Shoalhaven City Council (ABN 59 855 182 344) v Firedam Civil Engineering Pty Limited (ABN 84 003 923 377)
[2011] HCATrans 11
[2010] HCATrans 011
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S216 of 2010
B e t w e e n -
SHOALHAVEN CITY COUNCIL (ABN 59 855 182 344)
Appellant
and
FIREDAM CIVIL ENGINEERING PTY LIMITED (ABN 84 003 923 377)
Respondent
FRENCH CJ
GUMMOW J
HEYDON J
CRENNAN J
KIEFEL J
BELL J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON WEDNESDAY, 2 FEBRUARY 2011, AT 2.17 PM
Copyright in the High Court of Australia
MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MS J.A. STEELE, for the appellant. (instructed by TressCox Lawyers)
FRENCH CJ: Thank you. There is a submitting appearance for the respondent. Mr Jackson, as you are aware, of course, we have rescheduled the hearing because of a settlement that occurred yesterday. I appreciate there is a relationship between this matter and the matter that follows. If it should be the case that you feel that it is necessary to make any supplementary, either oral or written, submissions in the light of what is argued in the case that follows you will have leave to do so.
MR JACKSON: Thank you. Your Honours, we have handed to the Court our outline of propositions, which the Court should have. I apologise for the word that had to be written in in the first paragraph, your Honours. Your Honours, that is the order in which I propose to deal with our submissions.
FRENCH CJ: If the inconsistency point is resolved in your favour, how does the question of the sufficiency of reasons arise?
MR JACKSON: Your Honour, it does not. Our contention is that if it be assumed that there was an inconsistency at the same time the reasons are, in our submission, perfectly clear as to why the expert arrived at the conclusions at which he did. The question which would then arise is whether that was a mistake of such a nature that can be examined by the courts. When I say examined by the courts, I am using a shorthand expression to refer to the ability to contend that as between the parties to the contract, what the expert did was not conduct contemplated by the contract.
Your Honours, may I move then to the substance of the matter. As is apparent from paragraph 1 of the expert determination which your Honours will find at page 3 of the appeal book, the appellant and the respondent were parties to a contract for the design and construction by the respondent of a waste water transportation system in part of the appellant’s area. The contract required some matters of dispute to be the subject of expert determination and there was a provision inhibiting the party’s ability to sue in the ordinary way unless the result of the expert determination in money terms, and leaving aside interest, exceeded $500,000. Your Honours will see that referred to by Justice Macfarlan at page 277 in paragraph 24.
Your Honours, the provisions of the contract relating to expert determination may be seen in two places. One is Schedule 6 to the contract, which appears at page 221, and your Honours will see in clause 1 of that schedule the questions that are to be determined or were to be determined by the expert. I will not read them out but your Honours will see them set out there.
Your Honours will see in clause 2 the procedure for submissions to the expert, and that provides for the various submissions to the submissions which were made in writing. Clause 3 provided that there might be a conference, but that was not to give the expert determination “the character of an arbitration”. Your Honours will see that at clause 3.2. The role of the expert was made apparent by clause 4. Your Honours will see in clause 4.1.1 that the expert was to:
.1 act as an Expert and not as an arbitrator;
.2 must make its determination on the basis of the submissions of the parties, including documents and witness statements, and the Expert’s own expertise; and –
then thirdly and importantly, the expert was to –
.3 must issue a certificate in a form the Expert considers appropriate, stating the Expert’s determination and giving reasons –
within the specified time. Your Honours will see then in clause 4.2 that there was some provision for there to be correction of the certificate given by the expert in the circumstances referred to there - “clerical mistake” and your Honours will see the other matters there set out.
Your Honours, the second part, dealing with expert determination, is in clause 75 at page 180. Now, your Honours will see clause 75 refers in 75.1 to the nomination of the expert and persons who are to be excluded and if I could move on to clause 75.2, your Honours will see in 75.2.3 that “the procedure” was to be that “in Schedule 6” to which I have just referred. If your Honours go to clause 75.6, it is the provision to which reference was made in the passage in Justice McFarlane’s reasons that I adverted to earlier about the limit to be exceeded before litigation could be commenced. Your Honours, if one goes to clause 75.7 your Honours will see that 75.7.1 says that:
the parties must treat each determination of the Expert as final and binding and give effect to it -
Your Honours, that is of some importance because the decisions to which I will come a little later refer to the importance in terms of – in dealing with the question whether a mistake affects the nature of a determination or the ability to set it aside - the question whether it has been agreed to be final and binding as one of some significance.
Now, your Honours, if I could pause at that point, what in our submission may be seen from those provisions is that the evident purpose of them is to preclude recourse to litigation unless the claims, the subject of the litigation, are likely to exceed a nominated sum. Because that is the purpose of the provision, to avoid litigation of its costs, it does seem unlikely, or moderately unlikely one might think, that the resolution of that threshold issue is itself to be determined and the reasons for that determination are communicated in a way which is analogous to that of a court, and the procedural provisions to which we have referred earlier – whilst not decisive on the matter, of course – are, in our submission, against that notion.
Your Honours, one might add, the references distinguishing with some enthusiasm the procedure under the contract from that in an arbitration suggests that the parties have not contracted for more than the contract provides, and, your Honours, I appreciate that is circular. What I mean by it is that what has to be provided are the reasons for the determination. Your Honours, if one speaks more particularly, the structure established by the contract to which I have referred involves expedition. It assumes written claims and submissions. In terms of reasons, it speaks only of reasons for a result, the determination, and it provides in clause 4.2 of Schedule 6, to which I referred earlier, at page 222 for specific but limited challenge to the determination.
Your Honours, in dealing with the issues that arise, it is almost inevitable that in a case such as at present or in the case of a contract such as at present that will involve the expert in deciding questions which are questions of fact and law, they are questions which may be difficult and, so far as they are questions of law at least, they are questions on which two, perhaps more, views may be open. Your Honours, that is particularly true of questions of contractual interpretation and of the law of contract or building and engineering contracts in their application to particular circumstances.
Your Honours, sometimes an expert will, in a sense, get it wrong but get it wrong in the sense that the view which the expert has adopted is not one which a judge might adopt or one which might be the view of an intermediate appellate court or a majority of such a court or of this Court or of a majority of this Court. Your Honours, if that should happen, does it mean, we would ask hypothetically, that the expert has not given reasons for the determination if the court or courts later take a different view? That, in our submission, does seem a little unlikely in circumstances where the purpose of the provisions is to provide an expeditious means to determine whether litigation should be commenced.
FRENCH CJ: Mr Jackson, are we to derive our understanding of the nature of an expert determination entirely within the framework of the general conditions? The term is italicised and there is a definition which simply refers back to the process of appointment and reference. There is a reasonable literature in existence on the question of the nature of expert determinations, do we look to that? Do we simply look to what appears when in the framework of ‑ ‑ ‑
MR JACKSON: Your Honour, could I say two things in relation to that. First of all, one has to look at the contract but what the contract is doing is to select something which is generic, that is, an expert and, if I can just say this, an expert is not an arbitrator. The contract itself says that, of course. Nor is the expert a court. So far as the expert is concerned, the expert is in the position of persons who have to decide something in a non‑curial way as appointed by the contract.
