State of Victoria v Seal Rocks Victoria (Australia) Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 7048/2002
and 8379/2002

STATE OF VICTORIA	Plaintiff
v
SEAL ROCKS VICTORIA (AUSTRALIA) PTY LTD	Defendant

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JUDGE:	OSBORN J.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	3-6 March 2003
DATE OF JUDGMENT:	24 April 2003
CASE MAY BE CITED AS:	State of Victoria v Seal Rocks Victoria (Australia) Pty Ltd
MEDIUM NEUTRAL CITATION:	[2003] VSC 84	1^st Revision: 13 September 2004

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commercial arbitration act – Manifest error of law – Interpretation of commercial documents by Arbitrator – Requirement that errors identified potentially vitiate decision – Proper approach where both parties agreed on the method of interpretation which was adopted by Arbitrator and such interpretation turned in part on matters of fact.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Dr G. Griffith Q.C. with Mr S. McLeish and Mr S. Donoghue	Victorian Government Solicitor
For the Defendant	Mr A.J. Myers Q.C. with Mr P. Lacava S.C. and Mr S. O’Bryan	Gadens Lawyers

HIS HONOUR:

In these proceedings the plaintiff (“the State”) seeks leave pursuant to s.38(4)(b) of the Commercial Arbitration Act 1984 (“the Act”) to appeal to this Court on questions of law arising out of an Arbitrator’s interim award dated 2 August 2002 and a final award in the same matter dated 2 November 2002.

By his final award the Arbitrator gave effect to the findings as to liability contained in his interim award and awarded damages to the defendant.

Section 23 of the Act provides for interim awards and s.4 of the Act defines “award” to include both a final and interim award.

Section 29(1)(c) further requires the Arbitrator to include in an award a statement of reasons for making the award.

Section 22(1) provides that unless otherwise agreed in writing by the parties, any question that arises for determination in the course of proceedings under an arbitration agreement shall be determined according to law.

Section 38(2) of the Act provides, subject to s.s.(4) for an appeal “on any question of law arising out of an award.”

Section 38(4) in turn provides that an appeal 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 s.40, with the leave of the Supreme Court.”

Section 38(5) materially constrains the circumstances in which the Court may grant leave to appeal.

“(5)The Supreme Court shall not grant leave under s.s.(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.”

The underlying dispute in the present case arises out of the development and use by the defendant (“the company”) of a restaurant based tourist facility (known as “Seal Rocks”) at Point Grant at the south western extremity of Phillip Island. The Arbitrator’s reasons for his interim award (“Reasons”) disclose that it was hoped and anticipated that this facility would be able to draw on and thrive in conjunction with the substantial tourist attraction known as the Phillip Island Penguin Parade. The Seal Rocks site which was leased to and developed by the company, forms part of the Crown Land Reserve known as the Phillip Island Nature Park within which the Penguin Parade occurs.

There are three documents recording the relevant contractual arrangements between the parties (“the contract documents”):

·The Development and Concession Agreement dated 27 March 1997 made between the Minister for Conservation and Land Management for and on behalf of the State and the company (“the DCA”);
·The lease relating to the Seal Rocks site made between the same parties on the same date (“the lease”); and
·The Co-operation, Operation and Maintenance Agreement (“the COMA”) also of the same date and made between the same parties together with the Phillip Island Nature Park Board of Management (“PINP”).

The State contends that the Reasons demonstrate:

(a) a series of manifest errors of law on the face of the award; and/or
(b)strong evidence of errors of law the resolution of which may add substantially to the certainty of the commercial law.

It is necessary to say something firstly, concerning the requirements of s.38(2) and (5) of the Act. The starting point must be that s.38 is concerned with questions of law arising out of an award and not with questions of fact.

The distinction between an error of law and an error of fact is of fundamental significance in the present case. This distinction was addressed by the High Court in Australian Broadcasting Tribunal v Bond[1]. This decision together with authorities of this Court were carefully analysed by Batt J in Roads Corporation v Dacakis[2]. The analysis of Batt J was approved by the Full Court of the Federal Court in MIMA v Epeabaka[3] and I respectfully adopt it.
[1](1990) 170 CLR 321
[2][1995] 2 VR 508
[3](1998-99) 160 ALR 543 at 552

It is sufficient for present purposes to record that an error of fact may amount to an error of law where an appeal court concludes that it was not open to an inferior tribunal to find a fact or reasonably open to an inferior tribunal to draw inferences or reach overall conclusions of fact. The word “reasonably” in this context may be thought strictly unnecessary for the reasons stated by Phillips JA in S v Crimes Compensation Tribunal[4]. It is to be understood in the sense used by Mason CJ in Bond at 356 (with whom on this point Brennan, Toohey and Gaudron JJ agreed):

“Thus, at common law, according to the Australian authorities, want of logic is not synonymous with error of law. So long as there is some basis for an inference – in other words the particular inference was reasonably open – even if that inference appears to have been drawn as a result of illogical reasoning there is no place for judicial review because no error of law has taken place.”

[4][1998] 1 VR 83 at 89-91

Section 38(5)(a) of the Act requires that the Court be satisfied that the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement. An alleged error of law could not have this effect unless it potentially vitiated the Arbitrator’s reasoning and did so with respect to an aspect of the award which was in itself “substantial” in its effects upon a party.

Section 38(5)(b)(i) requires “a manifest error of law on the face of the award.” In Promenade Investments Pty Ltd v New South Wales[5] Sheller JA said:

“There should … before leave is granted be powerful reasons for considering on a preliminary basis without any prolonged adversarial argument that there is on the face of the award an error of law.”

This statement was referred to with approval by Ormiston and Hansen JJ in Melbourne VV Pty Ltd v Pratt[6] and by Ormiston JA with whom Winneke P, Phillips, Buchanan and Vincent JJA agreed in Energy Brix Corporation Pty Ltd v National Logistics Coordinators (Morwell) Pty Ltd[7].

[5](1991) 26 NSWLR 203 at 226

[6]Unreported Victorian Supreme Court decision, 10 February 1995.

[7][2002] VSCA 113, at [31]

In Leung v Hungry Jacks Pty Ltd[8], Hedigan J stated the error must be “evident and obvious rather than merely arguable.”
[8][2000] V Conv R 54-614

In Natoli v Walker[9], after canvassing United States authority with respect to comparable requirements Kirby P said of the term “manifest”:

“Obviously, there is 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 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.”

[9]Unreported New South Wales Court of Appeal decision, 26 May 1994.

The above statements of authority illuminate but do not fetter the exercise of discretion in accordance with the words of the statute. As Phillips, J.A. has said with respect to the grant of leave to appeal in another context:

“From time to time a case will arise in which any preconceived guidelines will be found not wholly sufficient. In the end, whether leave is granted or not must always depend upon the justice of the case, as it appears to the court from whom leave is sought.”[10]

For this reason I do not regard the fact that the application was the subject of relatively prolonged adversarial argument before me as necessarily demonstrating it must fail, although it must be a circumstance which is not particularly helpful to the State.

[10]SecretaryDepartment of Premier v. Hulls [1999] 3 VR 331 at 335

The present proceedings concern an award which was made after 145 days of hearing and in respect of which the Arbitrator’s Reasons are some 350 pages in length. It cannot be that the complexity of the matter precludes the Court from arriving at the conclusion that there is a manifest error of law on the face of the award. Conversely, however, it is necessary once the substance and effect of the Reasons are understood for the Court to be satisfied that a manifest error or errors of law have been demonstrated in the fundamental sense alluded to in the above authorities if s.38(5)(b)(i) is to be satisfied.

Section 38(5)(b)(ii) provides an alternative criterion requiring “strong evidence” of error and the likelihood that determination of the question may “add substantially to the certainty of commercial law”. This requires that the question should be one of wider and greater importance than, for example, the construction of a one off clause in the context of a particular agreement between the parties.[11]
[11]Promenade Investments Pty Ltd v New South Wales, Sheller JA at 226

In this matter the State submits that the Arbitrator’s Reasons for the award demonstrate an overarching error of approach in that they demonstrate the Arbitrator failed to have regard properly or at all to relevant considerations in reaching material conclusions. In particular, it is said that the arbitrator has failed to have any or proper regard to:

(a)the full terms of the contractual documents and in particular those that demonstrate it was the parties’ intention that in appropriate circumstances environmental considerations and associated duties relating to the welfare of penguins may prevail over commercial objectives and associated rights;
(b)the legislative regime in which the obligation of the State to use reasonable best endeavours is to be understood. Such regime it was said is critical to a proper understanding of that obligation and preserved an absolute independent statutory discretion with respect to relevant actions by the State; and
(c)the proper ambit of the relevant “best efforts” clauses.

The argument directed to the first consideration emphasised:

(a)that the DCA makes clear the parties are not to be regarded as joint venturers. Clause 1.6 provides:
“Nothing in any of the Project documents will be construed or interpreted as constituting the relationship of the State and the company as that of principal and agent, partners or joint venturers or imposing a fiduciary relationship upon either of them.”

(b)clause 2.2 of the COMA further provides that nothing in that document is to be deemed to create a partnership or fiduciary relationship between the parties.
(c)the DCA includes an express acknowledgment by the company that no risks or responsibilities in relation to the Project are accepted by the State except where expressly assumed under the document (clause 31); and
(d)the DCA contains an express assumption of risk by the company with respect to operational considerations including change of regulation (clause 33).

It can be seen that the consequences of these provisions construed within the framework of the contract documents as a whole can only be addressed by reference to the specific disputes between the parties (to which I shall return).

