Viterra Operations Ltd (Trading as ABB Grain Storage and Handling) v Ewing International Limited Partnership - [2010] SASC 328

SUPREME COURT OF SOUTH AUSTRALIA
(Appeals to a Single Judge: Permission to Appeal)
VITERRA OPERATIONS LTD (TRADING AS ABB GRAIN STORAGE AND HANDLING) v EWING INTERNATIONAL LIMITED PARTNERSHIP
[2010] SASC 328
Judgment of The Honourable Justice Sulan
21 December 2010
ARBITRATION - THE AWARD - FORM AND CONSTRUCTION OF THE AWARD - ERROR OF LAW ON THE FACE OF THE AWARD - GENERALLY
ARBITRATION - THE AWARD - APPEAL OR JUDICIAL REVIEW - PROCEDURE - APPLICATIONS FOR APPEAL OR JUDICIAL REVIEW
Appellant seeks permission to appeal against two arbitration awards made in respect of a dispute between the parties relating to the construction of eight silos - whether there was manifest error of law on the face of the award.
Appellant contends that the arbitrator determined the admissibility of an expert report for a limited purpose, without the appellant having had an opportunity to make submissions on the issue.
As a consequence of misunderstanding of the arbitrator's determination in the first award, the appellant was denied the opportunity of calling further evidence to establish its loss and damage.
Appellant submits that, on the face of the award, there was denial of natural justice.
Held: That there was manifest error of law on the face of the award.
Respondent seeks permission to cross-appeal - whether manifest error of law on the face of the second award in the arbitrator's construction of the agreement between the parties in attempting to resolve the dispute - the interpretation of the agreement by the arbitrator was arguably correct - no manifest error of law established - application for permission to cross-appeal refused.
Commercial Arbitration and Industrial Referral Agreements Act 1986 (SA) s 35; Evidence Act 1929 (SA) s 45A, referred to.
Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 184, applied.
Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust (1994) 63 SASR 444; Escobar v Spindaleri & Ors (1986) 7 NSWLR 51, considered.

VITERRA OPERATIONS LTD (TRADING AS ABB GRAIN STORAGE AND HANDLING) v EWING INTERNATIONAL LIMITED PARTNERSHIP
[2010] SASC 328
Civil: Permission to Appeal

SULAN J: Pursuant to s 38(5) of the Commercial Arbitration and Industrial Referral Agreements Act 1986 (SA), the appellant, Ausbulk, and the respondent, Ewing each seek permission to appeal against the first interim award and the second interim award made in respect of a dispute between the parties relating to the construction of eight silos. The first interim award was made on 17 May 2010, and the second interim award was made on 21 September 2010.
Principles on an application for permission to appeal
Section 38 of the Commercial Arbitration and Industrial Referral Agreements Act 1986 provides:
38 – Judicial review of awards
(1)Without prejudice to the right of appeal conferred by subsection (2), the Court shall not have jurisdiction to set aside or remit an award on the ground of error of fact or law on the face of the award.
(2)Subject to subsection (4), an appeal shall lie to the Supreme Court on any question of law arising out of an award.
(3)On the determination of an appeal under subsection (2) the Supreme Court may, by order –
(a)     confirm, vary or set aside the award; or
(b)     remit the award, together with the Supreme Court’s opinion on the question of law which was the subject of the appeal, to the arbitrator or umpire for reconsideration or, where a new arbitrator or umpire has been appointed, to that arbitrator or umpire for consideration,
and where the award is remitted under paragraph (b) the arbitrator or umpire shall, unless the order otherwise directs, make the award within three months after the date of the order.
(4)An appeal under subsection (2) may be brought by any of the parties to an arbitration agreement –
(a)     with the consent of all the other parties to the arbitration agreement; or
(b)     subject to section 40, with the permission of the Supreme Court.
(5)The Supreme Court shall not grant permission under subsection (4)(b) unless it considers that –
(a)     having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement; and
(b)     there is –
(i)a manifest error of law on the face of the award; or
(ii)strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.
(6)The Supreme Court may make any permission granted under subsection (4)(b) subject to the applicant complying with any conditions it considers appropriate.