Your Honour, if one is looking to see what the expert is to do, then there are two places one looks. One looks first of all at the contract. If it deals with the topic, then that is what is to happen. Secondly, of course, if it does not say what the expert is to do or how the expert is to do it, then ordinarily one would go to the literature about what an expert is and what the expert is to do and how sacrosanct, as it were, the determination of the expert would be.
Your Honour, if I could just say this, so far as the present case is concerned, the contract deals with the appointment of the person who is the expert, it deals with the procedure to be adopted by the expert and it deals with the function to be performed by the expert, including what the expert is to do.
FRENCH CJ: What, if anything, can we derive in relation to the requirement of the expert to give reasons from the provision that the expert is not an arbitrator?
MR JACKSON: Well, your Honour, if I can just put it this way, one sees that the expression “give reasons” has its – they are reasons for the determination. That is not quite what it says but it seems pretty obvious that is what it means. What it is seeking to say, your Honour, is this, that arbitrations are, in the ordinary course of events, governed to some extent by statute, modern arbitrations at least are governed by some extent by statute, although not necessarily so, and, ordinarily speaking, the persons who are arbitrators will find that some of the things they are doing are matters that are the subject of legislation.
If one compared, for example, the provisions of the contract in the present case with those of, for example, section 29(1)(c) of the Commercial Arbitration Act 1984 (NSW), which is the subject of the other proceedings, one sees that there is a similarity of wording; not exactly the same, but similarity. What the provision is seeking to say, your Honours, is this, that if there be inhibitions on the manner of conduct of an arbitrator which are imposed by the legislation or perhaps by the terms of an arbitration agreement, but by the legislation in the main, then those limitations or inhibitions do not apply to the person who is to carry out the expert determination.
In particular, your Honour, if I could just say one thing about it, it is perhaps the other side of saying that the expert is to use the expert’s own expertise. I do not know if I can take it further than that, but that is what it is intended to say – that is what it is intended to effect, in our submission.
CRENNAN J: Could I just ask you this, Mr Jackson. I know your argument depends on no inconsistency, but in terms of what you are saying before about a mistake and whether you could still have reasons containing a mistake, would you go so far as to say you could have an inconsistency and reasons but you would still have reasons? An inconsistency does not automatically lead to the result that there are no reasons, or insufficient reasons?
MR JACKSON: No, that is so, your Honour. Your Honour, if I could answer it this way, by first saying of qualification, the qualification is that it must depend to some extent on the particular circumstance. But if one had a situation where there is an inconsistency in the reasons that are given which could not result in the actual determination, then the inconsistency would be something which would demonstrate that the expert had not performed the expert’s function, or the function provided for under the contract.
CRENNAN J: Under the contract.
MR JACKSON: Your Honour, I use, if I may, the shorthand expression “the expert’s function” under the contract. The expert would not ordinarily be a party to that contract, but the issue arises between the parties to the contract. Your Honours, could I just say this before going to the detail of the matter that, as we submitted a moment ago, the purpose of the provisions, in our submission, is to provide an expeditious means to determine whether litigation could be commenced, and whilst it is impossible, in our submission, it seems the less likely view of the provisions that they should be construed as if any error by the expert gave rise to, in effect, a full appeal – I use the term in inverted commas – on matters of fact or law.
Your Honours, we recognise that some of the questions decided by the expert in the present case are matters on which differing views may be taken. One day, perhaps, the questions of that nature – and I am referring particularly to, say, clause 54.6, and to the prevention principle as referred to in some of the cases – may come here, and the views expressed by the expert in relation to that may, in that sense, be ultimately right or wrong, but your Honours, we would say the expert has certainly expressed his views in, we would submit, very clear terms, and has complied with the obligations.
Could I go now, your Honours, to the detail of the matter, and your Honours, I am afraid I do need to go to it, perhaps somewhat tediously, but I will do so as expeditiously as I can. Could I invite the Court to, for this purpose, bear in mind one matter, and it is this. The claims involved three types of remedies sought by the respondent and they were, to put it shortly, claims for money, money for extra work; secondly, an extension of time, which would have the result that the date for completion of the contract would be extended and the first relevance of that would be that any liability of the respondent for damages for delay in completion would only commence from the extended date.
The third feature was that there was provision for contractual damages in favour of the respondent for delay in the sense that the contract provided for a form of liquidated damages – I will take your Honours to the provision shortly – to be payable to the respondent if the principal caused delay. That is a certain figure per day. In the end the case really turns on the last of those things in money terms.
Your Honours, the expert’s determination was challenged in the Supreme Court in relation to three claims determined by the expert. They are the claims described as variations 10(A), 12 and 62. The term “variation”, your Honours, in that context is a little misleading. They were claims to have relief under the contract, or that there were variations to the contract. They were not variations in the strict sense, although there was some success by the respondent in relation to them.
FRENCH CJ: Was it agreed in the Supreme Court that the outcome of the contentions in relation to the first of those would determine the outcome in relation to the third, and that the second was not pressed?
MR JACKSON: The second, that is so, your Honour, yes. In relation to the second one, 12, there was an extension of time granted in relation to that, and the expert said – and we have given the reference in our written submissions to the fact that there was not a claim obviously made for delay damages for that. Your Honour, perhaps I should say at this point, I said that the delay damages were the ultimately relevant thing. That is because the extension of time, assuming that is the right description of it, pursuant to clause 54.6, so as to delay the commencing point of our claim for damages for delay had the effect, of course, and we could not claim damages for the delay for that period and it was in effect the same situation as if there had been an extension of time.
So far as that aspect of the claim was concerned that left only the question whether because of the action and conduct under clause 54.6 there was an entitlement to the liquidator damages for delay provided for by the contract. Your Honours, I will come to those provisions more specifically ‑ ‑ ‑
GUMMOW J: Now, the nature of the proceeding in the Supreme Court was an application against your side, was it not?
MR JACKSON: Yes, it was.
GUMMOW J: For a declaration that the expert determination was not binding. Justice Tamberlin dismissed that, then there was an appeal, and you have got in the Court of Appeal at page 298 a cross‑declaration that it was binding. How did that come about?
MR JACKSON: I am sorry, your Honour ‑ ‑ ‑
GUMMOW J: At 298.
MR JACKSON: Yes, I have that, your Honour.
GUMMOW J: You were the respondent. You seem to have got a declaration in your favour.
MR JACKSON: Item 3, the declaration “is not binding”.
GUMMOW J: It “is not binding”.
MR JACKSON: “Is not binding” – that is in favour of the other side.
GUMMOW J: Yes, I see.
MR JACKSON: Your Honours, so far as claim number 10(A) was concerned, the nature of it appears at page 13 in paragraphs 22 and 23 of the expert determination.
HEYDON J: “EOT” is an extension of time.
MR JACKSON: Yes.
HEYDON J: Am I right in thinking that is dealt with in paragraphs 140 to 144?
MR JACKSON: It is, your Honour, yes. What I am seeking to say though, your Honours, is this. If one goes to the expert determination at page 13, in paragraphs 21 and 22, you will see the nature of the claim that was claim 10(A), which was for the basic nature of it, for the amount which was claimed for additional work.
Your Honours, the expert dealt with those claims at some length and he arrived at a number of conclusions. May I endeavour to summarise them in this way? There were four largely overlapping categories of claim within that claim. The first was that he held – and this is at page 20 in paragraphs 73 to 78 – that there had been some breaches by us and that there was an entitlement to damages for those breaches.
