MATTER : The Commercial Arbitration Act 1985 (WA)

BETWEEN : SILENT VECTOR PTY LTD t/as SIZER BUILDERS

Citation : Squarcini v Silent Vector Pty Ltd t/as Sizer Builders

Arbitration - Interim award - Application for leave to appeal - Construction of standard form building contract - Availability of common law damages for delay

Commercial Arbitration Act 1985 (WA), s 38(2), s 38(4), s 38(5)

1 The applicant applies for leave to appeal from the interim award of an arbitrator made on 8 May 2008 in an arbitration between the applicant (the builder) and the respondent (the property developer). The parties had entered into a building contract using the Australian Standard General Conditions of Contract AS2124-1992 (the Contract) for the construction of a 12 storey apartment building in Crawley. There are a number of disputes between the parties and they were referred to arbitration. One of the respondent's claims in the arbitration is for general damages for delay for non-completion by the Date of Practical Completion. To that claim the applicant responded that as a matter of law, and on a proper interpretation of cl 35.6 read with Pt A of the Contract, the respondent is not entitled to damages for delay.

2 The learned arbitrator heard this issue as a preliminary point of law and made an interim award in respect to it. The learned arbitrator found that the preliminary point of law taken by the applicant failed. The applicant applies for leave to appeal from that interim award.

3 On 29 May 2008 the applicant filed an appeal notice pursuant to the Commercial Arbitration Act 1985 (WA) (the Act) s 38(2). That section provides that, subject to s 38(4), an appeal shall lie to the Supreme Court on any question of law arising out of an award. By s 38(4) an appeal cannot be brought except with the consent of the parties or the leave of the court. There is no consent in the present case so that leave is required.

4 The only ground of appeal stated in the appeal notice is:

The learned arbitrator erred in law by construing the contract between the (applicant) and the respondent as entitling the respondent to claim general damages for delay when he ought to have construed the contract as not entitling the respondent to claim such damages.

5 The applicant does not identify any particular error of law in the manner in which the learned arbitrator approached the issue before him. It simply contends that he came to the incorrect conclusion.

6 On 12 June 2008 Master Sanderson directed that the application for leave to appeal be heard with the appeal.

7 The Act s 38(5) states that the court shall not grant leave to appeal unless it considers that:

(a) having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement_;_ and

(b) there is -

(i) a manifest error of law on the face of the award_;_ or

(ii) strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.

8 It is not in dispute that the determination of the question of law concerned in this application could substantially affect the rights of both parties to the arbitration agreement. The applicant does not rely upon s 38(5)(b)(i). The applicant does assert that there is strong evidence that the learned 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. The respondent disputes both limbs of s 38(5)(b)(ii).

9 It is necessary for me to consider the merits of the proposed ground of appeal in order to determine whether leave to appeal should be granted. In order to obtain leave to appeal s 38(5)(b)(ii) requires the applicant to show:

1. That there is strong evidence that the arbitrator made an error of law; and
2. that the determination of the question may add, or be likely to add, substantially to the certainty of commercial law.

10 The Preface to the Contract states, amongst other things, that clauses prefixed by an asterisk are optional and may be omitted as necessary, without making consequential amendments but that 'such omission should be clearly shown on the face of the contract by striking out these clauses or indicating clearly elsewhere that they are not to apply'.

11 In the Contract, the applicant is referred to as 'the Contractor' and the respondent is referred to as 'the Principal'.

12 The parties struck out some paragraphs of the standard printed form General conditions of contract. They did this by ruling through the particular paragraph and initialling the ruling. The only clause which the parties struck out as a whole, which was not an alternative clause, was cl 3.3 'Adjustment for Actual Quantities - Schedule of Rates'.

13 Other clauses which were struck out in whole were alternatives to clauses which were retained or clauses which were irrelevant because they related to alternative clauses which had been struck out. For example, cl 4.1 provided three alternatives in respect to a Bill of Quantities. Alternative 1 provided that a Bill of Quantities formed part of the contract only to the extent provided in the contract. Alternative 2 provided a Bill of Quantities shall not form part of the contract. Alternative 3 provided that a Bill of Quantities formed part of the specifications. Alternatives 1 and 3 were struck out in the manner which I have described previously. Clauses 4.2, 4.3 and 4.4 relating to a Bill of Quantities, if one existed, were also struck out in the manner I have described, consistent with the exclusion of a Bill of Quantities from the Contract.

14 The parties also struck out parts of some clauses. For example, cl 8.1 provides for the procedure if a party discovers any ambiguity or discrepancy in any document prepared for the purpose of executing the work under the contract. It provides that the Superintendent shall direct the Contractor as to the interpretation to be followed by the Contractor in carrying out the work. In the manner I have described previously, the parties deleted the final paragraph of the clause which had provided that if a direction caused the Contractor to incur more or less cost than the Contractor could reasonably have anticipated at the time of tendering, the difference shall be valued under cl 40.5.