The argument directed to the second consideration which was said to demonstrate an overarching error of approach proceeded from the proposition that it was necessary to consider the contractual obligations of the parties within the legislative regime with which the contracts and lease would interact.[12] It emphasised the requirement imposed on the company to comply with all applicable laws (DCA clause 27 and lease 5.5).
[12]cf Royal Botanic Gardens v South Sydney City Council 186 ALR 289 per Gleeson J at para.12

It further emphasised clauses 46.6 and 46.7 of the DCA which provide:

“46.6 Approvals not to affect company’s obligations
The giving of any approval or the making of any direction or appointment or the exercise of any authority or discretion or the exercise, giving or making of any other matter or thing of any nature hereunder by the State will not, except where this document expressly provides to the contrary or where such approval, direction, appointment, exercise of authority or discretion expressly deals with matters contained in or relating to this document, relieve the company from its obligations under this document.
46.7 Consent or approval of the State
In any case where pursuant to this document the doing or executing of any act, matter or thing by the company is dependent upon the approval or consent of the State such approval or consent may be given or withheld by the State in its absolute uncontrolled discretion unless otherwise provided in this document.”

In turn, the COMA provided:

“2.3     Environmental requirements
The parties acknowledge that each party, and any other person or body, in carrying out its duties, performing any functions or exercising any powers in relation to the Reserve and/or the Site under the Project documents or any applicable Laws, must have regard to the following requirements:
(a)     the need to care for, protect, manage and maintain the Reserve;
(b)     the need to protect:
(i)       the Reserved Land Values;
(ii)      the Flora and Fauna Values;

(c) the need to minimise adverse impacts on the Environment;
(d)the need to have land use and protection measures carried out in accordance with any Current Management Plan and to give effect to any Current Management Plan in the areas affected by it.”

The expression “Flora and Fauna Values” is defined in clause 1.2 as follows:

“Flora and Fauna Values means those values from time to time promoted by the board or required in order to conserve, manage, protect and foster, in the case of fauna, any animal life which is indigenous to Victoria whether vertebrate or invertebrate and in any stage of biological development (including fish and any other living thing generally classified as fauna but not including humans) and, in the case of flora, any plant life which is indigenous to Victoria whether vascular or non-vascular and in any stage of biological development, including any other living thing generally classified as flora, and those values promoted or required to further the objectives of the Flora and Fauna Guarantee Act 1988.”

The Arbitrator took the view that the little penguin is not an animal within the scope of this definition.[13] He did so on the basis of his understanding of the word “indigenous” which in effect required that indigenous animals be unique to Victoria. In my opinion this approach was manifestly incorrect but the significance of the error is far less clear and must be evaluated in the context of its place in the Arbitrator’s chain of reasoning. Furthermore, in my opinion the factual matters recited in the Arbitrator’s award also make clear that the penguin population utilising the Penguin Reserve is and was a significant segment of the “Environment” referred to in clause 2.3(c) of the definition of Environment requirements in the COMA. Once again, however, the significance of this conclusion remains to be evaluated.
[13]Reasons, paras.228 and 232

Clause 2.4 of the COMA provides:

“2.4 Interpretation of intent
This document is intended by the parties to be, and must be, interpreted in a way which is consistent with:
(a)the objects of the Acts which affect any land in the Reserve and the duties imposed upon those charged with the obligation to implement and enforce the Acts which, in each particular case, regulate the use of land in the Reserve;
(b)the enforcement of any regulation applicable to any land in the Reserve and it is not the intent of this document to waive, vary or estop any regulation made pursuant to any Act which affects the use of any land in the Reserve in the particular case from being enforced.”

I interpolate that, as will become apparent, the actions upon which the State seeks to rely (other than actions which it maintains were authorised by the relevant agreements) included actions with respect to the regulation of Ventnor Road which is adjacent to but outside the Reserve.

Clause 2 of the COMA continues:

“2.5 Conflicts between Environment Requirements and Interpretation

It is recognised by the parties that there may be some:
(a)disagreement on the Reserved Land Values and the Flora and Fauna Values;
(b)disagreement in determining aspects of the Environmental Requirements; and
(c)conflicts between any or all of the Environment Requirements and any or all of the interpretative requirements set out in clause 2.4.

Where such a disagreement or conflict arises that disagreement or conflict is to be resolved by giving effect to the best balance of the Environmental Requirements and interpretative requirements considered to be most important and appropriate by the Board; provided that no party will be required to act in breach of any Act or regulation.
2.6     Objectives of parties
The parties’ primary objective in entering into this document is to enable the Board to care for, protect, manage and maintain the Reserve in the most efficient and effective manner possible having regard to the rights and obligations of the parties contained in the Development and Concession Agreement. In their attempts to achieve this primary objective, the parties’ further objectives in entering into this document are to:
(a)ensure that the Reserve is at all times managed in accordance with:
(i)       any of the Acts which are applicable;
(ii)      the Environmental Requirements;
(iii)     all relevant laws; and
(iv)     this document;
(b)confirm that the Board is responsible for determining the policy necessary to care for, protect, manage and maintain the Reserve; …”

The provisions of the agreements relied on reflect in part the underlying principle stated by Mason CJ in Attorney-General (NSW) v Quin[14]:

“The Executive cannot by representation or promise disable itself from, or hinder itself in, performing a statutory duty or exercising a statutory discretion to be performed or exercised in the public interest, by binding itself not to perform the duty or exercise the discretion in a particular way in advance of the actual performance of the duty or exercise of the power: …

No doubt the principle gains some of its force from the circumstance that the discretion has a legislative foundation and it is not readily to be supposed that the legislature intended that a proper exercise of the discretion in the public interest was to be frustrated, hindered or circumvented by executive action. Nonetheless there is no reason why the same principle should not apply to common law powers and functions of the Crown or the Executive when they involve the making of decisions in the public interest.” (citations omitted)

[14](1990) 170 CLR 1 at 17-18

It is apparent that the parties envisaged that during the life of the contract the State might be called on to exercise discretionary statutory powers relevant to the performance of the parties’ obligations and the benefit which might otherwise be expected to be derived from the contract. In L’Huillier v State of Victoria[15] Callaway JA (with whom Charles JA agreed) further stated the underlying principles of law as follows:

“I put to one side cases where the discretion is properly exercised in advance at the time the contract is made. What I am about to say relates only to contracts where the discretion must be exercised in the future in the light of the public interest at that time or whatever other factors may be made relevant by the nature of the power, its purpose or any applicable statute. In such a case a provision of the contract will be void if it purports to prevent the due exercise of the discretion at the time required by law. Goldsbrough’s Case and The Amphitrite were both cases of that kind. See also Ayr Harbour Trustees v. Oswald (1883) 8 App.Cas. 623 at 634, 638 and 640 and South Australia v. The Commonwealth (1962) 108 C.L.R. 130 at 141. Unless a contract has that meaning on its true construction, the relevant provision will not be void. Instead it will be read subject to the repository’s right not to perform the contract in the future if performance would be inconsistent with a proper exercise of the discretion. In other words there is a contract, but the repository of the discretion reserves the right not to perform it if performance is inconsistent with his or her common law or statutory duty when the time for performance arrives.”[16]

[15][1996] 2 VR 465

[16]at 481

Brooking JA dissented from this reasoning at p.470 and in so doing might be thought to have incidentally demonstrated that this is an area of public law in which the resolution of underlying principle may not be free from difficulty. Nevertheless, both by reason of the underlying principles referred to and by reason of the express provisions of the contract documents emphasised on behalf of the State of Victoria, it can be seen that insofar as the exercise of statutory regulation with respect to Ventnor Road or other relevant matters interfered with the enjoyment by the company of the benefit of the contract, it may nevertheless have been open to the State to so interfere. It is necessary to examine the individual exercises of power relied on by the State to establish whether this was so.

The State also submitted that the Arbitrator’s Reasons demonstrate an overarching error in his approach to the application of the best efforts clauses contained in the contract documents. Clause 46.11 of the DCA provides that each party must:

“(a)use its best efforts to do all things necessary or desirable to give full effect to this document and all other State Documents; and
(b)refrain from doing anything that might hinder performance of this document and all other State Documents.”

Clause 8.30 of the lease is in the same terms, as is clause 22.9 of the COMA.

It was submitted on behalf of the State that the “best efforts” clauses contained in the contract documents should be understood as attaching only to the performance of obligations under the contract. It was submitted:

“In determining whether the best efforts clauses in any of the documents have been breached, it is therefore necessary to identify an obligation which has not been given full effect or the performance of which has been hindered as a result of a failure to exercise best efforts by the party said to be in breach.”

It was further submitted the best efforts clauses, “… do not, for example, require the parties to give full effect to the objectives of the documents rather than the documents themselves.”

Unless the words “full effect” are read down this submission confuses the question of whether the objectives stated in the documents can be regarded as informing the “best efforts” provisions. If it is understood as meaning such objectives do not inform the best efforts clause, I do not accept that the State’s position is necessarily correct and I note that it appears to differ from that adopted by the State before the Arbitrator.[17] By clause 1 of the DCA “Objectives” is defined to mean:

“The collective objectives of the company and the State referred to in clause 2.”

[17]Reasons, para.842

Recital C to the DCA provides:

“The company has agreed, in accordance with this document, to develop, manage, operate and maintain the Facilities and provide Amenities (both as defined in this document) in accordance with the objectives of the parties and the requirements of the State as expressed in this document.”

Clause 2 in turn provides:

“2. Objectives of the parties
The company has agreed, in entering into this document, to design, construct, operate and maintain the Facilities and to provide the Amenities towards satisfaction of the following objectives of the State:
(a)realising the potential for use and enjoyment of the site whilst protecting and enhancing the area’s natural value;
(b)providing for an international standard facility with the aim of further enhancing Phillip Island’s reputation as a destination for eco tourism for both local and international visitors;
(c)enhancing the public use, understanding and enjoyment of the area to the extent that it is consistent with the protection of the area’s natural values;
(d)providing additional facilities aimed at attracting tourists and lengthening the stay of visitors on Phillip Island;
(e)enhancing the attraction of the area by considerably improving the current design and siting of facilities;
(f)enhancing the opportunity for public education and viewing the seals to the extent that it is consistent with the protection of the area’s natural values and enhancing the Penguin Parade activities;
(g)promoting a better understanding of the environment by improved provision of interpretation and education facilities,
and the following objectives of the Company:
(h)to maximise visitor numbers;
(i)to maximise gross revenue.”

