Auburn Council v Austin Australia Pty Limited

Auburn Council v Austin Australia Pty Limited - [2007] NSWSC 130 - NSWSC 2007 case summary — Zoe

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CATCHWORDS : Arbitration - Contract - Arbitration proceedings concerning contractual arrangement close to completion - Claimant placed into administration - Arbitration proceedings include cross claim by respondent - Court order for the provision of security for the respondent's future costs and staying claimants claim until provision of security - No order staying respondents cross-claim - Security for costs furnished extended period after order made - Respondent seeks declaration that the arbitration agreement ended as a result of claimant's repudiation and respondents acceptance of such repudiation or orders pursuant to s 46 of the Commercial Arbitration Act 1984 (NSW) terminating the arbitration - Whether repudiation made out - Whether delay on part of claimant in complying with court's order for security capable of constituting a breach of term implied in s 46 (1) of the Commercial Arbitration Act to exercise due diligence in taking of steps necessary to have dispute referred to and dealt with in arbitration proceedings - Implied obligation to progress arbitration being mutual - Whether delay would give rise to substantial risk of it not being possible for fair trial of the issues in arbitration proceedings or likely to cause serious prejudice to respondent - No effective termination of arbitration agreement possible by reason of one party's repudiatory delay where other party failed to take steps to have such delay addressed - Party not ready, willing and able to perform contract may not terminate contract notwithstanding the repudiatory conduct of other party - Whether respondent lost right to accept any repudiation of arbitration agreement by accepting security for funds moneys - Whether statements by the applicant concerning its beliefs as to when funding would be obtained for the provision of the security comprised repudiatory conduct or lack of due diligence on part of applicant in the taking of steps necessary to have the dispute dealt with in the arbitration proceedings - Leave to proceed against company in liquidation

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Alghussein Establishment v Eton College [1991] 1 All ER 267 Alginates (Australia) Pty Ltd v Thomson & Carroll Pty Ltd [1970] VR 570 Allen v Sir Alfred McAlpine & Sons Ltd [1968] 2 QB 229 Andre et Compagnie v Marine Transocean Ltd [1981] QB 694 Boodhoo v Attorney General of Trinidad and Tobago [2004] 1 WLR 1689 Blencoe v British Columbia (Human Rights Commission) [2000] 2 SCR 307 Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corp Ltd [1981] AC 909 Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 Carr v Fischer [2006] NSWCA 313 Chloride Batteries Australia Ltd v Glendale Chemical Products Pty Ltd (1988) 17 NSWLR 60 Commonwealth v Cockatoo Dockyard Pty Ltd (1995) 36 NSWLR 662 Crawford v AEA Prowting Limited [1973] QB 1 Dalgety & Co Ltd v The Australian Mutual Providence Society [1908] VLR 481 Duncan v Lowenthall [1969] VR 180 Dyer (Procurator Fiscal, Linlinthgow) v Watson [2004] 1 AC 379 Economides v Commercial Assurance Co plc [1998] QB 587 Elder's Trustee and Executor Co Limited v Commonwealth Homes and Investment Co Limited (1941) 65 CLR 603 Expectation Pty Ltd v PRD Realty Pty Ltd (2004) 140 FCR 17 Gill Herron & Gardiner v Walton (1991) 25 NSWLR 190 GIO Australia Holdings Ltd v AMP Insurance Investment Holdings Pty Ltd and Another (1998) 29 ACSR 584 Goose v Wilson Sandford & Co [1998] TLR 85 Herron v McGregor (1986) 6 NSWLR 246 CASES CITED : Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194 Imperial Leatherware Co Pty Ltd v Macri & Marcellino Pty Ltd (1991) 22 NSWLR 653 Jago v District Court of New South Wales (1989) 168 CLR 23 Krivoshev v Royal Society for the Prevention of Cruelty to Animals Inc [2005] NSWCA 76 Liverpool City Council v Casbee Pty Ltd [2005] NSWSC 590 Matthews v Smallwood, [1910] 1 Ch 777 Minion v Graystone Pty Limited [1990] 1 Qd R 157 Monie v Commonwealth of Australia (2005) 63 NSWLR 729 NAIS V Minister for Immigration and Multicultural and Indigenous Affairs [2005] HCA 77 Newman v Victoria [unreported, Supreme Court of Victoria, McDonald J, 25 August 1995, BC9507248] Oceanic Life Ltd v Insurance and Retirement Planning Services Pty Ltd (in liq) (1993) 11 ACSR 516 O'Connor v SP Bray Ltd (1936) 36 SR NSW 248 Ogilvie-Grant v East (1983) 7 ACLR 669 Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854 Peabody Resources Ltd v Macquarie Generation [unreported, Supreme Court of New South Wales, Einstein J, 19 November 1998, BC9806319] Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 Queensland Trustees Ltd v Drysdale Hendy & Co [1992] 2 Qd R 625 Roebuck v Mungovin [1994] 2 AC 224 Sea Containers Limited v ICT Pty Limited [2006] NSWCA 327; [2006] NSWSC 134 Shepherd v Felt and Textiles of Australia Limited (1931) 45 CLR 359 Skinner & Edwards (Builders) Pty Ltd v Australian Telecommunications Corp (1992) 27 NSWLR 567 Stollznow v Calvert [1980] 2 NSWLR 749 Williams v Frayne (1937) 58 CLR 710 Zimmer Orthopaedic Limited v. Zimmer Manufacturing Co Ltd [1968] 2 All ER 309