15 The Contract has an Annexure which, in turn, is divided into Pt A and Pt B. The Annexure reads:

This Annexure shall be issued as part of the tender documents and is to be attached to the General Conditions of Contract and shall be read as part of the Contract.

This table is intended for easy reference to clauses that may have been deleted, amended or added to Australian Standard 2124-1992.

17 Part A of the Annexure to the Contract is comprised of two columns. The left hand column comprises a list of various items and often refers to the clause of the Contract to which the item relates. In the right hand column the parties were required to insert certain information related to the corresponding item in the left hand column and, where relevant, to the related clause. All of the information inserted by the parties into Pt A was handwritten. For example, the first item in the left hand column is: 'The law applicable is that of the State or Territory of: (Clause 1)'. In the right hand column the parties had written 'Western Australia'.

18 Against a number of items of information required to be specified in Pt A the parties wrote 'N/A' in the right hand column. Examples of the different circumstances in which they inserted 'N/A' are as follows:

1. One item in the left hand column is the 'Limits of accuracy applying to quantities for which the Principal accepted a rate or rates'. This information was referable to cl 3.3(b). The parties deleted cl 3.3 in its entirety, as I have previously described, and in Pt A in the right hand column, alongside this reference, they wrote 'N/A'.
2. There are references in the left hand column of Pt A to a Bill of Quantities. The first reference required the parties to insert the alternative in cl 4.1 which applied to the Contract. In the right hand column the parties wrote 'N/A'; as opposed to Alternative 2, which would have been accurate.

The second reference to a Bill of Quantities required the parties to insert 'The time for lodgement of the priced copy of the Bill of Quantities' pursuant to cl 4.2. As I have previously mentioned, the parties had stipulated that a Bill of Quantities did not form part of the contract. They had deleted cl 4.2 and against this item in the Pt A the parties wrote 'N/A'.

1. The left hand column of Pt A refers to 'Interest on retention moneys and security - the alternative applying'. In the right hand column against this item the parties wrote 'N/A'. This information is referable to cl 5.9. Clause 5.9 contains two alternative provisions in respect to the holding of and dealing with interest earned on retention moneys and/or cash security. Neither alternative has been struck through, even though in Pt A there is an item in the left hand column which states 'Contractor shall provide security in the amount of:' and along side this item, which is referable to cl 5.2, the parties had written '5% of contract sum'. Thus, the parties failed to stipulate how the security provided by the Contractor was to be dealt with.
2. The left hand column of Pt A refers to 'Bonus per day for early Practical Completion' and 'Limit of Bonus'. These items are referable to cl 35.8 which is marked with an asterisk. The parties did not strike it out. Clause 35.8 provides that in the event of early Practical Completion the respondent will pay the applicant the bonus stated in the Annexure but that the bonus shall not exceed the limit stated in the Annexure. Against both the reference to the bonus per day and the limit of the bonus, the parties wrote 'N/A'.

19 The parties used other devices to omit, or restrict the application of, clauses in the contract. For example, the left hand column of Pt A refers to 'The Value of materials to be supplied by the Principal'. This item is referable to cl 18(iv) which is part of the alternative clause dealing with insurance of the works, which the parties had included in the Contract. Clause 18(iv) provides that the insurance cover may exclude the value stated in the Annexure of any materials or things to be supplied by the Principal. Against this item in Pt A the parties wrote 'NIL'. This is the only item in Pt A against which they wrote 'NIL'.

20 There is also one instance where the parties left the right hand column blank. The left hand column refers to 'The additional amount or percentage: (Clause 18(v))'. Clause 18(v) provides that the insurance cover shall be for an amount not less than the sum of the additional amount or percentage stated in the Annexure of the total of the items in cl 18(i) to (iv). There is a dotted line in the right hand column for the relevant amount or percentage to be inserted. Despite the fact that cl 18, Alternative 1, containing (v) has been included in the Contract, the dotted line has not been completed.

21 Another example of a method used by the parties in Pt A to omit, or restrict the application of, some clauses in the printed form is in respect to 'separable portions'. The clauses in the General Conditions which referred to separable portions were not struck through but, in Pt A, the page headed 'Separable Portions' which provided spaces for the parties to insert the details applicable to separable portions had been ruled through with a diagonal line from top to bottom. At the bottom of that page the printed form instructed the parties to use that page of the Annexure where there were separable portions.

22 Part B to the Annexure consists of one printed page containing three numbered paragraphs. Paragraph 1 states that 'The following Clauses have been deleted from the General Conditions in AS2124-1992'. The parties have inserted some, but not all, of the deleted clauses in this paragraph. For example, cl 4.4 is stipulated but cl 4.2 is not.

