Allmore Constructions Pty Ltd v Failli [2002] VSC 483

2. This is an application for leave to appeal against the interim award of an arbitrator, Mr Kelvin Hegarty. The award was handed down on 20 June 2002.

5. The dispute arises out of a contract dated 4 June 2001. It is in the form of that issued by the Master Builders' Association of Victoria as "MBAV Form GCC3" (revised July 1994). By the contract, the plaintiff (Allmore Constructions Pty Ltd) agreed to design and construct a showroom and allied facilities for the defendants (Luigi Failli and Giuseppina Failli). The "project" is described on the title page as "Showroom Development Rosamond Road, Maribyrnong". The contact sum was $1,711,812.30. The date for possession of the site was 4 June 2001; and that for practical completion was the following 30 November. In an affidavit sworn on 29 July 2002, Peter John Unsworth, a director of the plaintiff, described the project in the following words:

"The project concerned the redevelopment of an existing wholesale butcher's building and an existing warehouse in Rosamond Road, Maribyrnong. The existing wholesale butcher's building was known as 159-163 Rosamond Road, Maribyrnong. This building was to be extended to house a proposed Ray's Tent Centre tenancy, which subsequently became a Betta Electrical tenancy. To the rear of the site, and known as 1-2, 12 Sloane Street, Maribyrnong was a warehouse to be redeveloped and extended into three showrooms, known as showrooms 1, 2 and 3. In order to comply with the town planning requirements for additional car parking an existing motor repairer's premises fronting Rosamond Road (on the corner of White Street) was to be demolished and the areas surrounding the redeveloped wholesale butcher's building and warehouse were to be reconstructed as a car park."

9. Although the dispute may have had its origins well before the taking of any of the steps described below, for present purposes it can be said to have begun when the defendants failed to pay in full a claim by the plaintiff for a progress payment (progress payment No. 6). This had been submitted on 30 November. According to the plaintiff's particulars of claim in the arbitration, the unpaid balance was $142,840.66. On 18 December, eight days after the revised and agreed date for practical completion (10 December) the plaintiff suspended work. This was met by a claim by the defendants for liquidated damages pursuant to clause 20 of the contract. At first this claim covered the period from 10 December until the date of the arbitrator's award: see paragraph 10 of the defendants' defence and counterclaim in the arbitration. It was later reduced by deducting the first 10 days. The period of claim as set out in the defendants' written submission to the arbitrator thus commenced on 18 December.

12. There is provision in the contract for the resolution of disputes of this kind. It is to be found in clause 2(a) of the General Conditions. It is peremptory in its terms. Any dispute at any time in relation to any matter arising from or in connection with the contract "is hereby submitted to arbitration." The general approach which the arbitrator must take is likewise laid down - in sub-clause (d) - without mincing words:

"The arbitrator must hear and decide any matter by reference to considerations of general justice and fairness, and is not bound to apply the rules of evidence and procedure."

16. The arbitration was held over four days in March this year. Although the award was published on 20 June, it seems that it did not reach the plaintiff's then solicitors until 28 June. There was a further delay while the plaintiff sought independent advice. As a result, the time within which an application for leave to appeal from the arbitrator's decision may be brought expired before the present application was filed. The defendants have nevertheless not sought to place any reliance on this point. When the matter came on for hearing before me, I accordingly exercised the power given me by s.48 of the Commercial Arbitration Act 1984 to extend the time fixed by r.4.06 of Chapter 11 of the Rules of the Supreme Court. I ordered that such time be extended to 27 July 2002. This was the date on which was filed the Originating Motion by which this proceeding was instituted.

20. Obtaining an extension of time within which an application for leave to appeal may be brought is only the first of the hurdles which the plaintiff must surmount. Although an appeal lies from the decision of an arbitrator on a point of law, such appeal can only be brought with the leave of the Supreme Court; and the Court shall not grant such leave unless in its opinion each of two pre-conditions have been made out: first, that the determination of the question of law could, having regard to all the circumstances, substantially affect the rights of at least one of the parties to the arbitration agreement; and secondly, that there is either (i) a manifest error of law on the face of the award, or (ii) strong evidence that the arbitrator made an error of law, and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law: Commercial Arbitration Act 1984, s.38.

23. The Commercial Arbitration Act has its counterparts in other common law jurisdictions. Section 38 has therefore been subjected to considerable judicial exegesis. The principles have now been well settled. The process of consolidation had as one of its foundations the speech of Lord Diplock in Pioneer Shipping Ltd and Ors v B.T.P. Tioxide Ltd ("The Nema")[1]:

"My lords, in view of the cumulative effect of these indications of parliament's intention to promote greater finality in arbitral awards than was being achieved under the previous procedure as it was applied in practice, it would, in my view, defeat the main purpose of the ... Act if judges when determining whether a case was one in which the new discretion to grant leave to appeal should be exercised in favour of an applicant ... did not apply much stricter criteria than those ... which used to be applied in exercising the former discretion to require an arbitrator to state a special case for the opinion of the court. Where, as in the instant case, a question of law involved is the construction of a 'one-off' clause the application of which to the particular facts of the case is an issue in the arbitration, leave should not normally be given unless it is apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument that the meaning ascribed to the clause by the arbitrator is obviously wrong ... For reasons already sufficiently discussed, rather less strict criteria are in my view appropriate where questions of construction of contracts in standard terms are concerned. That there should be as high a degree of legal certainty as it is practicable to obtain as to how such terms apply upon the occurrence of events of a kind that it is not unlikely may reproduce themselves in similar transactions between other parties engaged in the same trade, is a public interest that is recognised by the Act ... So, if the decision of the question of construction in the circumstances of the particular case would add significantly to the clarity and certainty of ... commercial law it would be proper to give leave in a case sufficiently substantial to escape the ban imposed by the first part of s.[38(5)] bearing in mind always that a super abundance of citable judicial decisions arising out of slightly different facts is calculated to hinder rather than to promote clarity in settled principles of commercial law. But leave should not be given even in such a case, unless the judge considered that a strong prima facie case had been made out that the arbitrator had been wrong in his construction; and when the events to which the standard clause fell to be applied in the particular arbitration were themselves 'one-off' events, stricter criteria should be applied on the same lines as those that I have suggested as appropriate to 'one-off' clauses."

27. A leading Australian decision is that of the Court of Appeal of New South Wales in Promenade Investments Pty Ltd v State of New South Wales[2] where, at 226, Sheller JA said that a manifest error may be demonstrated if there "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". His Honour continued:

"Assuming that there is not a manifest error of law on the face of the award it may be argued that there is strong evidence that the arbitrator made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law. The requirement that the question be one the determination of which may add substantially to the certainty of commercial law indicates that it should be one of wider and greater importance than, for example, the construction of a one-off clause in the context of a particular agreement between the parties. One can discern here the sort of limitation which Lord Diplock had in mind."

31. These are not necessarily easy hurdles to overcome. The plaintiff claims to have succeeded. It is necessary, if this claim is to be properly assessed, to examine the factual background.

35. A number of affidavits have been sworn on each side. I have already referred to that of Mr Unsworth of 29 July this year. Mr Angpal Singh, the solicitor with responsibility for the defendants' file, swore an affidavit in reply on 6 September 2002. This provoked a further affidavit from Mr Unsworth. It was sworn on 12 September. The plaintiff also filed affidavits sworn (on 10 September) by Mr Kenneth Clarkson and (on 11 September) by Mr Garry King. The defendants responded with a second affidavit by Mr Singh, on this occasion sworn on 13 September.

38. I consider, having regard to all the evidence to which I have referred, that the determination of the questions of law raised on the appeal would substantially affect the plaintiff's rights. It is therefore necessary to consider whether there is either (i) a manifest error of law on the face of the award; or (ii) strong evidence that the arbitrator made an error of law and that the determination of that question may add, or may be likely to add, substantially to the certainty of commercial law.

41. The arbitration was initiated when, by a notice of dispute dated 4 December 2001, the plaintiff informed the defendants that it wanted the money it claimed it was owed. By 1 February 2002, the date of the plaintiff's statement of claim in the arbitration, the sum involved had risen to $318,801.81. That amount represented the difference between the total of the claims made ($2,017,600.85) and the payments received from the defendants ($1,698,799.04). For their part, the defendants pressed their entitlement (as they saw it) to liquidated damages from 18 December 2001 (the date on which the plaintiff suspended work) until the date of the award. They also challenged a large number of the plaintiff's claims for an increase in the contract price as tendered. These claims, the plaintiff asserted, were attributable to variations to the original contract. Once they are eliminated from the equation, and there is brought into account certain credits to which the defendants say they are entitled, the result (so the defendants contend) is that they have paid too much.

44. The purely monetary dimensions of the dispute can be quickly outlined.[3] The defendants agree with the plaintiff that the original contract sum was $1,711,812.30. They also agree that they have paid only $1,698,799.04. They maintain, however, that they should be allowed credits totalling $241,854. This, they submit, brings the contract price down to $1,469,958.30. To this sum the defendants concede the addition of $176,549.23 for variations for which the plaintiff was entitled to claim. The adjusted contract price is therefore, according to this argument, $1,646,507.53; and this is $52,300.51 less than the amount the plaintiff has received.

47. The arbitrator agreed with the defendants on all but one of the six credits claimed by them. The credit disallowed amounted only to $2,709. The total allowed was therefore $239,145. On the other hand, the plaintiff had claimed 16 variations in its favour, totalling $305,788. The arbitrator disallowed nine of these, but allowed seven. The total amount allowed was $196,591.65. When this sum is added to the original contract price the result is $1,908,403.95. The arbitrator then deducted credits of $239,145 to obtain an adjusted contract sum of $1,669,258.95. But it is agreed that the plaintiff has received $1,698,799.04. The arbitrator therefore found that the plaintiff had been overpaid by $29,540.69. Given this overpayment, the plaintiff was not justified when on 18 December 2001 it suspended the works for an alleged failure to pay sums which were due to it.

50. As I understand it, the plaintiff accepts that the $1,698,799.04 had been received by 18 December. This seems to follow from paragraph 47 of Mr Unsworth's first affidavit, in which without any suggestion that the dates were incorrect, he says:

"The [plaintiff] issued the notice of dispute ... as a consequence of the defendants' failure to make complete payment of a progress claim that had fallen due for payment. Exercising its rights pursuant to clause 22(e) of the ... contract ... the plaintiff suspended the works. In the event, the arbitrator's findings ... had the consequence ... that as at the date of suspension of the works by the plaintiff there was a balance outstanding from the plaintiff to the defendants in the sum of $29,540.69, as set out in paragraph 103 of the interim award."

