WGE Pty Limited v South East Fibre Exports Pty Ltd; South East Fibre Exports Pty Ltd v WGE Pty Limited

[2006] NSWSC 60

CITATION:	WGE Pty Limited v South East Fibre Exports Pty Ltd; South East Fibre Exports Pty Ltd v WGE Pty Limited [2006] NSWSC 60
HEARING DATE(S):	13/02/2006
JUDGMENT DATE :	3 March 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	McDougall J
EX TEMPORE JUDGMENT DATE:	02/01/2006
DECISION:	See paras 91, 92, 94, 95.
CATCHWORDS:	ARBITRATION - leave to appeal from interim award - where question of fact - whether evidence on which arbitrator's conclusion could be based - where arbitrator decided claim on unpleaded basis - whether manifest error of law on face of award.
LEGISLATION CITED:	Arbitration Act 1979 (UK) Commercial Arbitration Act 1984 Commercial Arbitration (Amendment) Act 1990
CASES CITED:	BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266, 283 Codelfa Constructions Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 Promenade Investments Pty Limited v State of New South Wales (1991) 26 NSWLR Sargent v ASL Developments Limited (1974) 131 CLR 634
PARTIES:	WGE Pty Limited Plaintiff South East Fibre Exports Pty Ltd Defendant South East Fibre Exports Ptd Ltd Plaintiff WGE Pty Limited Defendant
FILE NUMBER(S):	SC 55046/05; 55047/05
COUNSEL:	Mr J Simpkins SC with Mr T. Davie - WGE Pty Ltd Mr I. Bailey SC - South East Fibre Exports Pty Ltd
SOLICITORS:	Colin Biggers & Paisley - WGE Pty Ltd Dibbs Abbott Stillman - South East Fibre Exports Pty Ltd

LOWER COURT JURISDICTION:	Arbitration
LOWER COURT FILE NUMBER(S):	-
LOWER COURT JUDICIAL OFFICER :	William Timothy Sullivan

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
TECHNOLOGY & CONSTRUCTION LIST

McDOUGALL J

FRIDAY, 3 MARCH 2006

55046/05 WGE PTY LIMITED v SOUTH EAST FIBRE EXPORTS PTY LTD
55047/05 SOUTH EAST FIBRE EXPORTS PTY LTD v WGE PTY LIMITED

JUDGMENT

1 HIS HONOUR: WGE Pty Limited (WGE) and Harris-Daishowa (Australia) Pty Limited (Harris-Daishowa) were parties to a contract (the contract) under which WGE undertook to design, carry out and complete upgrading and modification works to Harris-Daishowa’s ship loading facility at Mungano Point near Eden in the State of New South Wales. Harris-Daishowa claimed to have taken the works out of WGE’s hands pursuant to cl 30 of the General Conditions of Contract. WGE denied that Harris-Daishowa was entitled so to act, but relied on Harris-Daishowa’s action as constituting a repudiation of the contract, which repudiation WGE purported to accept. The disputes between the parties were referred to arbitration. By agreement, the Arbitrator dealt first with the question of liability. He gave his interim award, dealing with questions of liability on 9 May 2005 (the Award). WGE and Harris-Daishowa each seek leave to appeal, pursuant to s 38 of the Commercial Arbitration Act 1984, (the Act) from certain of the Arbitrator’s findings; and they each seek directions pursuant to s 43 of the Act in relation to other findings.

2 Harris-Daishowa has changed its name to South East Fibre Exports Pty Limited. However, it is convenient to refer to it, as did the parties and the arbitrator, as Harris-Daishowa.

Nature of the disputes

3 It is convenient to adopt the Arbitrator’s “Overview of the Project” and “Overview of the Disputes” in paras 3, 4 and 14 to 27 of the Award:

“3. Harris-Daishowa is a company involved in the woodchipping industry in Australia. Part of Harris-Daishowa’s operations is a woodchip ship loading facility at Mungano Point near Jew’s head, Twofold Bay south of Eden, approximately 35 km by road from Eden, on the Far South Coast of New South Wales where Harris-Daishowa transfers woodchips from its stockpiles to ships. The woodchips are then exported from Australia to be used in manufacturing operations.

4. In 1995 Harrris-Daishowa commenced working on a design to upgrade the shiploading facility at Eden. In March 1998 WGE was invited to submit an expression of interest to upgrade the facility.

14. By about mid 1999 WGE had installed a substantial amount of the equipment to upgrade the shiploading facility. Work which then remained outstanding was one of the main issues in the arbitration. The outstanding work included, amongst other things, a large part of the painting of the facility, remedial work on some equipment which Harris-Daishowa alleged did not comply with the requirements of the Contract, and items which had not been supplied by WGE.

15. WGE were required by the Contract to install a large part of the equipment during a period when the shiploading facility was to be shutdown. Harris-Daishowa continued to load ships with woodchips using the shiploading facility before the Contract commenced, whilst the Contract was on foot in the period prior to the shutdown and also after the period of the shutdown.
16. On or about 23 August 1999, subsequent to the installation of the equipment, the Superintendent issued a list of work which, according to the Superintendent, was defective or incomplete work. The Superintendent also certified an amount of $560,981 to be held by Harris-Daishowa against this work.
17. On 15 October 1999 Gosling Lawyers wrote to WGE on behalf of Harris-Daishowa enclosing a list which, according to the covering letter, “ sets out the majority of the work outstanding as at 23 August 1999 .” Barker Gosling Lawyer’s letter also advised WGE that if the work was not carried out before 25 October 1999, and losses are incurred by Harris-Daishowa, then damages and recompense would be sought against WGE.
18. On 19 October 1999, WGE wrote to Harris-Daishowa agreeing that certain items on as list of defects dated 23 August 1999 were defects. WGE’s letter also notified Harris-Daishowa that WGE disputed other items were omissions or defects.
19. Lists setting out the alleged incomplete and defective work were issued by the Superintendent. These lists are referred to in the evidence and in this award as the punchhlists. Two punchlists which featured prominently in this arbitration were one dated 4 November 1999 and another dated 2 December 1999.
20. There were disagreements between WGE and Harris-Daishowa as to some, but not all, of the items on the punchlists. WGE agreed in their facsimile of 19 November 1999, responding to the 4 November 1999 punchlist, that some of the items listed were to be carried out by WGE.
21. There was further correspondence between WGE and Harris-Daishowa followed by a meeting on 1 February 2000. An agreement was reached, (the “February 2000 Agreement”) in respect of some of the work on the punchlists whereby WGE was to carry out some of the work within an agreed timeframe and Harris-Daishowa was to progressively release some of the monies then withheld.
22. As at September 2000 there were items of work on the punchlists which WGE had not carried out. In respect of some of these, WGE maintained that WGE had no contractual obligation to carry them out. There were also items of work which WGE had agreed in the February 2000 Agreement it would carry out, which had not been carried out as at September 2000.
23. In late September 2000, Harris-Daishowa issued to WGE a Show Cause Notice pursuant to Clause 30 of the Contract (“the Show Cause Notice”). WGE responded to the Show Cause notice on 6 October 2000.
24. Harris-Daishowa subsequently gave notice to WGE on 25 October 2000 that WGE had failed to show reasonable cause and accordingly that Harris-Daishowa takes out of the hands of WGE the whole of the work remaining to be completed. WGE admits that there were items of work outstanding at the time that Harris-Daishowa took the work out of WGE’s hands. Whether or not the amount is correct I do not express a view at this time, but it is admitted by WGE that the value of the outstanding work was $167,000. Harris-Daishowa did not terminate the Contract at that time.
25. WGE responded to Harris-Daishowa on 26 October as follows:
“We refer to your letter of 25th October 2000 which purports to constitute notice of taking over the Works pursuant to Clause 30.4 of the General Conditions of Contract AS2987-1987.
The purported taking over of the Works by you is wrongful and constitutes an act of repudiation on your part.
We invite you to withdraw notice of 25th October 2000 by no later than 4.00pm on 27th October 2000.
We reserve our rights until that time elapses.”
26. Apart from the claims by WGE, and counterclaims by Harris-Daishowa, which arise from, or have lead to, these events, WGE has made claims for a number of variations, further and alternative claims for damages arising from breach of the Trade Practices Act and claims for damages arising from misrepresentation of the weight of the boom to be installed.
27. WGE issued notices of dispute under the Contract in August 1999 and 19 October 1999”.