23 Paragraph 2 of Pt B states that 'The following Clauses have been amended and differ from the corresponding Clauses in AS 2124-1992'. Again, the parties have inserted some, but not all, of the amended clauses in this paragraph. For example, cl 8.1 has been stipulated but not the amendments to cl 14.1.

24 Thus, paragraphs 1 and 2 of Pt B fail to meet their stated purposes. They confuse the issues regarding the construction of the Contract rather than clarify them.

25 Paragraph 3 of Pt B states that 'The following Clauses have been added to those of the AS 2124-1992'. The parties inserted some additional clauses and identified them in par 3. They are not relevant to the determination of this matter.

The liquidated damages clause in the contract

26 At issue between the parties is the construction of cl 35.6 which states:

If the Contractor fails to reach Practical Completion by the Date for Practical Completion, the Contractor shall be indebted to the Principal for liquidated damages at the rate stated in the Annexure for every day after the Date for Practical Completion to and including the Date of Practical Completion or the date that the Contract is terminated under Clause 44, whichever first occurs.

If after the Contractor has paid or the Principal has deducted liquidated damages, the time for Practical Completion is extended, the Principal shall forthwith repay to the Contractor any liquidated damages paid or deducted in respect of the period up to and including the new Date for Practical Completion.

27 It is also relevant to refer to the two following clauses, cl 35.7 which states:

The Contractor's liability under Clause 35.6 is limited to the amount stated in the Annexure.

If the Date of Practical Completion is earlier than the Date for Practical Completion the Principal shall pay the Contractor the bonus stated in the Annexure for every day after the Date of Practical Completion to and including the Date for Practical Completion.

The total of the bonus shall not exceed the limit stated in the Annexure.

I have omitted the clause headings as cl 2 states that they are not to be used in the interpretation of the Contract.

28 Clauses 35.7 and cl 35.8 are asterisk clauses but they were not physically deleted from the contract by being ruled through in the manner I described earlier in respect to cl 3.3, for example.

29 In Pt A, there are four items which refer to cl 35.6, cl 35.7 and cl 35.8. I have already referred to those which refer to cl 35.8.

30 In respect to cl 35.6, the left hand column of Pt A includes an item which states 'Liquidated Damages per day'. Against this item in the right hand column the parties wrote 'N/A'. In respect to cl 35.7, the left hand column of Pt A states 'Limit of Liquidated Damages'. Against this item in the left hand column the parties wrote 'N/A'.

31 Clause 35.6 is not stated in Pt B as having been deleted or amended.

32 In respect to the applicant's right to damages for delay, cl 35.5 states that delay by the respondent shall not cause the Date for Practical Completion to be set at large but that nothing in the paragraph shall prejudice any right of the applicant to damages.

33 The learned arbitrator identified the question of law for his determination as whether 'properly construed, cl 35.6 read with the Annexure means that the parties fixed the rate for which liquidated damages were payable at nil, leaving the [respondent] confined to liquidated damages at that rate' and precluding the respondent from claiming unliquidated, general damages. The learned arbitrator identified this construction as being the 'narrow meaning'.

34 The 'wide meaning', contended for by the respondent, was identified by the learned arbitrator as being that 'the "N/A" in the annexure means that the parties intended that cl 35.6 as a whole was not applicable, leaving the [respondent] able to claim general damages for delay'.

35 After considering the parties' submissions and the law, the learned arbitrator concluded 'that the parties by the use of the abbreviation "N/A" in Pt A in relation to cl 35.6 intended that the entire clause was not applicable, leaving it open to the [respondent] to claim general damages for delay'. Alternatively, the learned arbitrator held that if he was wrong in arriving at that conclusion he was led to the same result by reason of the failure of the parties to use 'clear and unequivocal words', as are required, before it could be found that either party intended to abandon a remedy in general damages.

36 In order to determine the construction issue the learned arbitrator applied the dicta in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 where Lord Diplock held:

But in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear and express words must be used in order to rebut this presumption ...

So when one is concerned with a building contract one starts with the presumption that each party is to be entitled to all those remedies for its breach as would arise by operation of law, ... To rebut that presumption one must be able to find in the contract clear unequivocal words in which the parties have expressed their agreement that this remedy shall not be available in respect of breaches of that particular contract (717 - 718).

37 The parties agree that this principle applies to the construction of the Contract.

38 The learned arbitrator then referred to a number of the applicant's submissions. The first submission that he considered was that cl 35.6 is in mandatory terms which supported a construction that the parties agreed to confine the respondent's rights to a claim for liquidated damages. Further, it was submitted that the item in the Annexure Pt A only provides for the rate at which liquidated damages are payable, leaving 'the mandatory content of cl 35.6 unaffected and intact'. Therefore, as cl 35.6 itself had not been physically struck out, it was submitted that the only claim which the respondent has is a claim for liquidated damages calculated at the rate specified in the Annexure Pt A and as no rate is applicable, there is no entitlement to liquidated damages or to common law damages.

