Stratagem Infobase Pty Ltd v State of Victoria
[2000] VSC 517
•8 December 2000
| SUPREME COURT OF VICTORIA | |
| COMMON LAW DIVISION | Not Restricted |
No. 6254 of 2000
| STRATAGEM INFOBASE PTY LTD | Plaintiff |
| v | |
| STATE OF VICTORIA | Defendant |
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JUDGE: | Ashley J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 5 and 6 December 2000 | |
DATE OF JUDGMENT: | 8 December 2000 | |
CASE MAY BE CITED AS: | Stratagem Infobase Pty Ltd v State of Victoria | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 517 | |
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Appeal – leave to appeal – construction of written agreement – whether manifest error of law on face of award – whether clause created an option to extend agreement – whether ambiguity – whether arbitrator erred in failing to consider factual matrix – whether determination of question of law may add, or may be likely to add, to the certainty of commercial law – one-off clause – applicability of Codelfa principle to agreement made between State and a private individual or corporation.
Commercial Arbitration Act 1984 s.38(4) and (5).
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr C.M. Maxwell QC with | Tuckers |
| For the Defendant | Mr M.D.G. Heaton QC with Mr P. Hannan | Blake Dawson Waldron |
HIS HONOUR:
The plaintiff and the defendant entered into a general partnership agreement. It was executed, and commenced, on 31 May 1995. Its duration, subject to possible extension or termination, was for a five‑year period.[1]
[1]The agreement was re-executed on 29 July 1996; but why that was necessary is not material to the issues before me.
The agreement provided for arbitration in the event of dispute. On 24 August 1999 the plaintiff purported to exercise an option to extend the agreement for a two‑year period ending on 30 May 2002. The defendant did not accept the purported exercise of option. It referred for arbitration questions including the threshold question whether the agreement and an addendum thereto had been extended beyond 31 May 2000.
The arbitrator made an interim award on 30 June 2000. He determined the threshold question in the negative. The effect was that the agreement between the plaintiff and defendant was at an end.
Under s.38(2) of the Commercial Arbitration Act 1984 (the Act) an appeal lies to this court on any question of law arising out of an award. But under s.38(4) an appeal may only be brought by leave except with the consent of all other parties. In this case there was no such consent.
The plaintiff has brought an appeal. On the application of the plaintiff and with the agreement of the defendant, I heard the application for leave to appeal and the appeal contemporaneously. That is not novel.[2] I have, of course, been careful to give discrete consideration to the requirements that the plaintiff must satisfy in order to obtain grant of leave.
[2]See, e.g., Apriaden Pty Ltd v Seacrest Pty Ltd [1999] VSC 34.
At the heart of the debate is clause 25 of the agreement. This is what it says:
"25.1Subject to early termination in accordance with the provision of this Agreement, the Partnership shall exist for a fixed period of five (5) years from the Commencement Date.
25.2Notwithstanding the foregoing, the Parties may at their option extend the Term for a period of two (2) years and for subsequent periods of two (2) years."
There is no doubt, as I noted a little earlier, that the plaintiff wished to extend the term beyond the five‑year fixed term (which was to end on 31 May 2000), that it sought to do so, and that the defendant did not accept the plaintiff's attempt.
Upon the arbitration which ensued, the formal finding of the arbitrator was that the agreement and addendum had not been extended beyond 31 May 2000 "pursuant to clause 25.2 of the GP agreement".
Before the arbitrator it was contended for the plaintiff that clause 25.2 should be read, in the instant case, this way:
"Notwithstanding the foregoing, a party may at its option extend the Term for a period of two (2) years and for subsequent periods of two (2) years".
That was said to be the result achieved by calling in aid clause 1.2(d) of the agreement, which provides that unless the contrary intention appears
"words in the singular number include the plural and vice versa"
It was contended for the plaintiff that the contrary intention did not appear. Moreover, the nature, object and substantive content of the agreement was said to confirm the plaintiff's preferred reading of clause 2.52.
But if, said the plaintiff, there was ambiguity in this written contract, then regard should be had to the extrinsic evidence of pre‑contractual negotiations in order to ascertain the factual matrix within which the agreement came into existence. The use to which such evidence could be put was that described by Mason, J. in Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales.[3] Consideration of such material would lead to the conclusion that the reading of clause 25.2 advanced for the plaintiff was correct.
[3](1982) 140 CLR 337, particularly at 352.
