Zurich Bay Holdings Pty Ltd v Iluka Midwest Ltd

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: ZURICH BAY HOLDINGS PTY LTD -v- ILUKA MIDWEST LTD [2009] WASC 237

CORAM: BEECH J

HEARD: 27 JULY 2009

DELIVERED : 2 SEPTEMBER 2009

FILE NO/S: ARB 7 of 2009

BETWEEN: ZURICH BAY HOLDINGS PTY LTD (ACN 009 422 093)
Applicant
AND
ILUKA MIDWEST LIMITED (ACN 008 763 666)
Respondent

Catchwords:

Arbitration - Commercial arbitration - Contract for services at a mine site - Question of construction of contract - Whether arbitrator made manifest error in construction of contract - Turns on own facts

Legislation:

Commercial Arbitration Act 1985 (WA), s 38

Result:

Application dismissed

Category: B

Representation:

Counsel:

Applicant: Mr M J McCusker QC & Mr A D Bereyne
Respondent: Mr C L Zelestis QC & Mr J A Thomson

Solicitors:

Applicant: Jackson McDonald
Respondent: Clayton Utz

Case(s) referred to in judgment(s):

Alvaro v Temple [2009] WASC 205
Anaconda Operations Pty Ltd v Fluor Pty Ltd [2003] VSC 275
Gianfriddo v Garra Constructions Pty Ltd [1971] VR 289
Gold Coast City Council v Canterbury Pipe Lines (Aust) Pty Ltd [1968] HCA 3; (1968) 118 CLR 58
Lamac Developments Pty Ltd v Devaugh Pty Ltd [2002] WASCA 245; (2002) 27 WAR 287
New Generation Enterprises Pty Ltd v Western Australian Planning Commission [2007] WASCA 89
Olympic Holdings Pty Ltd v Windslow Corp Pty Ltd (in liq) [2008] WASCA 80; (2008) 36 WAR 342
Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203
Ukrainian Association of Western Australia in Perth (Inc) v Squire Constructions Pty Ltd [2004] WASC 4
Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530

BEECH J:

Introduction

The applicant (Zurich) and the respondent (Iluka) were parties to a contract. Zurich claimed payment of approximately $6 million under a clause of that contract which required Iluka to compensate Zurich for any shortfall in the mineral sands concentrate to be transported by Zurich.
The arbitrator dismissed Zurich's claim. Zurich seeks leave to appeal against the arbitrator's award.
In the circumstances of this case, leave to appeal can be granted only if I am satisfied that the arbitrator made a manifest error of law on the face of the award. For the reasons that follow, I am not satisfied of that. Consequently, I would dismiss Zurich's application for leave to appeal.

Leave to appeal - legal principles

Section 38(4) and s 38(5) of the Commercial Arbitration Act 1985 (WA) are in the following terms:
(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 leave of the Supreme Court.
(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.
The first pre‑condition to the grant of leave ‑ that the determination of the question of law could substantially affect the rights of at least one party ‑ is clearly satisfied in this case. The arbitrator dismissed Zurich's claim for an amount of approximately $6 million.
In order that leave may be granted, the applicant for leave must show either that there is a manifest error of law on the face of the award (the first limb), or that the determination of the question of law may add or may be likely to add substantially to the certainty of commercial law (the second limb).
Although some reference was made to the second limb of s 38(5)(b) in Zurich's written submissions, it was not referred to in oral argument. There was no suggestion that the contract was standard. To the contrary, the contract between the parties was specific to the particular project that was its subject matter. The second limb is not satisfied in this case. Consequently, the crucial question is whether there is a manifest error of law on the face of the award.
The clear policy of the Commercial Arbitration Act is to achieve speedy, economic and informal relief for parties to arbitration agreements. Curial involvement is to be kept to a minimum: Lamac Developments Pty Ltd v Devaugh Pty Ltd [2002] WASCA 245; (2002) 27 WAR 287 [110]; New Generation Enterprises Pty Ltd v Western Australian Planning Commission [2007] WASCA 89 [6] (New Generation v WAPC).
A question as to the construction of a contract is a question of law for the purposes of s 38: Lamac Developments v Devaugh [60], [132].
An error of law will be manifest when there are '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': Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203, 226; Lamac Developments v Devaugh [60], [132]; New Generation v WAPC [4].
An error is manifest if it is 'evident and obvious rather than merely arguable': New Generation v WAPC [48].
In this case it is, as senior counsel for Zurich accepted, essential that Zurich establishes that the conclusion reached by the arbitrator on the question of construction before him was manifestly wrong. It is not enough that I might, or would, on balance, have taken a different view on the proper construction of the clause.
Any error must be found 'on the face of the award'. That means the error is not to be discovered by looking behind the back of the award: New Generation v WAPC [48].
The award includes any statement of reasons provided by the arbitrator: New Generation v WAPC [49].
The award also includes all documents intended (objectively) by the arbitrator to have been incorporated into the award: New Generation v WAPC [49]; GoldCoast City Council v Canterbury Pipe Lines (Aust) Pty Ltd [1968] HCA 3; (1968) 118 CLR 58, 63, 76.
As Pullin JA explained in New Generation v WAPC, the change in the law effected by the Commercial Arbitration Act requiring an arbitrator to give reasons for an award affects the approach to determining the intention of the arbitrator. Under the previous regime there was a presumption against an intention to incorporate reasons in the award. That no longer holds. A number of factors will influence whether a document was intended by the arbitrator to have been incorporated in the award. If the arbitrator's reasons cannot be understood without reading the document the reasons will be regarded as incorporating the document: New Generation v WAPC [49]; Alvaro v Temple [2009] WASC 205 [37]. A mere recital or narrative statement referring to a document will be insufficient to incorporate the document into the award: Ukrainian Association of Western Australia in Perth (Inc) v Squire Constructions Pty Ltd [2004] WASC 4 [25]; Gianfriddo v Garra Constructions Pty Ltd [1971] VR 289, 290 – 291; Anaconda Operations Pty Ltd v Fluor Pty Ltd [2003] VSC 275 [44] ‑ [49].
It was common cause between the parties that the arbitrator's award and reasons incorporated the contract. I turn to the contract the subject of the arbitration.