39 The learned arbitrator did not accept this submission. He distinguished C S Phillips Pty Ltd v Balderstone Hornibrook Pty Ltd (Unreported, NSWSC, 26 October 1994), a case relied upon by the applicant, because in Phillips the relevant clause read that 'the Sub-Contractor shall pay to the Builder by way of liquidated damages' a sum on failing to complete the works on time whereas cl 35.6 states only that the applicant 'shall be indebted to the principal'. The learned arbitrator was of the view that the phraseology in cl 35.6 is not mandatory in the sense that it does not compel the Contractor to pay if the Principal does not demand payment. Whereas, in Phillips, the words of the clause created an immediate obligation to pay, prior to a demand for payment by the principal. Thus, the learned arbitrator found that cl 35.6 'may well be discretionary' depending on whether or not the Principal chooses to enforce the indebtedness of the Contractor.

40 In any event, the learned arbitrator agreed with the respondent's counsel that it was irrelevant whether the terms of the clause are mandatory or discretionary. He reiterated that the issue was whether cl 35.6, construed in the light of the contract as a whole, evinced a clear and unequivocal intention that only liquidated damages may be claimed at the rate stipulated in the Annexure.

41 I agree that whether or not cl 35.6 is mandatory or discretionary is not determinative of this issue. Part A is part of the Contract and it directly relates to various clauses, including cl 35.6. Clause 35.6 must be read in light of all the Contract, particularly the relevant portion of Pt A: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 (109).

42 The learned arbitrator said that it must be borne in mind that the purpose of inserting a liquidated damages clause in a building contract is for the benefit of the principal. Its aim is to relieve him of the expense and inconvenience of having to prove his damages for delay caused by the contractor: Baese Pty Ltd v R A Bracken Building Pty Ltd (1990) 6 BCL 137, 140. In the learned arbitrator's view this rationale served to underline the need for finding a clear and unequivocal intention to waive the principal's rights when a clause inserted for his benefit may at the same time have the effect of depriving him of very substantial common law rights.

43 The second submission made on behalf of the applicant which the learned arbitrator dealt with was that the fact that the parties had not physically deleted cl 35.6 and cl 35.7 supported the applicant's contention that there was no intention to delete those clauses in their entirety and that the letters 'N/A' appearing in the Annexure in relation to those damages could only be read as meaning that there was no rate applicable to those clauses, the content of which remained in force. The applicant had also submitted that as cl 35.7 was an asterisk clause, if the parties had intended to remove the liquidated damages provision entirely, it would have been expected that they would have deleted cl 35.6 and cl 35.7 in the manner referred to in the Preface to the Contract.

44 The learned arbitrator was of the view that there were two answers to these submissions. First, in relation to cl 35.7 he said that the Preface to the Contract contemplated a method of deletion other than striking through the clause itself. In the learned arbitrator's view, an indication in the Annexure that a clause was not applicable clearly fell within the ambit of the method of deleting or omitting a clause as contemplated in the Preface to the Contract.

45 It appears to me that this view was open to the learned arbitrator.

46 Secondly, the learned arbitrator was of the view that the validity of the applicant's submissions presupposed that the parties consistently and strictly adhered to every instruction in, or requirement of, the Contract. Rather, the learned arbitrator found that there were omissions and oversights found throughout the Contract. One example was in Pt B of the Contract where cl 4.2 and cl 4.3, which had been deleted, were not mentioned.

47 The learned arbitrator also found that there were other clauses in the Contract which adopted the same formula as cl 35.6 and cl 35.7, namely using the abbreviation 'N/A' in the Annexure but not specifically deleting the clauses to which they relate. Clauses 35.8 and 5.9 were the examples cited by the learned arbitrator. The learned arbitrator was of the view that, even though they had not been deleted from the contract, 'N/A' in the right hand column of Pt A against items referring to cl 5.9 and cl 35.8 could mean nothing other than that the entire related clause does not apply. Thus, according to the learned arbitrator the parties' approach to cl 35.8 and cl 5.9 lent cogent support adopting the wide meaning of cl 35.6.

48 The learned arbitrator also referred to the insertion of 'NIL' in the Annexure in respect to cl 18(iv). The learned arbitrator noted that none of the contracts referred to in the authorities, cited to him in support of the respective arguments, had used both the abbreviation 'N/A' and 'NIL' in the same contract. In the learned arbitrator's view the use of these different terms indicated that the parties intended that they would bear different meanings.

49 I agree with the learned arbitrator that, on the face of it, a reasonable person would have been led to believe that the different terms were to bear different meanings: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40].