54. There remains the defendants' claim for liquidated damages. Clause 20 of the contract provides that the plaintiff shall pay the defendants $5,000 for each week or part of a week during which, after the contractually adjusted completion date, the works shall not be practically completed. The arbitrator held that the adjusted completion date should be 24 January 2002. The plaintiff had admittedly failed to complete the works by that time; indeed, it had suspended work on 18 December 2001. When the arbitrator inspected the site during the hearing in March 2002 construction, according to him, was obviously not complete. He therefore allowed liquidated damages from 24 January 2002 to the date of his award - 20 June 2002. This amounted to 21 weeks at $5,000 per week, a total of $105,000. When this is added to the amount overpaid by the defendants, the result is the sum of $134,540.69. This, the arbitrator found, was the amount which the plaintiff was required to pay the defendants; and he decreed that payment be made within 45 days of the publication of the award.

57. If leave to appeal is granted, the plaintiff intends to challenge a number of the arbitrator's findings on the ground that each is vitiated by an error of law. It first attacks the finding concerning the defendants' claim for liquidated damages.

61. The argument is that (a) the contract deemed practical completion to have occurred on the date the defendants commenced to occupy or use the works; and (b) the works were so occupied at the time of the hearing and indeed had been that way from perhaps as early as November 2001.

64. The first part of this submission may be accepted. By clause 9(a) of the contract, practical completion "is that stage in the execution of the contract works when the works are complete except for minor omissions and/or defects which do not prevent the works from being reasonable fit for occupation and/or use by the [defendants] for the purpose intended." But by clause 19(c)(i), if the defendants occupy or use the works before the defendants have given the plaintiff written notice of practical completion, the date of commencement of that occupancy or use shall be deemed to be the date of practical completion. According to Mr Unsworth (first affidavit, paragraph 20) a substantial portion of the works were so occupied or used; and he gave sworn evidence before the arbitrator to that effect. Accordingly, the plaintiff submits, the arbitrator "erred in holding that the defendants were entitled to liquidated damages" given that "clause 19(c)(i) of the ... contract applied."[4]

67. Mr Unsworth does not assert that the whole of the works were occupied before 24 January. The plaintiff can therefore only succeed if occupancy of less than the whole is sufficient. There is also a question about the nature of the occupancy. In paragraph 20 of his first affidavit, Mr Unsworth swears that the arbitrator was told that "the Betta Electrical tenancy at 159-163 Rosamond Road, Maribyrnong had been occupied ... for the purposes of fit-out since November 2001". Moreover, the evidence as related in that paragraph also was that "certificates of occupancy had been issued for all of the works save showroom 1". In the context in which this statement is made in the affidavit, one is left to infer that the certificates had perhaps been issued during or before November, but at all events before the hearing. In fact, it seems that the "certificates of occupancy" to which Mr Unsworth referred in his affidavit were a "certificate of final inspection" for showrooms 2, 3A and 3B at 12 Sloane Street, and an "occupancy permit" for the ground floor of 159-163 Rosamond Road. Each certificate is dated 5 December 2001.

70. Mr Unsworth goes on in paragraph 20 of his first affidavit to swear that he gave evidence in the arbitration that "Betta Electrical had assumed full occupation of [the Rosamond Road] premises in the first week of December 2001". A business trading as "Impact Furniture", so Mr Unsworth says he told the arbitrator, had assumed full occupation of showroom 3 in January 2002, while since early in the previous month "the car parks surrounding the two buildings had been completed and were being used in connection with the use of those tenancies". All this (although the point was not made in the arbitration) "constituted occupation of more than two thirds of the works".[5]

73. In paragraph 9 of his first affidavit, Mr Singh says, in effect, that there was no evidence that certificates of occupancy had been issued "for the whole of the works save for showroom 1"; in particular, there was no evidence that such a certificate had been issued for the first floor of 159-163 Rosamond Road. Mr Unsworth, in paragraph 3.3 of his second affidavit, concedes as much. He also there refers to the first floor at Rosamond Road as being occupied not (as he said in his first affidavit) for the purposes of fit-out, but for storage.

76. Whatever the true position in relation to the particular buildings or portions of them, the evidence before the arbitrator was that the works as a whole were incomplete, and occupation was neither for the purposes of ultimate use nor across all buildings: it is clear that showroom 2, at least, was unoccupied. In these circumstances, the defendants submit, the arbitrator would have been wrong to hold that the deeming provisions of clause 19(c)(i) had come into effect.

79. In fact, the arbitrator came to no conclusion at all about the operation of clause 19(c)(i). He dealt with the claim for liquidated damages on the basis that only one contractual provision was relevant to the issue of practical completion which he had to decide; and that provision was to be found in clause 19(a). Thus, although the arbitrator referred to the certificate of final inspection and the permit of occupancy (that is, the documents dated 5 December 2001 to which I referred in paragraph [20] above), he did so not as evidence that the works were occupied, but as being unhelpful in determining whether or not practical completion had been achieved.

82. The fact that the arbitrator made no reference in his interim award to clause 19(c)(i) provides strong support for the proposition that the plaintiff never sought to rely upon it. Further support is derived from the fact that the plaintiff's written submissions to the arbitrator dated 3 April leave the subject entirely alone, despite the fact that the defendants at page 27 of their corresponding document dated 26 March squarely raise their entitlement to liquidated damages. If clause 19(c)(i) was the plaintiff's answer to this claim, this silence is extraordinary.