The contract

On 1 July 1998 Iluka (then known as RGC Mineral Sands Ltd) and Zurich entered into the contract the subject of the arbitration.
The recitals to the contract referred to an agreement made in 1991 by which Zurich had agreed to carry out earth moving work at Iluka's mine at Eneabba West. The contract of 1 July 1998 was intended to amend and restate the earlier agreement with effect from 1 July 1998.
Clause 3 of the 1 July 1998 contract provides:
EXECUTION OF WORKS
In consideration of the payments to be made by [Iluka] as hereinafter provided [Zurich] shall execute the entire Works in accordance with the Specifications and the Drawings in good and workmanlike manner and shall furnish plant and equipment and labour as required under the Contract.
'Works' was defined to mean the whole of the work to be executed by Zurich in accordance with the contract.
Clause 7 provides:
DURATION OF WORKS
1.The duration of the Works shall, subject to the terms hereof, be for the Mine life, and shall be renewed on the terms of the Contract after each period of one (1) calendar year.
2.Upon final completion of the Works [Zurich] shall vacate the Site and remove all of its remaining plant and equipment therefrom and make good any damage caused by such removal, to the satisfaction of [Iluka].
The meaning of the term 'Mine life' was the subject of an earlier award by the arbitrator. I will return to that later in these reasons.
Clause 8 provided for the renewal of the contract after each one year term for a further term of one year or the remaining Mine life, whichever is the lesser, provided that:
(a)the rates payable to Zurich under sch 2 and any other rates payable to Zurich are not less favourable to Iluka than those reasonably available on a general commercial and bona fide basis from other contractors; and
(b)Zurich has performed the Works in a manner satisfactory to Iluka.
Clause 3 refers to executing the Works in accordance with the Specifications. The Specifications are set out in exhibit A to the contract. There are three Specifications. By cl 1.1 of exhibit A, Specification 1 'sets out the requirements for hauling of mineral sands concentrate'.
Clause 1.2.1 lists the principal items of work. It provides as follows:
1.2.1The principal items of work to be completed by [Zurich] shall include the following:
(a)Loading the concentrate at the Stockpile Area into haulage unit(s) without significant spillage or wastage.
(b)Hauling the concentrate from the Stockpile Area, plan attached hereto in Annex B of Schedule 5, to the South Concentrator without significant spillage. The concentrate to be hauled will be in the range of 400,000 tonnes to 460,000 tonnes per annum. The haulage route will be over a sealed and an unsealed road. The route involves travelling 5.7 kilometers along the sealed Brand Highway, 2.2 kilometers along the sealed Rocky Springs Road and 4.0 kilometers along the unsealed mine road. The total haulage distance shall not exceed 11.9 kilometers. Lighting at the intersections has been installed as well as accelerating and decelerating lanes. [Iluka] will reimburse [Zurich] its reasonable costs, which are properly and necessarily incurred to keep the haulage route in a suitably maintained condition, which allows [Zurich] to engage specified haulage equipment in a productive manner without damage or stoppage due to poor road conditions.
(c)Dumping the concentrate from the haulage unit(s) into a drive‑over hopper at the South Concentrator.
The claim in the arbitration was based on cl 1.2.4. This clause provides as follows:
If, during any three (3) month period, [Zurich] is prevented by any reason beyond its control due to matters other than those set out in Clause 21, from transporting 25% of the minimum annual tonnage of concentrate specified in Clause (1) (b) herein, [Iluka] will endeavour to make up the shortfall during the subsequent three (3) month period. In the event that the shortfall is not made up within the subsequent three (3) month period, [Iluka] shall compensate [Zurich] for the shortfall. [Zurich's] entitlement to compensation for the shortfall in any three (3) month period shall be calculated by applying the 'Fixed Cost per Tonne Concentrate' unit rate set out in Appendix 1 of Schedule 5 hereto to the amount of the shortfall.