50 The learned arbitrator held that the interpretation placed on the Contract must relate specifically to the particular terms of the Contract and that limited guidance could be derived from other cases relating to contracts in different terms. In particular, the learned arbitrator distinguished another case relied upon by the applicant, being Temloc Ltd v Errill Properties Ltd (1987) 39 BLR 30 on the basis that the English Court of Appeal had had regard to the heading of the relevant clause, which read 'damages for non-completion'. The learned arbitrator was of the view that, to some extent, the heading induced the court to find that the clause covered both liquidated and unliquidated damages. The learned arbitrator acknowledged that cl 2 of the Contract precluded him from having recourse to headings as a source for interpretation. However, he was of the view that if the heading of the relevant clause in the Temloc contract had been the same as the heading of cl 35.6, their Lordships may have come to a different conclusion.

51 Finally, the learned arbitrator distinguished Temloc on the basis that the trial judge had taken into account evidence as to the background discussions between the parties during negotiations. There was no such evidence in this case for the learned arbitrator to take into account.

52 The learned arbitrator further distinguished the Phillips case on a number of bases being that the heading of the relevant clause was couched in identical terms to that in Temloc, the parties to that contract had not used the word nil, in the contract, there was no indication that a provision similar to the Preface in the Contract was contained in the relevant contract considered in Phillips and there was nothing to indicate that 'N/A' in relation to other clauses in the contract excluded the entire content thereof.

53 Next, the learned arbitrator referred to the respondent's submission that a number of clauses in the Contract, a Letter of Intent, dated 11 June 2005, and a reply thereto, dated 14 June 2005, evinced an intention to preserve the common law right to claim damages for delay. Clauses 33.1 and 35.2 referred to the applicant's obligation to execute the works 'with due expedition and without delay', to execute the works to Practical Completion and to give possession of the works to the respondent upon the Date of Practical Completion. The Letter of Intent also expressly provided that the project had to be completed within a 78 weeks programme. A later letter stipulated that the Contract period would be 86 weeks from issue of the building licence.

54 The learned arbitrator found that clauses such as 33.1 and 35.2, as well as cl 35.5, would be rendered unenforceable and otiose if there was no entitlement to claim damages for delay. The failure of the parties to delete or omit these provisions from the Contract 'strongly' supported the argument that the parties had not intended to waive common law damages.

55 The learned arbitrator did not find the submission that, even if there was no right to damages, the Contract remained enforceable by way of an order for specific performance to have merit. He noted that a claim for delay usually arose after the Date for Practical Completion had past and a court could not order specific performance by a past date. He also noted that a court would rarely, if ever, order specific performance of a building contract for $12.4 million. Further, as a matter of business sense, he did not find that termination of the Contract prior to completion a practical or realistic remedy.

56 The learned arbitrator concluded that the parties, by the use of the abbreviation 'N/A' in Pt A in relation to cl 35.6, intended that the entire clause was not applicable leaving it open to the respondent to claim general damages for delay.

57 The learned arbitrator also said that if he was wrong in that conclusion, he was led to the same result by reason of the failure to rebut the presumption of the availability of common law damages, for the reasons he had mentioned, that 'clear and unequivocal words' were required before it would be found that either party, intended to abandon any remedies for its breach arising by operation of law.

58 Consequently, the learned arbitrator found that the preliminary point of law taken by the applicant failed.

59 The construction of the Contract is to be determined by what a reasonable person would have understood its language to mean. This requires consideration not only of the terms of the Contract, but also of the surrounding circumstances known to both parties and consideration of the purpose and object of the transaction the subject of the Contract: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 462. In Wilson v Anderson (2002) 213 CLR 401, 418 Gleeson CJ said:

The law of contract seeks to give effect to the common intention of the parties to a contract. But the test is objective and impersonal. The common intention is to be ascertained by reference to what a reasonable person would understand by the language used by the parties to express their agreement. If the contract is in the form of a document, then it is the meaning that the document would convey to a reasonable person that matters.

60 Given that the terms of the Contract relating to damages are open to two constructions it is also helpful to refer to the comments of Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd 109 - 110. His Honour said:

It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate', to use the words from earlier authorities cited in Lock v Dunlop (1988) 39 Ch D 387 at 393, ... Further it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas and Co Ltd v Arcos Ltd [1932] UKHL 2; (1932) 147 Lt 503 at page 514, that the court should construe commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects', should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 at page 437).

61 As the parties agree that the principle in Gilbert-Ash applies to the construction of the Contract, the applicant had to establish that the parties have by 'clear and express words' or by 'clear and unequivocal words' in the Contract excluded the respondent's right to claim and obtain an award of common law or unliquidated damages.

62 The authorities are at one that a valid and mandatory liquidated damages clause in a building contract which stipulates a positive amount of liquidated damages for failure to reach practical completion by the due date is evidence of an intention by the parties to exclude liability for unliquidated damages: Bruno Zornow (Builders) Ltd v Beachcroft Developments Ltd (1989) 51 BLR 16; Turner Corporation v Austotel (1994) 13 BCL 378 per Cole J. In other words the parties to a contract will be bound by the liquidated damages clause if it is not a penalty.