That was the first thing, your Honours. The second thing was that, as you will see in paragraphs 79 to 86, commencing at page 21, he held that there was an entitlement to additional costs pursuant to clause 41.4 of the contract. Your Honours, that is, if I could just mention, at page 160. I will come to it later. There was an entitlement to additional costs because the respondent had encountered what it described as materially adverse site conditions. Again, he awarded additional costs in respect of those.
The third thing was that he held – and your Honours will see this at page 22, paragraphs 87 through to 101 – that there had been some misleading and deception conduct, giving, as he said at paragraph 110 at page 24, an entitlement to damages, and your Honours, those contraventions and the damages for them were the same as the breaches of contract and damages for those breaches to which I have earlier referred.
FRENCH CJ: All this was expressed ultimately in terms of additional under‑boring for which your client could recover.
MR JACKSON: For which the other side could recover.
FRENCH CJ: Yes, I am sorry – for which the other side could recover.
MR JACKSON: Yes, indeed, your Honour.
FRENCH CJ: It was expressed in terms of the length.
MR JACKSON: Yes, your Honour, and I will take your Honour to where that is in just a moment, if I may. But, your Honour, the fourth thing was – and this is at paragraphs 111 to 113 of the expert determination – he held that there was an entitlement to a contractual variation with respect to two instances. If your Honours would go to paragraph 114 at page 24, he then gave the addresses of the properties involved, the drawing number relevant to the contract, the part affected – the shed, garden or drive – and the length of under-boring, arriving at the figures which appear at about line 15 on page 25. They amount in total to 166 metres.
CRENNAN J: What does he mean in 114 about “in‑principle determinations”?
MR JACKSON: Your Honour, he is speaking, I think, about the fact that he has not, until then, except I think in the two instances referred to in paragraph 111, attempted to put figures on the extent to which there was additional boring.
CRENNAN J: So you are not referring to contractual requirements like notice or anything like that?
MR JACKSON: I do not think so, your Honour, no.
He then proceeds, your Honours, after the 166 metres he arrives at by totalling the figures at page 25 at line 15 - he then proceeds to quantify those items. You see the heading “Quantum” on page 25. In respect of the two variations to which he referred, he provided for those at the contract rate. You will see that in paragraphs 115 to 121 and in respect of the other courses of action, if I could put it that way, he did so at a slightly lower rate - paragraphs 122 to 125.
He calculated, your Honours, the interest payable, paragraphs 128 to 139, giving rise to the results set out in paragraph 139. If I could just pause there, your Honours, you will see in paragraph 139 he has the various headings “Breach, D&M” - I think it means misleading and deceptive but deceptive and misleading, your Honour, I hope I do not mix it up, and variation and “etc” seems to cover the rest of it.
Now, your Honours, that then gave rise to the question whether there should be an extension of time for completion of the contract because of the matters already referred to. Your Honours, I come to the relevant provisions in a moment, but the relevance of extension of time, of course, was as I said before, in respect of two matters. One was that it meant it extended the contract completion date or the contractual completion date, to use the exact words of the contract, so that the respondent would not liable for damages for delay in respect of that additional period and, secondly, it would give an entitlement to the respondent and delay costs in respect to that period.
The provision for damages payable to the principal for delay in that regard, in delay in completion by the contractor, is at page 207. It is part of item 51B at the top of page 207. You will see your Honours at about lines 11 and 12 that it is a right to claim “general damages” and not a claim for “liquidated damages”.
Your Honours, the provision for the contractor to be able to obtain delay costs is at page 168 and it is clause 55.1 and your Honours will see that clause 55.1 refers to the “rate payable for delay” costs, payable by us to the contractor for delay costs as being as set out in item 51A of the contract information which is at page 206. Your Honours will see the amounts set out there depending on the stage of the matter and the milestone then reached. “Milestones” are defined as one might expect.
FRENCH CJ: Is the misleading or deceptive conduct damages mentioned anywhere in this context?
MR JACKSON: In the contract, your Honour?
FRENCH CJ: Yes, in this context?
MR JACKSON: No, your Honour. Your Honour, if I could just say this, that misleading and deceptive conduct gave rise, of course, to a claim for damages and the damages were assessed and awarded. The question, of course, they did not give rise to a claim for extension of time. That is the matter to which I would now come.
FRENCH CJ: I am sorry. We are just focusing on delay costs here?
MR JACKSON: Yes, your Honour. The reason why we are focusing on delay costs is because, in fact, of course, what the expert did was to say in terms of clause 54.6 that acting “for the benefit of the Principal”, if I could pick up the words of the provision, he extended the time for completion, the result being that the contractor would not be liable for general damages for delay in respect of that extended period, but he did not award any amount for the delay costs to which I have just referred and the delay costs were such, your Honour, that – I think was agreed by the parties – if they were allowed. you would just get over the $500,000 because the amount was very near it anyway.
FRENCH CJ: He seems to have said at one stage that what he was doing with this 54.6 exercise was logically equivalent to simply identifying those elements of delay attributable to the principal as an offset to the principal’s claim.
MR JACKSON: Yes, that is so, your Honour. I will take your Honour to the reference to that shortly.
CRENNAN J: I suppose the argument for inconsistency is directed to clauses 54.1, 54.2 and 54.4, that is to say, that the finding of the nine days delay in relation to the principal is tantamount or consistent with, for example:
.1 The cause of the delay was beyond the control of the Contractor –
I suppose that is how the inconsistency argument works, although it would not work in relation to 54.3, I guess.
MR JACKSON: No, your Honour. What one has is a situation where, if one tries to put it shortly, there were provisions of the contract – and I will come to them very soon – which said, if the contractor wanted an extension of time for whatever reason, the contractor had to demonstrate, do various things and demonstrate ‑ ‑ ‑
CRENNAN J: Various hoops that had to be gone through.
MR JACKSON: In respect of the claims, 10(a) and 62, it was held that the contractor had not done it – had not really tried it, so then one came to the other side of the coin. Your Honours, if I could just pause at that point. That was a view, in our submission, perfectly open to the expert. When he came to the other side, he saw that there was a claim made by us which he thought was a claim that we were endeavouring – and I do not mean this in any bad sense about ourselves, of course – we were endeavouring to obtain a sum of money as damages covering a period when some of the delay, in his view, although not properly claimed, was something that was attributable to us. So he was seeking to identify how long that was.
FRENCH CJ: It is really saying, if you want extension of time delay costs, that is a contractual entitlement and you have to meet contractual conditions for it – that is the contractor. The principal was completion date delay costs. The principal has to account for delays which are attributable to the principal and that does not bring in those contractual entitlement conditions.
MR JACKSON: That is so, your Honour.
FRENCH CJ: That is the logic.
MR JACKSON: I am sorry, yes, your Honour. I was going to say this. If it be that one says, well, using clause 54.6, notwithstanding the words of it, it has the effect that there is an extension of time for all purposes, then the worst one could say is that the expert had made a decision one way on a question which is a debatable – it divided Justice Tamberlin on the one hand, the Court of Appeal on the other, but ‑ ‑ ‑
FRENCH CJ: On his own logic, he did not have to use 54.6. He could have got to the same outcome by another path.
MR JACKSON: That is what he said, your Honour, and he actually said that, but of the two ways of doing it, he used 54.6.