Clause 1.2.5 states:
[Zurich] may be requested by [Iluka], in times of low West Mine concentrate production, to transport concentrate from the O3 or O4 Plants to the South Concentrator from time to time. Such transport shall be along a 13 kilometre unsealed mine road for transportation from the O3 Plant and along a 16.2 kilometre unsealed mine road for transportation from the O4 Plant. All equipment used in this scope of work shall be paid on an hourly hire cost as outlined in Section 3.7 of Schedule 2. All the terms of Clauses 1.2.2 and 1.2.3 above shall apply to this scope of work and the tonnage hauled shall be deemed to be included in the total annual transportation figures and as such shall offset any shortfall tonnage that might arise as a result of the implementation of Clause 1.2.4.
Specification 2 'sets out the requirements for miscellaneous earth moving at Eneabba West Mine' (cl 2.1). Clause 2.2 describes the miscellaneous earth moving. It includes 'placing, levelling and contouring sand tailings' (cl 2.2.1); 'removal, replacement of top soils' (cl 2.2.2); 'placement of anchors, general work around dredge' (cl 2.2.3); and 'all other miscellaneous earthworks at Eneabba West Mine' (cl 2.2.5). Each of cl 2.2.1 to cl 2.2.3 provide for Zurich to supply an identified piece of equipment for a stipulated period of time. By these clauses Zurich is also required to replace any piece of equipment within a specified period if it should break down. Clause 2.2.4 provides as follows:
Where the contractor is prevented from earning from the equipment referred to in Clauses 2.2.1, 2.2.2 and 2.2.3, the revenue based on the minimum hours set out herein because of malfunction or delay caused by [Iluka], for reasons other than those set out in Clause 21, [Iluka] will endeavour to make up the shortfall during the next three (3) month period using whatever of [Zurich's] equipment is appropriate to the requirements. In the event that the shortfall is not made up within the subsequent three (3) month period, [Iluka] shall compensate [Zurich] for the shortfall. [Zurich's] entitlement to compensation for the shortfall shall be calculated on the basis of [Zurich's] fixed costs set out in the Appendix 2 of Schedule 5 not recovered by reason of the shortfall.
Specification 3 'sets out the requirements for the specified earth moving at Eneabba West Mine'. It provides for a detailed regime for the removal of overburden from in front of the dredge path, and relocation of that material to one of two alternative places. It also sets out detailed requirements for the task described as 'dozing into the dredge pond'.
Clause 1.2.4 refers to cl 21. That is a reference to cl 21 of the General Conditions of Contract contained in exhibit B to the contract. That is a force majeure provision.
Clause 1.2.4 provides for an entitlement, in favour of Zurich, to compensation calculated by applying the Fixed Cost per Tonne of Concentrate unit rate set out in Appendix 1 of sch 5 to the amount of the shortfall. Appendix 1 of sch 5 provides a Fixed Cost per Tonne of Concentrate of $1.71.
Appendix 2 of sch 5 is referred to in cl 2.2.4. Appendix 2 specifies a 'Fixed Cost Rate' for the equipment referred to in cl 2.2.1 to cl 2.2.3.
Schedule 2 to the contract determines specified rates of compensation for provision of various services and plant and equipment. By that schedule Zurich was entitled to be paid $3.02 per tonne of concentrate that it hauled.
Item 1.4 of sch 2 made provision for demobilisation upon final completion of work relating to haulage of mineral sands. It provided for payment to Zurich at cost.
Schedule 2 also set out identified plant and equipment to be provided by Zurich and the rates applicable to each item of plant and equipment. There is a separate item in sch 2 relating to payment for specified earth works.