The challenges to the Award

4 WGE’s summons raised a number of challenges to the Award. However, only three of those were pursued. Taking them in the order in which they were addressed in argument, they are:

(1) The Arbitrator considered that it was a pre-condition to the exercise of a “show cause” notice under cl 30.2 of the General Conditions that WGE should have committed a “substantial breach of contract” and that Harris
Daishowa should have formed the opinion (or “considered”) “that damages may not be an adequate remedy”. The Arbitrator concluded at A76 “that Harris-Daishowa considered the options and considered that damages may not be an adequate remedy.” WGE submitted that there was no evidence on which the Arbitrator could have founded that conclusion.
(2) WGE submitted in any event to the Arbitrator that it had not been open to Harris-Daishowa to give a show cause notice because, before it did so, it had elected to accept the “Equipment” (ie, the equipment that WGE was required, pursuant to the contract, to design, manufacture and supply). Further, WGE submitted to the Arbitrator that Harris-Daishowa had breached GC23.7 by using the Equipment without having WGE’s written approval to do so, in circumstances where the Engineer had not given a Certificate of Acceptance and Harris-Daishowa had not elected to accept the Equipment and claim damages. The Arbitrator found that there had been no election and no breach of GC23.7. WGE submitted that he erred in law in so finding.
(3) Harris-Daishowa had counter claimed seeking damages. In a number of places (eg A458) the Arbitrator found that liability for an item that was the subject of the counter claim had been established, and said that “Harris-Daishowa is entitled to the cost of carrying out” the necessary rectification or repair. WGE submitted that, in circumstances where the right to compensation (to use a neutral term) was governed by GC30.6 (because on Harris-Daishowa’s case, which the Arbitrator upheld, Harris-Daishowa had taken the works out of the hands of WGE and had procured their completion by others), the entitlement was to the difference between the cost incurred by Harris-Daishowa in completing the work and the amount that would have been payable to WGE had the work been completed by WGE. WGE sought a direction pursuant to s 43 of the Act that the recoverable cost was to be assessed in accordance with GC30.6.

5 Harris-Daishowa likewise narrowed the ambit of its attack in argument. It, too, challenged three aspects of the Award:

(1) WGE had claimed, either as damages for misleading or deceptive conduct or as a variation, the cost of constructing “Boom Equipment” on the basis that Harris-Daishowa had represented, or alternatively it was a contractual basis of tendering, that the weight of the Boom Equipment was 31,225 kgs, whereas the actual weight was considerably higher (and, therefore, the cost of manufacture and supply was likewise considerably higher). The Arbitrator rejected the claim insofar as it was based on misleading or deceptive conduct, but upheld it as a claim for a variation, notwithstanding that both claims relied upon a letter from Harris-Daishowa to WGE dated 20 May 1998. Harris-Daishowa submitted that the Arbitrator erred in law in allowing the contractual (variation) claim. Firstly, it submitted, the Arbitrator relied on a basis that had been neither pleaded or particularised: namely, that the letter of 20 May 1998 formed part of the contract. Secondly, it submitted, the conclusion in WGE’s favour on the contractual claim was flatly and irremediably inconsistent with the conclusion against it on the misleading or deceptive conduct claim.
(2) Next, Harris-Daishowa complained at the Arbitrator’s rejection of one element of its counter claim, namely a claim for damages flowing from “delays in ship loading”. The Arbitrator dealt with this briefly at A753, concluding that Harris-Daishowa had not established any entitlement to what he described as a claim that had not been particularised in respect of a cause of action that had not been alleged.
(3) Finally, Harris-Daishowa submitted that the Arbitrator had erred in law in the way he dealt with its claim in respect of As-Built drawings. There is no doubt that the specification required Harris-Daishowa at some point to provide As-Built drawings. The Arbitrator said at A722 that the relevant event, obliging WGE to deliver As-Built drawings, had not arisen. He said that in those circumstances the cost of providing As-Built drawings was not a compensable item under GC30.6. Harris-Daishowa submitted that he erred in law in so concluding.

6 Although I have described the second and third of Harris-Daishowa’s complaints as relating to errors of law, I should note that they were pressed in the alternative as being appropriate for the giving of directions under s 43, in circumstances where the assessment of damages had not been undertaken.

7 Neither party submitted that there was any discretionary reason for withholding leave to appeal if I were satisfied, in respect of any challenge, that the statutory ground for grant of leave (a matter that I discuss in the following sections of these reasons) were made out. Thus, and sensibly, the parties agreed that their submissions on the leave points should be treated as submissions on the appeal in the event that I concluded that leave should be granted, and that I should determine the ground of appeal accordingly.

The Court’s powers

8 By s 38(2), (4) of the Act, an appeal lies to this Court “on any question of law arising out of an award” either with the consent of all other parties to the arbitration agreement (not forthcoming in this case) or by leave of the Court.

9 The Court may only grant leave in the circumstances set out in s 38(5):

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

10 For completeness, I set out the Court’s power to give directions pursuant to s 43:

“Subject to section 38 (1), the Court may remit any matter referred to arbitration by an arbitration agreement together with any directions it thinks proper to the arbitrator or umpire for reconsideration or, where a new arbitrator or umpire has been appointed, to that arbitrator or umpire for consideration.”

Leave to appeal: the principles

11 Neither party submitted, for the purposes of s 38(5)(a), that the determination of the questions of law that were propounded would not substantially affect the rights of one or both of them. Accordingly, I do not propose to take up time resolving that which the parties did not propound as an issue; I proceed on the basis (which in any event I think is correct) that the determination of the questions of law propounded could substantially affect the rights of one or both of the parties.

12 The nature of the discretion conferred by s 38(5)(b), and the approach to be taken by the Court in considering whether the requirements of that paragraph have been met, have been considered on a number of occasions. It is sufficient for me to refer to the decision of the Court of Appeal in Promenade Investments Pty Limited v State of New South Wales (1991) 26 NSWLR 203. In that case, Sheller JA (with whom Mahoney and Meagher JJA agreed) said at 225 that the expression “manifest error” is one that “is used to indicate something evident or obvious rather than arguable”. However, as his Honour pointed out at 225-226, there might still be a need for adversarial argument to show whether there was a manifest error of law. His Honour summarised his views at 226 as follows:-

“…’manifest’, in the context of the subsection, which contemplates the grant of leave before an appeal can be pursued, connotes an error of law that is more than arguable. There should, in my opinion, 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.”

13 It will be observed that there are two, alternative, limbs to s 38(5)(b). The first is “manifest error”. The second is “strong evidence [of] an error or law”; and if the second is relied upon, there is the additional requirement of adding to the certainty of commercial law.

14 The difference between the two limbs is somewhat elusive, particularly where the test of manifest error is to be taken as that described by Sheller JA in Promenade Investments. However, I think, what the legislature intended was that in the first case the error should be discernible on the face of the award itself, whereas in the second case it might be necessary to go to material extrinsic to the award (including, perhaps, the pleadings, evidence or submissions before the arbitrator) to determine whether it is likely that there was an error law. Some support for that is found in the reasons of Sheller JA in Promenade Investments at 221-223, where his Honour considered the history of s 38 against the background (at 217-219) of cases on the equivalent provisions of the Arbitration Act 1979 (UK). His Honour thought that the reference to “strong evidence” (which was introduced through the Commercial Arbitration (Amendment) Act 1990) might have been intended to resolve the dispute in the United Kingdom as to whether the Court could have regard to matters extrinsic to the award, and if so in what circumstances and to what extent.