CRENNAN J: Was there any evidence or any submissions directed to the notice issues, on behalf of the contractor I mean, before the expert.
MR JACKSON: Your Honour, the expert, your Honour will see at page 28 first of all, paragraph 140, he said in the first paragraph:
Other than this assertion, the [contractor] has not provided any basis for substantiation of its claim either as to the quantum of the claimed delay or the logic to demonstrate that any additional work –
and so on. If I could just say, those phrases are ones which have a relationship to, for example, clause 25, to which I will come in just a moment, but your Honour will appreciate that this was a case where it was conducted on the written submissions of the parties, and that appears at the start of the expert determination. That was what was required to happen. So that is the first thing, your Honour. When one comes to claim number 62 at page 64, paragraphs 366 and 367, the expert really gave it the attention that perhaps in the circumstances it deserved. He said they have said:
provided any reasoned support . . . There is no contractual basis upon which I might assess [it].
Your Honours, I mentioned that the wording used in clause 140 does have some relationship to provisions of the contract. Your Honours, if one starts with clause 25 of the contract, which is at page 151, it deals with time management. There has to be a contract program which has to be altered from time to time. If one goes to extension of time claims, page 152, one sees in paragraph 25.10 that:
The Contractor will not be entitled to Claim an extension of time under clause 54.3 or otherwise, until –
there has been a contract program submitted, et cetera. Your Honours will see the remainder of that paragraph. But then, your Honours, paragraph 25.11:
All extension of time Claims must show how the Contractor has been or will be delayed in reaching Completion, by specific reference to an activity or activities on the then current . . . critical path or paths of the Contract Program.
Your Honours, could I just say then that, if one goes to the variations claim, the question is dealt with specifically by clause 52 at page 166. Clause 52.1 allows there to be variations, and then your Honours will see clause 52.4 says that if the parties agree that a variation applies they must endeavour to agree on its value and effect and on the time for completion, if any. Failing agreement on that value or time, either may request the valuer to decide. Then if no valuer is engaged the provisions of 72 to 75 – that is the expert determination provision; it is in 75 – and the principles for valuation and calculating time in clauses 3 and 4 of Schedule 5 may apply even though the valuer is not involved. Clause 52.6 also provides to similar effect. Clause 75 applies and the principles for valuation in clauses 3 and 4 of Schedule 5 are to apply.
Your Honours, the references to clauses 3 and 4 of Schedule 5 are references to page 217. At page 217 you will see Schedule 5 commencing and then if one goes to the next page it is provided in clause 4 on that page in the last couple of words of 4.1 that:
Only delays which have or will delay the Contractor in reaching Completion will entitle the Contractor to an extension of time for Completion as a result of a Variation.
Your Honours, one sees, in clause 4.1 the provisions of clause 54 are to be applied if extra time is required for completion. Your Honours will see, in relation to the other bases, or the claims for an extension of time on other bases, that one has clause 55 at page 169 being the provision which is then applicable.
Your Honours, could I just say this – I am sorry to make this sound unduly difficult, I think – if one goes to page 167 you will see that clause 54.1 excludes variations, but the provisions to which I just referred in Schedule 5 in effect apply clause 54.2 variations. If one goes then to clause 55, your Honours will see clause 55.2 at page 169, which says that:
The Contractor’s only remedies for delay, disruption or interference of any nature whatsoever caused by the Principal . . . whether under the Contract, at law or otherwise, are an extension of time –
under the clauses to which I have mentioned and delay costs under clause 55.1.
Your Honours, as is apparent from clause 54.1.4 on page 168, it has to be demonstrated that:
The delay occurred to an activity or activities on a critical path of the then current Contract Program, as provided for in clause 25, and the Contractor has submitted this Contract Program –
Your Honours, the expert’s reasons for denying the claim for extension of time were simply and clearly expressed at paragraphs 140 to 143 and the other two paragraphs to which I referred in relation to claim 62. There was nothing to show compliance with clause 54.2, 54.3, 25.11, nor was there anything submitted to them that the work could not have been completed by the contractual completion date, nor was there compliance with clause 41.2.
Could I mention at that point, your Honours, one observation made by the Court of Appeal. It is at page 282 in paragraph 34. In that paragraph your Honours will see that there is a reference to what had been said at paragraphs 145 and 146, to which I have not yet taken your Honours, in the expert determination, but the last two sentences of that paragraph:
However, he did not conclude that the other bases for Variation Claim 10(a) . . . were affected by any similar problem. In these circumstances, the absence of a notice as to materially adverse site conditions was not of significance.
Your Honours, the point we would seek to make about that is that in relation to the claims based on misleading and deceptive conduct, notice was required. I have taken your Honours to clause 54 and, in particular, clauses 54.1, 54.2 and 54.3 and 25.11. So far as agreed variations are concerned, clause 52 did apply and the principles for valuation applied, as did clause 25.1. The observations which were being made by Justice Macfarlan in paragraph 34 on page 282 related to two paragraphs of the expert determination, 145 and 146, which are at page 28. These are paragraphs dealing with his response to the determination questions. You will see, your Honours, if one goes to paragraph 146, the paragraph to which Justice Macfarlan was obviously referring is 146.d.iii, which your Honours will see is on page 31.
Your Honours, it is apparent, if one looks at – I think I said 146.d.iii, I meant to say 146.d.ii. If one is looking at 146.d.ii on page 31, it is apparent that they are dealing with materially adverse site conditions and that that is so is because subparagraph 146.d.i deals with the variations, subparagraph 146.d.iii deals with breach of contract, duty of care, deceptive and misleading conduct and the observation that was made about clause 41 dealt only with the materially adverse site conditions. He was expressing his views in 146.d largely in relation to the claims for money, but he did say something there about the extension of time in relation to materially adverse conditions. So, your Honour, one does need to read what is said in the light of the questions and what he is there saying.
Your Honours, if I could turn then to the other two claims. Claim 12, as your Honour the Chief Justice mentioned, was one where an extension of time was allowed. You will see that at page 52, paragraphs 282 to 289. An extension of time for 22 days was allowed and you will see that, your Honours, in paragraph 289 on page 53.
FRENCH CJ: This was on the basis that your client was estopped from disputing it.
MR JACKSON: Yes, that is so. Your Honours, your Honours will see then that claim 62 was dealt with at page 64, paragraphs 366 and 367, to which I referred earlier. Then, your Honours, one comes to the claim which is a claim made by us. Now, that is the aspect which is said to give rise to the difficulty in the present case, namely, the manner in which he dealt with our claim for delay costs. Your Honours will see that at page 76 in paragraph 470 he identified the nature of the claim which we were making.
Your Honours will see that he identified at paragraph 474 on the same page the fact that the claim was for common law damages. He referred in paragraph 475 to clause 54.6 and noted in that and the next paragraph the right given to the principal to extend time for the benefit of the principal. Your Honours, he then discusses in a passage which goes from 478 through to 492, in a sense, the prevention principle – your Honours, I use the term for brevity – but the principle being, in effect, that part of the delay claimed could be regarded as attributable to the principal and, therefore, should not give rise to an entitlement to a claim for delay costs. He refers at paragraph 496 to the use of that principle, and he sets out in passages 496 to 500 the approaches that might be taken. Now, your Honours will then see that at paragraph 501 he said he would proceed to:
identify and quantify delays caused by the Principal –
and that he would do that –
based upon the submissions made by the parties and my own judgment.
