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[2013] WASC 265
Supreme Court of WA
2013-08-14
Martin CJ
Original judgment source is linked above.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : D & Z CONSTRUCTIONS PTY LTD -v- IHI CORPORATION [2013] WASC 265
Commercial arbitration - Leave to appeal from arbitrator's decision - Actual costs - Proof or evidence of actual costs - Implied term that actual costs be incurred reasonably and properly - Express term requiring parties to take reasonable steps to minimise cost overruns
1 D & Z Constructions Pty Ltd (D & Z) applies for leave to appeal from an interim award issued by the arbitrator, Mr G C Steinepreis, during an arbitration between D & Z and IHI Corporation (IHI) conducted under the legal regime provided by the Commercial Arbitration Act 1985 (WA) (the Act). The application for leave is brought on the basis that there are manifest errors of law on the face of the interim award, and the determination of the questions of law concerned could substantially affect the rights of one or more parties to the arbitration agreement. For the reasons which follow, the application for leave to appeal should be refused, as D & Z has failed to establish that any of its proposed grounds of appeal identify a manifest error of law on the face of the interim award which, if resolved by this court, could substantially affect the rights of one or more parties to the arbitration agreement.
General principles governing the grant of leave to appeal
2 There are a number of general principles which govern the grant of leave to appeal from the award of an arbitrator in an arbitration governed by the Act. The principles pertinent to this application for leave may be summarised as follows.
(a) there is a manifest error of law on the face of the award; or
(b) there is strong evidence that the arbitrator made an error of law and that the determination of the question may add, or may be likely to add substantially to the certainty of commercial law (Act, s 38(5)).
3 There are a number of cases decided prior to the decision of the High Court in Westport Insurance in which observations have been made to the effect that in order to obtain leave on the basis of manifest error of law 'the error of law must be evident and obvious, rather than merely arguable', (Anaconda Operations Pty Ltd v Fluor Australia Pty Ltd [2003] VSC 275 [88] (DoddsStreeton J)), evident 'upon a mere perusal of the reasoned award itself without the benefit of adversarial argument' (The Nema 742 (Lord Diplock) or that '[t]here should ... before leave is granted be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law' (Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203, 225 226 (Sheller JA)), or that the requirement that the error be manifest 'requires swift and easy persuasion and rapid recognition of the suggested error' (Natoli v Walker (1994) 217 ALR 201, 215 (Kirby P)). There must be considerable doubt as to whether those observations survive the decision of the High Court in Westport Insurance to the effect that the requirement that the relevant error be manifest does not import any particular quality of error, or exclude complex errors, and therefore, implicitly, errors which can only be demonstrated following complex argument. However, it is unnecessary to resolve this issue for the purposes of this case, as the argument advanced for and against the application for leave was relatively constrained.
4 The award is described as an interim award. The arbitrator's reasons are incorporated within and form part of the award. The reasons are voluminous, comprising more than 1,400 paragraphs printed on 207 pages. An appreciation of the reasoning process adopted by the arbitrator, and of his main conclusions, is a prerequisite to an understanding of the issues sought to be raised by the grounds of appeal. For that reason, I will attempt to briefly provide an overview of the award, focusing most particularly on those aspects of the award which are most relevant to the issues raised by the grounds of appeal. Because the parties are agreed that their contract should be taken to be incorporated into, and form part of the award, and neither party seeks to rely upon any other document which is said to form part of the award, this is not one of those cases in which the award has to be carefully analysed for the purpose of ascertaining whether other documents might be taken to be incorporated within it so as to form part of the award for the purposes of ascertaining whether there is an error of law manifest on its face. In the overview of the arbitrator's reasons and findings which follows, all references are to paragraph numbers used in the award.
5 The dispute arose in connection with works undertaken for the purpose of constructing the Bluewaters Power Station near Collie in Western Australia (1). The project was initially designed to provide one power station unit comprising various components (3). The owner of the project had engaged a head contractor to provide the power station, and the head contractor had in turn engaged an EPC (Engineering Procurement and Construction) contractor, IHI, (1) which is the respondent to the arbitration and to this application.
6 During 2006 IHI sought prices for the delivery of the civil works associated with the construction of the power plant unit from various contractors working in Western Australia (3). The tenders exceeded IHI's internal budget and price expectations (4). In an attempt to bring the price to within its expectations, IHI commenced negotiations with a number of contractors on the basis of a cost reimbursable contract (4). Those contractors included D & Z (5) the claimant in the arbitration and the applicant in these proceedings. By December 2006, D & Z had become the favoured contractor (6). Negotiations with respect to the terms of the contract took place between representatives of IHI and representatives of D & Z in late 2006 and early 2007, and a contract between those parties was executed in late February 2007, although it is dated 1 January 2007 (7). The arbitrator identified the various documents which comprised the written agreement in the award (9).