15 It may be that the degree of certainty (as to the existence of error) is somewhat less under the second limb compared to the first. That may explain why, where there is strong evidence of error (as opposed to manifest error), there is an additional public interest element to be observed: namely, increasing the certainty of commercial law.

Validity of the show cause notice

16 GC30 reads, relevantly, as follows:

“ 30 DEFAULT OR INSOLVENCY
30.1 Preservation of other Rights
If a party breaches or repudiates the Contract, nothing in Clause 30 shall prejudice the right of the other party to recover damages or exercise any other right.

30.2 Default by the Contractor
If the Contractor commits a substantial breach of contract and the Purchaser considers that damages may not be adequate remedy, the Purchaser may give the Contractor a written notice to show cause.

Substantial breaches include but are not limited to -
(a) suspension of work, in breach of Clause 17.1;
(b) failing to proceed with due expedition and without delay, in breach of Clause 17.1;

(c) failing to use the materials or standards of workmanship required by the Contract, in breach of Clause 4;
(d) failing to produce evidence of insurance, in breach of Clause 16.4.

30.3 Requirements of Notice by the Purchaser to Show Cause
A notice under Clause 30.2 shall -
(a) state that it is a notice under Clause 30 of the General Conditions of Contract;
(b) specify the alleged substantial breach;
(c) require the Contractor to show cause in writing why the Purchaser should not exercise a right referred to in Clause 30.4.
(d) specify the time and date by which the Contractor must show cause (which time shall not be less than 7 clear days after the notice is given to the Contractor):
(e) specify the place at which cause must be shown.

30.4 Rights of Purchaser
If by the time specified in a notice under Clause 30.2 the Contractor fails to show reasonable cause why the Purchaser should not exercise a right referred to in Clause 30.4, the Purchaser may by notice in writing to the Contractor -
(a) take out of the hands of the Contractor the whole or part of the work remaining to be completed; or
(b) terminate the Contract.

Upon giving a notice under Clause 30.2 the Purchaser may suspend payments to the Contractor until the expiration of the earlier of -
(i) the date upon which the contractor shows reasonable cause;
(ii) the date upon which the Purchaser takes action under Clause 30.4(a) or (b);
(iii) the date which is 7 days after the last day for showing cause in the notice under Clause 30.2.


If the Purchaser exercises the right under Clause 30.4(a), the Contractor shall not be entitled to any further payment in respect of the work taken out of the hands of the Contractor unless a payment becomes due to the Contractor under Clause 30.6.

30.5 Procedure when the Purchaser Takes Over Work
If the Purchaser takes work out of the hands of the Contractor under Clause 30.4(a) the Purchaser shall complete that work and the Purchaser may without payment of compensation take possession of such of the Constructional Plant and other things on or in the vicinity of the Site as are owned by the Contractor and are reasonably required by the Purchaser to facilitate completion of the work.

If the Purchaser takes possession of Constructional Plant or other things, the Purchaser shall maintain the Constructional Plant and, subject to Clause 30.6, on completion of the work the Purchaser shall return to the Contractor the Constructional Plant and any things taken under this clause which are surplus.

30.6 Adjustment on Completion of the Work Taken Out of the Hands of the Contractor
When work taken out of the hands of the Contractor under Clause 30.4(a) is completed the Engineer shall ascertain the cost incurred by the Purchaser in completing the work and shall issue a Certificate certifying the amount.

If the cost incurred by the Purchaser is greater than the amount which would have been paid to the Contractor if the work had been completed by the Contractor, the difference shall be a debt due from the Contractor to the Purchaser. If the cost incurred by the Purchaser is less than the amount that would have been paid to the Contractor if the work had been completed by the Contractor, the difference shall be a debt due to the Contractor from the Purchaser.

If the Contractor is indebted to the Purchaser, the Purchaser may retain Constructional Plant or things taken under Clause 30.5 until the debt is met. If after reasonable notice, the Contractor fails to pay the debt, the Purchaser may sell the Constructional Plant or things and apply the proceeds to satisfaction of the debt and the costs of sale. Any excess shall be paid to the Contractor”.

17 As I have said, WGE’s submission, before the Arbitrator and before me, was that:

· the verb “considers” denoted the formation of the opinion as to the inadequacy of damages as a remedy;

· this was a precondition to the entitlement to give notice under GC30.2;

· there was no evidence that Harris-Daishowa had formed the relevant opinion (or, more accurately, that it had come to the conclusion required by use of the verb “consider”); and

· there was no basis on which it could reasonably have done so.

18 Harris-Daishowa contended that:

· formation of the opinion was not essential to the validity of the notice;

· in any event, it was open to it to come to that conclusion; and

· it was open to the Arbitrator to conclude as a matter of fact that it had done so.

19 The Arbitrator accepted WGE’s submission on the first issue (opinion a precondition to validity) but not on the second (non-existence in fact of the opinion). He dealt with this at A72 to A76 as follows:-

“72 In response to WGE's position that the damages would have been an adequate remedy for the breaches, Harris-Daishowa denied that the issue of damages as an adequate remedy is a condition affecting the validity of the Show Cause Notice.

73 According to the evidence, the reason that Harris-Daishowa took steps to issue a Show Cause Notice and Notice and taking over the work under the Contract to ensure that the works were completed. I accept for the purposes of this Arbitration that for the Show Cause Notice to be valid it is necessary to show that Harris-Daishowa considered that damages may not be an adequate remedy.

74 The alleged substantial breach was the alleged failure by WGE to proceed with due expedition and without delay. Whichever right under Clause 30.4 was exercised if the right became available, Harris-Daishowa could have the work completed by others: Given Harris-Daishowa's view that:
(a) the lapse of time and lack of progress on outstanding work between when WGE claims that the work under the Contract had reached Practical Completion and the time that the Show Cause Notice was issued,
(b) the nature and extent of the work which WGE considered to be incomplete and/or defective,
(c) the communications between Harris-Daishowa and WGE,
(d) the meetings and the February 2000 Agreement for progressing the outstanding work,
(e) Harris-Daishowa wanted the project completed, and
(f) the work under the February 2000 Agreement which was to have been carried out in accordance with that Agreement but which was not,
it is more likely than not that Harris-Daishowa considered that the important thing to do was to take steps to have WGE advise why Harris-Daishowa should not take one of the steps available under Clause 30.4 leading to having the work completed by someone other than WGE.

75 Harris-Daishowa must have considered that damages may not be adequate when they considered Mr Sparkes' advice to the meeting of the board of Harris-Daishowa on 28 September 2000. The minutes record: " Mr. Sparkes indicated that recent discussions and correspondence with WGE have not been encouraging and it is now certain that HDA will have to cancel the Contract and complete the work. " Notwithstanding that advice to the board Harris-Daishowa, did not cancel the Contract at any time but took steps under the Contract to ask WGE to show cause why Harris-Daishowa should not either terminate the Contract or take over the work to be completed.

76 I am satisfied that Harris-Daishowa considered the options and considered that damages may not be an adequate remedy. I am satisfied that Harris-Daishowa considered that remedies other than damages may be necessary, such as the remedies available in Clause 30.4 of the Contract if WGE did not show reasonable cause”.

20 In substance, the Arbitrator inferred, from the circumstances to which he referred, that Harris-Daishowa had come to the relevant conclusion. That, clearly, is a finding of fact, or at most a mixed finding of fact (as to the conclusion reached) and law (as to the contractual need to reach such a conclusion). Thus, there can only be an error of law if there was no evidence from which the Arbitrator could have drawn that inference.

21 In my view, it was open to the Arbitrator to reason as he did. I do not understand why he could not infer, from the very fact that Harris-Daishowa had given a notice to show cause, that it considered that damages would not be an adequate remedy for the breaches of contract described in the notice. Far less do I understand why it was not open to the Arbitrator to draw that inference from the giving of the notice when considered against the factual background that he summarised in A74 and A75.