The arbitrator's reasons

The arbitrator began by explaining the context in which the claim the subject of the arbitration came before him. He referred to the contract of 1 July 1998. The arbitrator stated that by about March 2000 the sand mining dredge by which Iluka's sand mining operation had been conducted had completed its work and was dismantled, and the equipment used by Zurich for the hauling of concentrate was removed from the site. However, there remained the substantial task of the rehabilitation work required in relation to the 17 km long trench left by the operations of the dredge.
The arbitrator then referred to his earlier arbitral determination in which, for reasons he delivered on 23 December 2002, he found that the 'Mine life' referred to in cl 7 had not ended. This was because 'miscellaneous earthworks' (in cl 2.2.5 of Specification 2) falling within the scope of the works to be performed under the contract included the rehabilitation works, and those works had not been completed.
The dispute the subject of the present arbitration was whether, as Zurich claimed, it was entitled to compensation under cl 1.2.4 of Specification 1.
The arbitrator set out various provisions of the contract and then set out the following factual findings:
Since 1 July 1999, the contract has in fact been renewed for successive periods of one calendar year. The operation of the dredge ceased about November 1999, when it was decommissioned and dry docked. From about 1991 to late March 2000, Zurich loaded, hauled and dumped mineral sands concentrate in accordance with Specification 1 (and its contractual antecedents) by a road train consisting of a Kenworth truck with two belly dumpers. After March 2000, Iluka did not require any further haulage services in accordance with Specification 1, and Zurich has not hauled mineral sands concentrate from the Stockpile area to the South (Secondary) Concentrator. The truck and belly dumpers were demobilised from the Eneabba West Mine in about March 2000. Iluka has made no payment to Zurich under clause 1.2.4. However, between April 2000 and July 2008, Zurich has carried out rehabilitation works in accordance with Specification 2, for which it has presented invoices and been paid not less than $46 million.
The arbitrator then summarised the competing arguments. He said that Zurich relied on the continuance of the contract since March 2000 and on the precise language of cl 1.2.4. Applying that language to the situation since March 2000, Zurich said that it had been prevented by a reason beyond its control not falling within cl 21 (the force majeure provision) from transporting any part of the minimum annual tonnage of concentrate, and Iluka has not made up the shortfall. Against this, the arbitrator said, Iluka argued that:
[T]he clause, in its contractual setting, should not be understood to relate to any part of the period during which, the winning of ores having ceased, no work at all has been done under Specification 1, Zurich has demobilised its concentrate haulage equipment, and the works that have been carried on have been entirely concerned with rehabilitation.
The arbitrator summarised the question before him as being
whether the language of the clause, which read in isolation is unqualified, requires to be understood in this restricted sense [namely that contended by Iluka], modified by the context and in the light of the purpose and object of the contract as they would appear to reasonable parties.
At pages 6 to 8 of his reasons the arbitrator set out principles relevant to the construction of contracts in writing. Zurich does not suggest that there was any error in the arbitrator's statement of the relevant principles. The arbitrator:
(a)made reference to the need to construe contracts in a way that is consistent with business common sense;
(b)referred to the dictum of the High Court in Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530 that:
It was necessary to construe [the instrument] so as to avoid it making commercial nonsense or working commercial inconvenience. Its commercial purpose - the purpose of reasonable persons in the position of [the contracting parties] was relevant. That, in turn, required attention to 'the genesis of the transaction, the background, the context, the market' in which the parties were operating, as known to both parties [82].
(c)referred to well known cases stating that 'when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties'; and
(d)stated that context is part of determining meaning; it is not a device held in reserve to resolve some doubt or ambiguity.