85. In paragraph 11 of his first affidavit, Mr Singh said (among other things):

"It was not pleaded by the plaintiff and at no time during the arbitration hearing or in submissions was it submitted on behalf of the plaintiff that the contract works had reached practical completion in accordance with the general conditions whether deemed or otherwise. Indeed, the arbitrator found ... that it was obvious that the works had not been practically completed. It was common ground that the plaintiff served a notice dated 18 December 2001 suspending the works following which the plaintiff did not carry out any further works at the site ... At no time was it submitted on behalf of the plaintiff to the arbitrator that the works had reached practical completion on the grounds that the defendants had occupied and/or used the works. As it was never raised as an issue before the arbitrator, no evidence was called in relation to the circumstances in which Betta Electrical or Impact Furniture occupied the premises for the purpose of fit-out or otherwise, including whether the works were occupied pursuant to any consent, agreement or arrangement made between the plaintiff, the defendants and the tenants (who were not called as witnesses to the proceeding). Had the plaintiff raised the issue of alleged deemed practical completion during the arbitration hearing, I ... believe that all these issues and related issues such as variation, waiver and estoppel would have been the subject of relevant evidence and submissions before the arbitrator. The arbitrator was not requested by the plaintiff to decide the question of whether deemed practical completion had taken place under clause 19 of the general conditions of contract and did not do so. The issue was not pleaded by the plaintiff or argued by either party in the arbitration."

89. I have already noted that on 12 September 2002 Mr Unsworth swore an affidavit in reply. He did not contest a word of the evidence given by Mr Singh in paragraph 11 as set out above. I accept that evidence. It follows that, in deciding the claim for liquidated damages on the basis that although the works ought to have been practically completed by 24 January 2002 they were not, the arbitrator made no error of law. The evidence was all one way: the works were not then practically complete. And since the arbitrator was not asked to deem pursuant to clause 19(c)(i) that the date of practical completion should be the date of commencement of occupation, he made no error there either.

92. It sometimes happens, of course, that a point of law must be decided because, whether or not the tribunal is asked by the parties to decide it, the ultimate result depends upon that decision. That is not this case. There was no reason in logic why the arbitrator should turn his mind to clause 19(c)(i) unless the point was raised by the plaintiff as an answer to the defendants' claim for liquidated damages. The nearest the plaintiff can get here is that evidence of physical occupancy was given, and that such evidence is irrelevant except insofar as it bears upon clause 19(c)(i). But the parties have put before me an account of what occurred during the arbitration. That account leads to an unequivocal conclusion. Not only did the plaintiff fail to direct the arbitrator's attention to the relevance of evidence that tenants had moved in, but the extent and nature of their occupancy was not explored save that it was and is clear that the works were not fully occupied. The plaintiff not having put a case on the basis of this evidence, the defendants were not asked to answer it; and their ability to do so was therefore entirely unexplored. In this context, too, it is pertinent to recall that clause 19(c)(i) deems practical completion to have occurred on the date of commencement of occupancy. I have not before me a shred of evidence which identifies with precision what that date was. I have no reason to think that the arbitrator was better placed.

95. In these circumstances, it could not in my opinion be said that the arbitrator made a manifest error of law in ignoring clause 19(c)(i). Nor is there strong evidence that the arbitrator made an error of law and that the determination of the question may add, or be likely to add, substantially to the certainty of commercial law. Although this contract is a standard form of contract to which The Master Builders Association of Victoria holds copyright, what amounts to occupancy for the purposes of clause 19(c)(i) will depend on the facts of each case; and here they are not even fully known. Subject to what is said at the conclusion of this judgment, this point is therefore not one upon which the plaintiff should be given leave to appeal.

99. During the course of work on that part of the project which involved construction of a car park, the plaintiff (it claims, unexpectedly) encountered soft and unstable ground. The defendants submit that the problem was caused by the plaintiff itself: it had failed to install downpipes to the north-west corner of the Rosamond Road building, and as a result stormwater had flowed directly from the roof onto the ground below.[6] Evidence to this effect was put before the arbitrator. He accepted it.[7] Mr Unsworth does not challenge it now.

102. The plaintiff nevertheless submitted to the defendants two claims (claim No. 2 and claim No. 15) for variations, each of which was, so the plaintiff asserts, necessitated by the need to solve the problem. Variation No. 2 was for the cost of additional concrete. The amount involved was $1,742.40. Variation No. 15 was for removal and replacement of the unstable ground, at a cost of $22,967.14.

105. Given the unchallenged finding of the arbitrator (at paragraph 67 of his interim award) that the problem was caused by the plaintiff, it is not surprising that he disallowed the plaintiff's claim to have the defendants meet the cost of the solution. But the arbitrator also held that the contract placed on the shoulders of the plaintiff the risk of dealing with unstable ground. This conclusion is sought to be challenged by the plaintiff.

108. Because the plaintiff is responsible for the problem in any event, I would not trouble myself with this challenge were it not for the fact that the issue was fully argued before me. I shall, however, deal with it as briefly as I can.