22 Thus, even assuming for the purposes of the argument that the Arbitrator’s construction of GC30.2 was correct (ie, that the formation of the opinion was a condition precedent to the entitlement to give a show cause notice) I do not think that there is a manifest error of law in his conclusion that the relevant opinion had been formed.

23 Nor do I think that there is strong evidence that he erred in law in so concluding. I was not referred to the evidence except insofar as it is summarised in those passages of the Award to which I have referred, and in paras A134 to A155, on which Harris-Daishowa relied. (In those latter paragraphs, the Arbitrator considered once more the circumstances leading up to the giving of the show cause notice, this time in the context of an argument relating to the exercise of contractual powers reasonably and in good faith.)

24 In circumstances where, on the material appearing on the face of the Award, it was open to the Arbitrator to draw the inference, or reach the conclusion, that he did, and where the Court was not taken to the detail of the evidence, I see no reason to conclude that there is strong evidence of error. In putting the matter this way, I do not wish to be seen to be encouraging a practice of treating applications for leave to appeal as requiring an extensive rehearsal of the evidence and submissions before the Arbitrator.

25 It is therefore unnecessary to consider Harris-Daishowa’s submission that the Arbitrator erred in law in the approach that he took to the construction of GC30.2.

Election to accept

26 GC23 deals with acceptance or rejection of equipment. It provides, relevantly, as follows:-

“ 23 ACCEPTANCE OR REJECTION OF EQUIPMENT
23.1 Certificate of Acceptance or Advice of Non-Acceptance
If the Equipment delivered by the Contractor to the Purchaser is substantially in accordance with the requirements of the Contract then within 28 days after -
(a) the date of delivery of the Equipment;
(b) the completion of any tests which under the Contract are to be carried out before acceptance;
(c) if for reasons beyond the control of the Engineer, the Purchaser and the Contractor it is not possible to determine whether the Equipment is or is not substantially in accordance with the requirements of the Contract, the date that it becomes possible to make the determination;
(d) if the Contract provides for a Date for Practical Completion, the date that Practical Completion is reached;
whichever is the latest, the Engineer shall issue to the Purchaser and to the Contractor a Certificate of Acceptance.

If ownership of the Equipment has not already passed to the Purchaser, it will pass to the Purchaser when the Engineer issues the Certificate of Acceptance.

Equipment shall be deemed to be substantially in accordance with the requirements of the Contract even though there are minor omissions or minor defects in the Equipment which do not substantially affect normal use of the Equipment. The Engineer shall designate in the Certificate of Acceptance the omissions or defects of which the Engineer is aware. The Contractor shall proceed as speedily as practicable to make good omissions or defects.

If the Equipment delivered by the Contractor to the Purchaser is not substantially in accordance with the requirements of the Contract then within the 28 days stated in the first paragraph of Clause 23.1 the Engineer shall issue to the Purchaser and the Contractor an Advice of Non-acceptance stating in writing the reasons why the Engineer considers that the Equipment is not substantially in accordance with the requirements of the Contract.

If the Engineer is unable to issue a Certificate of Acceptance or an advice of Non-acceptance within 28 days of the date of delivery of the Equipment, the Engineer shall issue to the Purchaser and the Contractor a written statement of the reason.

23.2 Contractor to Advise Action in Case of Non-acceptance
Within 14 days after receipt of Advice of Non-acceptance the Contractor shall advise the Engineer in writing of what the Contractor is prepared to do. The Contractor shall indicate -
(a) whether the Contractor proposes to recover the Equipment and replace or correct it;
(b) whether the Contractor proposes to correct the Equipment at the site where it is located and, if so, the nature of the work involved, the access which the Contractor will require and the disruption, if any, which might be caused to the Purchaser;
(c) the times likely to be involved;
(d) the compensation, if any, offered by the Contractor;
(e) any other alternative which the Contractor offers.

23.3 Purchaser’s Decision on Contractor’s Proposals
Within 14 days of receipt of the Contractor’s written offer under Clause 23.2 the Engineer on the Purchaser’s behalf shall in writing to the Contractor either -
(a) accept the Contractor’s offer;
(b) give the Contractor a Notice of Rejection;
(c) advise the Contractor that the Purchaser elects to accept the Equipment and claim damages.

23.4 Replacement or Correction by Contractor
On receipt of a notice under Clause 23.3(a) the Contractor shall proceed promptly as agreed. If the Contractor recovers possession of Equipment belonging to the Purchaser the recovered Equipment shall remain the property of the Purchaser. If it is replaced with new Equipment then title to the new Equipment will pass to the Purchaser upon delivery of the new Equipment to the Purchaser and thereupon title to the recovered Equipment will pass to the Contractor.

For the purposes of Clause 21.1 (Time for Delivery and Liquidated Damages) and Clause 23.1 Equipment will not be deemed to have been delivered until:
- in the case where Equipment is recovered, the corrected or new Equipment is delivered to the Place for Delivery;
- in the case where Equipment is corrected at the premises of the Purchaser, the Contractor notifies the Engineer in writing that the work of correction is complete.
The procedures of Clause 23 shall then be followed with respect to the new or corrected Equipment.

23.5 Removal of Rejected Equipment
On receipt of a Notice of Rejection under Clause 23.3(b) the Contractor shall repay to the Purchaser all moneys which the Contractor has received from the Purchaser in relation to the rejected Equipment. Upon repayment of the moneys the Contractor shall own the rejected Equipment and shall remove it from the Purchaser’s premises.

Subject to any provision of the Contract limiting the liability of the Contractor, the Purchaser shall have the right to recover from the Contractor any damages exceeding the amount repaid which the Purchaser suffers by reason of the failure of the Contractor to supply Equipment which is substantially in accordance with the requirements of the Contract.

23.6 Purchaser Accepts Equipment and Damages
If the Purchaser elects to accept Equipment which is not substantially in accordance with the requirements of the Contract, then ownership of the Equipment, if it has not already passed to the Purchaser will pass to the Purchaser upon delivery to the Contractor of the notice under Clause 23.3(c) and, subject to any provision of the Contract limiting the liability of the Contractor, the Purchaser shall have the right to recover from the Contractor damages which the Purchaser suffers by reason of the failure of the Contractor to supply Equipment which is substantially in accordance with the requirements of the Contract.

23.7 Purchaser’s Right to Use Equipment
Without written approval of the Contractor the Purchaser shall not put the Equipment into service before issue of a Certificate of Acceptance in respect of the Equipment or an advice under Clause 23.3(c) that the Purchaser elects to accept the Equipment and claim damages.”

27 Acceptance is also dealt with by cl 907.7 of the Technical Specification as follows:

“Acceptance of the shiploading facility by the Purchaser for normal operations and commencement of the warrant period will occur only when all requirements of this specification have been met, operation and information supplied by the contractor is to the satisfaction of the Superintendent and written approval is obtained from the WorkCover Authority that the shiploading facility meets all the statutory requirements.”

28 I note that TS907 is part of the section dealing with “testing, inspection and commissioning”. TS907 deals, in subcls 12.6, with the various kinds of testing that area to be carried out and with the reports that are to be prepared in respect of that testing. It is clear that the testing is to be carried out on Equipment as installed, and that it will involve operation (in some respects, it may be, substantial operation,) of the Equipment.

29 The Arbitrator dealt with this issue at some length in A77 and following. He stated WGE’s position in A78 and A93, 94 as follows:-

“78. WGE’s submission is that there was no substantial breach of Contract by WGE as Harris-Daishowa had “elected to accept the equipment and take damages”. Harris-Daishowa’s position is that it had not accepted the Equipment.

93. WGE does not contend that, as at June 1999 when Harris-Daishowa was using the shiploading facility, it had carried out and completed all of the things which it was required by the Contract to design, provide and install.

94. WGE’s position is that putting the Equipment into service to load ships from June 1999 on was an election which Harris-Daishowa made and which extinguished rights to further performance by WGE (other than WGE’s obligations in respect of defect liability).”