The arbitrator then set out his reasoning in construing cl 1.2.4, as follows:
I turn to the meaning which should be given to the language of Clause 1.2.4 in the light of these principles. The context, including the commercial purpose of reasonable persons in the position of the contracting parties as disclosed by their contract in its matrix of surrounding circumstances known to the parties, must be taken into account. Unless the language is intractable, a construction should be avoided which would make commercial nonsense or work commercial inconvenience. The parties to this contract made separate provision in Specification 1 for 'the requirements for hauling of mineral sands concentrate' and in Specification 2 for the works involved in rehabilitation. It must have been apparent to reasonable contracting parties that the rehabilitation works might continue, as in the event they did, for many years after the completion of the task of hauling the concentrate. It could not have made commercial sense, perhaps much less have been thought to work commercial convenience, to have provided for ongoing payments, possibly extending for many years, that would be completely unrelated to the only works being carried on, and could continue to subsist long after the demobilisation of the equipment the maintenance of which in readiness for use afforded the sole apparent justification for payments of the kind specified.
Does the language intractably deny the considerations just stated? On the contrary, there are a number of indications in it pointing to a restricted meaning. In the first place, what might be called the structural context of the format in which the Specifications are drafted suggests cl 1.2.4 is a part of a particular contractual scheme for the operations concerned with the hauling of concentrate, so that once those operations cease, it has no role. (Correspondingly, the particular schemes relating to the rehabilitation works and what was called 'specified earthmoving' contained similar, but not identical, clauses in cl 2.2.4 and cl 3.2.9. There were really three separate tasks, each governed by its own provisions, and those provisions operated independently.) While the haulage operations were continuing, Zurich had to be in readiness at all times to handle the minimum quantity of concentrate for which cl 1.2.1 (b) provided, so that the commercial purpose of cl 1.2.4, as a necessary corollary of Zurich's obligation under cl 1.2.1 (b), was clear - but that purpose was gone once the hauling of concentrate ceased. Indeed, Specification 1, as its opening clause states, 'sets out the requirements for hauling of mineral sands concentrate', so that when this hauling had finished, so too had any continuing place in the contractual scheme for a clause forming part of Specification 1 such as cl 1.2.4. Even if the cessation had been a suspension upon notice under cl 18 (of which there is no evidence), it could not have been intended that cl 1.2.4 would continue in such a case to operate in addition to the provision for compensation in cl 18 (b) and in the face of the separation of the Works into different 'part[s]' that cl 18 (c) recognises. Consistently with this view, too, Schedule 2 (1), dealing with Zurich's right to payment for haulage of mineral sands, includes an item 1.4 'Demobilisation upon final completion of work…At Cost'. While cl 2 of the contract contains a definition, 'unless the contrary attention appears', of the plural word 'Works' as meaning 'the whole of the work to be executed by [Zurich] in accordance with this Contract,' the singular word 'work' in Schedule 2 (1) must refer to the only work Schedule 2 (1) deals with, namely, haulage of mineral sands. It is an agreed fact that the units referred to in item 1.4 were demobilised in about March 2000, although there is no evidence that the cost of demobilisation was the subject of any invoice or was paid. It cannot have been intended that cl 1.2.4 would continue in effect after demobilisation, if only because demobilisation necessarily rendered inoperable cl 1.2.5, which is an integral part of the scheme of cl 1.2.4.
As senior counsel for Iluka pointed out at the hearing, a close examination of the terms of cls 1.2.4 and 1.2.5 also indicates that a reasonable contracting party would not have contemplated their continuing to have effect after the haulage of concentrate had entirely ceased. The clauses refer to a 'shortfall in any three (3) month period', not to a complete absence of concentrate to be hauled, nor to a continuance of that state of affairs indefinitely. The point is emphasised by the choice of words in cl 1.2.5, 'in times of low West Mine concentrate production'. The word 'times' suggests some intervals of low production in an ongoing activity, while the word 'low' makes it clear, just as does the word 'shortfall', that there is no thought of a state of affairs where production has altogether ended.
Further, cl 1.2.4 contemplates a shortfall in one three month period followed by an 'endeavour to make up the shortfall during the [emphasis added] subsequent three (3) month period'. This plainly shows that nothing like a substantial cessation of work was in mind - production in the very next three month period was to be looked to for the possible replenishment up to the minimum of the quantity of concentrate required to be transported. Another way of putting the same point is that there is a fundamental assumption, upon which cl 1.2.4 is founded, that concentrate is still being produced, so that there remains a potential capacity to make up a shortfall.
It may be conceded that, although the draftsman was thinking of a situation involving the provision for a time of inadequate quantities of concentrate, the language is capable of covering also a failure persisting over a substantial time to provide any concentrate. But the question is not whether the language is capable of extending so far, but whether it should be interpreted as actually doing so. To call a complete absence of concentrate a 'shortfall' may not be linguistically inadmissible, but it is certainly odd. The word 'shortfall' connotes that there is some material, although less than required. And then cl 1.2.4 contemplates the next three months as perhaps enabling the shortfall to be made up - but it could not be if work had ceased altogether.
For these reasons, I conclude that cl 1.2.4, upon its true meaning, has had no application to the circumstances proved. (original emphasis) (reasons pages 8 – 11)

What documents are incorporated in the award and reasons?

It was common ground that the arbitrator's reasons and the contract of 1 July 1998 formed part of, and were incorporated in, the award.
Senior counsel for Iluka submitted that the arbitrator's earlier award, and his reasons on the earlier award, were also incorporated in the arbitrator's reasons on the award the subject of this application. As I understood it, senior counsel for Zurich did not challenge that proposition (although he took issue with what conclusions could be drawn from the earlier reasons).
In his reasons on the present arbitration, the arbitrator made only a brief reference to the earlier award and his reasons for the earlier award. Applying the principles I have stated earlier, that in itself is insufficient to reveal an intention to incorporate the earlier award and reasons. Nevertheless, it seems to me that the closeness of the relationship between the subject matter of the earlier arbitration and the present arbitration supports the conclusion that the earlier award and reasons are incorporated in the later reasons. Zurich's claim in the present arbitration was founded upon the arbitrator's decision in the earlier arbitration that rehabilitation works were part of the miscellaneous earthworks the subject of Specification 2 (cl 2.2.5), so that the 'Mine life' in cl 7 and cl 8(1) continued until the rehabilitation works were completed.
In any event, it is not necessary to come to a firm view on whether the reasons in the earlier arbitration are incorporated in the arbitrator's reasons on the present arbitration. That is because it does not affect my decision.
I turn to the earlier arbitration.

