. As the Full Court noted, the arbitrator found that Civil Tech was not bound by the letter of release on several grounds.  It held that, in the absence of the affirmation plea, any one of those grounds, if justified, would support the award.  The Court upheld the finding that the Minister had acted unconscionably and held that, subject to the affirmation plea, the letter of release could be set aside as unconscionable.  According to the Full Court, the arbitrator had not addressed the issues in the affirmation plea.  It, therefore, remitted the award to him for reconsideration in the light of any determination which he might make concerning the affirmation plea.  In the order made by the Full Court the affirmation plea was called “the claim of estoppel”.  The relevant terms of the order of the Full Court were:

   “2..... That for the order of Debelle J made on 24 January 1997 there be substituted an order that the appellant have leave to appeal against the said Interim Award on the question of law of whether the Arbitrator erred in law in failing to consider and determine the claim of estoppel made by the appellant in the Rejoinder dated 10 September 1996, which issue is set out in the Interim Award as issue no 5.

   ...

   5...... That the Interim Award be remitted, together with the Court’s opinion on the question of law which were [sic] the subject of the appeal to this Court, to the Arbitrator for reconsideration in light of any determination the Arbitrator may make concerning the claim of estoppel referred to in paragraph 2 of this order.”

As the Full Court explained in its reasons, the task for the arbitrator was to make the necessary findings of fact on the question raised by the claim of estoppel and then decide the question according to law.  It was open to the arbitrator to uphold or dismiss the plea depending on the facts as found and the law to be applied. The Full Court said:

“[T]he arbitrator was obliged to consider the affirmation plea, for if it succeeded, that effectively eliminated any remedy that the respondent might have had based on unconscionability or on any of the other grounds.  A proper consideration of that plea would have entailed making appropriate findings of fact and applying the relevant principles of law to them.”

The effect of the order of the Full Court was to require the arbitrator to determine whether or not the letter of release which constituted the agreement between the parties on 14 February 1992 was affirmed.

1. The hearing before the arbitrator resumed in March and April 1998.  The Minister was dissatisfied with certain aspects of the hearing.  On 22 April 1998 the Minister made an application to this Court to remove the arbitrator on the ground of misconduct.  On 22 January 1999 the application was dismissed.  The arbitration proceeded.  On 9 July 1999 the arbitrator published a further award (“the 1999 award”).  He held that Civil Tech had not affirmed the agreement contained in the letter of release dated 14 February 1992 so that it was not estopped from rescinding the agreement.  He also held that the agreement had not settled the dispute between the parties relating to the man-made obstructions nor had it finalised all additional claims arising out of the contract.

2. The Minister has applied for leave to appeal against that decision.  Both parties appeared on the application.  The argument was extensive.  By consent, I treated the hearing of the application as the hearing of the appeal.  The parties were granted leave to file further written submissions.  They did so.  I therefore have been supplied with full and detailed submissions.

3. The grounds on which the court must be satisfied before granting an application for leave to appeal from an arbitrator are set out in s 38(5) of the Commercial Arbitration Act 1986. Leave to appeal is available only in respect of a question of law arising out of the award: s 38(2). Leave is not to be granted unless the determination of the question of law could substantially affect the rights of one or more of the parties and there is either a 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. Those grounds and the approach to be adopted by the court are well settled. They have been explained in a number of decisions. It is sufficient to refer to Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203; Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust (1994) 63 SASR 444 approved in Minister for Industrial Affairs v Civil Tech Pty Ltd (1998) 70 SASR 394.

4. The issues in this arbitration concern a substantial claim by Civil Tech for an amount in excess of $3 million.  If the Minister succeeds on this appeal it will bring the arbitration to a halt.  I am satisfied that the determination of the questions of law whether Civil Tech is estopped by its conduct could substantially affect the rights of the parties.  I turn to consider the question whether the Minister had demonstrated that there is any manifest error of law on the face of the award.

5. The issue which the Full Court had remitted to the arbitrator was in relatively narrow compass.  It was whether Civil Tech was estopped from challenging the validity of the letter of release on the ground of the Minister’s unconscionability by reason of the issues in the so-called “affirmation plea”, namely:

   “1..... The respondent had at no time either orally or in writing challenged, queried, corrected, clarified or qualified the content and interpretation of the letter prior to its Reply to Defence.

   2.The respondent had at no time challenged the validity of the letter on the grounds alleged in its Reply to Defence or any grounds at all prior to its Reply to Defence.

   3...... The applicant paid the amounts referred to in the letter on the dates alleged, which dates were earlier than those specified in the letter, and to that extent acted to its detriment, and the contractor accepted the payments referred to in the letter.”

The only issues before the arbitrator arose out of the affirmation plea.

1. In finding in his 1999 award that Civil Tech was not estopped from relying on the unconscionable conduct of the Minister, the arbitrator relied on the following grounds:

2. The Minister had continued to make payments to Civil Tech after the letter of release and that such payments were inconsistent with the construction of the letter of release for which the Minister contends.  Those payments were payments of progress claims made under the contract to do the works.  In receiving those payments, Civil Tech was not in any respect affirming the letter of release but receiving payments under the contract.