He noted, your Honours, in the third line of paragraph 501 that the:
delays would have entitled the Claimant to an EOT provided it had satisfied the contractual conditions precedent, and such EOTs would reduce the liability for general damages.
Your Honours, he then dealt with them in this way. Claim 10(a) - your Honours will see paragraphs 503 through to 509, he determined that nine days was the appropriate amount to deduct or add as the case may be. In relation to claim 12 ‑ ‑ ‑
FRENCH CJ: Sorry, that nine days, that was just based on a pro rata‑ing of the length which he found the contractor could recover against the length that had been claimed.
MR JACKSON: Yes, it is 33 – I am sorry, your Honours, it was ‑ ‑ ‑
FRENCH CJ: Something over 659 it is.
MR JACKSON: It is 166 total referred to in 505, and, your Honour, that is how he ‑ ‑ ‑
HEYDON J: Is it 166 over 659 multiplied by 33?
MR JACKSON: I think that is right, your Honour, yes. Your Honour, I cannot claim to have done the mathematics but I do not think anyone has challenged that actually so far. Your Honour, so far as claim 12 is concerned, you will see that in paragraphs 512 and 513. He had previously decided on an extension of time for 22 days. Then claim 62, paragraphs 516 through to 527, 89 days. Now, your Honours, could I say it was not in issue in the Court of Appeal that the expert was entitled to exercise a power “of the Principal . . . under Clause 54.6”. You will see that referred to at page 289, paragraph 54. Your Honour, I do not think that it goes further than that. It was not suggested that ‑ ‑ ‑
HEYDON J: It would be you who would have an interest in complaining about what the expert did.
MR JACKSON: Yes, indeed, your Honour, that is so. Your Honours, if one comes then to the result of the matter, in our submission, the view taken by the primary judge at page 250 in paragraphs 34 through to 36 was the better view of the matter. I will not read out those paragraphs but your Honours will see what the judge said about that analysis and, in particular, at about line 40 on page 251 and following.
Now, a different view, of course, was taken by the Court of Appeal and if I could go to page 289 and the last sentence of paragraph 53 where what is set out is the respondent’s submission, that view is one that appeared to be one to which the Court of Appeal was attracted. Your Honours will see then at paragraphs 59 and 60 at page 291.
CRENNAN J: May I ask you a question about 54.6 which is on appeal book 168? It is just that I wanted to ask you about whether or not the last sentence of 54.6 might give some support to the Court of Appeal’s approach in the sense that it seems to suggest that if:
the Principal exercises its discretion to extend the time for Completion -
the contractor may get some entitlement out of that.
MR JACKSON: Your Honour, could I say this. That is a possible view of the provision but what I would seek to say about it is this, it is speaking in – the second sentence is saying that if there is an exercise of discretion to “extend the time for Completion” then in those circumstances there may be “an extension of time for Completion”. That has to be read, however, with the first sentence of 54.6 that the discretion to do so is to be exercised “for the benefit of the Principal”.
The point I would seek to make is that one has to give some weight to the words “for the benefit of the Principal” and there is then a question of what weight is to be given to it. Your Honours, could I just say this - that it is, we recognise, I think I submitted earlier, that there are some questions of some ultimate difficulty that are involved in the application of clause 54.6 and perhaps also in the application of what is more generally called the prevention principle.
The point I would seek to make is that it is first of all entirely clear, really, from the expert’s reasons why he took the view that the contractor was not entitled to delay costs. The reasons are ones which may or may not ultimately be correct. When I say ultimately, your Honours, it is a matter of whatever might be the final court which decides a rather similar question but the point we would seek to make about it is that it is a view that was open and for the expert to take a view that is open, even if ultimately that view is one which is thought by a court not to be correct then it does not follow that the expert has not performed the task given to him pursuant to the contractual provision.
Your Honours, I wanted then to come, if I may – and I will seek to do so – briefly to some of the decisions dealing with the position of an expert in this regard. Sometimes they deal with the position of valuers but they are people who have to make an expert determination.
BELL J: Just before you do that, Mr Jackson, can I just take up with you paragraph 61 where Justice Macfarlan comes back to the issue that he had flagged in paragraph 34? As I understand his Honour’s reasons, the inconsistency that he identifies is that the expert has not, at 501 of his reasons when he observes that the delays would have entitled the claimant to an extension of time if it had satisfied the contractual conditions, dealt with that part of what is described as variation 10(a) but which related to his findings as to breach of contract. As I understand it, I think you are taking us to the provisions of the contract. Was your point to say that delay costs would have nonetheless required the contractor to give certain notices even in respect of matters that were the subject of contractual breach as opposed to variation?
MR JACKSON: Yes.
BELL J: That is the point, is it?
MR JACKSON: Yes, indeed, your Honour, yes. Your Honour will see that if one starts with, say, clause 25.11, it says in effect that in every case where there is a claim for an extension of time these matters have to be demonstrated and other provisions to which I have referred repeat that, whether it be variations or whether it be other matters.
BELL J: And the claim here was a claim for extension of time in relation to matters that were the subject of a finding of contractual breach?
MR JACKSON: Yes, your Honour, but could I just say this? The claims were, first of all, for money. I use “money” to describe damages for the amount payable for a variation. That is the first aspect of them. Those claims succeeded. But the claims also were for an extension of time. Unless one obtains an extension of time, there is no entitlement to the liquidated sums provided for under the contract and payable to the contractor for the period of an extension of time.
BELL J: Yes.
MR JACKSON: So far as extension of time is concerned, there has to be an extension of time in order to get those delay costs. The use of a power under, say, 54.6 has the effect that there is, I suppose, a de facto extension of time, as used in the present case, because it means that there is then no claim by the principal for the general damages it might otherwise have been entitled to in respect of the period for which it has delayed the completion of the contract.
BELL J: Is it in your submission, to the extent that you say the Court of Appeal misconstrued the expert’s report – your contention is that his Honour was in error in paragraph 61 in considering that the failure to give relevant notice was not equally applicable to the claim in relation to breach of contract?
MR JACKSON: Yes. Your Honour, could I just say that if one looks at paragraph 140 at page 28, you will see that the expert is saying that other than asserting that there was a claim, the complainant has provided no basis for substantiation at all. That covers all the requirements. You will see then at paragraph 143, and if one goes to the other claim at paragraphs 366 and 367, he said he has:
not provided any reasoned support for the claimed delay of 90 days. There is no contractual basis upon which I might asses –
that claim, speaking as a claim which the burden of proof was borne by the present respondent.
FRENCH CJ: The inconsistency identified by Justice Macfarlan at paragraph 59 at page 291 seems to have been the finding as to whether a delay had been established as a matter of fact rather than whether contractual hoops have been gone through, as it were, to establish an entitlement to an EOT. Then he seems to say, from 59 through to 60, that that inconsistent finding, that is, no delay substantiated by the contractor, inconsistent with the finding that there had been delays attributable to the principal was not explained.
GUMMOW J: But then he fixes upon this phrase “failed to give proper reasons”. The difficulty is in the word content of “proper”.
MR JACKSON: Yes.
GUMMOW J: Then you go over to paragraph 67, in the last sentence of paragraph 67, his Honour seems to be saying, well, it is not a proper set of reasons if the basic ground for decision is not discernable. Then he says it follows. Then you go to paragraph 69, he says that was a departure and the contract has not been complied with.