(7)Where the award of an arbitrator or umpire is varied on an appeal under subsection (2), the award as varied shall have effect (except for the purposes of this section) as if it were the award of the arbitrator or umpire.
In Leighton Contractors Pty ltd v South Australian Superannuation Fund Investment Trust,[1] Debelle J referred to the decision of the New South Wales court in Promenade Investments Pty Ltd v State of New South Wales,[2] in which that Court dealt with the amendments to the legislation and observed that the objective of the legislation is to restrict the supervision and review by the courts of arbitral procedures and awards. Debelle J adopted the reasoning of Promenade and summarised it as follows:
The legislative intent of s 38 as amended was stated in Promenade Investments (at 222-223) to be:
1.That Parliament intended to reject the broad discretionary approach outlined in Qantas Airways Ltd v Joseland & Gilling.
2.That it is a corollary of that Parliamentary intention that the courts should apply a more restrictive criterion for the granting of leave to appeal than had hitherto applied, the view being that the parties should be left to accept the decision of the arbitrator who they have chosen to decide the matter in the first place. The arbitration should not be a dry run for later litigation.
3.That the requirements of a manifest error of law on the face of the award or strong evidence that the arbitrator made an error of law and that the determination of the question may add substantially to the certainty of commercial law suggests that the draftsmen were seeking to constrain the exercise of court control over the arbitral awards in the manner described by the House of Lords in The Nema.
4.As Kirby P noted in Natoli v Walker, judges must be faithful to the intention expressed in s 38(5) and the interventions of this Court must be strictly limited. (Citations omitted)
[1] (1994) 63 SASR 444, 447
[2] (1991) 26 NSWLR 184.
Debelle J then discussed the regime and summarised it as follows:[3]
[3] Ibid, 448-9.
The regime as established by the amended s 38 and as it applies to this application, may be stated in these terms (the propositions in pars 5 to 8 are in part taken from the decision in Promenade Investments (at 225-227):
1.There is no appeal from an arbitrator on a question of fact.
2.While s 38 provides that an appeal shall lie from the award of an arbitrator on a question of law, leave must nevertheless be obtained unless both parties consent to the appeal.
3.Leave will only be granted in the circumstances prescribed in s 38(5).
4.The applicant for leave must satisfy both pars (a) and (b) of s 38(5). The fact that par (a) is included serves to emphasise that the court will not hear appeals, even on a question of law, unless they are of substantial importance to the parties. Thus, a party might be able to point to an obvious flaw in the reasoning of the arbitrator but that flaw might not affect the ultimate conclusion. Section 38(5)(a) requires the applicant to satisfy the court that the rights of the parties could be substantially affected by the error. If it appears that the flaw could not substantially affect the ultimate conclusion, leave should not be granted.
5.The epithet “manifest” in the expression ”manifest error of law” is used to indicate an error which is evident or obvious rather than one which is arguable. While a judge is entitled to the benefit of adversarial argument in determining whether a manifest error of law exists, nevertheless, “manifest” denotes an error of law which is more than arguable. As Sheller JA noted in Promenade Investments (at 226):
“There should … 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.”
The applicant should, I think, be able to point to an obvious, if not compelling error: cf Lord Diplock in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 206. The question is not whether the point is fit for argument but whether an obvious error of law exists.
6.If the court determines that there is no manifest error of law, an application based on this ground fails.
7.If the court is satisfied that a manifest error of law exists, a question arises whether the court should, in the exercise of its discretion, grant leave. In this context, it is appropriate to admit evidence showing that a matter not mentioned in the arbitrator’s reasons was conceded on the hearing of the arbitration: see the reasons of Brownie J in Graham Evans & Co Pty Ltd v SPF Formwork Pty Ltd (unreported, Brownie J, 9 April 1991) adopted by Sheller JA (at 226).