The earlier award and reasons

On the earlier award, the arbitrator's orders included the following:
1.The term ['Mine life'] in clause 8(1) of the Contract dated 1 July 1998 made between [Zurich] and [Iluka] ('the Contract') means the period within the mining lease or any renewal thereof during which ore is extracted (at least, where it is so extracted by methods of the kind hitherto pursued at the Eneabba West mine or falling within the general conception of mining by dredging) and hauled, miscellaneous earthworks are undertaken, and rehabilitation works are carried out and completed.
2.The ['Mine life'], as so understood, has not ended.
3.The rehabilitation works in dispute in this arbitration (namely, the return, placement and contouring of overburden and topsoil to dredged areas and slurry or tailings dams) fall within the scope of works to be performed under the Contract.
4.The Mine is not restricted to the area marked 'dredge path' on Annex A to the Contract but on its proper construction includes that part of ML267A on the west side of Brand Highway marked in red on the plan in Annex A.
5.[Iluka's] Cross‑claim be dismissed.
In his reasons for the earlier award dated 23 December 2002 the arbitrator summarised the issues before him as follows:
The method of mining pursued by Iluka was dredging, and the question raised by [Zurich] is whether it remained entitled to do, and be paid for, the earth moving work (which will continue for a number of years) at the Eneabba West Mine, although the dredge has been decommissioned and the winning of mineral sands has ceased. By a cross‑claim, [Zurich] seeks a declaration to the effect that any recommissioning of the mine would not revive rights under the contract, which, it claims, has ended.
The arbitrator set out the recitals, various definitions, cl 7, cl 8 and cl 12 of the contract. He also set out Specification 2 in detail.
The arbitrator found that at the time the 1 July 1998 contract was made the parties knew that the earth moving work involved in this mine had been, was, and would be much more extensive than is normal in mineral sands mining by dredging. The methods adopted in the mining had meant that there were large piles of material to be put back at the end of the mining before contouring could take place (reasons pages 5 ‑ 6). The arbitrator said that:
When, not very much more than a year after the making of the 1998 contract, the winning of mineral sands finally ceased, there remained a vast trench, some 17 kilometres long, up to 400 metres wide, and up to 30 metres deep, requiring restoration in this way (reasons page 6).
The arbitrator stated that he was satisfied on the evidence that both parties 'always understood the mining operations involved a requirement, of universal application, and more especially inherent in the relevant mining leases, to replace the material taken from this trench after the removal of the ore won from the mine' (reasons page 6).
The arbitrator summarised the major question before him as being 'whether the 1 July 1998 contract embraces the earthmoving work involved in the replacement of the stockpiled material'.
He concluded that the earthmoving work involved in the replacement of the stockpiled material was part of the 'miscellaneous earth moving' referred to in Specification 2 and the 'other miscellaneous earthworks' referred to in cl 2.2.5 of Specification 2. The arbitrator reached that construction without finding it necessary to rely on 'the parties knowledge, in mid‑1998, that work at the mine to restore vast quantities of removed overburden would have to continue for years after the decommissioning of the dredge', but he expressed the view that this background knowledge, possessed by both Iluka and Zurich, was available to support and did support the interpretation that he gave to the contract (reasons page 9).
The arbitrator may, in the earlier arbitration, have foreseen a claim of the kind that was made by Zurich in the second arbitration. The arbitrator referred to 'any difficulties regarding continuing obligations of Iluka that were no longer reasonably applicable after the winning of mineral sands ceased', saying that the law would 'confine the contract to the continuing rights and obligations of the parties in respect of the works relating to the rehabilitation of the mined areas' (reasons page 8).
The arbitrator declined to grant any of the declaratory relief sought by Iluka on its cross‑claim, primarily because of his conclusion on the meaning of 'Mine life'. He also relied upon the need for there to be a real and not theoretical question before a declaration was appropriate (reasons pages 9 ‑ 10).

Proposed ground of appeal

In substance, Zurich's proposed ground of appeal is to the following effect. Having found that:
(a)the contract dated 1 July 1998 was renewed for successive periods of one year since 1999;
(b)the extraction of mineral sands concentrate from the Eneabba West Mine had ceased for the time being; and
(c)since late March 2000 Iluka did not provide mineral sands concentrate for haulage by Zurich;
the arbitrator erred in construing cl 1.2.4 of Specification 1 of the contract as having no application in those circumstances and should have found that, on a proper construction of cl 1.2.4, Zurich was prevented by a reason beyond its control from transporting the minimum annual tonnage of mineral sands concentrate specified and was entitled to compensation in accordance with cl 1.2.4.
In essence, the proposed ground of appeal contends that the arbitrator erred in his construction of cl 1.2.4 in the circumstances as he found them to be. The ground does not identify any specific error in the approach to construction adopted by the arbitrator; rather, the ground complains of the conclusion to which the arbitrator came.
The question, for the purposes of the grant of leave to appeal, is whether the arbitrator made a manifest error in his construction of cl 1.2.4.

Is there a manifest error in the arbitrator's construction?