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iii. September 2006 up to the commencement of the present hearing ["the third period"]. The first period 19 The first period essentially commences with the first directions hearing in which the arbitrator set an original timetable for preparation to enable the arbitration hearing to occur late in 2001 and continues to the occasion in early 2003 when the arbitration hearings actually commenced. This period is marked by cross-contentions of similar ilk [each party claiming that the other had been guilty of sundry failures to comply with directions]. 20 The finding is that both parties on occasion failed to comply with directions and that where Austin is shown to have failed to comply with directions the matter is of relatively slight significance only. The Council too was sometimes to blame. In short and regrettably as often occurs in some sets of proceedings and in some arbitrations, there is a leisurely approach to compliance with directions and repeated delays are encountered sometimes for good reason and sometimes due to lack of diligence on the part of one or other of the litigating parties. The second period 21 The second period includes the arbitration hearings which took place between 7 April 2003 up to 17 April 2003 and on adjourned dates from 23 April 2003 until May 2003. The arbitration hearings recommenced for 16 hearing days in October, November and December 2003. On 18 December 2003 the further hearing was adjourned to May 2004. 22 As already indicated, on 31 December 2003 administrators were appointed to Austin and on 10 March 2004 liquidators were appointed. This was a watershed period for obvious reasons. Although there were later directions hearings from time to time before the arbitrator, these were always concerned with whether and if so when, and how, the arbitration could or would go forward. In short the substantive arbitration hearings never recommenced. 23 On 19 February 2004 the Council applied to the Court for an order for security for costs which order was made on 8 March 2004. The order was that Austin provide security for the Council's future costs of the arbitration in the sum of $325,000 and that Austin's claim before the arbitrator be stayed until security was provided.

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No doubt in some arbitrations of a kind with which those who act on behalf of the parties in the conduct of the arbitration are familiar, both claimant and respondent may carry out voluntarily some or all of the preliminary steps needed to prepare the matter for the hearing by the arbitrator, and do so without seeking and obtaining any prior direction from him; but if what is done voluntarily by way of preparation is done so tardily that it threatens to delay the hearing to a date when there will be a substantial risk that justice cannot be done , it is in my view, a necessary implication from their having agreed that the arbitrator shall resolve their dispute, that both parties, respondent as well as claimant, are under a mutual obligation to one another to join in applying to the arbitrator for appropriate directions to put an end to the delay … [Emphasis added] 39 I accept that this is not materially different from the implied term that section 46 of the NSW Act now stipulates for. That term obliges both parties (regardless of who has initiated the referral of the dispute) to exercise due diligence in the taking of the steps necessary to have the dispute dealt with in the arbitration. In consequence I accept as of substance the submission that the Council was obliged to take steps to address any delay on the part of Austin. Additionally, it was obliged to prosecute its cross-claim. 40 On the facts as they were established, Lord Diplock did not regard the purported acceptance of the repudiation as valid observing (at page 987G):- In the instant case, however, as in Crawford v A.E.A. Prowting Limited [1973] QB 1, the respondents were content to allow the claimant to carry out voluntarily the preparation of detailed points of claim. They never made an application for directions to the arbitrator and none were made by him. For failure to apply for such directions before so much time had elapsed that there was a risk that a fair trial of a dispute would not be possible, both claimant and respondent were in my view, in breach of their contractual obligations to one another; and neither can rely upon the other's breach as giving him a right to treat the primary obligations of each to continue with a reference as brought to an end. Respondents in private arbitrations are not entitled to let sleeping dogs lie and then complain that they did not bark. [Emphasis added] 41 The speech delivered by Lord Diplock was concurred by Lord Edmund-Davies (at page 988B) and Lord Russell of Killowen (at page 993H). 42 Lord Scarman (with whom Lord Fraser of Tullybelton concurred: page 993G) dissented. 43 Notwithstanding the trenchant criticism of Bremer [particularly by Lord Denning MR in the decision of the Court of Appeal in Andre et Compagnie v Marine Transocean Ltd [1981] QB 694], the House of Lords (differently constituted) refused to reconsider Bremer in Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854. 44 In my respectful view the decision of the majority in Bremer was correct. 45 A direct consequence of an acceptance of the majority decision in Bremer requires that the Council's repudiation claim be rejected for the reason that if Austin was otherwise guilty of repudiatory delay, the Council itself was guilty of such delay through:

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ii. failing to take steps to prosecute its cross-claim. 46 It may be observed that through the whole of the period between the making of the order for provision of the security and the time when the security was furnished the Council had the power to apply for a permanent stay of the arbitration proceedings in so far as Austin's claims were concerned, which would have been the appropriate route to take had it been disposed to do so. That it did not so apply is not a matter that can be laid at the feet of Austin. Indeed the evidence established to the Court's satisfaction that the Council's failure to so apply was solely due to its forensic tactical decision that it would be unwise to make such an application for the reason that the application may backfire if the Court determined, in the face of such an application, to lift or to reduce the amount of the security for costs order. 47 It has to be remembered that the arbitral process to which the parties had bound themselves by the arbitration agreement had been invoked by both parties who sought to prosecute their respective claims against one another. Whilst the form of the arbitration followed the presentation of Austin's claim as "claimant" followed by the presentation of the Council's claim as "respondent" and involved sundry overlap in terms of the presentation of evidence, the proper analysis involved there being separate claims pursued by each of the parties. 48 The circumstances before the arbitrator presently being examined involved separate obligations upon each party to exercise due diligence in the taking of steps reasonably necessary to have its claims in the dispute dealt with in the arbitration proceedings. That these obligations also extended to exercising due diligence in the taking of steps necessary to have the whole of the dispute dealt with in arbitration proceedings [as long as a party's entitlement to proceed had not been stayed], says nothing in relation to what was the extant obligation to pursue its claim which still rested upon a party whose claim had not been stayed. Clearly that party in that circumstance continued to be bound by its underlying obligation to exercise due diligence in the taking of steps necessary to have its claims dealt with to conclusion in the arbitration proceedings. Clearly the Council did no such thing.

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[It should be noted that the cross-claim was a claim for cost overrun in the project, the Council contending that it had had to pay out sums to contractors with whom it entered into contracts for the project (and done so allegedly on the recommendation of Austin). There was also a claim advanced that in breach of the agreement and in negligent breach of a duty of care, Austin had prepared in unsatisfactory manner, the trade packages that were to go out to in excess of 100 trade contractors, thus incurring the Council considerable expenditure.] Repudiatory intention not lightly inferred 49 It is trite to observe that repudiatory intention is not lightly to be inferred. 50 In Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194 proceedings had been brought to establish an alleged repudiation. It was contended that an arbitration ought to be stayed because the arbitration agreement had been repudiated as a result of a failure of the other party to exercise due diligence in the prosecution of its claim in the arbitration. The other party had been placed into liquidation on 13 September 1990. It was known in the weeks following that the liquidator was considering what would happen in relation to the arbitration. It was not, however, until October 1991 that there was any statement made that the arbitration proceedings would be continued with. 51 Giles J held that there was no repudiation or that, if there was, it had not been accepted prior to October 1991. His Honour observed that repudiatory intention was not lightly to be inferred and that the inactivity, having regard to the liquidation, could not be regarded as repudiatory [page 212]. Similarly here, the fact that Austin was in liquidation is clearly relevant in assessing whether any delay in the progression of the arbitration or any statements of belief as to the anticipated securing of funding was repudiatory. Whether the Council lost its right to accept any repudiation of the arbitration agreement by accepting the security for funds moneys 52 If one posits [for the purposes of this argument], that by early March 2006 the conduct of Austin in having failed to procure the security for funds moneys constituted a repudiatory breach of a primary obligation stipulated for in the implied term to exercise due diligence in the taking of steps necessary to have the dispute dealt with in the arbitration proceedings [s 46], it becomes necessary to consider whether the Council lost its right to accept that repudiation when it elected to accept the security for funds moneys. 53 The Council contends that it did not lose that right in the circumstances. It contends that the all-important fact to be borne in mind is that at the time when it elected to accept the security for funds moneys it was plainly unaware of its having been misled by the misstatements of Austin [otherwise described in these reasons] which it is said had no factual basis. Shepherd v Felt & Textiles is relied upon by the Council as giving it an entitlement once it became aware of these facts, to justify its purported acceptance of a repudiation on the basis of these misstatements and hence to avoid the otherwise consequences of having affirmed by receipt of the security for funds moneys. 54 Elder's Trustee and Executor Co Limited v Commonwealth Homes and Investment Co Limited (1941) 65 CLR 603 [cited by the Council] is a somewhat complex decision which requires very careful examination. The headnote includes the following:

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With respect to the 40 shares, however, the position is somewhat different. The plaintiff made no actual election, because he was ignorant that he had a right of rescission. He had reason for knowing the facts which conferred a right of rescission upon him, and over a long period of time he failed to repudiate the shares. It is not shown that he actually grasped the fact that the full number of shares mentioned in the prospectus were not to be allotted, but the terms of the prospectus and the terms of his application considered together and combined with the fact, which he must be taken to have known, that the further shares formed part of the 25,000 shares, provided him with information from which the decisive fact was a clear if not a necessary inference. The decision of the Full court in respect of the 40 shares is based upon the view that the plaintiff could not rely upon his ignorance of the existence and effect of s 226 as an answer to what otherwise would be the legal consequence of his conduct. The doctrine upon which the Court acted is that, as a general rule, in order that a party may be precluded by his conduct from exercising an election, it is not necessary that he should have knowledge of the existence of his right to avoid the transaction, as well as of the facts upon which that right arises. This accords with the opinion of Jordan, C.J, expressed in the course of his judgment in O'Connor v S.P. Bray Ltd, (1936) 36 SR (NSW) 248 at p 263, where the general subject of election is discussed in a very full and informative manner. His Honour said - It has been urged that there must also be knowledge of the legal consequences of the facts and of the legal rights involved; but this is not borne out by the authorities, and the contention is, I think, based upon an attempt to import into ordinary cases of election rules which are peculiar to the equitable doctrine of election. This doctrine is referable to the principle that a person is not permitted both to approbate and to reprobate an instrument.

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But a distinction must be drawn between cases where the party's conduct is unequivocal in its effect and cases where his conduct does not necessarily amount to a waiver, but is merely some evidence that he has in fact elected to affirm . Where rights are exercised, either in virtue of an estate or interest in property, or in virtue of a contract, which would not exist unless the estate, interest or contract endured or remained in force, it may well be that the party exercising them loses the right to determine the estate or interest on breach of condition or the contract for breach of some term going to the root of it, unless he is able to show not merely that he was unaware of the existence of his right, but of the facts amounting to breach of condition or of contract ." [Emphasis added] 57 In my view the distinctions which the joint judgment found it unnecessary to discuss [namely circumstances where a party, having in fact two grounds for rescission, but being ignorant of one and aware of the other, decides to affirm, knowing that he is entitled in point of law to effect], are precisely the distinctions which become necessary to deal with in terms of the issue presently before the Court and raised by the posited facts earlier set out. 58 It is presently necessary on the posited facts to examine whether, notwithstanding the posited election to affirm, the Council [afterwards on discovering the second ground], may resile from its former election and rescind. The answer to this question does here depend on the reasons for the Council's so-called initial decision and the influence which full knowledge might have had as a reason for deciding differently. 59 The events which occurred in the real world did involve the conduct of the Council being unequivocal. This was not a situation in which the conduct of the Council did not necessarily amount to a waiver but was merely some evidence that it had in fact elected to affirm. The Council in the real world exercised rights in virtue of a contract which would not exist unless the contract endured and remained in force. In this regard the evidence included the following:

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ii. an understanding of the period of time during which a representation may be regarded as remaining operative. 63 As to the period of currency of a particular statement [that is to say that period of time prior to the representation having lapsed or become spent] it is unnecessary to do more than to refer to the examination of authority to be found in Peabody Resources Ltd v Macquarie Generation [unreported, Supreme Court of New South Wales, Einstein J, 19 November 1998, BC9806319] at 229-233]. The principles there set out make clear that a representation may lapse without achieving its intended goal and will in those circumstances lose its significance. Certain representations are such that the representee can be presumed to know, or waives information on the subject: as for example was made clear by Cussen J in Dalgety & Co Ltd v The Australian Mutual Providence Society [1908] VLR 481. 64 Returning to the environment in which the anticipated estimates of when funding was hoped to come forward are concerned, it is clear enough that statements of belief of this kind are not akin to the giving of warranties. Here the statements were made in circumstances not commonly understood as actionable if they turned out to be over optimistic or even to be based upon somewhat doubtful or insubstantial information. The point is that even if viewed in representational terms, the period across which the representations could fairly be regarded as remaining operative [ie of continuing significance] was exceptionally short. The Council's case eschews any examination of the undoubted fact that a reasonable bystander in the position of the Council aware of all of the matters known to the Council, would not conduct himself on the basis of reliance upon stale representations as to the occasion when it was believed that security for funds moneys would be available. The passage of time which passed following the making of the representations/statements mandates the inference which is drawn, namely that the Council in the events which happened and acting reasonably, would have appreciated the obvious: vide that Austin continued to have real difficulties in providing the security funds. Was the purported acceptance void as being unconscionable 65 There was another contention put by Austin as follows:

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v. the defendant appreciated that such steps were open to the plaintiff. 71 The findings do not accept that any of the above described statements when read in context constituted a lack of due diligence on the part of the defendant in the taking of steps necessary to have the dispute dealt with in the arbitration proceedings. 72 With the benefit of hindsight it is fairly simple to attack [as made without any factual basis], indications to the arbitrator and/or to the Council that funding inquiries afoot were anticipated to have particular results within particular timeframes. It is particularly important to note that each alleged representation was a statement of belief/expectation as to an anticipated fruition of complex and delicate negotiations by a liquidator requiring input from a number of potential funders and committee members as well as requiring close attention to internal recoveries and the possibility of such in relation to preference claims. The Council's case was not put suggesting that Mr Hutchison did not have the beliefs to which he testified but was limited to the proposition that there was no factual basis for the relevant beliefs nor proper foundation for the statements made. No implied representation 73 At threshold level there was no implied representation that the relevant belief had reasonable grounds. 74 Whether a representation of a belief implicitly also conveys the existence of reasonable grounds for that belief depends upon the context :see GIO Australia Holdings Ltd v AMP Insurance Investment Holdings Pty Ltd and Another (1998) 29 ACSR 584, 615. See also Economides v Commercial Assurance Co plc [1998] QB 587. 75 Here, the statements were not made in circumstances in which the liquidator knew or ought to have known that the Council was likely to reasonably rely upon them for the purposes of determining what it would do or not do and that it, if it did so rely, the Council would or might suffer serious detriment if the belief had no reasonable basis. There was, therefore, no implied representation that the liquidator's belief had reasonable grounds. 76 There must be many statements made in the course of progressing an arbitration that, although made bona fide, might be regarded by the arbitrator or the other parties to the arbitration (with the benefit of the knowledge possessed by the representor) as not having had a reasonable foundation. For example, representations that statements of evidence can be put on by a particular date might be thought (if the full extent of the information known to a representor was disclosed) to have been based upon inadequate inquiry or inadequate assessment of the scale of the undertaking required. 77 For reasons that are set out later in this judgment, during the period between 18 May 2004 and 1 December 2004 any representational quality which may have attached to the 18 May 2004 statement had been spent. Likewise between 27 January 2005 and the provision of the security in 2006, any representational quality which may have attached to the 1 December 2004 and 27 January 2005 statements had been spent. 18 May 2004 78 In so far as it may be necessary to make findings in relation what was established by the more detailed evidence, without necessarily being exhaustive the Court is satisfied [in relation to the position as it was on 18 May 2004] with each of the following matters as having been established:

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iv. In the context of the adoption of referee's reports, the training of the referee as a trained lawyer has an importance to the court relying on its conclusions: e.g. where the Report shows a thorough, analytical and scientific approach to the assessment of the subject matter of inquiry, the Court will have a disposition towards acceptance of the Report, for to do otherwise would be to negate the purpose of references: Chloride Batteries v Glendale Chemical (1988) 17 NSWLR 60 at 67C-E; Super Pty Limited at 555C-D, and 564A-C; Skinner & Edwards (Builders) Pty Ltd v Australian Telecommunications Corp (1992) 27 NSWLR 567 at 576B-G. The same can be said of the arbitration and the chosen arbitrator with his peculiar skills in this case. His special skills to determine this case, will not be lightly dispensed with in the circumstances of this case. 105 It is convenient to turn to examine the more particular detail of each of the suggested difficulties. In that regard the submissions of Austin are of substance and adopted in what follows. Prejudice through delay and the alleged non-transcription of the evidence of Mr Gervay & Mr Bagga 106 Properly understood there was no 'evidence' that was not transcribed and the course that is now complained of was consented to by the Council during the course of the arbitration. 107 The facts are: · On 11 April 2003 Mr Gervay took the arbitrator through the plans referred to and analysed in his Supplementary Statement dated 10 April 2003 (SGB2, p303.12 (Court Book 3107)) - the statement is at SGB1, pp1044-1048) (2500-2504). · Mr Bagga's statement dated 4 April 2002 became Exhibit 25 (SGB2, p1637 (4442), SGB1, p584 (1910)). · Mr Bagga was called to give evidence on 26 November 2003 (SGB2, p1628.40) (4433) [seven months after Mr Gervay had given evidence, including his explanation of the plans]. · Mr Simpkins expressed no desire to cross-examine on the current evidence (SGB2, p1628.42) (4433). · Mr Simpkins suggested that if Mr Bagga was going to make a submission as to what the plans showed it might be best to deal with it off the record (SGB2, p1629.15) (4434). · Mr Simpkins noted that there was no cross-examination of what Mr Gervay had said the plans showed (SGB2, p1629.21) (4434). · Mr Neal expressed the desire to lead evidence from Mr Bagga as to what his marked-up drawings showed (SGB2, p1630.11) (4435) and to tender the drawings (SGB2, p1630.15) (4435) as well as evidence about 'wall systems' (SGB2, p1630.18) (4435). · Mr Neal, however, accepted that it was for the arbitrator to use his expertise to compare what was built with the GMP drawings (SGB2, p1630.22) (4435). · The arbitrator observed that after conclaving with the quantum experts (Messrs Thomson and Makin), the need to interpret the façade drawings had "dissipated" (SGB2, p1630.42) (4435). · Mr Neal still expressed a desire to lead the evidence (SGB2, p1631.4) (4436). · The arbitrator said that he would not stop Mr Neal, but suggested that Mr Bagga mark up Mr Gervay's marked-up plans (SGB2, p1631.7) (4436). · Mr Simpkins observed that if Mr Bagga was going to contradict Mr Gervay there ought to be a statement (SGB2, p1631.15) (4436). · Mr Neal stated that Mr Bagga had marked up drawings the night before, after returning from India (SGB2, p1631.39) (4436). · The arbitrator asked if Mr Bagga was going to contradict Mr Gervay (SGB2, p1631.44) (4436) and whether the evidence was in the nature of expert evidence that should have been in a report (SGB2, p1632.1) (4437). · Mr Neal observed that Mr Bagga's understanding of what was built was different from that of Mr Gervay but that it was a matter for the arbitrator to decide what was built from looking at the plans (SGB2, p1632.20) (4437). · The arbitrator asked Mr Neal whether it was necessary to explore the disagreement between Mr Gervay and Mr Bagga "if I am not going to consider what Mr Gervay said about what was built" given the agreement (between the quantum experts as to the façade): SGB2, p1632.23 (4437). · Mr Neal said that since the arbitrator had evidence from Mr Gervay on the point, he should also receive the evidence of Mr Bagga: SGB2, p1632.45) (4437). · Mr Simpkins observed that: -

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i. Mr Gervay gave his evidence several months ago; ii. he was not cross-examined on it; iii. before any contradictory evidence was lead there ought to be a written outline (SGB2, p1633.5) (4438). · Mr Simpkins expressed that it was a matter for the arbitrator to interpret the plans (SGB2, p1633.16) (4438). · The arbitrator stated that he would direct his mind to the differences between the construction drawings and the GMP drawings (SGB2, p1633.40) (4438), but that he would let Mr Bagga mark drawings off the record to explain his understanding (SGB2, p1633.42) (4438). · The arbitrator expressed that he could construe the documents "relatively easily" himself (SGB2, p1634.3) (4439). · Mr Neal said that he was content with that course (SGB2, p1634.8) (4439). · Mr Neal also said that he wanted to tender the documents that Mr Bagga had marked up (SGB2, p1634.8) (4439). · The matter was then adjourned to enable these documents to be looked at by Mr Simpkins (SGB2, 1634.29) (4439). · After the adjournment Mr Simpkins observed that the arbitrator had the expertise to construe the documents and that Austin should not be forced to cross-examine Mr Bagga as an expert without a report having been served (SGB2, p1634.31) (4439). · Mr Simpkins expressed, however, that Mr Bagga could explain off the record what the plans showed if it was just advanced as Auburn's contention (in the same way that Mr Gervay had proceeded to give his understanding on that basis) (SGB2, p1634.44) (4439). · Mr Neal stated that Mr Bagga was there and could give lay evidence as to what was built and oral evidence of that should be permitted (SGB2, p1635.11) (4440). · The arbitrator observed that there was no issue as to what was built as this was shown in the construction drawings (SGB2, p1635.20) (4440). · Mr Neal agrees to Mr Bagga explaining the drawings off the record (SGB2, p1635.40) (4440). · The arbitrator suggested that it would be useful for Mr Bagga and Mr Gervay to do it together (SGB2, p1636.24) (4441) and Mr Neal agreed (SGB2, 1636.32) (4441). · Mr Neal tendered Mr Bagga's statement (SGB2, p1637.8) (4442). · Mr Simpkins expressed no desire for cross-examination on the current statement (SGB2, p1637.18) (4442), as the defects were being dealt with through conclaves between Mr Abbott (Austin) and Mr Plaister (Council) (SGB2, p1637.26) (4442). · Mr Simpkins stated that Mr Gervay was available to participate with Mr Bagga (SGB2, p1638.33) (4443). · Mr Neal observed that Mr Bagga must go (SGB2, p1638.39) (4443). · The arbitrator asked that Mr Bagga stay for 20 minutes to go through the drawings with Mr Gervay and make notes on the drawings (SGB2, p1639.24) (4444). · There is a reference later in the day to the plans having been marked by Mr Bagga with Mr Gervay noting his agreement or otherwise (SGB2, p1711,15) (4516).