8.Assuming that there is not a manifest error of law on the face of the award, it may be argued that there is strong evidence that the arbitrator 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. This requirement indicates 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 the particular agreement between the parties. In this respect the limitation which Lord Diplock had in mind in The Nema can be discerned. The expression “commercial law” should not be narrowly construed. The expression “strong evidence that the arbitrator … made an error of law” suggests, first, what might otherwise be called on a leave application a strong prima facie case and, second, an error of law not manifest on the face of the award and demonstrable by evidence. I add that, in the case of an interpretation of a contract, if the interpretation adopted by the arbitrator is reasonably open, the applicant will generally speaking have failed: cf The Nema (at 744). (Citations omitted)
In considering the application for permission in this case, I adopt Debelle J’s summary.
Ausbulk submits that I should have regard to the submissions made to the arbitrator in considering whether manifest error in the first award has been established. Ewing contends that I must limit my consideration to the two interim awards and to the documents which form part of the award, in particular the agreements between the parties.
I have concluded that I should limit my consideration of the documents to the two awards and to the first and second agreements. In considering the application, I am mindful that, before permission is granted, I must be satisfied that the error must be evident or obvious, rather than arguable, and that there needs to be powerful reasons that, on the face of the award, there is an error of law.[4]
[4] See Gordian Runoff Ltd v Westport Insurance Corporation (2010) 267 ALR 74, [112].
Ausbulk submits that there has been a breach of natural justice which amounts to an error of law. In Escobar v Spindaleri & Ors,[5] the Court was considering whether the appellant had been denied natural justice. Samuels JA referred to the appellant’s ground of appeal that the Judge had refused the appellant’s counsel an opportunity to address, that being contrary to the practice of the courts and a denial of natural justice. He specifically stated that a denial of natural justice constitutes an error of law. Kirby P concluded that a failure to accord the appellant proper observance of the normal procedures of the court amounted in that case to an injustice and a breach of the basic requirement of natural justice. Glass JA concluded that, in proceeding to a decision without affording the appellant’s counsel an opportunity to address the court, the Judge had made an error of law.
[5] (1986) 7 NSWLR 51.
Ausbulk relies upon both the failure of the arbitrator to give sufficient reasons and his failure to give the parties an opportunity to argue what was the effect of his conclusions in respect of Ausbulk’s entitlement to damages as constituting an error of law. Further, it submits that the arbitrator’s failure to give sufficient reasons in respect of the admissibility, or limited admissibility, of expert reports sought to be tendered at the hearing amounts to an appealable error of law.
Background
The dispute involves the construction of eight silos which were to be used as temporary facilities for the storage of wheat. The issues the subject of this application relate to the construction of Bisalloy cone sections which were to form the bottom and lower sections of each silo. During construction, deformations appeared which, for reasons I do not need to elaborate, resulted in a significant risk that the structure would collapse.
The relevant contract between Ausbulk and Ewing was entered into on 24 January 2006 (the first contract). Ewing is a company which had experience in the construction of petroleum tanks in New Zealand. It had no previous experience in the construction of grain silos in Australia. The method of construction involved assembling various parts and then constructing the silo, which involved resting the Bisalloy cones near the base of the silo.
After construction had commenced, problems were observed, which included the deformations referred to earlier. The design engineer inspected the work and formed the view that there was a risk to life and recommended that the works be suspended.
Pursuant to the first contract, a direction was given by the superintendent of works on or about 8 October 2006. A number of issues were raised by the superintendent, including a safety issue. Further, a direction was given requiring Ewing to comply with a safety standard referred to as AS4100. The parties were in dispute and work essentially halted.
On 16 February 2007, an agreement was reached (the second agreement) by which Ausbulk agreed to pay $1.2 million in settlement of various claims. It was also agreed that Ausbulk, in consultation with Ewing, would appoint an independent consultant to value the work and interest as to any monies due and not paid to Ewing. That review was to be conducted as soon as possible. The independent consultant, Currie and Brown, who are quantity surveyors, prepared a report referred to as the Currie and Brown Report.
A further dispute arose in respect of the second agreement. It is unnecessary to set out in detail the matters which were in dispute. On 14 June 2007, Ausbulk terminated the first contract on three bases, namely, (1) a failure by Ewing to comply with safety directions; (2) failure by Ewing to comply with a direction to build the cones to the standard of AS4100; and (3) a failure by Ewing to remobilise.