Zurich's primary contention is that:
(a)the plain and ordinary meaning of the words of cl 1.2.4 required the conclusion that the clause applied in the circumstances before the arbitrator; and
(b)considerations of object, purpose and commercial sense did not justify departing from the plain meaning of the clause.
Zurich points to the width of the language of cl 1.2.4. The clause refers to 'any three month period' and so does not expressly confine the application of the clause to the periods during which at least some concentrate was being extracted and hauled. Further, the clause refers to Zurich being prevented by any reason beyond its control from transporting the minimum tonnage specified earlier in the clause.
Further, Zurich submits that the arbitrator erred in construing the contract with regard to business commonsense:
(a)without first objectively ascertaining what, in respect of the contract, comprises business commonsense; or alternatively
(b)in circumstances where it was impossible to find an imputed consensus as to what, in respect of the contract, comprises business commonsense.
I am not persuaded by these submissions that the arbitrator made a manifest error in his construction of the contract. I begin with considerations of purpose, object and commercial sense.
The arbitrator observed that the parties to the contract made separate provision in Specification 1, for the requirements of hauling of mineral sands concentrate, and in Specification 2 for the works involved in rehabilitation. (The arbitrator had determined, in the earlier arbitration, that the works involved in rehabilitation were encompassed in Specification 2.) The arbitrator then stated that 'it must have been apparent to reasonable contracting parties that the rehabilitation works might continue, as in the event they did, for many years after the completion of the task of hauling the concentrate'. That observation does not reveal any error of law apparent on the face of the reasons. Moreover, if, as I consider, the arbitrator's reasons on the earlier award are incorporated in these reasons, the earlier reasons contain findings and conclusions which amply support these observations.
The arbitrator then stated that:
It could not have made commercial sense, perhaps much less have been thought to work commercial convenience, to have provided for ongoing payments, possibly extending for many years, that would be completely unrelated to the only works being carried on, and could continue to subsist long after the demobilisation of the equipment the maintenance of which in readiness for use afforded the sole apparent justification for payments of the kind specified (reasons page 9).
Zurich submits that there is nothing uncommercial or contrary to business commonsense about cl 1.2.4, anymore than there is in a 'take or pay' clause in a contract for the supply of coal or iron ore. In my opinion, however, there is no manifest error in the approach taken by the arbitrator to the question of business commonsense. There is, at the least, room for the view that a 'take or pay' provision in a long term supply contract arises in a materially different contractual setting than the present context. It seems to me that it was open to the arbitrator to come to the view that the 'sole apparent justification' for cl 1.2.4 was that:
(a)while the activities described in cl 1.2.1 were underway, Zurich would be required to supply, or stand ready to supply, the equipment and personnel necessary for haulage of mineral sands concentrate; and
(b)if Zurich carted less than 100,000 tonnes in a three month period, Zurich would be compensated for its fixed costs in respect of that equipment and personnel that it otherwise would not sufficiently recover in the absence of haulage of 100,000 tonnes.
The reference in cl 1.2.4, and in Appendix 1 of sch 5, to Fixed Cost per Tonne Concentrate unit rate may be thought to provide some support for that understanding of the purpose of cl 1.2.4. Zurich submitted that the words 'Fixed Cost' were no more than a tag and were to be read as equivalent to 'fixed sum'. To my mind, a contrary conclusion is well open.
In considering the object or purpose of the contract, or relevant part of the contract, the arbitrator drew inferences from the terms of the contract and any admissible evidence. With respect, that was a proper approach: see, for example, Olympic Holdings Pty Ltd v Windslow Corp Pty Ltd (in liq) [2008] WASCA 80; (2008) 36 WAR 342 [27], [41].
The arbitrator also found support for the construction which he gave to cl 1.2.4 in the language and structure of Specification 1 and cl 1.2.4. Some of the linguistic and textual considerations referred to by the arbitrator were the subject of specific complaint by Zurich in its submissions before me (although were not the subject of a separate ground of appeal). I will deal with those complaints later in these reasons. Before doing so, I will outline some of the matters referred to by the arbitrator.
First, the arbitrator referred to the 'structural context of the format in which the specifications are drafted'. Clause 1.1 of Specification 1 describes Specification 1 as setting out 'the requirements for hauling of mineral sands concentrate'. This, the arbitrator stated, suggests that cl 1.2.4 is
part of a particular contractual scheme for the operations concerned with the hauling of concentrate, so that once those operations cease, it has no role … There were really three separate tasks, each governed by its own provisions, and those provisions operated independently (reasons page 9).
Once the hauling of concentrate ceased, the arbitrator said, Zurich no longer had to be in readiness to handle the minimum quantity of concentrate for which cl 1.2.1(b) provided.