63 The law of penalties is not something I need consider in this case but it is interesting to note that it entirely relates to the circumstances in which a contractor alleges that the terms of the relevant clause amount to a penalty because the amount of, so called, liquidated damages is 'extravagant and unconscionable'. It does not address the issue as to when, if at all, such a clause would be struck down because it did not amount to a genuine pre-estimate of damages because the stipulated amount in the clause was grossly insufficient and unconscionable to the principal. Whether such a clause would be struck down on this basis is not a matter I have to consider as the respondent has not asserted such a case. Although, the breadth of, or the severe consequences of the relevant clause to the principal, is one matter which may emphasise the need of the court to find clear and unmistakeable words in the Contract denying the principal the right to claim unliquidated damages: Decor Ceilings Pty Ltd v Cox Constructions Pty Ltd (No 2) (2007) 23 BCL 347 [81].

64 The next proposition, which is supported by the English authority of Temloc and which is agreed to by various learned authors, is that a mandatory liquidated damages clause which stipulates that the agreed liquidated damages are nil has the same effect as one which stipulates a positive sum. That effect being that the agreed liquidated damages for breach of contract is nil damages and the principal has no right to obtain unliquidated damages.

65 However, the learned author of Hudson's Building and Engineering Contracts (11th ed, 1995) [10.023] notes that:

It seems doubtful if [Temloc] should be treated as definitive authority where similar wording is used. The wording at best seems ambiguous, given the position of parties faced with a complicated standard form and desiring merely to avoid a fixed liability in all situations.

66 In the first supplement to the 11th edition the learned author noted that '[t]his type of wording in a Schedule can easily create patent ambiguities which require the admission of parol evidence to ascertain the true intention ...' [10.022].

67 There is also an Australian authority to the contrary, at least in the case of a non-mandatory liquidated damages clause. In Baese the parties had also inserted nil as the rate for liquidated damages in a building contract. In the Supreme Court of New South Wales, Giles J found that the relevant clause on the construction of the contract, was 'not an exhaustive statement of the proprietor's entitlement in the event of failure to bring the works to practical completion' (page 7).

68 His Honour identified two matters pertinent to the contract then under consideration which supported his construction. The first was that the clause was not mandatory in that it required, but did not mandate, notice to be given by the architect before the builder's liability to pay liquidated damages arose. The second was that if the principal was to be prevented from relying upon a liquidated damages clause due to his contribution to the delay, clear words in the contract were required to deny the principal any right to damages and the relevant clause and contract did not provide such clear words.

69 In Baese, Giles J distinguished Temloc on the basis of the different wording of the liquidated damages clauses and the different headings to the clauses. That is, the clause in Temloc was mandatory and self-executing. Secondly, it was headed 'Damages for non-completion'. This, in Giles J's view evinced the parties' intention in Temloc that the clause dealt generally and completely with damages for non-completion.

70 In Phillips, Giles J came to the opposite view in respect to the liquidated damages clause in a subcontract between Phillips (subcontractor) and Baulderstone (contractor) for the structural steelworks of a larger project. The subcontractor was obliged to provide security under, what was described as, the JCC B 1985 form of contract. At issue in the case was when the subcontractor was entitled to have the security released. The contractor sought to delay release until a hearing of its claims that it was entitled to the security as damages for delay. The subcontractor sought a mandatory interlocutory injunction requiring the contractor to release the security to it.

71 One of the subcontractor's grounds for seeking release of the security was that under the JCC B 1985 contract, as completed by the parties, the contractor was not entitled to damages for delay. The relevant clause in the JCC B 1985 read:

10.15 If the Sub-Contractor shall fail to substantially complete (as defined, where appropriate and, if at all, in Item J.1 of the Appendix) the Sub-Contract Works by the date or within the period herein provided the Sub-Contractor shall pay or allow to the Builder by way of Liquidated and Ascertained Damages a sum calculated at the rate stated in Item J.2 of the Appendix to this Agreement for the period during which the Sub-Contract Works remain or have remained not completed and any such sum may be deducted from any moneys then due and owing or to become due and owing to the Sub-Contractor by the Builder or may be otherwise recovered from the Sub-Contractor by the Builder as a debt due and owing. Any sum to which the Sub-Contractor may become liable in terms of this Clause shall be exclusive of any amount for which the Sub-Contractor may become liable under CL10.16.

72 Item J.2 in the appendix to the subcontract provided in the printed form for the insertion of a dollar amount per week. Figures for a dollar amount had been typed in and the printed word 'week' had been deleted and replaced in typescript by the word 'day'. All the typescript was then ruled through and replaced by 'N/A'. The alteration was initialled by the parties.

73 Giles J noted that it was common ground in that case that 'N/A' was a short form of 'Not Applicable'. I digress to note that I am not sure that, given the wording of the Preface to the Contract, the same could be said in this case. I am more inclined to the view that 'N/A' in Pt A of the Contract means 'Not to Apply'.