Ewing regarded the termination as unlawful and filed a notice of dispute on 1 November 2007. It claimed an amount of approximately $6 million. Ausbulk counterclaimed in the amount of $19.8 million, and sought a return of the $1.2 million paid on 16 February. It claimed the cost of rectification of the Bisalloy cones in the amount of $631,684. It asserted that it had paid Ewing for the cones. Ewing denied that it had been proved that it had been paid the amount claimed. In the first interim award, the arbitrator concluded that both Ewing and Ausbulk were not entitled to damages for breach of contract. He concluded that Ausbulk’s termination of the contract was wrongful. He referred the question of whether Ausbulk is entitled to the return of the sum of $1.2 million claimed by it in its counterclaim and the cost of the replacement of cones, together with the question of any interest and costs, for further argument.
He concluded that Ewing had failed and refused to comply with a valid direction in regard to safety requirements. He also found that Ausbulk was in breach of the first contract in persisting in a direction to Ewing to comply with AS4100. He said:
I have reached the conclusion that neither party was willing to continue with this contract. Each was no longer ready and willing to continue with its obligations unless the other met its requirements. In my opinion, this is a case where neither party can assert breach or non-fulfilment of a condition as a ground for termination because each has effectively prevented its performance or fulfilment to the extent that each is intimating to the other that it was pointless to continue.
That conclusion of the arbitrator is not under challenge.
The arbitrator then dealt with the claim in respect of the Bisalloy cones. He referred to Ausbulk’s claim for damages for eight replacement Bisalloy cones. He said:[6]
… I am in agreement with Ausbulk’s contention in relation to this topic. I accept the evidence of the witnesses relied on and I find that Ausbulk is entitled to those damages. Given all that has happened since, it is not reasonable to require repair of the cones. (Underlining is mine)
In other words, the arbitrator accepted Ausbulk’s claim that it was entitled to damages calculated on the basis of replacement of the cones. The arbitrator made specific findings, which included the following:[7]
I find that Ausbulk cannot succeed in its Counterclaim based on breach of contract, negligence, and for breach of the Fair Trade Act in seeking damages for asserted consequential losses suffered. Those losses were articulated in the expert report of Mr Morris. He calculated the loss as $19,241,558.00 plus the cost of replacement cones being $631,654.56. The latter may however survive my findings on breach and causative loss. Ausbulk repudiated the contract and is not entitled to damages for the additional cost of completion of the works nor for additional work associated with provision of stiffeners.
Ausbulk also sought recovery of $1.2 million paid pursuant to the Agreement.
That claim may also survive my findings above.
[6] First Interim Arbitration Award/Reasons [270].
[7] First Interim Arbitration Award/Reasons [295] – [296].
The arbitrator indicated that he would hear the parties on any consequential issues that need to be addressed in respect of his findings.
Ausbulk contends that the arbitrator determined that Ausbulk was entitled to $631,654.56 for replacement of the Bisalloy cones. That contention is disputed by Ewing. After the first interim award, the parties made further submissions.
In his second interim award, the arbitrator defined the issues as follows:[8]
[8] Second Interim Award [4].
4.The issues raised by the parties are as follows:
4.1.   Ewing seeks an Award in respect of cash security and retention moneys paid to Ausbulk in the sum of $1,432,820.00 inclusive of GST and interest on $1,302,564.00 (being the principal sum less GST) of $257,943.00;
4.2.   Ausbulk seeks an Award for loss of the bargain following Ewing’s breach, being the additional cost to complete the Contract in the sum of $14,526,775.00.
Alternatively, it seeks payment of the sum of $1.2 million, being the moneys paid pursuant to the agreement of 26 February 2007.
In addition, it claims $631,654.56 in respect of its claim relating to the Bisalloy cones;
4.3.   The parties ask that any cost consequences await this further interim award.

The arbitrator made the following findings:
1.Ewing is entitled to an Award in respect of its claim for return of retention moneys of $1,302,564.00 less the sum of $969,624.00 owing to Ausbulk, namely $332,940.00 plus interest.