111. The plaintiff agreed to construct the works, including a car park, for $1,711,812.30. When by letter dated 4 June 2001 the plaintiff submitted this amount as its tender price, it stated that it included "the complete design and construction for building extensions to proposed Ray's Tent City building [at the Rosamond Road address], external car park and drainage works, alterations to existing warehouse to provide three ... showrooms and showroom extension to Sloane Street as per plans and specifications enclosed."

114. In his interim award, the arbitrator noted the above reference to "drainage works", and held that the plaintiff had thereby included such works in his tender.[8] Although the arbitrator did not say so expressly, he thereafter proceeded on the basis that for this reason the plaintiff could not claim this item as a variation. The arbitrator was entirely justified in taking this course. As for the "specifications enclosed", the arbitrator found that they were not - or, if they were enclosed, that they were inadequate. Paragraph 21 of the interim award reads, so far as is relevant to this point, as follows:

"I note the general conditions of contract were signed on or about 4 June 2001. I further note that by a letter dated 15 June 2001 [from the solicitors for the defendants to the plaintiff] includes (sic) among other things the following: 'We note ... that you are to provide us with detailed specifications in relation to this project.' No proper building specifications for the whole project were provided to the respondent during the course of the works or at this arbitration. The only building specifications provided were those supplied during the hearing ..., which specifications do not cover ... the way the works are to be performed and/or the materials to be used."

118. The specifications to which the arbitrator referred as the "only building specifications provided" were, it seems, for the proposed extension to showroom No. 1. During the course of his evidence, however:

"Mr Unsworth acknowledged that these building specifications should be accepted as the specifications for the whole project but ... for building permit purposes only. Mr King [the plaintiff's estimator] also said that these building specifications were for building permit purposes only. I have accepted the evidence given by Mr Unsworth that these building specifications should be accepted for the whole project, but I have disregarded the evidence given by both Mr Unsworth and Mr King when they said that these building specifications were for building permit purposes only."[9]

122. Whether "these ... specifications" were or were not for showroom No. 1, they engaged the arbitrator's attention at this point because they contained a specific reference to site conditions - namely:

"Site conditions - The proprietor makes no representations as to the site conditions. Assess the site conditions and cover all the requirements for the contract works."

126. Although this provision was drawn by or on behalf of the plaintiff, it is the plaintiff which claims that the arbitrator was wrong in holding it to be binding. According to the plaintiff, the governing provision is to be found in clause 9 of the contract:

"Should site conditions below the surface, and/or, in the case of alterations or extensions to existing buildings, shown or described in the specifications and/or drawings on which the contract sum was based differ from those encountered by the contractor, then the contractor shall notify the proprietor and obtain his instructions prior to proceeding with the works and any consequent variation to the works shall be dealt with in accordance with clause 14" [the subject matter of which is variations, and which provides (among other things) for the building owner to bear the additional cost properly incurred by the builder in effecting a variation].

130. In my opinion, this argument cannot be sustained. The plaintiff has not challenged the arbitrator's finding that no proper specifications were provided. Moreover, it is not now suggested that, if any specifications were included with the tender documents, they showed site conditions below the surface. The condition precedent to the operation of clause 9 never, therefore, existed.[10]

133. The arbitrator also held that the "no representations" clause governed the contractual relations between the parties. Given that he was clearly entitled to find that no relevant specifications were provided before those which contained this clause, and given that the contract contemplated the issue of such specifications, it cannot be said that the arbitrator was wrong in his finding that the clause in question bound the plaintiff.

136. In my opinion, there is for these reasons no basis upon which to found an appeal against the arbitrator's decision to disallow variations 2 and 15.

140. A retailer of camping equipment has different fit-out requirements than those of a retailer of electrical goods. The plaintiff had allowed $144,515 to fit out Ray's Tent City. When, shortly after entry into the building contract, the tenant of the Rosamond Road premises changed to Betta Electrical, a new fit-out was required. The plaintiff accordingly prepared variation No. 9. The sum involved was $182,875. The arbitrator allowed it, in full. Now I am told that he ought to have allowed more. How much more has never been specified. Yet the submission before me was that there was no evidence before the arbitrator to demonstrate that more should not have been allowed. Accordingly, so the logic seems to run, the arbitrator was manifestly wrong in law in not increasing (to an extent which the plaintiff never quantified) the amount which the plaintiff itself put forward as representing the cost of fitting out the premises to suit the new tenant.

143. Put that way, the argument is, it seems to me, plainly lacking in merit. As actually framed, however, the plaintiff's submissions took a form which concealed - but which ultimately did not remove - its deficiencies.

146. This concealment was achieved by the insertion into the submission of reasoning which involved the second, corresponding, variation. Some explanation is required. Just as allowance had to be made for the Betta Electrical fit-out (which, of course, went ahead), so allowance had also to be made for the fit-out for Ray's Tent City, which did not. Indeed, I take it that the latter enterprise was never even commenced: because the material before me speaks of the change of tenants occurring (as was common ground, according to Mr Unsworth) "shortly after entry into the contract"[11] I take it that no work was done on the Ray's Tent City requirements before Betta Electrical took over.

149. Mr Unsworth, in paragraph 38 of his first affidavit, swears that "significant parts of the Ray's Tent City fit-out remained to form parts of the Betta Electrical fit-out, before the additional works set out in variation No. 9." The evidence, Mr Unsworth continued, was "that these original fit-out works were comprised of" two lunch rooms, two storerooms, a roller door, alterations to toilets, "works relating to staircases", "amenities" and "suspended ceilings".