In connection with resort to Codelfa the plaintiff adduced material before the arbitrator concerning the factual matrix. That material was in the form of statements by the Managing Director and the Chief Executive Officer of the plaintiff. Neither of those gentlemen was called for cross questioning. No material was adduced to controvert the substance of what they had said. Those matters were common ground before me.
The defendant's case before the arbitrator was that clause 25.2, properly understood, meant that both parties must agree to an extension of the term of the partnership which was to operate pursuant to the agreement. Clause 25.2 was not to be read as creating an option to extend. Clause 1.2(d) could not be called in aid so as to render the agreement extendable by one party only. Clause 25.2 was not ambiguous. For that reason the principle outlined in Codelfa had no relevance, and material adduced in that connection must be put to one side.
The arbitrator resolved the issue of construction by holding that clause 25.2 evidenced
"an intention by the parties that the words 'the Parties' not be read as including the singular, but only be read in the plural number. Clause 25.2 shuts out clause 1.2(d). It is not amenable to that clause".
It followed that
"clause 25.2 does not allow one of the parties unilaterally to extend the term."
In saying that clause 25.2 evidenced the intention described the arbitrator cannot have meant that the words of the sub‑clause themselves evidenced that intention. For earlier in his reasons he had said that he was proceeding
"on the basis that the words of clause 25.2 of themselves do not show an intention 'contrary' to words in the plural number including the singular".
As I said earlier, under s.38(2) of the Act an appeal lies on a question of law arising out of an award. In order to obtain leave to appeal (see s.38(4)(b)) the plaintiff must satisfy the requirements of s.38(5).
It was conceded by the defendant that in the circumstances subs.5(a) was satisfied. That concession was rightly made. The effect of the interim award was to bring the agreement to an end. The plaintiff's rights were substantially affected by the construction placed by the arbitrator on clause 25.2; and would be substantially affected if the constructional issue was resolved on appeal in the converse way.
That takes me to s.38(5)(b). According to the plaintiff's argument there was manifest error of law on the face of the award; or otherwise the requirements of sub‑s.(5)(b)(ii) were satisfied.
The errors of law identified (for the purpose of either of paragraphs (i) and (ii)) were, first, that the arbitrator had misconstrued clause 25.2; and second that, in circumstances where clause 25.2 was ambiguous, the arbitrator had failed to take into account in resolving the ambiguity what I shall call the Codelfa material. It was common ground before me that in each instance a question of law was involved. I deal with the matter on the footing that the common assumption was correct.
I deal first with s.38(5)(b)(ii). Whether or not the plaintiff could satisfy me that there was strong evidence that the arbitrator made an error of law in respect of either of the issues raised, I do not consider that the determination of the question of law "may add, or may be likely to add, to the certainty of commercial law".
Counsel for the plaintiff submitted that this was an important case about whether a party could rely on the Codelfa principle in a case where the other party is the State. He did not suggest that the principle has ever been held to have other than general application. But he submitted that for the court to address the issue squarely would be of commercial importance, indicating to arbitrators when they might have regard to Codelfa material.
I reject that submission. Codelfa has obvious application, in a pertinent case, to a written contract concluded between an individual or corporation and the State, just as it does to a contract made between private individuals or corporations. No authority to which I was referred has suggested the contrary. In the present case the defendant did not argue that the principle could not apply in a contract made between it and a corporation. The arbitrator did not say in his reasons that the principle could not apply.
Counsel for the plaintiff also submitted that resolution of the construction of clause 25.2 met the test imposed by the second limb of s.38(5)(b)(ii). Counsel for the defendant submitted, in response, that this was a one‑off clause, about which authorities have suggested that rarely will the second limb of the test be satisfied.[4]
[4]See Promenade Investments Pty Ltd v The State of New South Wales (1992) 26 NSWLR 203 at 226F per Sheller JA; Leighton Contractors Pty Ltd v Australian Superannuation Fund Investments Trust (1994) 63 SASR 444 at 449; Allen & Ors v Henry & Ors [1999] VSC 238 at paragraph 36.
At my request counsel for the defendant made enquiries as to the frequency with which (if at all) his client had entered into contracts containing a provision in the form of clause 25.2. He told me, and counsel for the plaintiff accepted the reliability of the information provided, that enquiries showed that a clause such as this had not been seen before. Whilst the enquiries upon which that response was based were not exhaustive, I think it is right to consider the matter on the footing that clause 25.2 was a one‑off clause.