2.Ausbulk is entitled to offset against retention moneys held by it the sum of $969,624.00.
3.Ausbulk is not entitled to damages in respect of its claims for breach of the Agreement of 16 February 2007.
4.Ausbulk is not entitled to damages in respect of its claim relating to the Bisalloy Cones.
5.I shall hear the parties on any consequential orders with respect to costs, any GST applicable to the award and the appropriate calculation of interest.
Ausbulk contends that there is an error on the face of the award in that Ausbulk proceeded before the arbitrator on the understanding that the arbitrator in the first interim award had determined an entitlement by Ausbulk to damages. It follows that there had been a finding in its favour and the findings in the second interim award, which were inconsistent with the conclusions on the first interim award, were made without giving it an opportunity to address the arbitrator.
In the second interim award, the arbitrator observed:[9]
In my Interim Award, I concluded in paragraph 270 that I was in agreement with Ausbulk’s contention in relation to defects. I found that Ausbulk was entitled to damages. Further, that it was not reasonable to require repair of the cones under the circumstances. Ausbulk points out that Ewing was contractually responsible. It has retained the benefit of payment for the cones. Ewing is liable to it. Ewing’s breach of Contract arose well before termination or repudiation by the parties.
The later repudiation does not of itself operate to discharge contractual obligations of a prior defaulting party; rather, it discharges the parties from further performance.
Ausbulk relies on cases such as McDonald v Dennys Lascelles Limited (1933) 48 CLR 457, Stocznaia Gdanska SA v Latvian Shipping Co (1998) 1 All ER 883.
Ausbulk contends that its rights accrued unconditionally before termination. Therefore, Ausbulk’s repudiation of the Contract is not available to Ewing as an answer to the claim.
[9] Second Interim Award [78].
He identified the dispute between the parties resulting from the first interim award, as follows:[10]
Ewing says that Ausbulk’s reliance upon my comments in paragraph 270 of the Interim Award is misconstrued. Ewing says that I was not making a finding as to any entitlement to damages but rather a finding as to the nature of the damages. I must confess that the wording leads to some ambiguity. However, Ewing is correct. That is why I said in my Interim Award, paragraph 3, that “the question of whether Ausbulk is entitled to return of the sum of $1.2 million claimed by it in its Counterclaim and the cost of replacement of cones together with the question of any interest and cost is deferred for further argument”.
Accordingly, I agree that quantum has been decided but the entitlement has not. Further, I said in paragraph 295 of the Interim Award that the costs of the replacement cones, being $631,654.56 “may however survive my findings on breach and causative loss”.
Further, it is correct to say that is why I did not deal with Ewing’s pleaded case in submissions on the point.
[10] Second Interim Award [85] – [86].
The arbitrator concluded as follows:[11]
I have carefully considered the arguments of the parties. Whilst it is true as observed above that paragraph 270 of my previous Reasons might be seen to justify the reliance placed on those observations by Ausbulk, the position is as referred to in paragraphs 85 and 86 above.
Given that there is a very specific claim with respect to the Bisalloy cones, I would have expected proof that Ausbulk had paid for specific work.
[11] Second Interim Award [92] – [93].
Ausbulk contends that there is a manifest error of law on the face of the award in that the arbitrator found an entitlement to damages in the first interim award, and that he concluded in his second interim award that his finding in the first interim award of an entitlement might have been ambiguous. Ausbulk contends that the arbitrator failed to give warning or notice to Ausbulk which proceeded on the basis that his finding in the first interim award was a finding of entitlement and it was, therefore, unnecessary for Ausbulk to prove its actual loss.
In my view, upon one reading of the arbitrator’s first interim award, the only outstanding question which was left open, after the arbitrator found an entitlement, was whether the claim for replacement costs of the cones survived his findings in respect of breach and causative loss. Ausbulk submits that the findings in the second interim award were made without giving it the opportunity to make submissions in respect of the issue determined against it, namely, that it had failed to prove its loss.