It is apparent that although this clause is introduced by reference to the purpose of agreement by the company:

(a) it refers in terms to objectives of first the State and second the company; and
(b) (as already noted) it is defined as comprising joint objectives by clause 2.

The clause in turn forms the basis of obligations upon the State pursuant to clause 48.5. Clause 48.5 provides that after relevant default (as defined by the agreement) and notice:

“The company may (without prejudice to any other rights provided for and conferred on the company pursuant to this document with respect to that default) without further notice exercise all or any of the following remedies:
(f)where the State has been given the opportunity to and failed to demonstrate that a reasonable person would consider that the State is willing and able to achieve the Objectives
(i)accept the repudiation or other circumstance and terminate or bring this document to an end by notice to the State.
(ii)exercise or enforce its rights under or terminate any other State document;”

In my opinion it is clearly arguable that at a minimum the best efforts clause requires the State to refrain from collateral acts which will deprive the company of the benefit of the contract and in particular will interfere directly with the company’s objectives as expressly stated in the DCA. Such a requirement may be understood to be limited to a requirement to refrain from acts other than those constituted by bona fide acts for a valid public purpose extraneous to the subject matter of the agreement.

The best efforts clause sits within the fundamental framework of the contract. In Hospital Products Ltd v United States Surgical Corporation & Ors[18] Dawson J stated at 137-138:

“Perhaps, however, express mention should be made of the trial judge’s finding that under the law of New York and of Connecticut ‘every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement’: Restatement of the Law: Contracts (2nd), s.205. This, he found, meant no more than that neither party to an agreement may do anything to impede performance of the agreement or to injure the right of the other party to receive the proposed benefit and was, in substance, an expression of the same principle enunciated by this court in Secured Income Real Estate (Australia) Ltd v St. Martin’s Investments Pty Ltd, quoting the words of Griffiths CJ in Butt v M’Donald:
‘But it is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract’.”

[18](1984) 156 CLR 41

It might be thought that the facts in City of Camberwell v Camberwell Shopping Centre Pty Ltd[19] demonstrate that where a developer enters into an agreement with a popularly elected public body there may be good reason for seeking to entrench the long term commitment of that body to the agreement by way of a best efforts clause. This is so although the judgment of Marks and Gobbo JJ in the case referred to makes clear that such clauses may in many cases do little more than make express what would in any event be implied. At pp.186-187 Marks and Gobbo JJ stated:
[19][1994] 1 VR 163

“The best endeavours clause is the kind of clause which in any event would be implied. The much-cited general proposition stated by Lord Blackburn in Mackay v Dick (1881) 6 App Cas 251, at p.263, is in point:
‘I think I may safely say, as a general rule, that where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect’.

…
Even more pertinent are the words of Cockburn CJ in Stirling v Maitland (1864) 5 B & S 840, at p.852 cited by Lord Atkin in Southern Foundries (1926) Ltd v Shirlaw [1940] App Cas 701 at p.717:
‘… If a party enters into an arrangement which can only take effect by the continuance of an existing state of circumstances … I look on the law to be that … there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative’.

Lord Atkin said:
‘That proposition in my opinion is well established law. Personally I should not so much base the law on an implied term, as on the positive rule of the law of contract that conduct of either promissor or promissee which can be said to amount to himself “of his own motion” bringing about the impossibility of performance is in itself a breach’.”

In the present case clause 46.11 in the DCA can be regarded as extending the reach of the best efforts obligation beyond what would have been implied:

(a)The clause in sub-para.(a) requires best efforts to do all things necessary or desirable to give full effect to the DCA and the State documents. The requirement to do all that is desirable might be thought to go beyond what the law would otherwise imply.
(b)Likewise, sub-para.(b) requires each party to refrain from doing anything that might hinder performance of the DCA and other State documents. Usually an implied term would not extend to matters which “might” hinder performance.

The express words of the clause address difficulties which might otherwise arise as to the extent of an implied term which were elaborated by Mason J in Secured Income Real Estate (Australia) Ltd v St. Martins Investments Pty Ltd[20] as follows:

“It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party’s obligations and are not fundamental to the contract. Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit. In such a case, the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself.”[21]

[20](1979) 144 CLR 596

[21]pp.607-8

In my opinion the best efforts clause must be understood in the context of an agreement between parties one of which is a commercial entity but the other of which is the State having material and extensive powers to collaterally affect the context in which the contract might be performed.

In Hospital Products Ltd v United States Surgical Corporation & Ors[22] Mason J addressed best efforts clauses in the context of a distributorship agreement and emphasised that the operation of a best efforts clause is governed by what is reasonable in the circumstances. Wilson J addressed the concept in similar terms at p.118. Mason J said:

“A best efforts clause is not an uncommon feature of a distributorship agreement. However, it is unusual to include in the clause a provision that the promisor will use his best efforts for the common benefit of both parties. It is a clause ordinarily inserted in a contract between parties at arm’s length, designed to give protection to one party by imposing an obligation on the other to promote the sales of the first party’s products. The extent of the obligation thereby imposed is governed by what is reasonable in the circumstances: Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83 at pp.100-101, 107. In Transfield a tender by a licensee based on its use of its own product instead of the product of its licensor was held not to be a breach of a best efforts clause. However, in other cases sale of competing products has been regarded as a breach: see, e.g. Randall v Peerless Motor Car Co (1912) 99 NE 221; Paige v Faure (1920) 127 NE 898. To say that the promise was to be performed to or for the common benefit of both parties is to overlook the qualification of reasonableness usually associated with a best efforts promise. The qualification itself is aimed at situations in which there would be a conflict between the obligation to use best efforts and the independent business interests of the distributor and has the object of resolving those conflicts by the standard of reasonableness.”[23]

[22](1984) 156 CLR 41

[23]at 91-92

Having regard to the above matters it is strongly arguable that the best efforts clauses contained in the contract documents:

(a)extended to doing all things reasonably necessary or desirable to enable the company to have the benefit of the contracts; but
(b)were subject to the detailed terms of the contracts as to the respective obligations of the parties; and
(c)were potentially subject to the right of the State to independently exercise statutory powers bona fide for public purposes extraneous to the contract.

It is very far from clear reading the Reasons as a whole that the Arbitrator has failed to apply these principles in any material respect. At paragraph 842 he states:

“842.Thirdly, the State contends that the Claimant’s reliance upon the best endeavours clause (clause 46.11 DCA) asserts an entitlement, in terms of performance on the part of the State, which goes well beyond the intentions of the parties. The State contends that clause 46.11 is to be construed in light of other clauses in DCA, including clause 31, in which the Claimant acknowledges that ‘no risks or responsibilities in relation to’ the operation and management of the Centre and the Facilities are to be accepted by the State (except, where expressly assumed by it) and clause 1.6 in which the parties acknowledge that nothing in DCA or other Agreements is to be construed as constituting the relationship of principal and agent, partnership or joint venture As the cases state, it is fundamental, in an action on contract, that the alleged wrongdoer is not to be held liable for failing to do something which he has not promised. The best endeavours clause should be read subject to the Objectives of the parties. I agree with these latter submissions. Indeed, the Claimant founds its own case against the State upon them. I do not accept, however, that clause 31 or 1.6 inhibit the operation and effect of clause 46.11 so that the Claimant cannot rely upon it as it has done in this case. Insofar as the State relies upon clause 31, it cannot excuse the State from its own conduct, including a failure to act or not to act under the best endeavours clause which I found it [sic] to be a fundamental obligation imposed upon each party. To accede to the State’s reliance upon this submission amounts to exempting the State from using its best endeavours on every occasion the Claimant requires it to do or not to do something in order to enable the Claimant to operate and manage the Centre. I am satisfied that the parties never intended clause 31 to have this effect or operate in this manner. As for clause 1.6 of DCA, it is not a logical extension of a finding against the State that, by reason of it breaching the best endeavours clause, the relationship of principal and agent, partnership or joint venture somehow emerges between the parties.”

Moreover insofar as the State asserts overarching errors of approach by the Arbitrator, it is in my view necessary for the State to demonstrate that the Arbitrator’s approach crystallised in specific conclusions which demonstrate a manifest error of law which could substantially affect the rights of one of the parties or meets the alternative test stated in s.38(5)(b)(ii) of the Act and could so affect rights.

This view is further fortified by the fact that although the Arbitrator accepted that the determination of the disputes between the parties might be treated as reflecting one principal issue namely the effect of the “best efforts” clauses, he went on to examine each claim as if it constituted a separate breach (Reasons paragraph 102).

The State has asserted that having applied a flawed approach, the Arbitrator ultimately made the following specific errors in that:

(a)he misconstrued the interpretation of the definition of “Dusk” and consequently erred in his findings as to the powers of the Penguin Parade Manager;
(b)he failed to properly acknowledge the powers of the local council to regulate traffic on Ventnor Road pursuant to the Local Government Act 1989 and of the State to regulate such traffic pursuant to planning permit condition and under the Transport Act 1983;
(c)he misconstrued the obligations of the State with respect to co-operative arrangements such as those with respect to joint ticketing and a new management plan; and

(d)he misconstrued the obligations of the State with respect to variations requested by the company to the contractual documents.

Dusk

Clause 1.1 of the DCA defines dusk as follows:

“‘Dusk’ means on any day 90 minutes after sunset or the time for closure of the facilities most recently notified to the company by the manager of the Penguin Parade, whichever is earliest.”

The expression “sunset” is also defined:
“‘Sunset’ means the time as set out by the Astronomical Society and publicised in the Age or other publication selected by the State.”