30 The Arbitrator noted that the contract did not require the manufacture, delivery and installation of an entirely new loading facility. It required the manufacture, delivery and installation of upgrades and modifications to an existing facility, in circumstances where the existing facility was to continue to operate. Thus, he said, at A115 and following:-

“115 The majority of the Equipment was to be installed during normal mill operations. The shiploading facility was to continue with loading of ships notwithstanding that the Contract was on foot and installation of the Equipment was taking place.

116 The Contract did not envisage WGE carrying out work, other than attendance to rectification of defects, beyond the installation and commissioning at the end of the 38 week period. WGE's obligation was to have the Equipment substantially completed and delivered in accordance with the Contract by the end of the 38 week period. WGE was late with respect to significant parts of the work such as the painting and even if WGE was not in breach, Harris-Daishowa still had a right under the Contract to use the Equipment as and when it was installed, even before installation was complete or before Practical Completion was achieved.

117 The Equipment included the painting as specified. The painting was a significant part of the work under the Contract. The painting carried out by WGE was not as specified. Apart from the shutdown period, Harris-Daishowa continued to use the Equipment as it was supplied and installed.

118 According to WGE, painting was always something which WGE intended carrying out, even up to the date on which Harris-Daishowa took the work out of WGE's hands. WGE did not, before the work was taken out of its hands, raise the issue that WGE had no further obligation to complete the painting work.

119 If WGE's contentions as to election were accepted then the result in this case would be that once any part of the Equipment was installed and the shiploading facility was used to load ships, all of WGE's obligations as to further performance would then be excused and Harris-Daishowa's only remedy would be for damages.

120 WGE does not contend that the Equipment supplied and installed was complete when the changeover period ended. The painting to be done was not the only work outstanding. The outstanding work also included work to the maintenance jacking system for the boom; work to the 'V' trough scraper to boom tail pulley; the safety limits on the jetslinger telescope; rectification of the tower sheave block and seals; rectification of the operating station at the ship end of the access gangway; work on the dolphin linking structure, control cabin window glass, wharf conveyor head pulley, tunnel conveyor head drum brake and boom conveyor chute, the boom conveyor brake control, and the dust chute under the wharf conveyor; rectification of the damaged boom conveyor belt; work to modify the head end of boom conveyor; work to the luffing winch, and provision of the maintenance and operating manuals.

121 Delivery of the Equipment, that is all of the Equipment, did not occur although a significant amount of it was supplied, installed and used.

122 Delivery of the Equipment was not the only obligation which WGE had to perform to meet its Contractual obligations. Harking back to Clause 17.1 of AS 2987-1987 provides:

"The Contractor shall proceed with the work under the Contract with due expedition and without delay."

123 " Work under the Contract " as defined in Clause 2 of AS 2987 – 1987 means:

"the work which the Contractor is or may be required to execute or provide under the Contract and includes the Equipment, services, variations, remedial work, Constructional Plant and Temporary Works."


124 Delivery included " the whole of the works " which in turn must include " the work under the Contract ". As at June 1999 when ships were loaded using so much of the Equipment as had been provided, and as at the date of the Show Cause Notice, significant parts of the work under the Contract had still not been provided.

125 According to Clause 2 of AS 2987 – 1987, "Equipment" means:

"the goods to be supplied by the Contractor under the Contract which are to be handed over to the Purchaser or a person designated by the Purchaser".


126 The equipment provided and installed by WGE as at June 1999 and right through until the work was taken out of WGE's hands was not " the goods to be supplied by the Contractor under the Contract" but only a part of the goods. Even then some of the things that had been provided, were defective.

127 That equipment which had been delivered was not the Equipment as specified but an incomplete and defective part of what was to be supplied under the Contract.

128 Painting was not the only work under the Contract which was incomplete or defective at the time Harris-Daishowa used the shiploading facility. A substantial amount of work remained outstanding including a substantial amount of remedial work. It was physically impossible to use the existing facility to load ships without also using such parts of the Equipment as were supplied and installed.

129 It is consistent with the provisions of the Contract that, apart from only the four week shutdown or changeover period, Harris-Daishowa would continue to load ships with the shiploading facility until the Equipment was handed over to Harris-Daishowa.

130 It is not consistent with the provisions of the Contract that once part of the Equipment was delivered, no matter how incomplete or defective that part of the Equipment was, use of the Equipment to load ships relieved WGE of its contractual obligations to provide the Equipment in accordance with the Contract. Using the Equipment was not an election to accept the Equipment but merely the exercise of the contractual right to use the facility to load ships. “

31 The Arbitrator’s references to AS2987/1987 are to what I have called the General Conditions.

32 The Arbitrator had earlier set out the relevant principles as to election under the general law (I use this expression to differentiate the common law doctrine of election between inconsistent legal rights – eg. Sargent v ASL Developments Limited (1974) 131 CLR 634 – from the concept of express election embodied in GC23.3(c)). Against the factual background that he described (which included, but was not limited to, the matters that I have set out above) the Arbitrator concluded at A133 that there was neither breach of GC23.7 nor “election by Harris-Daishowa to put the Equipment into service and claim damages”. Instead, the Arbitrator said, Harris-Daishowa had exercised its right to continue to use the facility, including in it such bits and pieces of the Equipment as were from time to time delivered and installed. He said:-

“133. My conclusion on this issue is that there has been no breach of Clause 23.7 of AS 2987 – 1987. There was no election by Harris-Daishowa to put the Equipment into service and claim damages but rather an exercise by Harris-Daishowa of a contractual right to continue using the existing facility and such parts of the Equipment as became available as and when it was progressively provided by WGE notwithstanding that all of the Equipment had not been delivered and all of the work under Contract had not been completed.”

33 Whether or not there has been an election between inconsistent rights is, ultimately, a question of fact. As with the previous issue, the Arbitrator’s decision on this question of fact cannot amount to error of law unless there was no evidence on which his conclusion could be based. In my view, on the question of election under the general law, and to the extent that this question was relevant, it was open to him to reach the conclusion that he did in A133.

34 It would appear that the dispute before the Arbitrator was fought on the basis that the general law concept of election was applicable. However, I am not certain that this is so – at least, where the act said to amount to an election is the use of the Equipment. In those circumstances, I think, it is necessary to start with the relevant provisions of the contract. The relevant provisions include those parts of GC23 that I have set out above, and TS907.7.

35 TS907.7 is relevant because it deals with what it is that amounts to acceptance of the Equipment. The essence of election under the general law is that there is a choice between, and of one of, inconsistent legal rights. But under TS907.7, there could be no choice – acceptance – because the requirements for acceptance had not arisen.

36 If the choice is not said to arise from acceptance (as that term is used in the contract) then it must arise out of some lesser use not amounting to contractual acceptance. (I interpose to note, firstly, that it is clear that the technical specification formed part of the contract; and, secondly, that the parties appeared to regard the technical specification as having precedence over the general conditions in cases of conflict.) However, not all use could give rise to an election – a choice between inconsistent rights – because at least some use, for the purposes of testing and commissioning, is permissible under TS907. GC23.7 must operate in a factual situation where acceptance under TS907.7 (linked, no doubt, to certification thereof under GC23.1) has not occurred. If the use that is said to show a choice between inconsistent rights consists of something intermediate between use for the purposes of testing and acceptance after testing and commissioning, then it is, presumably, use of the kind to which GC23.7 refers: putting the Equipment “into service”. But in the context of GC23 as a whole, I do not think that such use, inconsistent with GC23.7, could amount to an election between inconsistent rights. The purpose of GC23.7 is to prevent use, not to deem acceptance.

37 It may be that the Arbitrator erred in concluding that there was no breach of GC23.7. Conversely, it may have been open to him to reach that conclusion, particularly having regard to his findings and reasoning as to the incomplete nature of delivery; and since neither party attacked this aspect of his reasons, I express no concluded view. What is of present significance is that GC23 itself indicates the consequences of use – putting into service – where there has been no Certificate of Acceptance (GC23.1), no election to accept (GC23.3(c)) and no written approval (GC23.7). I do not think that the Court should seek to remake the parties’ bargain by engrafting onto their precise contractual structure a common law doctrine that, putting it at its lowest, sits ill with the relevant aspect of the agreement that the parties have made.