Thus viewed, I do not consider that for the court to construe clause 25.2 may add, or may be likely to add, substantially to the certainty of commercial law.
I turn to s.38(5)(b)(i). Before considering the application of principle to the circumstances of the case I should refer to a matter of common ground between the parties; and I should briefly describe the requirements imposed upon a plaintiff by the statutory regime.
As to the first of those matters, it was common ground that "the award", for the purposes of the sub‑section, includes the arbitrator's reasons. In my view the position thus adopted was correct. That was the opinion of Santow, J. in Penrith District Rugby League Football Club v. Fittler.[5] Craig v. South Australia[6], an important case concerning the availability of certiorari, does not stand opposed to the position adopted by counsel. There are particular reasons why "the record" in such a case should be confined.[7] Even so, the reasons may be incorporated into the record. Further, in cases in which certiorari is sought it has been recognised that the record may by statutory prescription include the reasons. In the present context, by analogy, s.29(3) of the Act may well be pertinent.
[5]NSW Supreme Court, 1 February 1996, unreported). See also The 'Barenbels' [1985] 1 Lloyd's Reports 528 at 532 per Robert Goff, LJ, cited in Promenade Investments at 222 per Sheller JA.
[6](1995) 184 CLR 163
[7]See at 181 lines 6 to 12.
Then, as to the nature of the statutory regime, to satisfy s.38(5)(b)(i) a plaintiff must demonstrate "a manifest error of law" (the emphasis is mine). Authorities show that the effect of the adjective is to set the bar high.[8] But it is not inconsistent with the need for a plaintiff to disclose "manifest error" that the error becomes disclosed by adversarial argument. That, I think, is the overall import of what Sheller, JA. said in Promenade Investments[9] and of observations by Hedigan, J. in Leung.[10]
[8]See Promenade Investments at 225E to F and 226D to E; Re CAF-Grains [1994] 2 Qd R 252 at 258 (a high-water mark in the burden imposed on a plaintiff); Leighton Contractors at 448 (and in the Full Court (1996) 12 Building and Construction Law 38, at 56-57 per Millhouse J; Allen at paragraph 35, and Leung v Hungry Jacks Pty Ltd [1999] VSC 447 at paragraphs 15 to 16.
[9]at 225G to 226E.
[10]at paragraph 17.
Applying the approach required by the authorities to the present case, having had the benefit of argument which illuminated the constructional issue, I am of the clear opinion that ‑ confining myself for the moment to the ultimate outcome of the arbitration ‑ the plaintiff has not demonstrated manifest error of law on the face of the award.
Before the arbitrator, the constructional issue was, I think, somewhat obscured by the way in which the matter was argued. The key question, in two parts, in my opinion, was this: Was clause 25.2 an option as the law understands that term; or was the clause no more than a clumsy declaration that the parties could choose to renew their agreement; and that if they did so it was contemplated, though it could not be binding, that any fresh agreements would be for two‑year periods?
The question I have framed was the key question for this reason: if clause 25.2 created an option to extend, the idea that the clause required, in effect, agreement to extend was nonsensical. It is in the nature of an option that one party may exercise the same and the other party will be bound in the event of exercise, like it or not. So, if the clause did create an option, in some way (unless it failed ‑ and no such submission was made to the arbitrator or to me) it must be read to give a party, or either party, the right to exercise it; and to impose upon the other party the obligation of accepting the exercise of the option. Viewed as an option, then, in one way or another the plaintiff must have succeeded upon the issue the subject of the interim award.
On the other hand, if the clause was no more than a declaration that the parties were at liberty to agree to renew their contract, the plaintiff must have failed upon the threshold issue. For if agreement was required both parties must have agreed, and the defendant did not do so. It was then, of course, entirely understandable that the reference in clause 25.2 would be to "the Parties".
The essential issue being highlighted by the question which I have framed, in my view it could not be said that an award which in effect decided that clause 25.2 was not an option disclosed a manifest error of law. That is not to say, and I do not say, that the arbitrator's reasoning was altogether satisfactory. It was, understandably, influenced by the attention paid in argument to clause 1.2(d); and for that reason the true significance of parts of the agreement and arguments that were raised seems not to have been appreciated. But the outcome, which is critical, was unexceptional.