The proper application of this definition gives rise to questions which pervade the Arbitrator’s Reasons and are critical to the Arbitrator’s decision with respect to claims 1 (vacation times), 3 (early road closure), 4 (emergency management and maintenance), and 5 (quiet enjoyment of the site); and bear on claims 12, 15 and 16 (requests to amend DCA and other agreements).

A preliminary consideration of the definition in the light of matters of which I am entitled to take judicial notice makes clear:

·that its apparent purpose is to fix a specific point in time;
·the period of time which is defined by the ordinary meaning of “dusk” will vary in duration throughout the year depending on the azimuth and angle of the sun and weather conditions;
·dusk as ordinarily understood does not extend to 90 minutes after sunset in mid winter and it follows the point in time contemplated is not necessarily within “dusk” as that term is ordinarily understood.

It might be thought there is much to be said for a literal interpretation of the definition of dusk, subject only to the implicit qualification that the power to notify must be exercised reasonably.[24] The State submitted in its written outline in this proceeding:

“The definition contained in the contract is unambiguous. ‘Dusk’ is to be decided by reference to the definition of sunset published by the Astronomical Society or by the determination of the Penguin Parade Manager notified to the company, in either case the decision being made by a party outside the DCA. When the Penguin Parade Manager has notified more than one time, the most recent is to apply …”

[24]As to the concept of this notion as applied to an administrative decision-maker: see Minister for Aboriginal Affairs v. Peko Wallsend Pty Ltd (1986) 162 CLR 24 per Mason J at 40-42

The following considerations might be thought to support a literal interpretation of the plain meaning of the definition:

·Clause 46.12 of the DCA provides:
“46.12 Entire document
The Project documents contain the entire agreement of the parties with respect to the transactions contemplated by them. There are no understandings, agreements, warranties or representations, express or implied, with respect to the transactions contemplated by the Project documents except for those referred to in them.”

·The contract documents are detailed and on their face comprehensive. As Mason J said in Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales[25] at 346:
[25](1982) 149 CLR 337
“The more detailed and comprehensive the contract the less ground there is for supposing that the parties have failed to address their minds to the question at issue.”

·The application of the principles stated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings[26] leads to the conclusion:
[26](1977) 16 ALR 363
“It is not the case that a term may be implied if it removes uncertainty from or makes more effective the bargain the parties have made. An implied term is an acknowledgment of the presumed intention of the parties and it is not supplied to add what some may perceive as a desirable improvement to the bargain.”[27]
[27]Poseidon Ltd & Anor v Adelaide Petroleum NL & Ors (1991) 105 ALR 25 per Lee J at 44

·The State’s objectives set out in the DCA include:
“(a)realising the potential for use and enjoyment of the Site while protecting and enhancing the area’s natural value; …”

This suggests that the stipulation of times governing operational matters might well be deliberately delegated to the Manager of the Penguin Parade as a person having operational responsibility for protecting and enhancing part of the area’s natural values.
·The tripartite agreement constituted by the COMA which gives to a State agency (PINP) a specific delegated role in the management of the relationship between the Penguin Parade and the Seal Rocks facility, might be thought entirely consistent with the power apparently delegated to the Penguin Parade Manager by the definition of “Dusk”.
·The natural and environmental values specifically recognised in the COMA suggest that that such considerations might lead to the delegation to the Manager of the Penguin Parade of the function apparently referred to in the definition. These values being matters in respect of which I have already observed the Arbitrator misdirected himself.

The Arbitrator found “Dusk” meant “‘up to 90 minutes after sunset’ unless exceptional circumstances emerge during the course of the day, as determined by Penguin Parade manager, which would warrant the claimant’s business being closed earlier in order to protect human lives … or the natural values of the area”.

This interpretation of the definition involved the implication of material limitations upon the power of the Penguin Parade Manager to notify a time:

(a)by reference to opportunity – requiring exceptional circumstances on the day in question; and
(b)by prescription of such exceptional circumstances as those warranting closure to protect human lives or the natural values of the area.

Although it was contended for the company that the Arbitrator did no more than interpret the language of the definition in my opinion it is clear that he implied terms into that definition.

The question of whether such implication discloses a manifest error of law gives rise to three principal issues:

(a)was it open to the Arbitrator to have regard to other than the plain meaning of the definition and in particular to have regard to the matrix of fact surrounding the making of the agreements for the purpose of ascertaining the true meaning of the definition?
(b)if yes, were the findings made by the Arbitrator as to the presumed intention of the parties open to him?
(c)if yes, can the terms implied by the Arbitrator rest upon or be regarded as supportable by such findings?

The Matrix of Fact

In Codelfa Mason J said:

“The basis on which the courts act in implying a term was expressed by MacKinnon LJ in Shirlaw v Southern Foundries (1926) Ltd. in terms that have been universally accepted: ‘Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying …’
The conditions necessary to ground the implication of a term were summarized by the majority in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council: ‘(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract’.”[28]

[28](1982) 149 CLR 337 at 346-347

In the present case it might be thought that it is difficult to conclude that the words implied into the definition by the Arbitrator could be regarded as “so obvious that it goes without saying”.

Nevertheless both before the Arbitrator and (ultimately) before the Court the State together with the company submitted:

(a)that the definition is to be interpreted “purposively” (the State contending contrary to the view held by the Penguin Parade Manager himself that any time notified must be after sunset); and
(b)the presumed intention of the parties was to be ascertained in part by an examination of the relevant matrix of fact underlying the making of the agreement.

The parties adopted this approach in express reliance upon the decision in Codelfa. In that case (immediately following the passage quoted above) Mason J (with whom Stephen and Wilson JJ agreed) stated:

“In the present case the New South Wales Court of Appeal placed much emphasis on the speeches of Lord Wilberforce in Prenn v. Simmonds, and in Reardon Smith line v. Hansen-Tangen. Their Honours, though acknowledging that his Lordship’s remarks were directed not to the implication of a term but to the application of the parol evidence rule, for in each of the two cases the issue was one of orthodox construction of a contract, thought that the remarks had significance for the implication of a term in a contract. With this I agree. But there is a question whether these two cases and other authorities support the Court of Appeal’s view that it is legitimate to take into account the common beliefs of the parties as developed and manifested during their antecedent negotiations.”[29]

[29]p.347

After referring to relevant authorities this question was ultimately resolved as a matter of principle in the following terms:

“The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.”[30]

[30]p.352

It may be that the better view is that the Arbitrator should not have had regard to the relevant factual matrix. The above statement of principle makes clear that such evidence is admissible “… if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning.” Nevertheless, the approach the Arbitrator adopted was one urged upon him by the parties. In these circumstances the question arises whether the State can now obtain leave to appeal if the Court is persuaded that the Arbitrator should not have gone beyond the apparent plain meaning of the definition and that he should not have formed a view as to the presumed intention of the parties having regard to the evidence before him and relying in part upon the relevant factual matrix.

In addition to the very strong policy reasons which support the view that a party to civil litigation should be held on appeal to the approach taken by it at first instance (particularly in cases where the hearing has taken 145 days)[31], the consensual nature of an arbitration makes it difficult to conclude that an arbitrator who decided questions put to him by reference to considerations which the parties agreed were relevant, could ever be regarded as having erred in law. Having regard to the terms of s.22 of the Act however the resolution of this latter question may in strictness require a consideration of the positions adopted in writing by the parties before the Arbitrator. These matters were not evidenced before me. Nevertheless if this question of change of position is restricted to one of the discretion of the Court rather than the existence of a question of law, I would exercise my discretion pursuant to s.38(4) of the Act against the State and apply the principle stated by the High Court in University of Wollongong v Metwally:

“Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case has been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.”[32]

[31]Coulton v Holcombe (1986) 162 CLR 1 at 7

[32](1985) 59 ALJR 481 at 483

This statement was applied by the majority of the High Court to an appeal by way of rehearing in Coulton v Holcombe[33] (although it was not originally expressed in the context of an appeal).
[33]at p.8

The present case can be regarded as potentially falling within a special category because the question of law in issue turns on the construction of a document. In O’Brien v Komesaroff[34] Mason J (with whom the other members of the Court concurred) stated:

“In some cases when a question of law is raised for the first time in an ultimate court of appeal, as for example upon the construction of a document, or upon facts either admitted or proved beyond controversy, it is expedient in the interests of justice that the question should be argued and decided (Connecticut Fire Insurance Co v Kavanagh; Suttor v Gundowda Pty Ltd; Green v Sommerville).”

[34](1982) 150 CLR 310 at 319

In the present case, however, I am not persuaded that it would be “expedient in the interests of justice” to allow the State leave to appeal on the basis that the Arbitrator should not have had regard to the relevant matrix of fact. Such an outcome would result in a party which had elected to fight on one basis (and lost), then being permitted to fight upon another basis.

In my opinion, both the consensual nature of arbitration proceedings and the philosophy of commercial finality underlying the limitations on the right to appeal found in s.38 of the Act, support the view that this outcome should not be permitted. Accordingly the application before this Court should be determined on the basis that it was open to the Arbitrator to have regard to the relevant matrix of fact.

The Arbitrator’s Findings

As a consequence of the approach urged upon him the Arbitrator made findings as to the intention of the parties which in my opinion cannot now themselves readily be said to disclose a manifest error of law in respect of which leave to appeal should be granted. Such findings turn both on the construction of the relevant contract documents and also upon the evidence before the Arbitrator as to the surrounding matrix of fact. As such they are properly regarded as findings of mixed fact and law. It is necessary to address such findings in some detail to demonstrate their character and content before reaching a conclusion as to their effect.