38 In any event, as I have said, it was a question of fact for the Arbitrator, whether the matters that were proved amounted to an election. For the reasons that I have just given, I do not think that such use as Harris-Daishowa made of the Equipment was determinative of the question of election under the general law. WGE’s submissions on this point proceeded on the basis that it was. WGE did not submit otherwise that it was not open to the Arbitrator to conclude that there was no general law election.

GC30.6

39 Harris-Daishowa’s case is that it was entitled to give a show cause notice; that WGE failed to respond in a satisfactory way to that notice; and that, accordingly, Harris-Daishowa was entitled to, and did, take the works out of the hands of WGE. In those circumstances, and where WGE has exercised its contractual right pursuant to GC30.5 to complete the works, the appropriate quantification of its entitlement is that for which GC30.6 provides. I did not understand that Harris-Daishowa disputed this analysis: at least, at the level of generality at which I have stated it.

40 In the circumstances, I think, it is appropriate to direct the Arbitrator that the measure of Harris-Daishowa’s entitlement to compensation for the cost of carrying works taken over and completed by it is that certified in accordance with GC30.6. I would not wish it to be thought that, because I have given this direction, I had some apprehension that the Arbitrator might otherwise have quantified Harris-Daishowa’s entitlement on some different basis. I am, at the most, reminding him of the contractual mechanism, in circumstances where at least some of the language of the interim award (eg. A458) might be thought to go somewhat further.

Variation for weight of the Boom Equipment

41 As I have said, WGE put its claim before the Arbitrator on two bases: misleading or deceptive conduct, and contractual entitlement to be paid for a variation.

42 The misleading or deceptive conduct claim was “pleaded” in the amended points of claim as follows:

“21. The Respondent represented to the Claimant that the Boom Equipment would have the following weights:

[Individual items of equipment, and the weight said to have been represented for each, were described.]

PARTICULARS
HDA letter to WGE dated 20 May 1998.

22. The representation was in trade or commerce.

23. The representation was misleading and deceptive in contravention of s.52 of the Trade Practices Act.

PARTICULARS
Contrary to the representation, the Boom Equipment did not have the weights represented.

24. Alternatively, the representation was a representation as to a future matter and the Respondent had no reasonable belief that the representation was correct.

25. By reason of the said misrepresentation, the Claimant has suffered damage.

PARTICULARS
But for the misrepresentation, the Claimant would not have tendered for the work.

Alternatively, but for the misrepresentation, the Claimant would have tendered for the work at a higher Contract price, approximately $5,200,000.00 and at that price would not have been the successful tenderer and would not have entered into the Agreement.

On either alternative the Claimant would not have entered into the Agreement.

The Works pursuant to the Agreement were performed at a loss to the Claimant of approximately $3,500,000.00. The Claimant would not have incurred that loss had it not entered into the Agreement. The Claimant seeks recovery of that loss”.

43 There then followed a number of individual claims, including “Claim No. 1 – weight of equipment”. As para 26 of the Amended Points of Claim made clear, those individual claims were put in the alternative to the claims, including that for misleading or deceptive conduct, already “pleaded”.

44 Claim No. 1 was described as follows:-

“ CLAIM NO. 1 – WEIGHT OF EQUIPMENT
ALTERNATIVE DAMAGES FOR MISPRESENTATING WEIGHT OF BOOM EQUIPMENT

27. The Claimant repeats paragraphs 21 to 24 above, but in the alternative to paragraph 25 says that if it is found that the Claimant would have entered into the Agreement, notwithstanding the misrepresentation, then the Claimants loss and damage should be measured by the amount by which it would have increased its tender price, $1,100,000.00.

PARTICULARS
$1,100,000.00 being the difference between the tender allowance and the actual cost for designing, fabricating, transporting and erecting the Boom, and the actual cost of same.


Variation to the Agreement
28. It was an implied term of the Agreement that The Boom Equipment would be of a weight nominated by the Respondent in the 20 May letter and attachments.

PARTICULARS
The term was implied by reason of the following:
(a) The common understanding of the contents of the 20 May 1998 letter and attachments;
(b) Information provided by the Respondent to the Claimant with respect to the calculation of super imposed loads on the ship loading towers per Appendix F to the Specification, which were predicated upon the weights scheduled in the sheet attached to the 20 May 1998 letter;
(c) As a reasonable correlation to the fact that the boom design formed part of the Works, and that therefore weights and loadings were not final at the time the Agreement was entered into. Such calculations were not due to occur until after the commencement of manufacture/fabrication of the boom (Clause 123 of the Specification). As a matter of business efficacy it was necessary to have some common basis upon which to base the tender and subsequent Agreement. This is further indicated by the reference to “nominated loads” to the boom at item 3.13 of the Contract document titled “WGE Post Tender Replies to HDA letter 17/6/98” (see sub-paragraph 2(1) in the Deed).

29. It was a term of the Agreement that the Superintendent could appoint individuals to exercise any functions of the Superintendent.

PARTICULARS
Clause 18.2 of AS2987-1987.

30. In accordance with the term referred at paragraph 29 above, on or about 22 September 1999 the Superintendent delegated the authority for technical matters to Hardcastle & Richards, Engineers (“H&R”).

PARTICULARS
Letter to Respondent dated 22 September 1999 and HDA letter dated 2 October 1999. The Claimant notified the Superintendent or H&R, or both of them, of discrepancies between the nominated and actual weight of the Boom Equipment.
PARTICULARS
WGE facsimile transmission to HDA dated 30 April 1999.
33. [sic] Either the Superintendent or H&R, or both of them, directed the Respondent to proceed with the transport and erection of the Boom, complete with the Boom Equipment at its actual weight.
PARTICULARS
Telephone conversation between Joe Armour of WGE and Mr Lackey of HDA in or about May 1999.

34. The Claimant executed the work in accordance with the direction referred to at paragraph 33 above.

35. The Claimant reasonably anticipated at the time of tendering that the weight of the Boom Equipment would be in accordance with the advice provided by the 20 May 1998 letter and has incurred additional expenditure in complying with the directions referred to paragraph 33 above. Having regard to Clause 20.2 AS2987-1987 that expenditure is valued at $1,100,000.00.

PARTICULARS
The Claimant repeats the particulars to paragraph 27 above.
36. The Respondent has failed and/or refused to pay or allow to the Claimant its proper entitlement with respect to the additional cost and expenditure referred to at paragraph 29 above.”

45 It is plain that, despite the preceding heading, para 27 is a tortious, not a contractual, claim. Paragraphs Nos 31 and 32 appear to have been omitted in the course of the amendment.

46 The Arbitrator dealt with the first aspect of this claim (misleading or deceptive conduct) at A201 to A242.

47 The letter of 20 May 1998 formed part of the agreed tender bundle which was admitted without objection before me. Most of the letter (which was addressed “TO ALL TENDERERS”), dealt with “the existing shiploading tower” and modifications to it; although it was apparent that the modifications were required to enable the tower to carry the new Boom Equipment.

48 The letter did say:

“Please find also attached a sheet with estimated Boom components weights which make up the Boom Weight to be estimated at 31,225 kg.
Also other estimated loads weight which would be part of the Boom weight when working. “

49 It was the attachment that set out the weights that have been extracted in para 21 of the Amended Points of Claim.

50 However, as the Arbitrator pointed out at A232, 233, four of the items referred to in para 21 of the Amended Points of Claim, totalling 14,470 kg in weight, “did not form part of the 31,225 kg total in the letter of 28 May 1998.” That is because they were items listed under the heading “Other load weights”, which referred to “Items [that] were not part of the Boom weight for transportation and erection purposes.”