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108 Ms Brew's evidence made it plain that there is no prejudice (assuming that Mr Bagga is unable to be located after reasonable efforts - a fact not established on the current evidence). 109 Her relevant evidence was:- · Initially, Ms Brew claimed that Mr Bagga was someone who might give evidence in relation to the curtain wall (T133.28). She agreed, however, that the curtain wall was still in place (T133.35) so that if someone wanted to know what was built one only needed to go to the Council's premises and have a look (T133.40). · In any event, the Council had at an earlier time had another architect look at the curtain wall for the purposes of providing evidence as to what was built and how it compared with the GMP plans (T133.48). · Ms Brew had never asked the Council to find out what other information it might have (beyond such a report) on the topic of the curtain wall and how it was constructed (T134.41). · Ms Brew agreed that no further evidence was required to be given by Mr Bagga (T137.17). He is only required to assist with submissions (T137.31). The kind of instruction that Mr Bagga could give in that regard is the same that any architect could give with the provisions of plans and an inspection of the curtain wall apart from one aspect (T137.38). That one aspect was the definition of the deletion which contained 'a confusing definition' (T137.41). What was involved was a question of construction only (T137.48). Prejudice through delay and the lack of knowledge on the part of the council as to what happened in conclaves between the quantum experts (Mr Makin and Mr Thomson) 110 Ms Brew's evidence also made it plain that there is no prejudice because there is no relevant lack of knowledge (T135). 111 The facts concerning the process by which Mr Makin and Mr Thomson gave evidence are:- · Relevant documents are to be found at SGB2, pp84 (Court Book 2888), 294-295 (3098-3099), 455-456 (3259-3260), 543 (3348) and 611 (3416) (on 7, 11 and 17 April, 29 May and 16 October 2003). But these all predate the actual giving of evidence by Mr Makin and Mr Thomson. · Mr Makin gave his evidence on 24 November and 9, 10 and 16 December 2003. · On 24 November 2003 his evidence in chief (which commenced at SGB2, p1461) (4266):-

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iii. Explained the differences (as Mr Makin understood it) between himself and Mr Thomson (SGB2, p1462.33) (4267). · Mr Faulkner commenced his cross-examination of Mr Makin after this, although this was only brief (SGB2, p1497.3) (4302). · He was also cross-examined on 9 December (SGB2, pp1744-1763) (4549-4568), 10 December (SGB2, pp1767-1796) (4572-4601) and 16 December 2003 (SGB2, pp1800-1801) (4605-4606). At the conclusion of his cross-examination, Mr Faulkner made it clear that he had no further questions (SGB2, p1801.32) (4606). Mr Makin was then re-examined. Mr Makin was then excused (SGB2, p1806.21) (4611). · Mr Thomson was called to give evidence on 16 December 2003 (SGB2, p1815) (4620). He produced his own schedule of variations (SGB2, p1816.8) (4621). It had not previously been produced (SGB2, p1817.1) (4622). The arbitrator noted that it contained a lot of commentary that Mr Makin would need to get across (SGB2, p1817.41 (4622), p1818.32) (4623). The arbitrator thought the schedule did not accord with Mr Makin's schedule, Exhibit 18 (SGB2, p1818.21) (4623). Cross-examination was deferred (SGB2, p1819.1) (4624). · There were difficulties with the cross-examination proceeding the following day (see SGB2, p1822) (4627). · On 18 December 2003, Mr Simpkins addresses the weight to be given to Mr Thomson's comments (SGB2, p1834.35) (4369), given Mr Thomson's unavailability for cross-examination (SGB2, p1833.1) (4368). The arbitrator says that it is not necessary to cross-examine Mr Thomson on any additional comments (SGB2, p1835.14) (4640). The arbitrator says that he will allow Mr Makin to comment (SGB2, p1837.24) (4642). · Mr Simpkins identified the basis of objections to Mr Thomson's evidence (SGB2, p1841.25) (4646). The arbitrator generally agrees. Prejudice through delay and the rectification of defects 112 Ms Brew's evidence made it plain that there is no prejudice because a sufficient record of the defects exists and they were inspected before rectification. 113 Ms Brew's evidence was: · that she was asked about the site inspection on 24 October 2002: T89.28. The arbitrator was asked to look at defects and Mr Goncalves (the Council's building officer) assisted by pointing them out (T90.4). All of the defects were inspected apart from those that were repeated (T90.37); · that she was consulted from time to time about the Council's plans to rectify some of the major defects (T130.1) and she gave advice that before any rectification occurred there ought to be a proper record made of what it was which was there to be seen constituting the defect (T130.8); · that Council, through its own officer, took photographs of the defects (T130.34). The majority were photographed (T130.41). The arbitrator took photographs of all of the defects (T130.48).