Ewing contends that Ausbulk has not asserted or established a manifest error on the face of the award. It contends that Ausbulk had opportunities to respond to Ewing’s submission that Ausbulk had failed to prove that it had paid Ewing anything for the cones, and Ausbulk had failed to establish that it had suffered any loss. It elected not to apply to call further evidence and failed to deal with the submission. It can now not complain that it did not have an opportunity to respond to the issue.
In my view, the fact that Ausbulk had notice of Ewing’s contention that it had failed to prove that it had paid Ewing for the cones is not to the point. Ausbulk relied on what it understood to be a finding by the arbitrator in the first interim award that it was entitled to recover damages for replacement of the cones, calculated at $631,646.56.
Ausbulk asserts a breach of natural justice in that the arbitrator failed to warn or give notice to Ausbulk that his finding of an entitlement in the first interim award in fact was not such a finding, but was limited to a determination that Ausbulk could recover the cost of replacement of the cones, and that it was still required to establish that it had paid Ewing the amount it claimed.
Upon reading the first interim award, there appears to have been a decision by the arbitrator that Ausbulk was entitled to the cost of the replacement of the cones, and that the only issue for further argument was whether that loss survived his findings as to breach and causative loss. At the very least, that interpretation was open. The arbitrator acknowledged that there may have been ambiguity in his conclusions at para [270] of the first interim award.
The conclusions in the second interim award appear to relate to the failure of Ausbulk to prove its loss. It seems to me that the contention of Ausbulk that there is a manifest error on the face of the award is sustainable and I would, therefore, grant permission.
The Currie and Brown Report
Ausbulk contends that there is a manifest error in the manner in which the arbitrator dealt with the Currie and Brown Report.
Currie and Brown were appointed pursuant to the second agreement as independent consultants to value and assess Ewing’s work and interest and any monies due but not paid to Ewing. Ausbulk contends that the arbitrator admitted the Currie and Brown Report into evidence on a restricted basis. It complains that the arbitrator ruled that the report was admitted for a restricted purpose without giving Ausbulk the opportunity to fully address the arbitrator on the admissibility of the report. Further, Ausbulk claims that it was denied the opportunity to call further evidence in respect of the subject matter of the report.
In the second interim report, the arbitrator concluded that Ewing was entitled to the return of any monies retained by Ausbulk, other than those to which Ausbulk had a valid claim by way of set off. Ausbulk claimed an overpayment of $969,624 from the retention money. The basis of Ausbulk’s claim can be found in the Currie and Brown Report. Ewing objected to the admissibility of the report.
The arbitrator concluded that the report could be accepted at face value for a limited purpose. At para [94], the arbitrator concluded:
I have considered the Currie and Brown Report and am mindful of what I have concluded with respect to that report earlier in these reasons. However, the basis of reception of the report was confined to the context that they were obtained for the purpose of the then competing claims between the parties. That is, Ewing’s claim for moneys said to be owing and Ausbulk’s concern as to the moneys already paid. The parties effectively compromised Ewing’s claims on that basis. I found in Ewing’s favour on that issue but subject to an agreed offset. The issue here should not be confused with that conclusion.
He then concluded that Ausbulk was entitled to damages in respect of the defects in the Bisalloy cones but that it was only entitled to them if it had suffered loss. He noted that that issue was the subject of challenge by Ewing. He then concluded in para [96]:
In all the circumstances, I cannot conclude that Ausbulk has proved loss and I find against Ausbulk with respect to this claim. There was a challenge to the assertion that the claims had been paid for. Whilst the Currie and Brown Report is relevant to Ewing’s claim for the reasons expressed previously, it should not be received for any further purpose.
Ausbulk contends that the arbitrator failed to give it an opportunity to address the admissibility of the Currie and Brown Report. It also contends that, once the report was admitted, it was admitted for all purposes and the arbitrator was in error when he admitted it on a restricted basis. Ausbulk contends that it was denied the opportunity to call further evidence. It submits that the arbitrator erred in not permitting the report to be tendered to establish that the Bisalloy cones had been paid for, and that Ausbulk was entitled to the return of those monies.