It is also appropriate to refer further to Codelfa as illuminating the issues which confront the State. There is an obvious parallel between the alleged matters of common assumption in issue in the Codelfa case and the present case. Both were concerned with the time framework in which the contract was to be performed on a day-to-day basis and which was in the Arbitrator’s view in each case necessary to give the contract business efficacy. In Codelfa Mason J. said:

“The implication of the term found by the Court of Appeal rests on findings made by the Arbitrator based on circumstances surrounding the making of the contract, including evidence of the discussions between the parties which preceded entry into the contract. Thus the Arbitrator found that there was a common understanding (described as a ‘belief’ by the Court of Appeal) that the works would be carried out on a three shift continuous basis six days per week and without restriction as to Sundays. He also found that the Authority had represented to Codelfa, and that it had accepted, that no injunction would be granted in relation to noise or other nuisance. He further found that the works could not be carried out in accordance with methods and programmes agreed between the parties unless Codelfa worked three shifts a day for six days a week.
The first question is whether, in the light of the principles as I have explained them, it was legitimate to look to this material on the issue of implication of a term. I think it was. … As it was, the relevant discussions reflect neither the preliminary consensus that merged into the written contract, nor statements made during the course of negotiations indicative of the unilateral intentions of each party. Instead the evidence revealed a matter which was in the common contemplation of the parties yet was not a contractual provision actually agreed upon for the simple reason that it was a matter of common assumption.”[35] (emphasis added)

[35]pp.353-4

In the present case it can also be said that the implication of the terms found by the Arbitrator rests on the findings made by the Arbitrator based on circumstances surrounding the making of the contract, including evidence of the discussions between the parties which preceded entry into the contract. In Codelfa the Court formed the view that the Arbitrator could not properly have concluded that the particular term to be implied was so obvious that “it goes without saying”. Mason J stated:

“This is not a case in which an obvious provision was overlooked by the parties and omitted from the contract. Rather it was a case in which the parties made a common assumption which masked the need to explore what provision should be made to cover the event which occurred. In ordinary circumstances negotiation about that matter might have yielded any one of a number of alternative provisions, each being regarded as a reasonable solution.”[36]

[36]At 355-6, see also Aickin J at 374 and Brennan J at 404

Mason J’s conclusion was founded upon the particular circumstances surrounding the making of the contract which are clearly distinguishable from the present case in significant respects:

(a)the contract was not a negotiated contract but one put forward by one party in a form the other accepted; and
(b)the assumption in issue related not to the resolution of circumstances arising directly under the contract (as here) but generated by the action of a third party having no necessary role under the contract.

It follows that the question of whether the Arbitrator in the present case made a manifest error of law in the implication of terms into the definition of “Dusk” must ultimately be regarded as turning on whether such implication could properly rest on the findings made by the Arbitrator. These findings are based on circumstances surrounding the making of the contract, including evidence of the discussions between the parties which preceded entry into the contract. Necessary preliminaries to the resolution of the ultimate question are an examination and understanding of the findings themselves and the resolution of the incidental question of whether the findings were open to the Arbitrator.

The Arbitrator elaborates the basic positions of the parties with respect to the definition of “Dusk” in introducing claim No. 1 at paragraph 105 and following of his Reasons. He makes some initial observations as to the words in the definition and then makes the following initial findings at paragraphs 118 to 120:

“118.At the time the parties entered DCA and other Agreements, they were fully aware of the circumstances that there would be penguins on Ventnor Road after dark. Evidence was given at the hearing that they could be present on Ventnor Road any time after sunset. Despite being ‘a wild animal’ it is more likely than not they would be present on Ventnor Road 30 minutes after sunset. On any view of the evidence this phenomena was known to at least 1 officer of the State. If this was so why would the parties vest the Penguin Parade Manager with a discretionary power to close the Centre and the Facilities when penguins were likely to be present on the road? Why did the parties simply not provide that the Claimant could only operate its business when penguins would not be present on it? In my opinion the parties expected the Claimant to operate and manage its business in the presence of penguins and to co-exist with them. They expected and required the Claimant to conduct its business accordingly.
119.In effect the State is contending that, if the Penguin Parade Manager considers the welfare of penguins may be endangered by the Claimant carrying on its business at the Facilities, he is empowered by the definition to notify the Claimant to close the Centre and vacate the Facilities. He is not required to consider what courses may be open to the Claimant to avoid endangering the penguins whilst carrying on its business. It does not matter what are the consequences of the closure upon the business. The State says, in effect, that it was never intended by the parties that the Claimant should carry on business in the presence of penguins, particularly those appearing on Ventnor Road.
120.I do not accept these submissions and the outcomes of them. Indeed, I consider this interpretation and what may follow from it could relieve the Claimant, wherever the expression ‘dusk’ appears in DCA, from its obligations under it. It would be easy for the Claimant, when faced with an allegation of non-performance, to argue that it was relieved from performing its obligation because the Penguin Parade Manager should have intervened and exercised his discretion, as penguins may have been present at the relevant time of performance. Such an outcome is not one which the parties, I am satisfied, ever intended when they made the Agreements.”

Although the true construction of a term of a contract is a question of law, it is apparent the above findings are findings of mixed fact and law founded upon the Arbitrator’s view not only of the contract documentation but also upon his view of the circumstances surrounding the making of the contract (which he subsequently elaborates). As such, they are not readily open to challenge in this proceeding. In some circumstances such findings may disclose an error of law. In the absence of the evidence which was before the Arbitrator this Court could not, however, conclude that the findings made by the Arbitrator were not open to him. In the present case the State must identify not only a manifest error of law but must do so “on the face of the award”. This gives rise to a difficulty which has historically confronted a number of appellants when seeking to establish that a conclusion of fact was not open to a tribunal of fact at first instance. It is often very difficult to demonstrate that a conclusion of fact was not open to such a tribunal if the evidence before such tribunal is not before the appellate court. In City of St. Kilda v Perplat Investments Pty Ltd[37] to which Batt J referred in Roads Corporation v Dacakis[38], the Full Court of the Supreme Court had to consider a decision by the Administrative Appeals Tribunal as to the characterisation of a proposed land use. Young CJ said:
[37](1990) 4 AATR 358
[38][1995] 2 VR 508

“No transcript or other account of Mr Biles’ viva voce evidence was put before the Court. Clearly, however, the Tribunal accepted Mr Biles’ evidence as critical to its decision for the next paragraph of its reasons reads:
‘The Tribunal accepts that ‘serviced apartments’ is a new concept of providing accommodation for visitors. The Tribunal also accepts that such accommodation is temporary accommodation but it is not usually provided for persons travelling by car. In view of those findings the Tribunal finds that the proposed use is of ‘serviced apartments’ and not as a ‘motel’.

In the absence of a full account of the evidence which Mr Biles gave to the Tribunal, it seems to me to be impossible to sustain the appellant’s contention that the Tribunal made a finding which was not reasonably open on the evidence.”[39]

A like conclusion follows in the present case.

[39]Crockett J reached a similar conclusion at p.366 and Southwell J at p.372

At paragraphs 121-128 of his Reasons the Arbitrator examines the use of the expression “Dusk” in the context in which it is found and at paragraphs 129-131 he further considers the influence of other provisions in the contract documentation.

At paragraph 132 he returns to the circumstances surrounding the making of the contract and further states as follows:

“132.At the time of making DCA and other Agreements the parties intended, in my opinion, that the Penguin Parade Manager should only exercise the power conferred on him by the definition ‘dusk’ to notify the Claimant to close the Centre and vacate the Facilities when he perceived and determined that circumstances were present which warranted the Claimant ceasing its business operations. Given the effect upon the business of a notification, in my opinion, the parties intended that the Penguin Parade Manager should only exercise his power in special circumstances. It would be open to him to exercise this power, at any time, whilst the Claimant was operating its business. The circumstances, however, must be ‘exceptional’. They would be circumstances which the parties considered, more likely than not, to be unusual and which would rarely occur. They would not be circumstances which already would be known to the parties as foreseeable and regular occurrences or already dealt with by DCA or other Agreements. The Agreements expressly refer to and recognise ‘wildlife’ in the area. The parties vested the Penguin Parade Manager with this power because, as the principal officer of the most dominant Governmental operation on Summerland Peninsula, he was in the best position to assemble information and determine whether or not circumstances were present which were exceptional, warranted closing down the Claimant’s business and taking necessary measures and precautions to overcome or relieve the situation that had emerged. COMA speaks of measures to be considered and introduced to deal with these types of circumstances. The power was not to be exercised capriciously or unfairly. On any view, it was not intended by the parties that this power should be exercised so as to conflict with the rights conferred upon or which were to enure for the benefit of the parties under DCA and other Agreements or, more importantly, to displace or interfere with an obligation imposed upon a party so as to result in the parties failing to satisfy their Objectives, unless exceptional circumstances were present, which warranted the intervention of the Penguin Parade Manager.”

In my opinion, this finding as to the intention of the parties amplifies the findings at paragraphs 118-120. Such findings are not in themselves open to challenge as disclosing a manifest error of law. They are findings grounded in the Arbitrator’s view of the evidence before him. They cannot be said to have been manifestly not open to him by reference to the face of the award.

Insofar as the findings appear to be expressed by reference to the subjective intentions of the parties they may nevertheless be relevant. As Santow J stated in Spunwill Pty Ltd v BAB Pty Ltd:

“Under the objective theory of the contract, evidence of actual intention is admissible in the limited circumstance where it is evidence of a ‘shared subjectiveness’; that is to say of matters in common contemplation or of common assumption. Such matters of mutual subjective intention are themselves part of the objective framework of facts within which the contract came into existence, and are thus receivable as part of the surrounding factual circumstances …”[40]

[40](1994) 36 NSWLR 290 at 309

At paragraph 133 the Arbitrator rejects the company’s contention that the intention of the parties was that the discretion conferred on the Penguin Parade Manager could only be exercised “when the weather may be bad or inclement.” At paragraphs 134 to 141 he rejects the State’s contentions including the following aspect of the evidence which might be thought to go squarely to the underlying merits of the State’s position:

“134.The State strongly contends that, if its interpretation of ‘dusk’ is rejected, the welfare of penguins, particularly those that gather on Ventnor Road, after sunset, will be endangered. By the Claimant being able to carry on its business up to 90 minutes after sunset, motor vehicles, including the shuttle bus, will be able to drive through them. I consider this submission to be contrary to the evidence. At the time when the parties executed the Agreements, they were aware that penguins would be present on the Site, on Ventnor Road and adjoining the Site, but expected the Claimant to conduct its business in their midst.”