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"… despite some judicial observations concerning the right of defendants to let sleeping dogs lie and that defendants should not be penalised for earlier inaction when subsequently an application is made to dismiss proceedings for want of prosecution, no rigid rule can be laid down on the matter. By way of example, which I give because of its relevance in the present case, in some cases inaction by a defendant in the face of impending prejudice to him if delay continues, may render a later claim of actual prejudice less creditworthy, and the prejudice, if established, a less weighty factor. A defendant in proceedings which have been instituted, particularly as in the present case, proceedings brought to issue on the pleading with the supply of all required and requested particulars, is in quite a different position from that of the nominal defendant who may be unaware of the relevant occurrence. A defendant of the former type is in a position to prepare his case for trial, including interview witnesses and enquire as to their availability to be called to give evidence. A plaintiff may have legitimate reasons for some delay, as where he is about to undergo an operation expected to clarify his medical future. It is too simplistic an approach to regard preparation for, and bringing the proceedings to trial, as a one sided affair resting entirely on the plaintiff, who has the carriage of the action. I cannot accept, for example, that a defendant, who has written complaining of the delay and warning that particular prejudice will occur to him if delay continues, is not, on a later application to dismiss the proceedings, in a position superior to that of a defendant who has lain silent, and later claims for the first time that prejudice has occurred by reason of the delay. Whatever may have been past views of the adversary system regarding skill in the exploiting the rules in an adversary duel as some kind of virtue, current ideas of justice, at least in this country, are directed to the substance of things. The exercise of the undoubted right of a defendant to do nothing runs the risk of being classified in the circumstances of some cases as being in the category of the 'ambush' approach to litigation." 120 Accordingly, I accept as correct the contention by Austin that the complaints by the Council of prejudice need to be weighed against the fact that it took the deliberate decision not to advance its cross-claim which, if advanced to finality, would have avoided all of its current complaints of prejudice. 121 In Alginates (Australia) Pty Ltd v Thomson & Carroll Pty Ltd [1970] VR 570, 575, Smith, J said:

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Dealing with the issue in the present context 129 To my mind both parties share some part of the blame for the late occasion when the application for leave is being pressed. Certainly the Council bore the onus of pressing the application. But it has to be said that the failure of Austin to bring the subject up until the end of the hearing, suggests its own form of 'lying by'. 130 Ultimately the issue is one of discretion. The pervasive circumstance is that had the application been pursued in timely fashion [as for example prior to the commencement of the final hearing or upon the commencement of that hearing] the discretion would have been exercised by granting the leave subject to the court requiring the applicant to undertake that it would not, without the leave of the court, seek to enforce against the company, any judgment obtained. In the state of affairs which existed at that time it would not have been possible for the Court to do otherwise than to accept that there was good reason on the balance of convenience, why the Council should through the present proceedings, pursue the claim [which in a nutshell sought, by one means or another, to terminate the arbitration]. 131 The fact was that it was Austin which, as claimant, had invoked the arbitration proceedings and had failed to provide the security for costs funds until 2006. As at the commencement of the final hearing, a principled exercise of the discretion would have been to grant the leave subject to the above-described condition. 132 Austin's contention that it is appropriate for the Court with the benefit of hindsight to now dismiss the application for leave on the basis that the reasons suggest that the Council's case was never one of substance is misconceived. The benefit of hindsight cannot be used in this way. The leave will be granted subject to the above-described undertaking coming forward or to an order to the same effect being made. Short minutes of order 133 The parties are to prepare short minutes of order on which occasion they will be given an opportunity to address on costs. Leave is reserved to both parties to address should either party seek to contend that any particular issue has not yet been determined.

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Judgment (262 paragraphs)

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