51 Further, as the Arbitrator pointed out at A232, the total of the weights alleged in para 21 of the Amended Points of Claim was 28,115 kg (not 31,225 kg). Thus, as he said at A234, when one deducts the 14,470 kg for items that did not form part of the Boom Equipment from the total of 28,115 kg, the difference – the total of the weights alleged referrable to the Boom – is 13,645 kg. Thus, the Arbitrator concluded at A235:-

“Harris-Daishowa did not represent that the boom weight was estimated to be 28,115 kg. Nor did they represent that the boom weight was estimated to be 13,645 kg. Harris-Daishowa did represent that the estimated weight of the boom equipment would be 31,225 kg but that is not what WGE pleaded”.

52 In other words, whilst the Arbitrator found that Harris-Daishowa did represent that the weight of the Boom design at the relevant time would be 31,225 kg (A227), he concluded that the representation case that was pleaded was not made out.

53 Of particular significance, in the context of the argument as to the contractual basis for the claim, is A229. In that paragraph, the Arbitrator took account of WGE’s responsibility for design as well as construction. He said:-

“WGE had full responsibility for the design of the boom. There is no evidence to support WGE's position that the matters set out in the 20 May 1998 letter is a representation to the effect that the weight of the Boom Equipment or weight of the components set out in the Amended Points of Claim, when built to WGE's design would, or were likely to, have weights equivalent to the weights contained in the sheet attached to the letter dated 20 May 1998.”

54 The Arbitrator had acknowledged that the then current design (by a firm called Hardcastle & Richards) was represented to weigh 31,225 kg (a representation that he found to be reasonably based – A228). But he made the point that the representation could not be taken to refer to that which WGE was required to design and construct.

55 Although there is no challenge to the Arbitrator’s reasoning on the misleading or deceptive conduct claim, I have referred to it at some length because it is necessary to understand his reasoning on that claim to understand the challenges that Harris-Daishowa makes to his reasoning on the contractual claim.

56 As the Amended Points of Claim make clear, the contractual claim was based on an implied term. The implication was said to be based on, among other things, the letter of 20 May 1998. WGE did not plead that it was an express term of the contract that the Boom Equipment would weigh 31,225 kg. What it pleaded was an implied term “that the Boom Equipment would be of a weight nominated by [Harris-Daishowa] in the 20 May letter and attachments.”

57 The Arbitrator did not decide the case on the basis of an implied term. He found instead that the letter of 20 May 1998 was part of – incorporated in – the contract. He said at A246:-

“The letter of 20 May 1998 found its way into the Contract. There must have been a purpose for the parties agreeing to incorporate the document in the Contract…..”

58 Neither party submitted before me that the matter was argued before the Arbitrator on the basis that there was an express, rather than an implied, term as to the weight of the Boom Equipment.

59 At first, I thought, the Arbitrator’s language in the first sentence of A246 may have been a somewhat imprecise way of saying that the contract included an implied term founded on, among other things, the letter of 20 May 1998. However, on reflection, I do not think that this is a correct reading of the Award. Firstly, in the following sentence, the Arbitrator says that the letter is incorporated in the contract; ie, as I understand it, that it forms part of the contractual documents. Secondly, if the Arbitrator were intending to deal with implied terms (in circumstances where the case was put as one of implication in fact) it was necessary for him to address the requirements for implication identified in cases such as Codelfa Constructions Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337; see, for example, Mason J at 347 where his Honour referred to the five point test identified by the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266, 283. He did not do so.

60 In any event, it is difficult to see how such a term could be implied, particularly having regard to the matters identified by the Arbitrator at A229, which I have set out above. WGE’s obligation was to design as well as to construct. It may have been given an indicative design prepared by Hardcastle & Richards; it was certainly given estimated weights of components of that design. But its obligation was to design the appropriate structure itself. There was, and could be, no question of a variation where the obligation was to design and construct, not to construct according to a design prepared by others.

61 In truth, the “pleaded” contractual claim is an amalgam of a misunderstanding of the relevant contractual provisions and (as para 35 of the Amended Points of Claim in particular makes clear) the misleading or deceptive conduct claim (that the Arbitrator rejected).

62 In my view, the Arbitrator erred in deciding this claim on a basis that had not been pleaded or particularised, and for which (as I was informed, and as extracts from the transcript that formed part of the agreed tender bundle before me make clear) neither party contended. No one sought to argue before me that the relevant claim had been expanded, or amended, by reason of the manner in which it had been fought before the Arbitrator, so that, despite the absence of any pleading of an express term, it was open to him to deal with a case that had been fairly put and argued on that basis; and again, the transcript excerpts to which I have referred are inconsistent with any such submission.

63 If it were necessary, I would go further and say that even if it had been open to the Arbitrator on the pleadings (or having regard to the way the case was fought before him) to deal with this claim on the basis of an express contractual term, his analysis is vitiated by error of law in relation to the relevant contractual obligations. In this respect, I think, it is impossible to reconcile the Arbitrator’s reasoning on the contractual claim with what he correctly recognised at A229 to be WGE’s contractual obligation.

Delays to shiploading

64 The Arbitrator dealt with this crisply at A753 as follows:-

“Particulars of this claim were not provided to the arbitration. No cause of action is alleged. No evidence was provided. I conclude that Harris-Daishowa has not established that it has any entitlement to costs or other amounts related to delays to shipping”.

65 Harris-Daishowa’s counterclaim alleged in para 8:-

“After October 2000 HDA proceeded to complete a number of items/work not completed or requiring rectification, using its own staff in some instances and with outside contractors in other instances, at a cost of $977,767.10 to date with an estimated $487,000.00 in further costs. The total amount claimed is $1,464,767.00 plus costs.”

66 There then followed particulars, divided into two parts. The first twenty-four items comprised “Completed Works”. The remaining items, ten in number, comprised “Works to be Completed”.

67 The first category included, as item 24, “delays to shiploading” quantified at $80,000.00. I do not understand how delays to shiploading – a claim for consequential loss arising from delay in the loading of ships caused by the incomplete or defective nature of WGE’s works – could fall within the category of “items/work not completed or requiring rectification” with which para 8 of the Points of Counterclaim is concerned.

68 Clause GC21.2A (added by amendment to the standard terms) stated, relevantly:-

“It is essential that the Contractor does not cause any delays to shipping during the project and must schedule work to fit into the shipping breaks. Should a ship be delayed in berthing, loading or leaving by the work the Contractor has done or failed to complete then the Contractor must meet the additional actual cost incurred or income foregone by the Purchaser.”

69 TS107 dealt with the timing of the works. It said, relevantly:-

“To minimise shiploading equipment downtime it will be necessary to undertake the majority of the installation work during shipping movements and normal mill operations. The programme key dates are locked into the forward shiploading requirements and physical restrictions around the work area.”

70 It may be accepted that delay in completion of works under the contract would delay shipping, or cause Harris-Daishowa to incur extra costs (or to forego some income). But the question is whether a claim for such consequential loss was pleaded and particularised. It was not. I see no error in the Arbitrator’s conclusion at A753.

71 My conclusion does not mean that such a claim could not be entertained, if the appropriate amendment to the points of counterclaim were to be made. Whether such an amendment (if sought) should be allowed is a matter for the Arbitrator.

As-Built drawings

72 The claim for the provision of As-Built drawings was included in item 32 of the particulars of para 8 of the points of counterclaim (ie. among the “Works to be Completed”).

73 The claim was founded on TS123(f), which includes the following:-

“(f) Within eight (8) weeks of the Superintendent’s Certificate of Takeover all drawings, which in the opinion of the Superintendent are necessary for the efficient maintenance of the works, shall be revived to show the Works as constructed or installed and two (2) paper prints of each shall be submitted for approval. The drawings shall include a table of part numbers for identification and ordering of replacements.
The Contractor shall provide the Superintendent with one plastic reproducible transparency of a minimum thickness of 0.06mm together with three (3) paper prints of each drawings [sic].
…”

74 The Arbitrator dealt with this claim at A720 to A723. At A722, having set out the relevant contractual obligation, he said:-

“A Certificate of takeover, whatever that may be, has never been issued and therefore no obligation has arisen to provide these drawings. The drawings had not been supplied as at the date the work was taken out of WGE's hands, however there was not obligation to provide them at that time”.