3. The receipt by Civil Tech of payments for progress claims is more consistent with the terms of a without prejudice letter written by the Minister to Civil Tech shortly before the letter of release which was a step in the negotiations leading to the letter of release.

4. That Civil Tech had until December 1993 proceeded on the footing that the intent of the letter of release was to release the Minister from claims for the removal of man-made obstructions encountered in the trench line of the proposed sea water pipeline, between chainage (metres) 144 and 300, and its consequential delays and not, as the Minister contends, from all claims in relation to this contract.

5. That neither Mr Stidson of Civil Tech nor Mr Manning, the Minister’s superintendent, believed that the letter of release was to be interpreted in the manner for which the Minister now contends.

6. That by a letter dated 20 December 1993 to the Minister, Civil Tech expressed a clear intention not to be bound by the letter of release.

7. The Minister did not raise the issues of estoppel until July 1995 when pleading his defence to the claim by Civil Tech.  By that time, Civil Tech had already, in its letter of 23 December 1993, stated that it was not bound by the letter of release.

The arbitrator’s conclusion that Civil Tech had not acted in a way which barred it from relying on the unconscionability of the Minister was plainly open on the evidence.  The facts as found by the arbitrator are consistent with that conclusion.  All of the findings listed above were, on the evidence, open to the arbitrator.  It has not been suggested that they were not.  Nor has it been demonstrated that in making any of these findings of fact the arbitrator has in any respect made an error of law.

1. Mr Meyer, who appeared for the Minister, submitted that the arbitrator had in the 1999 award found that an agreement had been made between the Minister and Civil Tech before the letter of release.  In his award, the arbitrator had called the agreement “the intended agreement”.  A fair reading of the award shows that the arbitrator was careful not to find that any agreement had been made concerning the claim by Civil Tech before the letter of release.  Mr Meyer was critical of paragraph 29 of the 1999 award which reads:

   “The Respondent had not previously relied on the written terms of the letter of release in the rejection of the Contractor’s claims by the Superintendent or the Principal. It had previously relied on the intended wording, and Civil Tech had impliedly affirmed the agreement based on those same representations and that limited knowledge.”

In this paragraph, “the Respondent” is the Minister.  Mr Meyer fastened on the words “impliedly affirmed”.  He said that the arbitrator had erred on a question of law since it was not possible to imply affirmation of an agreement which did not exist.  I think that paragraph 29 could have been more happily expressed but, notwithstanding the inaccurate use of legal terms, the intention of the arbitrator is clear, particularly when it is put into context.  It discloses no error of law.

1. One of the arbitrator’s reasons for concluding that Civil Tech did not affirm the letter of release was that it did not know the construction which the Minister placed upon it.  In paragraph 29, the arbitrator is saying that the Minister had not construed the letter of release as releasing him from all claims until he had filed his defence.  The reference to “the Superintendent” in paragraph 29 is to the superintendent supervising the works on behalf of the Minister.  The reference to “the Principal” is to the Minister.  The reference to “the intended wording” is to the arbitrator’s finding that the letter which preceded the letter of release intended to release the Minister only from any further claims by Civil Tech related to the man-made constructions and consequential delays caused by those obstructions and not from other claims for delay which might have been caused by other factors.  The final words in paragraph 29 simply intend to repeat what the arbitrator had already found in the 1999 award that Civil Tech understood that the letter of release would release the Minister from claims by Civil Tech relating to man-made obstructions and consequential delays caused by those obstructions.  Thus, although the arbitrator is inaccurate in his use of words, his intention is clear when the whole of the award is read.  It follows that there is no error of law.

2. At the resumed hearing before the arbitrator, the Minister submitted that an agreement had been made between the parties which had predated the letter of release of 14 February 1992 and that this agreement was capable of being affirmed and was, in fact, affirmed.  That was not the issue which had been remitted to the arbitrator by the Full Court.  The only issue was whether Civil Tech had affirmed the letter of release.  Furthermore, it has never been part of the Minister’s claim that the parties reached any agreement other than that contained in the letter of release.  The argument advanced by the Minister on the re-hearing is a very late introduction of a new issue.  The Minister has not applied to amend his pleadings.  Given the late hour when that new issue was raised, the fact that the Full Court had not remitted that issue to the arbitrator, and the absence of any amendment, the Minister cannot now rely on it.

3. Mr Meyer submitted that it was open to the Minister to advance the above argument because the arbitrator, in his 1996 award had, in paragraphs 71 to 74 and in paragraph 94, found the existence of such an agreement.  There is nothing in those particular paragraphs which justifies that submission.  Furthermore, when the award is read as a whole, it is apparent that the arbitrator has not found that any agreement existed between the parties or that any agreement was affirmed by Civil Tech.  Instead, the arbitrator found that there was a common intention to resolve the issues between them but that the letter of release did not fulfil that intention.  The Minister’s submission is, therefore, unfounded.

4. For all of these reasons, there is no error of law on the face of the record, manifest or otherwise.  For like reasons, there is no evidence of an error of law, the determination of which would add substantially to the certainty of commercial law.  It follows that the application for leave to appeal must be refused.