74 Giles J said that it was appropriate that he reach a view as to the construction of the subcontract but he could not reach a decisive view as the contractor wished to call evidence of surrounding circumstances to aid in construction. It follows that the view expressed by Giles J was not the ratio of his decision.

75 After referring to Temloc and stating that he had distinguished Temloc in Baese, his Honour said that he did not think that cl 10.15 of the JCC B 1985 subcontract could be distinguished in the same way. His Honour said that if 'N/A' meant the same as nil the subcontractor had a 'strong case' that the contractor could not call for payment under the subcontract's guarantees on the basis that it was entitled to damages for delay.

76 Giles J said that there were two views available. These may be correlated to the wide and narrow meanings articulated by the learned arbitrator in this case. His Honour said that in the absence of evidence to support the wide meaning, the 'better view' was the narrow meaning.

77 Giles J stated only one ground in support of this construction. It was that the subcontract included special conditions deleting or altering a number of clauses in the printed form of subcontract and that if the parties had wished to delete cl 10.15 in its entirety they would have done so by an express deletion of cl 10.15 in the same manner as they had expressly deleted other clauses.

78 His Honour went on to hold that the contractor may have been entitled to the monies held as security by virtue of another clause of the subcontract, which clause is irrelevant to these proceedings.

79 Giles J's view in Phillips is not binding on me. This is not to say that the decision, if concerned with construction of the same or similar contract, would not be persuasive. There are clearly advantages to parties to commercial contracts knowing that a clause in a standard form contract will be construed in the same manner in all jurisdictions. The position is that the justification Giles J gave for arriving at his interpretation relied upon changes that the parties had made to the JCC B 1985 standard form contract. The changes were markedly different from the way parties in this case amended the printed standard form contract in this case. Further, the JCC B 1985 standard form contract and the Australian standard general conditions of contract AS2124-1992 are markedly different. For these reasons Phillips provides limited assistance in answering the question of construction before me.

80 Similarly, the decisions Temloc and Baese turned on the particular contractural terms under consideration. Such cases are of some assistance to me but my decision must turn on the words used in the Contract.

81 I now turn to consider the two issues which the applicant must satisfy in order to obtain leave to appeal in this matter.

Is there strong evidence that the arbitrator made an error of law?

82 In my opinion the applicant has failed to show that there is strong evidence that the arbitrator made an error of law. The construction of the Contract chosen by the learned arbitrator was open to him and he did not reach that construction by invalid means.

83 Leaving aside the issue as to whether the payment of liquidated damages pursuant to cl 35.6 was mandatory or not, a matter not considered by the learned arbitrator to be central to his determination, the learned arbitrator's reasoning was based on the facts, particularly the express terms of the Contract and the surrounding facts, such as they were known to the learned arbitrator.

84 As has been acknowledged by the cases I have reviewed, there are two competing constructions of liquidated damages clauses in building contracts which have inserted as the rate of liquidated damages either nil or 'N/A'. Determining which meaning is to be ascribed to the particular contract requires the terms of that contract to be scrutinised with care. I am satisfied that the learned arbitrator did this and there is not 'strong evidence' that in doing so he made an error of law.

85 The applicant submitted that the parties were required to insert two types of information into Pt A. The first type, which it submitted covered most cases, was a statement of a rate, value or matter that was required to determine the extent of obligations, liabilities or rights under the related clause. The second type, which it submitted covered a few cases only, was a statement as to which of certain alternatives specified in the contract was to apply. It said that in neither case were the parties required or invited to state whether the related clause in the General conditions of contract should be included or deleted. The applicant submitted that therefore, Pt A should not be construed as deleting clauses from the contract. Rather, it submitted that it was Pt B of the Annexure that expressly provided for the parties to identify clauses that may have been deleted, amended or added to the contract.

86 The learned arbitrator considered this submission when he found that the Preface to the Contract expressly provides that clauses can be omitted by 'indicating clearly elsewhere that they are not to apply'. He considered that an indication in the Annexure that a clause is not applicable or not to apply clearly fell within the ambit of the method of deleting or omitting a clause as contemplated in the Preface. It appears to me that this is a view which a reasonable person in the position of the parties would take.

87 The learned arbitrator also considered that the validity of this submission presupposed that the parties consistently followed, to the letter, a strict adherence to every instruction or requirement therein. I agree with the learned arbitrator's view that a consideration of the whole of the contract indicated that the parties had not done so.

88 The applicant also submitted that the parties used 'N/A' on 18 occasions in Pt A in a consistent manner. It said that in no other instance does the term operate so as to delete the relevant clause in the General conditions of contract. Consequently, the applicant submitted that it would be an anomaly to find that 'N/A' operated so as to delete cl 35.6.