The following considerations tend in favour of a conclusion that clause 25.2 did not create an option to extend:
First, the clause does not read like a clause creating such an option when proclaiming that "the parties may at their option extend the term". If it had been intended to confer an option exercisable by either party, one would have expected the clause to say "either party at its option may extend". Moreover, as counsel for the plaintiff in substance agreed,[11] the use of the phrase "at their option" in combination with reference to "Parties" can be read to refer to choice by the parties to extend ‑ that implying mutuality.
[11]See T.138 lines 2-18.
Second, reference to clause 1.2(d) does not in my view assist a conclusion that clause 25.2 created an option to extend. It would be strange if a clause which did not on its face appear to create an option could be transformed by recourse to a definitional clause. But beyond that, if recourse could be had to clause 1.2(d) it would doubtfully assist a conclusion that clause 25.2 created an option. Counsel for the plaintiff conceded in argument that the effect of reading the definitional provision into clause 25.2 would be that the latter would read "the parties or a party may at their or its option extend the term". The singular would be compatible with the creation of an option. The plural would not only be unnecessary, it would still seem to carry with it the notion of mutuality.
In circumstances where there are a number of considerations tending more or less strongly against reading clause 25.2 as an option, one of them being that reading clause 1.2(d) into clause 25.2 would not seem to remove the element of mutuality which is at odds with the concept of option, I think that clause 1.2(d) had no application in the case of the particular operative provision.
Third, clause 25.2 contemplates the possibility of extension after extension for two‑year periods. Counsel for the defendant submitted, in my opinion accurately, that such a regime is uncharacteristic of options. Counsel for the plaintiff did not squarely disagree. He attempted, however, to counter what he described as the "indefinite term" of the agreement by pointing out that there were a number of ways in which the agreement could be terminated ‑ whether under the provisions of the agreement, by recourse to section 39(f) of the Partnership Act, or by implication of a term that the agreement not "run on forever". I am unable to conclude that the plaintiff's response met the sting of the uncharacteristic regime (for an option) established by clause 25.2.
Fourth, within the agreement there are no machinery provisions for the exercise of the supposed option. That is uncharacteristic. Because an option invests one party with a right to do something whether or not the other party likes it, one expects specific provisions for the time at which or by which, and the manner by which, an option may be exercised. But in the present case, if clause 25.2 created an option to extend, it was exercisable at any time after the agreement was executed ‑ for example, the day after execution. It may even have been exercisable after the fixed term had expired. Moreover, the manner of its exercise was not specified (though see, just possibly, clause 37).
It was said for the plaintiff that the absence of machinery provisions was neutral in effect. But I do not think that is so. If clause 25 was simply declaring that the parties were at liberty to renew their agreement, when and how they chose to do so did not require specification.
Fifth, considering the nature, object and substantive content of the agreement, contrary to the plaintiff's argument it was not wholly inconsistent with the balance of burdens and benefits set up by the agreement to treat clause 25.2 as not creating an option to extend. If the clause did create an option exercisable by either party the plaintiff could have been disadvantaged by the defendant's exercise of the option in circumstances which can readily be discerned; just as the plaintiff could have been advantaged by exercising the option in other circumstances.
Counsel for the plaintiff cited several authorities in support of the proposition that in construing the contract there should be imputed an intention to a government contracting party to act fairly in dealings with a private individual or company.[12]
As I understood it, counsel submitted that this principle, taken together with what he said were the disproportionate relative benefits and burdens imposed by the agreement, should lead to clause 25.2 being construed as creating an option to extend exercisable by his client.
[12]See Hughes Aircraft Systems International v Air Services Australia (1997) 76 FCR 151, at 195-197; May v Deputy Commissioner of Taxation (1999) 99 ATC 4587, paragraph 38.
Assuming that the authorities made out the proposition for which counsel contended, I o not consider that it assists the plaintiff in the circumstances. For, as I said a few moments ago, I do not consider that it was wholly inconsistent with the balancing of burdens and benefits to read clause 25.2 as not creating an option to extend.
Sixth, but weakly, the definition of "Parties" in clause 1.1 of the agreement supported a conclusion that "Parties", where used in clause 25.2, referred to both plaintiff and defendant.
Running counter to the considerations just mentioned are the following matters:
First, if clause 25.2 merely declared that the parties might choose to renew their agreement it was stating the obvious, and was redundant. That argument, counsel for the defendant submitted, was the strongest argument that the plaintiff could mount. But it was not insuperable. For in circumstances where governments and bureaucrats change a declaration was useful to show that the parties contemplated the prospect of renewal, and to disclose their (non‑binding) view at the time when the agreement was made as to the appropriate period of renewal. That explanation, I consider, had force.