MR JACKSON: Your Honour, that is what his Honour said, and some of that, in a way, is not something to a valid adverse observation, in the sense that, if you go to paragraph 67, and the sentence to which your Honour referred, in the last sentence, he refers to:
simply of requiring the basic ground for the decision to be identified. If that basic ground is not discernible –
etcetera. Now, your Honours, if one treats that, as one could, as meaning that the provision of the contract that there be reasons for the determination are to be the reasons for the determination, then I suppose one might get to an almost Wednesbury type of situation where if what was said was something that just could not on any reasonable basis be regarded as reasons which might result in that determination, or if one found that the reasons that, in effect, something had been left out, a step on the way, if, for example, there was a finding of a breach of contract but there was nothing said about how one got from the breach to the amount of damages, your Honours, then one might perhaps say, well, the reasons for that determination have not been given.
But where it is apparent why the expert arrived at the determination, then whilst one might agree or disagree with it or regard the approach taken as arguable, if it is apparent why he did so, then, in our submission, the result is one where reasons have been given and there is not a basis for setting aside the determination in the sense of saying that it was not something contemplated by the contract. Your Honours, I was going to go ‑ ‑ ‑
KIEFEL J: Is the essence of the reference to a finding simply that, from Justice Macfarlan’s point of view, what had been found from his Honour’s perception, what had been found with respect to the principal, ought to have been applied to the contractor. Is it as simple as that? You would say that that might be a mistake but it does not qualify as absence of reasons.
MR JACKSON: Yes, what he seems to be saying is if you gave it to A, B was entitled to it ‑ ‑ ‑
KIEFEL J: Logically it calls for an explanation but you would say that does not require reasons – reasons are evident, it might be a mistake.
MR JACKSON: But there was an explanation, in fact ‑ ‑ ‑
KIEFEL J: In the contract itself?
MR JACKSON: It was the approach taken by the expert and, your Honours, that is why we say that maybe - we would say that probably was right but the expert may not have been. That is not something which, at least in the present case, vitiates the award.
HEYDON J: Underlying the expert’s approach though, he is really saying this – what I am dealing with in paragraph 140 is an entirely separate thing from what I am dealing with in paragraphs 508 and 509. The contractor had one path to success in relation to paragraph 140, the contractor did not walk down that path properly because that depends on critical path analysis and there was no attempt to show that the critical path was disrupted. When one is – when I am writing in 508 and 509, I am dealing with clause 54.6 which is an entirely different matter. The factual findings or my inability to make factual findings in relation to 140 is completely immaterial to 508 and 509 because there I am applying, some might think strangely, but I am applying clause 54.6 and there is simply no inconsistency between those approaches. Is that your submission or one of them?
MR JACKSON: Your Honour, that is in a sense what Justice Tamberlin was endeavouring to convey, I think in the passage to which I referred earlier and we would say there is no inconsistency. The reasoning has been exposed and was reasoning which was available. Your Honours, I was about to go ‑ ‑ ‑
GUMMOW J: Now, there are a whole lot of cases, are there not, on these decisions made by referees that are appointed by Supreme Courts these days and the malcontented parties come back to the Court and complain about the referee’s decision. I mention it because at paragraph 68, Justice Macfarlan refers to that decision of Justice Cole which is one of those referee complaint cases.
MR JACKSON: Your Honour, one does need to bear in mind that the referee is, in a sense, appointed by the court and is occupying a different position.
GUMMOW J: Yes. It is said that he has duties of natural justice, for example ‑ ‑ ‑
MR JACKSON: Quite, your Honour, yes.
GUMMOW J: Which you would not ordinarily expect between contracting parties, I suppose.
MR JACKSON: Although, your Honour, I think it probably would be right to say that in circumstances such as at present where there is a procedure which is contemplated as one which itself reflects natural justice that that procedure would be followed. If there was a less prescriptive conduct then one would expect that one would imply that a person acting independently was to act independently and fairly.
Having said that, what I was going to say, your Honours, was that the person who is appointed a referee under the court provisions is appointed to conduct what in effect is a hearing to be conducted, effectively, judicially. The referee is then in a position where the referee’s report is one which is to be accepted or not accepted or accepted with variations in whole or in part by the court. The referee is in significant measure performing functions of the court.
If that is so and the referee’s answers are ones to questions which do not sit together then of course one would expect that not to be accepted by the court. But having said that, your Honour, one is in a different situation where you have someone whose functions are set out by the contract and where the contract provides for the manner in which it is to be done but where the person is not construed to be an arbitrator – and it is not an arbitration – and where the result is to be a determination which is, in a sense, a barrier or a facilitator, on the one hand or the other, to commencing litigation – circumstances of that kind.
It would require, in our submission, an inconsistency in reasoning which led to the result that what had been done was not to give something that could be regarded as reasons for the determination. I am sorry – it is a long‑winded answer to your Honour’s question, but in the end one does has to come back to the criterion provided for under the contract, and that is, reasons for the determination. If the reasons are not capable of supporting the determination ‑ ‑ ‑
GUMMOW J: Do you say it is enough that the reasons enable the parties to appreciate that the expert was not acting in an arbitrary way or was not improperly influenced and that the conclusion was the result of a process of logic and the application by the expert of a considered mind to factual circumstances? You would say that was done here, would you not?
MR JACKSON: Yes, we would, your Honour.
GUMMOW J: I mention that because that at 469 is what Justice Cole says is required of these referees.
MR JACKSON: Your Honour, if a referee under a provision such as the present did those things, then there would be no doubt that the referee’s determination could not be set aside.
FRENCH CJ: As between the parties, they are contractually bound to each other if they accept the referee’s determination warts and all, subject to those sorts of parameters and if there is a remedy absent indemnity, it would be an action against the expert.
MR JACKSON: Yes. Your Honour, could I just say this, though. I was just going to add in response to your Honour Justice Gummow, leaving aside cases of fraud, it may not be that the satisfaction of each of those criteria is necessary in order to make the determination of the expert one which satisfies the terms of the contract, but, of course ‑ ‑ ‑
CRENNAN J: When you say “terms of the contract”, the terms of the engagement as borne upon by the contract requirements in relation to the experts.
MR JACKSON: Yes, I am sorry, your Honour. I was abbreviating it because I am assuming for present purposes that you have the contract between the two parties to it, you have an engagement of the person to give an expert determination and that contract is one which one would expect to follow the terms of the contract between the parties, but a prudent expert determiner would include other provisions such as an exclusion of liability for negligence and matters of that kind and there may well be negotiation about the terms of it, but I am assuming for present purposes that there is a coincidence between the contract between the parties and that to which the arbitrator ‑ ‑ ‑
FRENCH CJ: In this case the expert’s obligations are to be found in the letter of engagement, assuming they have been accepted by the expert.
MR JACKSON: Yes. Your Honour, it would be a person engaged to do an expert determination, as people are from time to time, would ordinarily include a provision limiting or excluding a person’s liability for negligence for a variety of reasons. One is, of course, that one would not want to be sued for matters that ultimately were held to be negligent, but on the other hand, your Honours, in circumstances where there is litigation funding available, the prospects of being sued for matters have become rather more acute than perhaps the case in the past.