89 The learned arbitrator found that the parties had used 'N/A' in Pt A so as to delete cl 5.9 and cl 35.8.

90 In respect to the learned arbitrator's view of cl 5.9 and its related entry in Pt A, the applicant submitted that by inserting 'N/A' in Pt A the parties made it clear that neither alternative in cl 5.9 applied but they retained the clause in whole because, if they had excluded it, there would be a right to claim interest. No authority is cited for this proposition. It is not clear to me why cl 5.9 and its related entry in Pt A should be construed in the manner suggested by the applicant. Each alternative in cl 5.9 contains a provision as to interest. They provide that interest belongs to the party providing the security (Alternative A) or to the party holding the security (Alternative 2). The applicant has failed to persuade me that if the Contract is construed as retaining the clause in general, without specifying which Alternative applied, a right to claim interest is avoided. It would seem much more likely that the insertion by the parties of 'N/A' in Pt A alongside the related item indicated that neither Alternative was to apply.

91 In respect to the learned arbitrator's view of cl 35.8 and its related item in Pt A, the applicant submitted that 'N/A' in Pt A simply has the same effect as it does in respect to cl 35.6. I acknowledge that this is one interpretation, but it is not an indication that the learned arbitrator was in error in concluding otherwise.

92 There is a distinction between cl 35.8 and cl 35.6 and their related items in Pt A. By inserting 'N/A' in Pt A alongside the first reference to cl 35.8, there is simply no bonus payable to the respondent for early practical completion. The effect of this is that cl 35.8 itself has been deleted from the contract. It is artificial to state, as the applicant does, that the entry means that there is a bonus for early practical completion but that its amount is zero. This is not the most obvious construction of the provision. Whilst on the applicant's favoured construction of the cl 35.6 and its related item in Pt A there may be some logic, and benefit to the applicant, in construing cl 35.6 and its related item in Pt A in such a manner, I can see no benefit to either party in such a constrained construction of cl 35.8 and its first related item in Pt A.

93 Consequently, I am not of the view that the learned arbitrator was in error in finding that the parties had used the abbreviation 'N/A' in Pt A in respect to items related to clauses, other than 35.6 and 35.7, in a manner which indicated that the related clauses did not apply.

94 Before me, the applicant acknowledged that 'N/A' is used in a number of instances in Pt A to mean the equivalent of nil. The applicant submitted that the parties did not use the abbreviation 'N/A' in contradistinction to 'NIL'. The difficulty with this proposition is that it does not answer the more difficult question as to why the parties would have used both terms in Pt A if they mean the same thing. I am not able to find that the learned arbitrator's answer to this question, namely that the parties intended the terms to have different meanings in some instances, is strong evidence that the arbitrator made an error of law.

95 The respondent submitted to me that the commercial purpose of the transaction between the parties was evidence that supported a finding that it is not plausible that the respondent would abandon its common law rights to damages for breach of contract. In response, the applicant submitted that there was no argument advanced before the learned arbitrator based on commercial purpose and no evidence was led before the arbitrator on these matters. Consequently, they are not matters which I should take into account. In my view, this application does not turn on the issue of the commercial purpose of the transaction. I am content to determine it on the basis of the issues which were before the learned arbitrator.

96 In my opinion, the construction favoured by the learned arbitrator is one which a reasonable person would arrive at having regard to the language used in the Contract. This is not a case which turns on avoiding a construction which results in consequences which are 'capricious, unreasonable, inconvenient or unjust'. Both constructions have consequences that appear to be unreasonable, inconvenient or unjust to one or other party.

97 In respect to construing the Contract in light of possible inconsistencies between the liquidated damages provisions and the rest of the Contract, the construction favoured by the learned arbitrator, given the inherent inconsistencies in the terms of the Contract, is reconcilable with the remainder of the Contract.

Will the determination of the question add, or be likely to add, substantially to the certainty of commercial law?

98 There is not doubt that there is an issue in the construction industry as to the meaning of amendments or additions to standard form contracts containing liquidated damages clauses which have rates for liquidated damages inserted as 'NIL' or 'N/A'. The construction of such contracts is not certain given the unlimited ways standard form contracts containing liquidated damages clauses can be altered and completed and given the different forms of unliquidated damages clauses in different standard form contracts: Hollingdale M 'Designing and enforcing liquidated damages clauses to maximise recovery' (2005) 21 BCL 412; Thomas T, '$Nil Liquidated Damages: An exhaustive remedy for delay under a construction contract?' (2008) 24 BCL 82. However, in my opinion, the delivery of another case interpreting such a clause in a particular contract which has been amended in a particular fashion by the parties is unlikely to add to the certainty of commercial law.

99 What is clear to me is that parties to such contracts should be careful to delete, amend or add clauses to such contracts in a consistent and clear manner. The uncertainty that exists in this area of commercial law, primarily exists because parties have failed to adhere to this principle.