Ewing contends that there is no error on the face of the award. First, Ewing states that the Currie and Brown Report was admitted subject to objection. Ewing contends that Ausbulk was aware of its objection to the report. It contends that Ausbulk elected not to call the author of the report. Ewing contends that Ausbulk, having failed to do so, cannot now rely on an error on the face of the award. At para [22] of the second interim award, the arbitrator stated:
It is noted that I did not specifically rule on the admissibility of the Currie and Brown report because there was no need to do so. I deal with that issue later.
In considering the submissions of the parties, I have had regard only to the first interim award, the second interim award, and the second agreement. Although Ausbulk invited me to consider the submissions made to the arbitrator, I have declined to do so. I accept the submission of Ewing that I should limit my considerations to the award and any documents which form the basis of findings made by the arbitrator.
Ausbulk submits that the arbitrator, having permitted cross-examination of witnesses in respect of the Currie and Brown Report, and having permitted the expert accountants to rely on the Currie and Brown Report should have admitted the report for all purposes. It further submits that the report, once relied upon for a limited purpose, should have been admitted for all purposes.
On the other hand, Ewing submits that, at all times, it was clear that Ewing objected to the admission of the report, and that Ausbulk’s counsel elected not to call evidence in the full knowledge that the report was being dealt with during the arbitration subject to Ewing’s objection. It submits that there is no manifest error of law on the face of the award. It submits that there was an always an issue about Ausbulk’s failure to call the author of the report.
Ausbulk further contends that the report is admissible pursuant to s 45A of the Evidence Act 1929 (SA), which provides:
45A – Admission of business records in evidence
(1)     An apparently genuine document purporting to be a business record –
(a)shall be admissible in evidence without further proof; and
(b)shall be evidence of any fact stated in the record, or any fact that may be inferred from the record (whether the inference arises wholly from the matter contained in the record, or from that matter in conjunction with other evidence).
(2)     A document shall not be admitted in evidence under this section if the court is of the opinion –
(a)that the person by whom, or at whose direction, the document was prepared can and should be called by the party tendering the document to give evidence of the matters contained in the document; or
(b)that the evidentiary weight of the document is slight and is outweighed by the prejudice that might result to any of the parties from the admission of the document in evidence; or
(b)that it would be otherwise contrary to the interests of justice to admit the document in evidence.
(3)     For the purpose of determining the evidentiary weight, if any, of a document admitted in evidence under this section, considering shall be given to the source from which the document is produced, the safeguards (if any) that have been taken to ensure its accuracy, and any other relevant matters.
(4)     In this section –
business means business, occupation, trade or calling and includes the business of any governmental body or instrumentality;
business record means –
(a)any book of account or other document prepared or used in the ordinary course of a business for the purpose of recording any matter relating to the business; or
(b)any reproduction of any such record by photograph, photostatic, lithographic or other like process.
Ewing contends that there was never an application for the report to be tendered and, if there had been such an application, it would have failed. It is not necessary for me to finally determine that question, but I indicate that, in concluding that permission should be granted, I have not considered it necessary to consider that argument.
I conclude that Ausbulk should be granted permission to appeal. On the face of the award, it is unclear to me exactly how the arbitrator determined to deal with the Currie and Brown Report on a limited basis. In my view, the argument by Ausbulk that it was denied the opportunity to argue the admissibility of the report has merit. I accept that, once permission to appeal has been granted, it will be necessary for me to consider the submissions of both parties to the arbitrator, and that may throw greater light on both parties’ contentions. In my view, the arbitrator’s decision to admit the report on a restricted basis, without hearing full argument, demonstrates a manifest error of law on the face of the award.
Cross-appeal
Ewing submits that there is a manifest error of law on the face of the award in the arbitrator’s construction of Clause 3 of the second agreement.
Clause 3, was considered by the arbitrator in the second interim award. He stated:[12]
On the other hand, Ewing acknowledges that if it is owed retention of security monies, Ausbulk is entitled to a set-off it is owed moneys by Ewing. I agree with that conclusion. The next issue, then, is whether Ausbulk is correct in saying that it has overpaid Ewing in the sum of $969,624.00. The basis of that assertion is the Currie and Brown report which was objected to by Ewing.