152. Perhaps so. But it was for the plaintiff to prove that these items had not been included in variation No. 9, and that their cost was in a particular amount which should be added to the $182,875 which had been sought, and allowed, for that variation. The claim for the Betta Electrical fit-out was, after all, already significantly more than the $144,515 which was allocated by the plaintiff for the Tent City fit-out. Yet on the plaintiff's own version of events, this smaller amount included the storerooms, the lunch rooms, the roller door and everything else - whereas the Betta Electrical fit-out included in variation No. 9 did not. It was a circumstance which may have been explicable. If so, it was for the plaintiff to explain. Nothing in the material before me hints at an explanation.

155. On the plaintiff's own evidence before me, no evidence was put to the arbitrator to the effect that particular items costing particular amounts should properly be added to the amount ($182,875) which was not only sought by variation 9 for the Betta Electrical fit-out, but which was allowed by the arbitrator. No error of law is disclosed in this aspect of the interim award. There is, accordingly, no basis for granting leave to appeal on this ground.

The Exit Stairs and the First Floor Amenities Block

159. As constructed, the Rosamond Road building has two sets of stairs and two amenities blocks. The plaintiff asserts that the original intention was to incorporate one of each. By 4 June 2001, however, this had changed. Two of each were included in the tender price. In its letter of 4 June, the plaintiff referred to each as "additional". Unfortunately, the letter failed to explain what (according to the plaintiff) was the fact: that "additional" meant "a second". Given that this is what was meant, and given that two staircases and two amenities blocks were erected, that (again, according to the plaintiff) is the end of the matter. It did what it contracted to do, and is entitled to retain the moneys attributable to that work.

162. The defendants give a different account of things. At page 26 of their submissions to the arbitrator dated 26 March 2002, they stated that:

"The original plans were drawn for the building in December 2000. These plans included two sets of stairs and two sets of amenities (which were what was ultimately constructed). There were no additional stairs or amenities required and the respondents are entitled to a credit for these amounts in the amounts of $15,000 and $17,485 respectively."

166. According to the defendants, the arbitrator accepted these submissions. He therefore correctly "found that at all times there were to be two stairs and two amenities blocks in the building and that no additional stairs or additional first floor amenities blocks were provided".[12] So, the defendants submit, they are entitled to a corresponding credit. The particular amounts are not in dispute: $15,000 for the stairs, and $17,485 for the amenities block.

169. Here, it seems to me, the defendants' argument encounters a significant difficulty. They can only sustain this argument if the arbitrator correctly found that the "additional" stair and the "additional" amenities block were envisaged by the parties at the time of the contract as being the third of each, with in each case the cost of that third item being included in the contract price. But the defendants seem to insist that "at all times there were to be two stairs and two amenities blocks in the building".

172. The arbitrator nevertheless accepted the contention of the defendants. His reasoning is obscure. He apparently relied on the history of the relevant drawings. He held, in effect, that these - at least when considered in the light of the use by the plaintiff of the word "additional" in its letter of 4 June 2001 - somehow indicated that when the contract was made the parties intended to incorporate three sets of stairs and three amenities blocks.

175. I am here in an unfortunate position. I cannot follow the process by which the arbitrator reached his conclusion. I am also far from confident that the evidence upon which that conclusion was based has been fully disclosed to me. It might be thought that this is the plaintiff's problem. It is the party seeking leave to appeal. But if the plaintiff is now to be believed, the arbitrator had no evidence to support his conclusion and (in circumstances in which the defendants, not the plaintiff, bore the burden of proof - because the defendants were the party claiming a credit from the plaintiff) he ignored the plaintiff's evidence even though it pointed to a quite different result.

178. The evidence to which the plaintiff here directs attention is to be found in paragraph 44 of Mr Unsworth's first affidavit. It is corroborated by Mr King.[13] It reads as follows:

"My evidence and the evidence of Mr King for the plaintiff was that the additional stairs and additional amenities block were added subsequently to the 7 December 2000 letter in various correspondence. I said that the additional exit stairs and additional amenities became part of the contract by the letter dated 4 June 2001. At all times during the course of the hearing both myself and Mr King when giving evidence on behalf of the plaintiff stated that the additional exit stair and additional amenities block in the building at 159-163 Rosamond Road, Maribyrnong were the second stair and the second amenities block in that building."

182. In paragraph 15 of his first affidavit, Mr Singh confronts this evidence. So far as is relevant, he says:

"Neither Mr Unsworth nor Mr King gave evidence that the additional stairs and amenities blocks were added subsequently to the 7 December 2000 letter in various correspondence. The plaintiff did not tender any alleged correspondence at the arbitration hearing. Neither Mr Unsworth nor Mr King gave evidence that the additional exit stairs and additional amenities block in the building at 159-163 Rosamond Road, Maribyrnong were 'the second stair and second amenities block in that building'. The arbitrator found that at all times there were to be two stairs and two amenities blocks in the building and that no additional stairs or additional first floor amenities blocks were provided ... Accordingly the defendants were entitled to a credit in relation to those amounts. Again this was a finding of fact open to the arbitrator upon the evidence before him."