Your Honours, I think I was going to refer to a decision or two and may I say this, that a leading decision or a case treated as a leading decision in the area is Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314. Your Honours, that was a case where a rent review, absent agreement between the parties, was to be determined by a valuer acting as an expert. The judgment which discusses the present issues and one which has been followed on a number of occasions is that of Justice McHugh which commences, relevantly, at page 331 about letter B. He said:
The next question is whether the mistake is one which invalidates the valuation?
Your Honours will see that after some considerable discussion of the issue he comes, at page 334 about letter B, to the observations of Lord Denning in Arenson v Arenson and, your Honours, that observation was:
“. . . Whenever two persons agree together to refer a matter to a third person for decision, and further agree that his decision is to be final and binding upon them –
as in this case –
then, so long as he arrives at his decision honestly and in good faith, the two parties are bound by it. They cannot reopen it for mistake or error on his part or for any reason other than for fraud or collusion.”
Your Honours will see then, if I could go to about letter F on that page, a reference to Maine Nickless Ltd v Solomon, Queensland Full Court:
strongly inclined to the view that a valuation, whether speaking or non‑speaking, made by a valuer chosen by the parties was not impeachable for error or mistake.
Then, your Honours, if I could go on to the principal passage at page 335 commencing about letter C, the paragraph commencing, “ This review of the authorities” and he says “much difference of opinion” over the years. Then, your Honour, one sees his view of the principles set out at page ‑ ‑ ‑
GUMMOW J: But was there an obligation to give reasons for the valuation?
MR JACKSON: In the particular case, your Honour – it is clear that one was – reasons were actually given.
GUMMOW J: Yes, I know. The contract does not seem to ‑ ‑ ‑
MR JACKSON: I do not think it did, your Honour.
GUMMOW J: No.
MR JACKSON: Your Honours, just going for a moment to the relevant passage. It is a passage which runs, your Honour, from 335 D through to 336 F and your Honours will see that in the first sentence of that passage there is emphasis upon the terms of the contract, express or implied, a reference to fraud or collusion and then saying, at almost at letter E on 335, that such that fraud or collusion – collusive valuation would almost always not be in accordance with the correct. He refers to honesty and impartiality and then says, your Honours, just under letter E:
It will be difficult, and usually impossible, however, to imply a term that a valuation can be set aside on the ground of the valuer’s mistake or because the valuation is unreasonable. The terms of the contract usually provide, as the lease in the present case does, that the decision of the valuer is “final and binding on the parties”.
Your Honours will see, if one goes down to about letter G, he says:
While mistake or error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract . . . But a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement.
Your Honours will see then between A and B on page 336:
it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value.
Your Honours will see the remainder of that paragraph. Could I refer then a little further down the same page to letter D:
Is the mistake in the present case of a kind which enables the court to set aside the valuation?
The question that was involved in the case was this. It was a rent review. There had been a taking away of the mezzanine floor between the original date of the lease and the date at which the rent review was to be carried out, the question was whether the valuer erred in taking into account the original area which included the mezzanine floor. Assuming it was a mistake, going back then to page 336D, his Honour said:
There is nothing in the contract which would enable the valuation to be set aside on the simple ground that the valuer made a mistake. Nor do I think it possible to imply a term to that effect –
He refers to the “final and binding” nature of it and says:
Nothing in the lease suggests that it was not to be final and binding if it was the result of error or mistake or was unreasonable.
Your Honours will see the remainder of that paragraph, including particularly the last sentence. Your Honours, that view has been followed and perhaps developed a little in a number of cases. May I take your Honours briefly to three of them? One is ‑ ‑ ‑
GUMMOW J: Just before we leave Legal & General, the relevant clause is set out in full by Justice Mahoney on page 317, letters E to G, extracted on 318, letter D, so the question of the rental value was –
referred for the decision of a qualified valuer to be agreed . . . acting as an expert . . . and the decision of such qualified valuer . . . shall accordingly be final –
and the valuer produced this lengthy valuation report in which it tripped over, as it were.
MR JACKSON: Yes. Your Honour, the passage extracted at letter D on page 318 is a passage which contains provisions similar to those in the present case, final and binding, act of an expert, not an arbitrator, et cetera.
GUMMOW J: Final and binding on the parties of the lease.
MR JACKSON: Yes, that similar passage is found in the present case. Your Honours, the second case to which I wish to refer was the decision of Justice Gillard in Victoria in Commonwealth of Australia v Wawbe Pty Ltd (1999) V Conv R 54‑599. The relevant passage commences at page 67,197. Your Honours will see in paragraph 39 that there is an extensive quotation from Justice McHugh, reasons to which I have just referred. His Honour then goes on to say in paragraph 39 that:
what his Honour has written states the law. I respectfully agree that in the end it is a question whether the valuation complies with the terms of the contract.
I wanted to refer your Honours in passing really to what his Honour says in that case in paragraphs 40 through to 45 where he refers to the fact that that decision and that approach has been followed in other cases.
Your Honours, in the New South Wales Court of Appeal in Holt v Cox (1997) 23 ACSR 590 at page 595 at about line 7 in a passage which goes through to page 597 about line 36, Justice Mason dealt with the issue. Your Honours will see the quotation on page 595 from Legal & General. Your Honours will then see on the same page in the last paragraph on that page, third line, about line 41:
The reasoning of McHugh JA has been followed with approval in New South Wales and elsewhere –
There are various cases cited. Then, your Honours, the last four lines on that page. Then, your Honours, one sees at page 596 about two‑thirds of the way down the page his Honour said:
As McHugh JA develops in more detail in his judgment in Legal & General, these and other recent authorities depart from earlier statements of the law in that they recognise it is insufficient for a dissatisfied party to point to some mistake in the reasoning process exposed by the expert valuer. At least as a matter of common law, a valuation will stand if it satisfies the description given in the contract between the parties.
Your Honours will see he elaborates on that proposition in that paragraph. Then, your Honours, at page 597 in the first new paragraph on that page his Honour says that:
A close reading of McHugh JA’s judgment in Legal & General indicates his Honour was not propounding the view that a valuation will stand regardless of error. Rather he was making the point that mistake is not of itself a ground of visitation.
Your Honours, that is elaborated upon through that paragraph.
GUMMOW J: What actual words have been construed in this Holt Case? Somehow I get the decision that Justice McHugh’s judgment gets airborne, as it were. It has to be attached to some contract.
MR JACKSON: Yes, your Honour.
GUMMOW J: What is the contract in this case?
MR JACKSON: It is, I think, at page 591 between lines – it is the quotation on that page. I am sorry, the line numbers have been obscured. You will see then in the second paragraph of the quotation subparagraph (d). Then it says halfway through that:
Upon termination of the employment of Robert Cox the shares must be offered to the holders of the Ordinary shares in the same proportion as their existing shareholding at a fair price determined by the auditor of the company.
FRENCH CJ: That was a requirement set out in the special resolution?
MR JACKSON: Yes, your Honour.
GUMMOW J: “[A] fair price determined by the auditor”. Then Justice Mason says page 592 under the heading “The auditor’s valuation”:
Mr Adams provided his valuation in a report which exposed his reasoning processes.
He seemed to have tripped over too.
FRENCH CJ: The request to the auditor from the company is referred to in the paragraph just above the heading there, I think, with no more exposition than the company requested the order to determine a fair price.