Second, clause 25.2 does not in terms use the language of choice or agreement. Contrast clause 13.1.
Third, the agreement itself contemplated that the partnership might run for more than five years. (See Schedule E). But that is a neutral circumstance, as counsel for the plaintiff frankly conceded in argument. On the one hand it may be said to reflect the right of the parties to choose to extend their agreement on the same terms and conditions as hitherto; on the other hand, it may be said to reflect the existence of an option to extend on those terms and conditions. It might be, again, that a profit‑sharing formula extending beyond the fixed term of the agreement could be relevant notwithstanding that the agreement ended at the conclusion of such period.
Fourth, there is a difference in language between clause 25.2 and clause 26.1(a). The former refers to extension, the latter to expiry and renewal.
In my opinion it is doubtful that the difference in language assists the plaintiff. Clause 26.1(a) refers to expiry and renewal of "the term". The only method of renewal of the term contemplated by the agreement is via clause 25.2. It might be said that the use of the verb "renewed" in clause 26.1(a) suggests that clause 25.2 is concerned with renewal of the agreement by fresh agreement, this assisting the defendant's argument. But the law knows of an option to renew.[13] For that reason it might be said that the verb "renewed", even if referring to an extension of time operating by virtue of clause 25.2, is compatible with the plaintiff's submission that clause 25.2 creates an option. All in all, as I said a few moments ago, nothing much can be gleaned from a comparative analysis of clauses 25.2 and 26.1(a).
[13]Trade Practices Commission & Anor v Tooth & Co Ltd & Anor [1979] 142 CLR 397 at 429 per Mason J and at 441-442 per Aickin J (dissenting in the result).
I have not enumerated all the matters raised in argument by counsel before the arbitrator and before me. But I have outlined the matters which were mainly relied upon, or which have seemed to me to be of potential significance. Consideration of the relative force of the circumstances pointing in the one direction or the other leaves me in no doubt, as I said a little earlier, that the ultimate outcome arrived at by the arbitrator could not be said to disclose a manifest error of law, and that it was not unexceptional.
I should develop those conclusions a stage further. In my opinion clause 25.2 is not ambiguous when recourse is had to constructional methodology preceding necessary resort to Codelfa material. There was no occasion for the arbitrator to resort to such material as an aid to construction. The ultimate outcome arrived at by arbitrator was, I consider, not only unexceptional, it was correct.
I said earlier that the arbitrator's reasons, as distinct from the ultimate outcome at which he arrived, were not altogether satisfactory. But I need not decide whether the reasons, as distinct from the outcome, reveal manifest error. The court has a discretion whether to grant leave. Being satisfied that the ultimate outcome was correct, I would not grant leave to appeal, it being futile to do so.[14] I do not say, I add for completeness sake, that consideration of the Codelfa material, of which I informed myself, was likely to have led to an outcome favourable to the plaintiff had there been ambiguity which called for its consideration.
[14]Although, for the reasons indicated, it is unnecessary to consider whether the arbitrator's reasons disclose manifest error, I should say that, whatever other criticism may be made of those reasons, the arbitrator was correct in concluding, as he implicitly did, that resort to Codelfa material in order to construe clause 25.2 was unnecessary. I do not accept the submission made for the plaintiff that the arbitrator considered clause 25.2 to be ambiguous. That submission was founded on the arbitrator saying:
In the event, the application by the plaintiff by summons filed 4 August 2000 for an order granting it leave to appeal against the interim award should be dismissed; and on the originating motion filed 28 July 2000 there should be judgment for the defendant. There must be an order for costs in the defendant's favour.
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CERTIFICATE
I certify that this and the 12 preceding pages are a true copy of the reasons for judgment of Ashley J of the Supreme Court of Victoria delivered on 8 December 2000.
DATED: this eighth day of December 2000.
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Associate
'(The) clause is susceptible of more than one meaning because of clause 1.2 of the GP
agreement'.I agree with the submission for the defendant, however, that what the arbitrator did was to point out that clause 1.2 opened up the possibility of clause 25.2 having different meanings – which was undoubtedly correct if clause 1.2 was not excluded from operation in the case of clause 25.2; and that he then construed clause 25.2, by reference to the terms of the agreement, to show that in truth the language of that clause was not ambiguous or susceptible of more than one meaning.
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