186. Mr Unsworth responded to this. He did so in paragraph 3.7 of his second affidavit. He there states, among other things:

"I refute the allegations contained [in paragraph 15 of Mr Singh's first affidavit] ... At the hearing I gave evidence to the arbitrator that the original concept was for the existing first floor area to be serviced by the existing entry stair, but reconfigured. I gave evidence that subsequently the defendants asked me to install additional exit stairs and an additional amenities block on the first floor. I explained to the arbitrator that this was because Ray Frost of Ray's Tent City wanted the stairs to the first floor located in a specific place within the Ray's Tent City tenancy. This meant that the proposed extra area on the first floor was too large to comply with building regulations with only one stair, and a second stair was required for egress purposes and to serve two tenancies. The additional amenities block (second) was required because the defendants wanted a dual tenancy capacity on the first floor."

190. A further salvo was then fired by Mr Singh. In paragraph 14 of his second affidavit, he said:

"I refer to paragraph 3.7 of Mr Unsworth's second affidavit. I strongly deny that Mr Unsworth gave the evidence in relation to the additional first floor stairs and first floor amenities block before the arbitrator which he now asserts he did ... Mr Unsworth ... did not give evidence that the 'original concept was for the existing floor area to be serviced by the existing entry stair, but reconfigured'. He did not give evidence that he was subsequently asked to install additional exit stairs and an additional amenities block on the first floor or that this was as a result of a request by Ray Frost. He did not give evidence that 'the proposed extra area on the first floor was too large to comply with building regulations with only one stair, and a second stair was required for egress purposes and to serve two tenancies'. He did not give evidence that the additional amenities block was required 'because the defendants wanted a dual tenancy capacity on the first floor'."

194. In the normal course, a judge in my position accepts the evidence which supports the interim award. Here, however, Mr Singh says much that is negative about the plaintiff's case, but very little that is positive about that of his own clients. Remembering that it is the defendants who bear the onus of proof, is it sufficient for Mr Singh to say no more in positive support of the defendants' case than that on the arbitrator's finding "at all times there were to be two stairs and two amenities blocks in the building and that no additional stairs or additional first floor amenities blocks were provided"? On what evidence was that finding based? And in any case, it is not enough to justify - indeed, in a sense it is contradictory of - a result in the defendants' favour. It is only on the assumption that, having contracted to erect three of each, and having - in effect - been required to pay for three, the plaintiff is now entitled to a credit for the cost of one of each because only two of each were erected. In other words, if - as the defendants maintain - there were to be at all times two stairs and two amenities blocks in the building, then it cannot be that the contract price, to which the defendants agreed, included the price of erecting three of each.

197. In his interim award, the arbitrator characterised the evidence of Messrs Unsworth and King as unconvincing. This is a conclusion to which, in the ordinary course, he would be clearly entitled to come. In the present circumstances, however, given that the defendants bear the onus of proof, he cannot be unconvinced by Messrs Unsworth and King, and act on that basis, unless there is some evidence in support of the contrary position. If there was such evidence, it was not revealed to me. Mr Singh's affidavits do not, in my opinion, supply it.

200. It is now appropriate to record what is said on this issue in the interim award. The relevant passage is to be found between paragraphs 90 and 94:

"90. The respondent is claiming a credit of $15,000 for an additional exit stair to first floor that was not in fact installed. The claimant's letter dated 4 June 2001 ... includes an amount of $15,000 for an additional exit stair to the first floor. 91. All the exhibits were provided in connection with the Ray's Tent City/Betta Electrical building at this arbitration only show two sets of stairs to the first floor area. There are still only two sets of stairs to the first floor, however the configurations are different from the original design, but there are still only two sets of stairs. In the letter of the 4th June 2001 ... the following is written 'additional exit stair to first floor - $15,000'. This express notation is for the first floor. I therefore find that there was no additional stair installed and accordingly the respondent is entitled to a credit of $15,000. 92. The respondent is claiming a credit of $17,485 for an additional new first floor amenities block. The claimant's letter dated 4 June 2001 ... includes an amount of $17,485 for an additional new first floor amenities block. 93. Again all the exhibits ... that were provided in connection with the Ray's Tent City/Betta Electrical building at this arbitration show the same number of plumbing fixtures on them. There are minor alterations and also the repositioning of one toilet block, but when on site I could not see where there was a new first floor amenities block as written in the claimant's letter dated 4 June 2001. 94. Both Mr Unsworth and Mr King failed to convince me that the respondent was not entitled to this credit. I therefore find the respondent is entitled to the credit of $17,485 for the allowance of an additional new first floor amenities block that was not constructed."

204. In my opinion, the reasoning of the arbitrator as set out in those paragraphs cannot found the conclusion to which he has come. It is only if at a very material time - the time of the making of the contract - the project included a third stair and a third amenities block that there can be any justification for a credit being allowed to the defendants on the basis that the "additional" stair and the "additional" amenities block were never built. Yet the material before me discloses no evidence upon which the arbitrator could find that, at that material time, the contract was so structured that a third stair and a third amenities block were included. Certainly, the arbitrator made no reference to any such evidence. Nor (save for his unsatisfactorily explained ultimate conclusion on this issue) did he make any finding consistent with its existence. And if the arbitrator had evidence which I did not, then the discrepancy is one for which the defendants must take responsibility.

207. It seems to me that I must, for these reasons, hold that there is a manifest error of law on the face of the award. I must therefore grant leave to the plaintiff to appeal against this part of the award.