In support of this finding the Arbitrator sets out a whole series of matters relating to the evidence before him including the history of lack of conflict between penguins on Ventnor Road and traffic. Among other matters, he finds that a road closure strategy put in place on Ventnor Road in 1996 was imposed not following an incident in which penguins were killed on Ventnor Road (as a number of witnesses suggested) but following an incident in which penguins were killed on another more exposed road.

Having made a series of findings as to surrounding circumstances and the intention of the parties, the Arbitrator went on to state the true meaning of the definition of “Dusk” as follows:

“143.Accordingly, I consider the expression ‘dusk’ wherever it appears means ‘up to 90 minutes after sunset’ unless exceptional circumstances emerge during the course of the day, as determined by the Penguin Parade Manager, which would warrant the Claimant’s business being closed earlier in order to protect human lives (see for example, although not strictly on point, the Penguin Parade Manager in a letter dated 18 January 2000 to the Claimant [see para 194] in which he warns of the dangers of persons walking down the western section of Ventnor Road after dark) or the natural values of the area. It follows, therefore, I reject the interpretation contended for by the State. I wish to stress that in arriving at this finding I have carefully considered and taken into account all the provisions of DCA and, insofar as they may affect them, the provisions of the other Agreements as well (although they must be read subject to the operation and effect of DCA).”

The Arbitrator then considered specific arguments mounted by the parties by reference to the matrix of facts. He noted first, at paragraph 144, that each party submitted that he should take into account what was in contemplation of the parties in the light of the matrix of circumstances in which the DCA was made. He referred to the relevant principles of law by reference to the leading authorities. He then made findings as to what occurred at a meeting between the parties at which the terms of the contract documents were settled. At paragraph 147 the Arbitrator found:

“147.I do not consider that the matrix of circumstances in which DCA and other Agreements were made, as constituted by what was discussed at the meeting on 18 August 1996, enables me to presume what was in the contemplation of the parties as to the true meaning of the definition of ‘dusk’ which should move me to attribute to it an interpretation different from that which I find. I am satisfied that in light of this matrix of circumstances it was not the intention of the parties to empower the Penguin Parade Manager to determine the business hours of the Claimant. I am satisfied that it was not their intention that the Penguin Parade Manager should be able to exercise the power so as to result in the parties not fulfilling their Objectives or creating difficulties for the Claimant in managing and operating the Centre and in using its best endeavours to satisfy the Operating Requirements in Schedule 7 and to comply with the Amenities Performance Criteria in Schedule 8.”

After referring further to the contentions of the parties, the Arbitrator further found at paragraph 150:

“150.Apart from the catalyst, at the meeting, that prompted the discussion, namely, the subject of the Claimant’s business operating hours, I find the matrix of circumstances, which resulted in the insertion of the definition of ‘dusk’ in DCA, does not assist me, in presuming, what was in the contemplation of the parties. The catalyst that prompted the discussion, in my opinion, presumes that the parties intended the definition of ‘dusk’ should serve the purpose of introducing some certainty for the Claimant as to the times within which, it must do or not do something, which leads me to conclude that the parties did intend the expression ‘dusk’, wherever it appears in DCA, should have the meaning and effect which I attribute to it.”

In my opinion, the above findings are again not readily open to challenge as disclosing a manifest error of law. They are again findings of mixed fact and law embodying the conclusions of the Arbitrator as to the evidence. Furthermore, they are not to be taken as the whole of the Arbitrator’s findings as to the presumed intention of the parties on the evidence as to the circumstances surrounding the making of the contract. They are supplementary to the findings which I have already set out at paragraphs 118 to 120 and paragraph 132 of the Reasons. The Arbitrator’s Reasons are discursive and the matters set out under the heading relating to the matrix of facts at paragraph 144 are not to be understood as the sum of his findings on the relevant factual matrix when his Reasons are read as a whole. It follows from the above analysis that the Arbitrator’s detailed findings as to the presumed intention of the parties must be accepted as open to him.

The Implied Terms

The question that then arises is whether it is manifest that the Arbitrator could not as a matter of law imply the terms which he did on the basis of such findings. The conditions necessary to ground the implication of a term are as follows:

(a)It must be reasonable and equitable – it cannot be said the terms are manifestly unreasonable or inequitable having regard to the Arbitrator’s findings.
(b)It must be necessary to give business efficacy to the contract – the Arbitrator has found in substance that the terms are necessary to give business efficacy to the contracts and it cannot be concluded that this finding was not open to him.
(c)It must be so obvious it goes without saying - the Arbitrator has elaborated his findings in such a way that it is open to conclude that the terms implied by him are so obvious that they go without saying.
(d)It must capable of clear expression – although the Arbitrator’s formulation might be criticised (e.g. “as determined” presumably means “as determined and notified”) nevertheless the critical limitations formulated by him are clearly expressed.
(e)It must not contradict any express term of the contract – there is no direct inconsistency between the implied terms and the express terms of the contract. The effect of the implied terms is to better define the operation of the Penguin Parade Manager’s discretion.

It follows that in the ultimate I have reached the conclusion that the question of what implication might properly rest on the Arbitrator’s findings is so bound up with the factual content of those findings that he cannot be said to be manifestly wrong in the sense contemplated by s.38 of the Act.

This conclusion is consistent with the impression given by a number of authorities to which counsel for the company referred, that it will seldom be that a disputed question of construction such as that before the Arbitrator can result in a “manifest error of law on the face of the award.” In American Diagnostica Inc v Gradipore Ltd[41] Giles CJ Comm Div referred to the approach articulated in the Promenade Investments case and said:

“This approach to the meaning and effect of s.38 was informed by the deliberate legislative intention of confining curial intervention in arbitrations earlier mentioned, and it follows (and has been held) that if an arbitrator’s construction of a contract is reasonably open, it cannot be said that his error is evident or obvious or that there are powerful reasons for considering that he was in error.”[42]

[41]Supreme Court of New South Wales (Commercial Division 50224 of 1997, 26 March 1998). The case is reported omitting the relevant passage in (1998) 44 NSWLR 312 at 338.

[42]See also Re Tiki Village International (1994) 2 Qd R 674; Natoli v Walker (New South Wales Court of Appeal 40351 of 1993, 26 May 1994); and Leighton Contractors v South Australian Superannuation Fund Investment Trust (1995) 12 BCL 38.

For the above reasons I reject the State’s application insofar as it is based upon the proposition that the Reasons demonstrate a manifest error of law with respect to the proper construction of the definition of “Dusk”. Likewise the question in issue does not satisfy the terms of s.38(5)(b)(ii) but turns on the construction of the particular contract.

Independent Exercise of Statutory Power

Consequent upon the notification of closing times pursuant to the definition of “Dusk” the Penguin Parade Manager caused direct steps to be taken to close Ventnor Road depriving the company of access and egress from the Seal Rocks Development. Moreover, the Arbitrator’s detailed Reasons make clear that the evidence established that on a substantial number of occasions closure of the road was effected prior to the time notified by the Penguin Parade Manager.

By paragraph 15 of its defence the State admitted that the Penguin Parade Manager was acting as its agent in the closing of Ventnor Road “where acting pursuant to and in accordance with the DCA.” The Arbitrator records that the company alleged not simply that the Penguin Parade Manager had acted as the State’s agent, but also that the State failed to use its best efforts with respect to the proper exercise of the Penguin Parade Manager’s powers. Thus the company alleged in its claim that the State breached its obligations:

“by permitting (the Penguin Parade Manager) to assume absolute discretion as to when to close the facilities, alternatively by acquiescing in an assumption of absolute power by (the Penguin Parade Manager) as to when to close the facilities (wrongfully and contrary to the terms of the Agreement and the intention of the Agreement);”

The Arbitrator upheld the latter claim as a matter of fact and canvassed the history of the State’s actions in detail in paragraphs 165 to 240 of his Reasons. He concluded at paragraph 241 that the State had breached the best endeavours clause in the DCA and the quiet enjoyment obligation under the lease. He observed at paragraph 242:

“The State has never resiled from its support of the vacation times notified by the Penguin Parade Manager, irrespective of the impact they may have upon the Claimant’s business operations.”

This conclusion renders it unnecessary to determine whether the Arbitrator misdirected himself as a matter of law with respect to the concept of agency.

In my opinion it was open to the Arbitrator to come to this conclusion on the facts as set out in his Reasons and it follows that the consequences of the Arbitrator’s resolution of the question of the proper construction of the definition of “Dusk” cannot be evaded by the State by asserting that the error was the error of the Penguin Parade Manager and not of the State.

Nevertheless, a series of subsidiary issues arise. The State contends that the use of Ventnor Road by the company outside of the times notified by the Penguin Parade Manager would in any event have been unlawful and hence would have constituted action in breach of the contract documents which require the use and development of the Seal Rocks site to be conducted in accordance with the law. Further, the actions of the Penguin Parade Manager could not, in all the circumstances, be said to have caused loss and damage to the company if the company was in any event prohibited from using the road at the relevant times by other requirements of the law.

The State relies on three matters:

(a) the alleged declaration of road closure times by the Shire of Bass;
(b)the imposition of closure times upon the use of the Seal Rocks site by the Department of Natural Resources and Environment (“DNRE”) from May 2001 pursuant to the planning permit relating to the Seal Rocks Development; and
(c)the imposition from late October 2001 of road closure times on Ventnor Road by the Roads Corporation at the direction of the Minister for Transport pursuant to the provisions of the Transport Act 1983.