The genesis of that report is Clause 3 of the Agreement of 16 February 2007. An independent consultant was to be engaged. Ewing says that the evaluation by the expert was not given any contractual status. However, there was an agreement to obtain a report. The report was obtained and in my opinion I am entitled to receive the evidence on that basis. Ewing has not sought to contradict what is said in the report other than through Mr Heard. Notwithstanding his evidence, I consider that the report can be accepted at face value for a limited purpose. Clause 3 of the Agreement provided that:
“The principal shall appoint an independent consultant (in consultation with the contractor) to value and assess the Contractor’s work and interest on any monies due but not paid to the Contractor. The first such valuation by the consultant shall occur as soon as possible. The consultant shall receive instructions from both the principal and the Contractor.”
In these circumstances, Ewing cannot take advantage of the Agreement, for example, the payment of $1.2 million in satisfaction of its claim but on the other hand, refuse to acknowledge that there have been overpayments in accordance with the very report that it agreed should be obtained for an independent assessment. At the very least there may be a shifting evidentiary burden on Ewing.
[12] Interim Arbitration Award/Reasons, [32] – [33].
Ewing submits that the arbitrator was in error in concluding that Clause 3 of the Agreement could lead to a determination that a debt had been created which was immediately due and owing from Ewing to Ausbulk. It is also contended that the arbitrator erred in concluding that Ewing was bound by any assessment under Clause 3 where the assessment was lower than the total previously certified as due and payable by the superintendent under the building contract. Ewing contends that Clause 3 should be construed such that the assessment by the consultant was limited to an assessment of any increase in the amount which was due to Ewing over any amount previously certified as due and payable by the superintendent under the building contract. It submits that there was no sum owing by Ewing to Ausbulk to be set off against the return of the retention monies of $1,302,564 by Ausbulk to Ewing.
Implicit in the submission of Ewing is that Clause 3 should be read in a restrictive way so that the independent consultant’s assessment is to be limited to monies which may be owed to Ewing which had not been paid by Ausbulk. In summary, Ewing submits that Clause 3 expressly contemplates that the independent consultant will value and assess Ewing’s work and interest on any monies due, but not paid to Ewing, and that the assessment of the independent consultant is limited in that respect.
Ausbulk submits that that construction of the clause is too narrow. Ausbulk contends that the clause contemplates that the independent consultant is required to value and assess Ewing’s work. Implicit in the agreement of the parties is that if the independent consultant values the work and concludes that Ewing has been paid over and above the value of the work, then the parties have agreed to be bound by that assessment. It is appropriate to note that Ewing does not contest the findings of the consultant. Rather, it submits that, even if Ewing has been overpaid, then the agreement does not provide that the arbitrator can rely upon Clause 3 to determine that the amount of overpayment can be set off against the return of retention monies.
In my view, that is a too restrictive interpretation of Clause 3. I can understand that there may be an argument that the arbitrator has misconstrued or misconstructed the agreement but, in my view, it is arguable that the parties contemplated, and the second agreement provides, that once the independent consultant has valued Ewing’s work and concluded that Ewing has been overpaid, the arbitrator is entitled to rely upon the report of the independent contractor and conclude that any overpayment should be set off against the retention monies. I consider that the clause requires the independent expert to assess the work of Ewing and calculate the amount of any monies, plus interest, due to Ewing. If, however, no monies are due to Ewing and the independent expert concludes, as he did, that there has been an overpayment to Ewing then, in my view, the arbitrator was entitled, as he did, to find that the overpayment can be set off against monies due by Ausbulk to Ewing.

The conclusion of the arbitrator that Ewing cannot, on the one hand, take advantage of the second agreement but, on the other hand, refuse to acknowledge overpayments in accordance with the report that it agreed should be obtained, is not a manifest error. It follows that it is not obvious or evident that the arbitrator erred in his conclusions that any overpayment by Ausbulk, as determined by Currie and Brown, is recoverable and can be set off against monies due to Ewing.
I would grant permission to appeal to Ausbulk in terms of its notice of appeal. I would refuse Ewing’s application for leave to appeal.