210. It also seems to me that there is in the account given by Mr Unsworth an inherent credibility which is lacking in that of the defendants. On the one hand, the defendants have failed to explain - at least to me - how it is that the parties agreed upon two sets of stairs and two amenities blocks, then contracted on the basis that three would be erected, then reverted to two. On the other hand, it seems readily consistent with likelihood that the original idea was to erect one of each, with a change to two being later (but before the contract was made) accepted, followed by the erection of two in accordance with the contract. This, however, is a matter about which I make no finding and in respect of which I maintain an open mind. Perhaps I have wrongly assumed that we are only here concerned with the Rosamond Road building, when in truth the stairs and amenities blocks relate to the Sloane Street premises as well - in which case talk of three of each may be entirely consonant with what one imagines to be the realities. But these or like matters are - to the extent that they are seen to be relevant at all - for determination on the appeal.

213. If the appeal which the plaintiff now has leave to bring ultimately succeeds, other consequences might follow. Principal among these is that the defendants may not, by 18 December 2001 when the plaintiff suspended work, have paid all that was owed. In those circumstances, it may be that the plaintiff was justified in refusing to proceed further. This in turn may affect one of the bases upon which the defendants were held to be entitled to liquidated damages.

217. I referred in paragraph [4] above to the fact that the arbitrator was required by the contract to hear and decide any dispute before him by reference to considerations of general justice and fairness. He was not bound to apply the rules of evidence and procedure.

"where an arbitrator either ... self-evidently purports to determine questions arising during an arbitration according to law (and without any reference, express or implied, to considerations of justice and fairness); or ... purports to determine questions arising during an arbitration by reference to considerations of general justice and fairness, but only relies upon the law (without any reference, express or implied, to considerations of general justice and fairness) ... the arbitrator is obliged to make those findings in accordance with the law. If he repeatedly does not do so, this must constitute misconduct."[14]

224. This passage encompasses the plaintiff's allied complaints that the arbitrator did not spell out the basis upon which he was proceeding, so that one side (the defendants) could depose in affidavit material before me that he "heard and decided the dispute by reference to considerations of general justice and fairness"[15] while the other party (the plaintiff) swore that the arbitrator applied the rules of evidence and generally followed the usual rules of procedure.[16]

227. I have analysed those of the arbitrator's findings which were the subject of the application for leave to appeal. It is unnecessary to say more about whether or not they were in accordance with the law, although it is pertinent to point out that they were so to the extent that they were the result of the application of considerations of general justice and fairness.

230. It is important in this context to discredit the assumption, which seems to be implicit in the plaintiff's submission on this point, that "the law" and considerations of general justice and fairness are frequently different and readily distinguishable, and that an arbitrator whose duty it is to apply considerations of general justice and fairness will fail in that duty if he or she applies "the law". This in my opinion is clearly not the effect of clause 2(d) of the form of contract adopted by the parties in this case. That clause requires an arbitrator to avoid legal technicalities if, when applied, they would be inconsistent with considerations of general justice and fairness. It does not require, or necessarily allow, an arbitrator to disregard legal principle. It does not allow an arbitrator to decide a matter by reference to considerations which appear to the arbitrator, but to no one else, to be just and fair. Nor does it require an arbitrator to categorise his or her approach as being in accordance with the law on the one hand or general justice and fairness on the other. The efficacy of arbitration as a mechanism for resolving disputes would be seriously compromised were arbitrators required to perform the mental gymnastics which adherence to that proposition would involve. An arbitrator acting under clause 2(d) will fulfil his or her duty under that clause if he or she adheres to considerations of general justice and fairness. If this is the approach, no misconduct will occur.

233. The plaintiff submits that the arbitrator was guilty of technical misconduct in the performance of his function. For the reasons set out above, I reject the premise upon which this submission is based. I am further of the opinion that no misconduct has been shown in this case. There is no evidence before me to suggest that the arbitrator did not proceed by reference to considerations of general justice and fairness. That is what he was bound to do. It might lead him to decide issues in accordance with (for example) the terms of the contract and to find facts on evidence which would satisfy a judge. Or it might not. So long as he was guided by the considerations specified in clause 2(d) he need not concern himself with the further categorisation of his approach.

236. In the result, I give leave to the plaintiff to appeal against the finding of the arbitrator that a credit be allowed for a stair and for an amenities block. I also give leave to appeal against the arbitrator's finding in relation to liquidated damages, such leave being conditional upon the success of the appeal in relation to the stairs and the amenities block. I will hear the parties on the orders which, in the light of this judgment, should be made.

[1] [1982] AC 724 at 742-743

[2] (1992) 26 NSWLR 203

[3] The information which follows was not presented in this form during the hearing. It is the product of my own attempt to find my way through a large volume of material.

[4] Written outline of submissions of the plaintiff in the application for leave to appeal, paragraph 8

[5] First affidavit of Peter John Unsworth, paragraph 21

[6] First affidavit of Angpal Singh, paragraph 13

[10] It might be argued that one possible condition precedent was that "site conditions below the surface ... differ from those encountered by the contractor". But this is a nonsense.

[11] First affidavit of Peter Unsworth, paragraph 32

[12] First affidavit of Angpal Singh, paragraph 15

[13] Affidavit of Garry King, paragraph 4

[14] Written submissions of the plaintiff dated 12 September 2002

[15] First affidavit of Angpal Singh, paragraph 7

[16] First affidavit of Peter Unsworth, paragraph 16