Before turning to these matters, it is pertinent to record some preliminary considerations:

(a)Ventnor Road does not form part of the reserve administered by the PINP, but runs into and through that reserve to the Seal Rocks area demised to the company;
(b)the Arbitrator found that the Penguin Parade Manager initially acted on a misunderstanding of the provisions of the COMA and believed that as his letter of 5 February 1999 demonstrates[43], the provisions of Schedule 7 of the DCA imposed on the company an obligation of:
[43]Reasons, para.171
“Ensuring that Ventnor Road is closed at dusk (at a point immediately west of Manndeville Road) to allow penguins undisturbed access to their nests.”

Whereas in fact the DCA requires that the company:
“(c)use the company’s best endeavours to ensure Ventnor Road is closed at dusk (at a point immediately west of Manndeville Road).”

(c)the mistaken belief of the Penguin Parade Manager was the subject of dispute and clarification at a meeting on 25 March 1999[44]:
“After the meeting, by letter dated 7 April 1999, the Penguin Parade Manager sought from the Bass Coast Shire Council its ‘agreement’ to the ongoing closure of Ventnor Road at night and requested from it an authorisation for PINP to act as agent of the Shire Council to effect the road closures … The Penguin Parade Manager was obviously concerned by the source of his power to close Ventnor Road as much of what had been discussed at the meeting concerning (sic) the power conferred upon him by the definition of ‘dusk’.”[45]

[44]Reasons, para.180

[45]Reasons, para.184

From 27 March 1997, being the date of the DCA and other contractual documents, up until 7 October 2001, the portion of Ventnor Road which leads to the Seal Rocks site was a local road managed and controlled by Bass Coast Shire Council. The Arbitrator found that whereas the Roads Corporation had previously regulated closure times on Ventnor Road in 1987, such regulation ceased to have effect when Ventnor Road was declassified to a local road by the Roads Corporation by notice in the Victorian Government Gazette dated 12 October 1995.

On 7 April 1999 the Penguin Parade Manager requested the authority of Bass Coast Shire Council to close Ventnor Road in the terms of the letter set out at paragraph 303 of the Reasons.

At a meeting on 21 June 2000 the Bass Coast Shire Council passed a resolution:

“That Council confirms that the Phillip Island Nature Park is authorised to continue to act as Council’s delegate to implement the nightly closure of roads on the Summerland Estate as previously authorised by the former Shire of Phillip Island and VicRoads.”

The Arbitrator observed with respect to this resolution:

“The Shire of Bass Coast did not address the request, as it had been proposed by the Penguin Parade Manager (‘the Park [PINP] seeks formal agreement of the Council to the ongoing closure of the road at night and its authorisation to act as agent of the Council to effect such closure’).”

The Arbitrator considered but properly declined to purport to rule on the validity of Council’s resolution.[46] He held, however, that on its proper construction it was ineffective to authorise PINP to close the road. In substance, the resolution authorised PINP to act as Council’s delegate in implementing the nightly closure of roads but did not provide the underlying authority for such closure. The Arbitrator stated:

“307.A careful analysis of the resolution passed by the Shire Council however does not produce the conclusion that the Council has conferred power or authority upon PINP or the Penguin Parade Manager to do anything. It simply authorises ‘the continuation of a state of affairs’ that never existed and, if they once did exist, were revoked and came to an end by ‘the declassification’ of Ventnor Road almost 5 years earlier, on 12 October 1995.”

[46]Reasons, para.306

It might be contended that the effect of Council’s resolution was arguable. Nevertheless, it cannot on any view be regarded as a particularly satisfactory resolution authorising the closure of a public roadway. It could not be concluded that a prosecution could be mounted for use of the road in breach of the resolution. In my view the Arbitrator’s conclusion on this aspect of the matter was in substance correct and cannot on any view be said to demonstrate a “manifest error of law”. Nor does it give rise to a question of commercial law within the meaning of s.38(5)(b)(ii) of the Act.

The planning permit for the use and development of the Seal Rocks site was issued on 11 March 1999. It provided by condition 9(b):

“Other than in emergency circumstances or for matters associated with emergency maintenance purposes, the permitted use must cease on each day no later than 90 minutes after sunset [being the time as set by the Astronomical Society and published in ‘The Age’ newspaper or such other publication selected by Minister for Conservation and Land Management] or at any other time after sunset which may be specified by DNRE; …”

In the event the Arbitrator’s Reasons indicate that DNRE did not specify any time under condition 9(b) until 30 May 2001, more than four years after the issue of the planning permit and some seven calendar months after the commencement of the arbitration. At this point in time DNRE specified dates and times at which the claimant must cease doing business at the Centre.

The Arbitrator considered this action by DNRE at paragraph 160 of his Reasons:

“160.DNRE has not disclosed its reasons for exercising the power conferred by Condition 9(b) of the planning permit. I assume, however, that, as the times specified by DNRE coincide with the vacation times notified by the Penguin Parade Manager, it exercised this power as ‘an extra measure’ to protect penguins that may be on Ventnor Road. In my opinion, DNRE cannot exercise the power conferred by this Condition 9(b), unless it has ‘a town planning’ reason for doing so. I accept that the boundaries of ‘town planning’ are extensive and somewhat difficult to define, but, in this case, ‘the factors’ constituting ‘town planning’ reasons must arise from the use of the Site by the Claimant, as permitted by the planning permit, unless ‘the factors’ are something which were not in the contemplation of the responsible authority at the time, when it determined to grant the permit, and certainly some thing (‘the factor’) that was not the inevitable result of the use permitted by the permit. In this instance the use permitted by the planning permit was always going to involve a motor vehicle, of one kind or another, travelling along Ventnor Road in order to carry patrons to and from it. Penguins and other wildlife were always going to be present. Indeed, the enterprise was put in place to enable visitors to enjoy watching the wildlife. Their protection and the measures to protect them are to be found elsewhere, if it exists at all. It is not to be found in town planning. In my opinion Condition 9(b) does not empower DNRE to specify closure times for the Claimant’s business for the purpose of protecting penguins on Ventnor Road.”

In my opinion, the reasoning of the Arbitrator in relation to the exercise of the power conferred by condition 9(b) is manifestly unsatisfactory for the following reasons:

(a)The test of validity of a planning permit condition was stated by Harris J in 271 William Street Pty Ltd v City of Melbourne[47]; applying the decision of the High Court in Allen Commercial Constructions Pty Ltd v The Council of the Municipality of North Sydney[48]. Planning permit conditions will be valid if they are:
[47][1975] VR 156 at 162
[48](1970) 123 CLR 490
“… conditions which are reasonably capable of being regarded as related to the purpose for which the function of the authority being exercised as ascertained from a consideration of the scheme and the Act under which it is made. This purpose may be conveniently described, in accordance with the expression used by Lord Jenkins in Fawcett Properties Ltd v Buckingham County Council, 1961 AC 636 at p.684, as being ‘the implementation of planning policy’, provided that it is borne in mind that it is from the Act and from any relevant provisions of the Ordinance, and not from some preconceived general notion of what constitutes planning, that the scope of planning policy is to be ascertained.”[49]
[49]at pp.499-50

As to the applicability of this test under the Planning and Environment Act 1987 see Crichton v Moorabbin City Council[50]. The Arbitrator has not applied this test in purporting to determine whether the requirements made under condition 9(b) were valid.
[50][1992] 2 VR 372
(b)The purposes of the Planning and Environment Act 1987 quite clearly extend to environmental objectives such as the protection of native wildlife including penguins. The objectives of planning in Victoria include:
“4(1)(b) To provide for the protection of natural and man made resources and the maintenance of ecological processes and genetic diversity;”

The objectives of the planning framework established by the Act include:
“4(2)(d) To ensure that the effects on the environment are considered and provide for explicit consideration of social and economic effects when decisions are made about the use and development of land;”

(c)The Arbitrator does not refer to or purport to have considered the provisions of the relevant planning scheme;
(d)The requirements of a condition of a planning permit are enforceable not only by the responsible authority but also by third parties pursuant to the provisions of the Planning and Environment Act. The requirements of such a condition must be presumed valid unless set aside on appeal to the Victorian Civil and Administrative Tribunal or by order of the Court.
(e)It does not follow that because a requirement made under a condition is invalid that a permit holder can necessarily avoid it and take the benefit of the permit. A right of appeal against conditions on permits is given by s.80 of the Planning and Environment Act and a further specific right of review with respect to requirements imposed pursuant to a condition is given by s.149. Provision is also made for amendment of a permit under s.87. A fundamental reason for these provisions is that a permit holder cannot both take the benefit of a permit and reject the burden of a condition unless the requirement under the condition is severable. The relevant principle was stated by Stephen J in Spurling v Development Underwriting[51] adopting the principles stated by the House of Lords in Kent County Council v Kingsway Investment[52]. In that case Lord Reid said at p.90:
“Suppose that a planning authority purports to impose a condition which has nothing whatever to do with planning considerations but is only calculated to achieve some ulterior object thought to be in the public interest. Clearly, in my view, the condition should be severed and the permission should stand. But suppose on the other hand, that a condition, though invalid because ultra vires or unreasonable, limits the manner in which the land can be developed, then the condition would not be severable, for if it were simply struck out the result would be that the owner could do things on his land for which he never in fact obtained permission, and that would be contrary to the intention of the statute.”

It follows that if the Arbitrator were correct in regarding the limitation of hours for environmental purposes relating to protection of penguins as being ultra vires (a conclusion which I reject) the question of severability would remain to be determined (in the absence of resolution of the underlying merits of the situation pursuant to statutory process).