75 He therefore concluded at A723 that:-

“The obligation to provide drawings has not arisen and therefore this item is not work under the Contract”.

76 The parties were unable to identify the phrase “Certificate of takeover” as a defined term, or term of art. This, no doubt, explains the Arbitrator’s comment “whatever that may be” in A722. The words may refer to the Certificate of Acceptance for which GC23.1 applies. If they do, then the Arbitrator’s finding that there has been no such certificate is undoubtedly correct. Harris-Daishowa was unable to point to any other certificate, capable of being a “Certificate of takeover”, that has been issued.

77 However, it does not follow, because the obligation to provide As-Built drawings has not yet arisen, that the obligation to provide them is not work under the contract. The effect of TS123(f) is to impose on WGE an obligation to deliver As-Built drawings after the occurrence of the defined event – issue of “the Superintendent’s Certificate of Takeover”. It was therefore part of the work to be performed by WGE under the contract. That, in turn, means that it is part of the work that Harris-Daishowa is to “complete” under GC30.5 and for which it is entitled to be paid on the basis specified in, or to the extent consistent with, GC30.6.

78 WGE submitted that, the claim having been brought under GC30.6, “no liability has yet accrued, because no Superintendent’s Certificate has yet been issued”.

79 Harris-Daishowa’s entitlement under GC30.6 is to a debt quantified as the difference between the cost incurred by it in completing the relevant (ie defective or incomplete) contract works and the amount that would have been payable by it to WGE for those works. It is correct to say that the clause provides for certification of that amount (although by the “Engineer” rather than a “Superintendent”). It does not follow that it is certification, rather than the incurring of the additional cost, that is a condition of WGE’s liability to pay. I note that if WGE’s argument were correct, it would be an answer to every claim that the Arbitrator determined (in principle but not yet in quantum) in favour of Harris-Daishowa; and that WGE has not submitted that the Arbitrator thereby erred in law in reaching those findings. At most, certification may be relevant to the characterisation of WGE’s obligation as a debt rather than one sounding in damages: as a liquidated, rather than unliquidated, amount.

80 I therefore conclude that the Arbitrator erred in concluding that the obligation to provide As-Built drawings “is not work under the Contract”. I think that the simplest way to correct this error is to direct the Arbitrator, pursuant to s 43 of the Act, to consider Harris-Daishowa’s claim in relation to As-Built drawings in accordance with the provisions of GC30.6.

Other considerations relevant to the grant of leave

81 I have found that two aspects of the Arbitrator’s reasoning are infected by error of law:

(1) his conclusion on WGE’s Claim No. 1 (the claim for a variation relating to the weight of the Boom Equipment); and
(2) his conclusion on Harris-Daishowa’s claim for compensation in respect of As-Built drawings.

82 The parties did not direct detailed submissions to the question, whether either of those errors (assuming them to be made out) was one that could substantially affect the rights of one or other of them. Nor did they direct submissions to the question, whether either error was “manifest” or, rather, demonstrated by “strong evidence”.

83 Clearly, I think, the first question (substantial effect on the rights of either of the parties – s 38(5)(a) should be answered “yes”. The first error exposes Harris-Daishowa to substantial monetary liability; and the second error deprives it of a substantial monetary entitlement. The second question (“manifest” or “strong evidence” – s 38(5)(b)) cannot be dealt with quite so simply. In relation to the error of law that infected Claim No. 1, the Arbitrator set out the basis of the claim at A244, namely: implied term of the contract. This was correct. He then set out at A245 the particularised basis on which the term was said to be implied. However, as I have said, he decided the matter at A246 on the basis of an express term. Thus, the error that I have found – deciding the claim on an unpleaded basis – is manifest on the face of the Award. Further, to the extent that inconsistency in the Arbitrator’s reasons is relevant (ie, the inconsistency between those sections of the Award in which he dismissed the claim for misleading or deceptive conduct and those sections in which he upheld the claim for a contractual variation) that inconsistency is manifest on the face of the Award.

84 Finally, in relation to the claim for As-Built drawings, the Arbitrator set out the relevant requirements of TS123(f) at A721. At A722, he noted that there had been no “Certificate of takeover” and concluded, correctly, that there was no obligation to provide As-Built drawings at the time the work was taken out of WGE’s hands.

85 The error arose because the Arbitrator relied on those matters to conclude, as he did at A723, that “therefore this item is not work under the contract.” This may be contrasted with his correct characterisation of the claim at A430, where he described it as a claim “for work alleged to have been, or to be, carried out by Harris-Daishowa following Harris-Daishowa’s taking over of the work under the Contract” (emphasis supplied).

86 In the following paragraph of the Award (also, and somewhat confusingly, numbered 430) the Arbitrator correctly stated the basis of Harris-Daishowa’s entitlement as follows:

“Harris-Daishowa can have no right to payment in respect of claims for carrying out work which was not WGE’s work under the Contract. Harris-Daishowa has a right to payment in respect of WGE’s work under the Contract not carried out by WGE where it is established in this arbitration that Harris-Daishowa has carried out that work.”

87 He then described the nature of his task, in relation to the counterclaim, at A431 as follows:-

“I have considered each of the items in the Counter-Claim and in the Show Cause Notice to determine whether or not they were WGE’s work under the Contract and whether or not WGE was in breach of the Contract in not carrying them out at or by the date at which the work was taken over by Harris-Daishowa. My findings are set out under the headings for each of the items in the paragraphs which follow in this Interim Award.”

88 It appears to be in A431 that the Arbitrator led himself into error. It was certainly necessary for him to decide, as to each item, whether or not it was WGE’s work under the Contract, and whether or not WGE had breached the Contract by not performing that item of work at the date of takeover. However, it may be that the Arbitrator limited his consideration of the items, in respect of which Harris-Daishowa was entitled to compensation under GC30.6, by conflating the test of breach with the test for compensation.

89 Thus, I think, this too is an error that is manifest on the face of the Award.

90 It follows that it is not necessary, in either case, for me to be satisfied of the further restriction on the grant of leave for which s 38(5)(b)(ii) provides.

Conclusions on applications for leave

91 In my view, WGE’s application for leave to appeal must fail. Its application for directions in respect of GC30.6 and the application of that clause to paragraphs such as A458 should succeed (although I noted that there appeared to be little real dispute on this).

92 Harris-Daishowa’s application for leave to appeal against the Arbitrator’s finding on WGE’s claim 1 (the claim for a variation in respect of the alleged term as to the weight of the Boom Equipment) succeeds. Its application for leave to appeal against the Arbitrator’s rejection of the “shipping delay” claim fails. Its application for leave to appeal against to the Arbitrator’s rejection of its claim in respect of As-Built drawings succeeds.

93 As I have noted, neither party submitted that there were discretionary reasons why leave to appeal should not be granted if I found that the statutory tests were made out. I therefore will grant Harris-Daishowa leave to appeal against the findings specified in the preceding paragraph.

The appeal

94 As I have said, the parties agreed that, if I found (as I have done) that leave to appeal should be granted, then I should determine the appeal on the basis of their written submissions on the leave applications. Because I have found that each of the errors of law is one that is manifest on the face of the Award, it is plain that (having decided to grant leave) I must allow the appeal in each case. The nature of the statutory test that I have found to be satisfied means that, once any relevant discretionary points of leave are overcome, the appeal – at least, in the case of the first limb of s 38(5)(b) – must succeed. Neither party submitted to the contrary.

Order

95 I direct the parties within seven days to bring in Short Minutes of Order to give effect to these reasons. If the parties cannot agree on the appropriate costs order, I will hear argument on costs on a date to be arranged with my Associate.

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