MR JACKSON: Yes, your Honour, it is a short - I was referring to it really for the adoption of the principle. Perhaps if I could just give your Honours a reference. It is to the decision, first of all, of Justice Palmer at first instance in Kanivah Holdings Pty Ltd v Holdsworth Properties Pty Ltd (2001) 10 BPR 18,825 at page ‑ ‑ ‑
GUMMOW J: Do any of these cases with which you are going to vex us use the word “reasons” in the agreement that is being construed, or give reasons?
MR JACKSON: Your Honour, I think the answer is “no”.
GUMMOW J: Yes, I thought so.
MR JACKSON: In the end, in our submission, it is something that – there are cases where reasoning has been given, and the situation, in our submission, is, as a practical matter, in the same. I was going to give your Honours a reference at page 18,833, paragraphs 47 and 48 in the ‑ ‑ ‑
FRENCH CJ: It comes back in a sense to, I think, what I put to you earlier on. The term “expert determination” has acquired something of a life of its own, and it probably attaches barnacles regardless of the actual agreement ‑ ‑ ‑
MR JACKSON: Yes. Your Honours, but what one has, of course, is – if I can just perhaps come back in a sense to what I was saying earlier in response to your Honour – one does have a situation where persons have many times been appointed to carry out a determination. The persons who are appointed to carry out a determination may or may not be experts in any relevant sense, but they are appointed by the contract to do that, and I suppose, ex hypothesi, if one uses the term “expert determination” to describe that, they become persons who are carrying out an expert determination, but commonly they are people who are valuers, persons who have to give a determination of something like the present case, and it is a question of what they are required to do, and that will depend on the terms on which they are engaged. In the ordinary course of events, one would expect a person doing that to give some reasons for their determination, unless the contract suggested otherwise.
Your Honours, could I just say in relation to the need for reasons, you will see there was a need for sufficient recent written reasons for the determination in the Kanivah Case. One can see that from the decision on appeal, which is, your Honours, in volume 11 of the same series, Butterworths Property Reports, at page 20,201, and you will see the relevant clause referred to in paragraph [9] on page 20,202, and the valuer was to conclude the determination –
within 2 months and provide the parties “with sufficient written reasons for his determination”.
Now, your Honours, in that regard could I take your Honours to page 20,207 of that decision and the relevant paragraphs are paragraphs [45] to [50].
GUMMOW J: Where is the reference to reasons?
MR JACKSON: Your Honour, it is at page 20,201 and in paragraph [9] of the reasons for judgment.
GUMMOW J: “[S]ufficient written reasons for his determination”.
MR JACKSON: Yes. I suppose that might give rise to the question whether the reasons were insufficient. Your Honours, the discussion commences at paragraph [45]. You will see the quotation in paragraphs [45] and [46] from Legal & General and in paragraph [48] that reasoning has frequently been followed with approval. There was a quotation from Holt v Cox, to which I have taken your Honours already, and then paragraph [50]:
As McHugh JA observed in Hudson, by providing that the decision of the valuer be final and binding, the parties agree to accept the valuer’s honest and impartial valuation. They rely on his skill and judgment. The valuation stands even if made negligently. A mistake by the valuer will only matter if it shows that the valuation was not made in accordance with the contract.
Your Honours will see the next ‑ ‑ ‑
GUMMOW J: It is really paragraphs [60] to [62], is it not:
sufficient to enable the parties to see whether the cl 1(d) has been complied with . . . Detailed reasons . . . are not required . . .
they need to be such as indicate to the parties why and on what basis the decision was made. Step by step reasons to a conclusion are not required.
MR JACKSON: Yes, your Honour. Your Honour, that is, in a sense, an issue perhaps more relevant to tomorrow’s case, as it were, but what I was going to say was that – and I say that, your Honours, because one does see that the reasons in the present case were pretty detailed. It is not a question of saying there is a leap from here to there. One does see that the expert set out the reasons why he arrived at the conclusions at which he did. But, your Honours, if on looking at the principle, the first sentence of paragraph 61 of those reasons is perhaps just another way of saying that what is required to be done is that there be reasons for the determination. It is not that there are reasons why another determination was not made, in a sense, but what were the reasons for the determination which was, and it is right to say, your Honours, in our submission, that they are not detailed – what detailed reasons are not required.
GUMMOW J: I suppose if this had been a public official you would say – a public official required to give reasons one could not say here that there had been any constructive failure to exercise the jurisdiction?
MR JACKSON: No. The complaint would be, if there be a valid complaint, that there had been errors in the reason.
GUMMOW J: Yes. It really, in a way, is a question of how closely there is any analogy between those ideas. In other words, is there room for less than perfection, as it were, by this choice of words in this contract as to what reasons have to be given?
MR JACKSON: Yes. Your Honour, one does start with the proposition that one is ultimately – ultimately, there is no statutory imperative. That being so one is looking in this case at what the contract provides. The relevant words are that there is to be a determination and there is to be a statement of the reasons for the determination. It depends on those things but it depends, too, on context how one determines it. If one looks at the phrase “reasons for the determination” one would think that it means a statement of the steps leading to the determination. If one is looking to the context – the context in the particular case is one where the determination is made in order to see whether there may be further litigation or may be substantive litigation. Those matters suggest, really, that the first determination is not itself to be one which is to involve the same degrees of detail as the further litigation itself.
FRENCH CJ: The Court of Appeal seems to have said there is a hole in reasons here - in other words the reasons are incomplete, an unexplained inconsistency and conclusion.
MR JACKSON: Yes. One can put in different ways what the Court of Appeal said, but the difficulty with the approach taken by the Court of Appeal is that it is, if one looks at the reasons of the expert, really perfectly - I think I perhaps emphasised that a little in the past – it is really quite clear why the expert arrived at the conclusions which he did. One sees the process of reasoning exposed. One can see that there is a way in which the two approaches that he took are capable of reconciliation. The question whether they should be reconciled might be an issue that one day – I am not talking about the particular case, but is an issue which at some time a court might have to decide.
CRENNAN J: I suppose you could add to that, whether it is right or wrong, the contractor can understand from the reasons why the contractor failed.
MR JACKSON: Exactly, your Honour. There is no difficulty about understanding it. One might disagree with it. There is no difficulty in understanding it. They are the reasons for the determination and the determination is a determination which relevantly is to be a sum of money and it is quite clear how it was arrived at.
Your Honours, what we would say, in a sense, globally in the matter is this, that this was a case where the expert determination was stated to be one which was to be final and binding. The case was one where the matter was to be conducted expeditiously and in order to determine whether proceedings might be brought and, your Honours, this is what we say in the last paragraph of the outline of propositions.
The expert performed the tasks he was engaged to do. He gave clear reasons for the course that he took. It may be that the course was erroneous. It may be one on which different minds might take different views but, your Honours, with respect, it does not follow that it should be set aside. Your Honours, we rely on our written submissions and the outline of propositions we have given rather full of references, particularly to the line in the last sentence of paragraph 9.
GUMMOW J: Page 9?
MR JACKSON: Paragraph 9, your Honour, of our outline of propositions gives a reference to paragraphs of the written submissions where we have dealt rather more fully, perhaps, with other cases that are dealing with the topic. Your Honours, those are our submissions.
FRENCH CJ: Thank you, Mr Jackson. Subject to the leave which I mentioned earlier, the Court will reserve its decision. The Court adjourns to 10.15 tomorrow morning.
AT 4.07 PM THE MATTER WAS ADJOURNED
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