[51][1973] VR 1

[52][1971] AC 72

Despite the above difficulties with the Arbitrator’s Reasons, the State faces a fundamental problem in relying on the requirement of DNRE in seeking to avoid the effect of the actions of the Penguin Parade Manager. The date at which the requirement was imposed by DNRE was subsequent to the actions which form the essential basis of the Arbitrator’s findings in relation to claims relating to Ventnor Road. The Penguin Parade Manager first notified times on 2 April 1997. The history of notification of early closure times upon which the company founded its claim was crystallised in notices of dispute served on the State between 14 April 2000 and 20 June 2000. The arbitration hearing itself had already proceeded for seven months before DNRE exercised its power pursuant to condition 9(b) of the planning permit on 30 May 2001. In addition to making findings as to continuing breach of the agreement prior to DNRE’s action, the Arbitrator found that the State had prior to this date wrongfully rejected a proposal for a shuttle bus transport arrangement and wrongfully refused requests to modify the definition of “Dusk” made in and between 28 May 1999 and 15 May 2000.[53] The Arbitrator stated in his conclusion:

“865.In relation to premature vacation times the State adopted the stance that the business should be closed down so as not to endanger the welfare of penguins on Ventnor Road despite there being much evidence of persons driving on Ventnor Road when they were on the road and apparently doing so without harming them, although reports were received in evidence, to which I alluded, of several penguin fatalities on the road over about 4 years. The State never afforded a chance to the Claimant to convey patrons in and out of the Centre when penguins were on the road. It simply accepted that whatever the Claimant proposed to do and despite what was in DCA and other Agreements, it should not be afforded an opportunity even to conduct a shuttle bus, which is what the parties originally agreed should be the means used to convey patrons to and from the Centre. I am unpersuaded that the presence of penguins on the road could not have been overcome.”

[53]Reasons, para.547ff

A rejection of the reasoning of the Arbitrator concerning the planning permit does not vitiate the conclusions of the Arbitrator as to breaches of the best efforts clauses contained in the contract documents or the conclusion reached by him at paragraphs 717 to 721 of his Reasons as to repudiation:

“717.I have found that the Claimant has established a number of breaches it has alleged against the State. In short, a private business cannot operate profitably if it is denied the opportunity to trade during the busiest period of the day, if its patrons cannot make their way to its doors on peak days because of traffic congestion, particularly if it is located in an isolated area and patrons require a motor car to access it, if barriers are erected across the road to it or if it relies on patrons holding tickets to be admitted to it and its ticket seller shows little enthusiasm for selling tickets. Also, it cannot operate profitably if it incurs financial obligations without being afforded the opportunity to challenge them or is dependent upon Government officials for permission to enhance its enterprise in order to improve its profitability. All these things happened to the Claimant as a result of the breaches which I have found against the State.
718.On numerous occasions before and after it opened for business, the Claimant informed the State of the difficulties it was experiencing and, in most instances, how they could be overcome. I do not rehearse these complaints save to refer to what the Claimant conveyed to Project Monitor, the Premier of Victoria in 1998 and 2000, Ministers, the Executive Director and Senior Public Service Officers. Apart from resolving the problem of the traffic congestion, all these difficulties in my opinion could have been overcome by the State, with little effort, either doing or refraining from doing some thing. Regrettably, as the Project Monitor observes in one of his reports, the actions required to resolve these difficulties had become ‘bargaining points’. The State did not appear to understand how the difficulties were affecting the Claimant’s business. I only set apart the resolution of the traffic congestion, as requiring more effort on the part of State, because it required a little bit of thinking and analysis, as well as some positive action on the part of the State. On the other hand, the State has an abundance of expertise in VicRoads combined with an input from the Penguin Parade Manager to assist the Claimant as to how to best resolve this problem which was so apparent on peak days (80-100-120 days of the year).
719.Had the State used its best endeavours many of the difficulties, being encountered by the Claimant, would have been overcome, allowing the Claimant to enjoy its rights and to receive the benefit of and discharge its obligations under the Agreements, to satisfy the Operating Requirements and to comply with the Amenities Performance Criteria. These difficulties have precluded the Claimant from generating the returns of revenue, forecast and expected by the parties which were so necessary to making it profitable and financially viable and enabling it to pay the concession fees and rental premium, as well as the contribution fees.
720.The matters and events which constitute the breaches of these clauses also amount to breaches of other clauses in DCA, the Lease and COMA. I refer to the findings made by me. I do not repeat them, apart from observing that I cannot think of a more classical breach of quiet enjoyment of a lease, for the demise of business premises, than for a lessor to require his lessee to close the business, being conducted on the premises, at times, when the parties expect the lessee to generate sales and for which the lessee had leased the premises in the first place.
721.All these things combine to move me to conclude that, by it beaching these clauses, as I have found them in sections 2, 4, 6, 7, 9, 10, 12, 13, and, insofar as I found that the State should have consented to the proposals submitted by the Claimant to it on 14 July 1999, 15 of the Reasons, the State has deprived the Claimant substantially of the rights and benefits of the Agreements. The State deprived the Claimant of the opportunity to establish and operate a profitable enterprise. Accordingly, I find that the State did repudiate its obligations under DCA and other Agreements and that all the breaches, apart from denial of access for emergency maintenance purposes and breach of confidentiality requirements, go to the root of the contract. In other words the State breached fundamental obligations of the Agreements. I find that these breaches also breached material obligations of the Lease and COMA.” [54]

[54]See also paras.860-869 of the Reasons

The company has since accepted the repudiation by the State of its obligations and has terminated the DCA and other agreements as the Arbitrator held it was entitled to do. The Arbitrator has in turn awarded damages on a reliance basis. As a result the defect in the Arbitrator’s reasoning which I have identified relating to the planning permit does not vitiate either his conclusions with respect to the question of repudiation or the basis of his calculation of damages as a result of such repudiation.

The question of law in issue could not thus substantially affect the rights of the State within the terms of s.38(5) of the Act.

A like conclusion follows with respect to the closure of Ventnor Road pursuant to the provisions of the Transport Act. Such closure occurred from late 2001. It cannot have had the effect of vitiating the Arbitrator’s conclusions with respect to the effect of events prior to that date.

For the sake of completeness I reiterate that I have reached the above conclusions without calling in aid the findings of the Arbitrator that the road was in fact closed on many occasions prior to the hours notified by the Penguin Parade Manager and in turn ultimately adopted by DNRE and the Roads Corporation.

Breaches of Best Efforts Clauses with Respect to Co-operative Arrangements

The State asserts the Arbitrator misconstrued the best efforts clauses applicable to the company’s claims that the State failed to use its best efforts with respect to a series of co-operative arrangements contemplated by the contract documents. As I have already indicated I do not accept that the Arbitrator’s construction of the best efforts clause was manifestly wrong in law. The question of whether the best efforts clauses were ultimately breached is one of fact. Malcolm CJ expressed the relevant principle in Paltara Pty Ltd v Dempster[55]:

“Whether a party has ‘used his best endeavours’ to achieve a stated objective, must be determined objectively in the light of what in fact is required to be done, in the circumstances as they exist, to achieve the stated objective. In such a case:
‘… he is required to do all that he reasonably can in the circumstances to achieve the contractual object, but no more’.”

[55](1991) 6 WAR 85; see also Hawkins v Pender Bros. [1990] 1 Qd R 135

The Arbitrator’s findings with respect to the following matters are findings of fact:

(a)       Claim 8 implementation of traffic management scheme;
(b)      Claim 9 appointment of fifth person to OCC;
(c)       Claim 11 joint ticketing/new management plan.

None of the above findings disclose manifest errors of law. The Court cannot conclude that the findings were not open to the Arbitrator on the face of the matters set out in the award. Nor can any of the matters in issue be said to meet the criteria of the alternative ground set out in s.38(5)(b)(ii). They are not concerned with questions of the certainty of commercial law. They turn upon the particular facts of the case.

One particular matter deserves further comment. The State submits that the Arbitrator erred in finding at paragraph 458 of his Reasons:

“Whatever may appear in the Crown Land (Reserves) Act in my opinion the State and PINP both in fact and law are one and the same thing.”

In addition to the matters exemplifying the relationship between the State and PINP set out in paragraph 458 the Arbitrator subsequently set out detailed reasons at paragraph 636 for finding that the State in effect controlled PINP. The Arbitrator’s characterisation of the relationship between the State and PINP does not in my view demonstrate a manifest error of law. In substance, the Arbitrator has found as a fact that in the circumstances which occurred the State did exercise control over PINP but did not use its best efforts with respect to the exercise of such control in accordance with its obligations under the contract documents.
Breaches of the Best Efforts Clauses with Respect to Variation of the

Contract Documents

The claims made by the company that the State should have consented to amendments to the contract documents stand in a somewhat different position to the other claims subsumed under the overall consideration of the best efforts clauses.

Clause 41.1 of the DCA provides:

“41.1 Variations and amendment
(a)Neither party will at any time after the execution of this document make any modification, variation or amendment or give a waiver of a material nature to any one or more of the Project Documents to which it is a party (collectively referred to as an ‘amendment’ in this clause), without first obtaining the consent of the other in writing, which consent will not be unreasonably withheld or delayed.
(b)No modification, variation or amendment of this document will be of any force unless such modification, variation or amendment is in writing and executed by each party.”

Dr Griffith submitted that some of the variations in issue could not properly be regarded as falling within the notion of a “modification, variation or amendment”. It may well be that such phrase is to be understood as encompassing a modification but not a transformation of the contract. The Reasons do not, however, demonstrate that it was not reasonably open to the Arbitrator to form the view that the variations in issue fell within the ambit of the clause.

In my opinion, the application of this clause gives rise to a question of fact namely, whether the consent to amendments was “unreasonably withheld or delayed”. It follows that the Arbitrator’s conclusions cannot be said to disclose a manifest error of law on the face of the award unless it is apparent from the award that the Arbitrator’s conclusions were not reasonably open to him. It is not so apparent. Likewise, none of the matters in issue can be said to fit the terms of the alternative ground under s.38(5)(b)(ii).

Conclusion

It follows from the above considerations that the State’s application for leave to appeal pursuant to s.38 of the Commercial Arbitration Act 1984 must be refused.

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[2003] VSC 84

24 April 2003