The arbitrator also referred to item 1 of sch 2 dealing with Zurich's right to payment for haulage of mineral sands. Item 1.4 was a specific allowance for 'demobilisation upon final completion of work … at cost'. The language of item 1.4 is completion of work not the Works. Thus, 'work' was a reference to the work to which item 1 of sch 2 related, namely haulage of mineral sands.
Further, the arbitrator had regard to the meaning of the word 'shortfall' in cl 1.2.4. He stated that while complete absence of concentrate for an extended period is capable of being described as a 'shortfall', shortfall was capable of connoting other meanings. It is open, the arbitrator said, as a matter of language, to interpret a 'shortfall' as not extending to a situation where there was an indefinitely continuing complete absence of concentrate to be hauled due to production and haulage of concentrate having ceased.
It seems to me to have been open to the arbitrator to consider these matters as providing support for the construction which he gave to cl 1.2.4.
Zurich submits that:
(a)the arbitrator did not find that Zurich had shut down the mine permanently; and
(b)the arbitrator's construction leads to an unacceptable uncertainty about when the clause does and does not apply. For example, what period of not operating the mine would mean that cl 1.2.4 did not have effect? Would six months be enough to achieve this result? One year?
As I read the arbitrator's reasons, he considered the application of cl 1.2.4 to the circumstances as he found them, namely that the winning of ore from the mine had ceased, Zurich had demobilised its concentrate haulage equipment, and the only works that were being carried on under the contract were concerned with rehabilitation. See, for example, 'the winning of ores having ceased' (reasons page 6); 'after the completion of the task of hauling the concentrate' (reasons page 9); 'after the haulage of concentrate had entirely ceased' (reasons page 10); and 'work had ceased altogether' (reasons page 11).
If, as I consider, regard can also be had to the earlier reasons, these conclusions are reinforced. The arbitrator's reasons on the earlier arbitration involved construing the contract in the context that the winning of mineral sands had ceased.
It is true that the arbitrator did not say in his reasons on the present arbitration, (or in his reasons in the earlier award), that he found that the winning of ore had permanently ceased. Nor do I consider that that is how the arbitrator's reasons should be read. Rather, as I read the arbitrator's reasons, when he referred to the winning of ore having ceased, he was referring to mining having stopped and there being no current intention on the part of Iluka to resume mining. In those circumstances, the arbitrator found, cl 1.2.4 did not operate. That conclusion does not seem to me to give rise to any unacceptable uncertainty about when the clause does and does not apply.
Zurich's submissions referred to par 8 of Iluka's points of defence in the arbitration as supporting the conclusion that the arbitrator's construction of cl 1.2.4 revealed an error. Paragraph 8 of the defence refers to extraction and haulage having 'ceased for the time being', rather than permanently. I am not persuaded that it is open to me to have regard to the points of defence in the arbitration, in that I am not satisfied that the arbitrator intended to incorporate the points of defence in his reasons. If I were wrong about that conclusion, then it would be necessary also to have regard to Zurich's written submissions before the arbitrator, in which it was contended that 'mining has finally ceased'.
Senior counsel for Zurich submitted that in substance, the arbitrator found that 'because there is no longer any ore and for some time, since March 2000, there has been no concentrate made available for haulage … therefore the provisions of cl 1.2.4 cannot reasonably apply' (ts 5). I am not persuaded that that is how the arbitrator's reasons are to be read. As I have said, it seems to me that the arbitrator found that the winning of ore had ceased, that there was no further concentrate available, and that the only work being done was rehabilitation. Further, the arbitrator found that the parties must have anticipated that there might be a substantial period of time, under the contract, when this would be so.
Zurich's submissions criticised particular passages in the arbitrator's reasons for his construction of cl 1.2.4. Those criticisms seem to me to overlook the need to read the arbitrator's reasons as a whole. In particular, in his reasons at pages 8 ‑ 11, set out at [43] above, the arbitrator had regard to a number of considerations in coming to his conclusion as to the proper construction of cl 1.2.4. Those considerations should not be viewed in isolation.
For example, Zurich points to passages in the arbitrator's reasons which are said to suggest that 'shortfall' means that some concentrate has been provided. That, the submissions continues, leads to the 'absurd' result that there is a shortfall in a three month period if a small amount of concentrate is produced for haulage, but not if no concentrate is produced and made available for haulage. This part of the arbitrator's reasons should not be considered in isolation, or divorced from the question which the arbitrator had identified. The arbitrator was considering the proper construction of the clause in a situation where, he found, the winning of ore had ceased. Read as a whole, the arbitrator's reasons do not mean that, independent of the winning ore having ceased, if in a given period Zurich made no concentrate available for haulage, cl 1.2.4 would not have been engaged.
For these reasons I am not persuaded that the arbitrator made a manifest error in construing cl 1.2.4 of the contract to mean that it did not apply to the circumstances as he found them to be.

Conclusion

The arbitrator was required to construe cl 1.2.4 to determine whether the clause supported Zurich's claim in the circumstances before him. I am not persuaded that the arbitrator's construction is plainly wrong. Consequently, I am not persuaded that there is a manifest error of law on the face of the award.
For these reasons I would dismiss the application for leave to appeal.

[2009] WASC 237

2 SEPTEMBER 2009

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