7 During the course of the work, the scope of work under the contract was varied to include civil works for a second power station unit which, for the purposes of the arbitration, was accepted as being identical in scope to the works undertaken for the first unit (10). D & Z performed the works the subject of the contract during 2007 and 2008, and demobilised from the site on or about 8 December 2008 (11). During the course of the works, D & Z submitted 23 progress claims and IHI issued 21 progress certificates (12).
8 By its points of claim D & Z sought a declaration that the total amount payable under the contract was $128,103,489, and an order for payment of $19,269,291, being the difference between the amount payable under the contract and the amount D & Z had already been paid by IHI, plus a further payment of $430,177 by way of a bonus, plus interest and various ancillary orders (14). At the commencement of the hearing D & Z slightly amended the exact amount of its claims (15), and during the hearing D & Z made further amendments to the monetary value of its claims (16), reducing its primary payment claim to $18,866,114.
9 IHI claimed $24,980,972 from D & Z which was said to be the amount which it had paid D & Z in excess of the amount due under the contract, plus a further payment of $651,803 in respect of defective works performed by D & Z, plus interest on those amounts and rectification of the contract (17).
10 One of the documents comprising the contract between the parties is the Australian Standard General Conditions of Contract (AS2124-1992) (General Conditions). Clause 42 of that document provides that at the times for making payment claims, the Contractor (D & Z) is to deliver to the Superintendent claims for payment supported by evidence of the amount due to the Contractor. Within 14 days after receipt of such a claim, the Superintendent is to issue a payment certificate to the Principal (IHI) and the Contractor stating the amount of the payment to be made. The Principal is obliged to pay the Contractor, within 28 days after receipt by the Superintendent of a claim for payment, or within 14 days of the issue by the Superintendent of a payment certificate, an amount not less than the amount shown in the payment certificate issued by the Superintendent. Clause 42.1 of the General Conditions provides that:
A payment made pursuant to this clause shall not prejudice the right of either party to dispute under clause 47 whether the amount so paid is the amount properly due and payable and on determination (whether under clause 47 or as otherwise agreed) of the amount so properly due and payable, the Principal or Contractor, as the case may be, shall be liable to pay the difference between the amount of such payment and the amount so properly due and payable. Payment of moneys shall not be evidence of the value of work or an admission of liability or evidence that work has been executed satisfactorily but shall be a payment on account only, except as provided by clause 42.8.
11 Clause 42.2 of the General Conditions empowers the Superintendent to amend the payment certificate to correct any error. Clause 42.7 provides that within 28 days after the expiration of the defects liability period (a period which generally commences after the issue of a Certificate of Practical Completion), the Contractor is to lodge with the Superintendent a Final Payment Claim. By cl 42.8, within 14 days after receipt of such a claim, the Superintendent is to issue to the Contractor and to the Principal a final Payment Certificate, certifying the amount which in the Superintendent's opinion is finally due from the Principal to the Contractor or vice versa. The same clause (42.8) also provides that unless either party serves a notice of dispute either before the Final Certificate has been issued, or not later than 15 days after its issue, the Final Certificate is to be evidence in any proceedings of whatsoever nature arising out of the contract to the effect that the works have been completed in accordance with the contract and that effect has been given to all terms of the contract which require additions or deductions to be made to the contract sum (subject to certain exceptions not relevant to this case).
12 Another document forming part of the written agreement between the parties is a document specifying amendments and variations to the General Conditions. Included within that document is a provision which has the effect of including additional clauses 42.1.1, 42.1.2, and 42.1.3 within cl 42.1 of the General Conditions. Clause 42.1.1 provides that the value of the work carried out shall be the 'Actual Cost of all work carried out by the Contractor', and specifies the components of those costs by reference to labour, plant and equipment, materials, overheads and subcontract works. Clause 42.1.2 provides that the Estimated Contract Price schedule (ECP) identified in an annexure to the written agreement is to form the basis of computation for each progress payment which is to comprise the total value of work completed based on the Actual Cost of that work, together with 15% of the total Actual Costs referred to in cl 42.1.1, with the exclusion of total costs of selected and nominated subcontract works, in respect of which the additional margin was to be 8%. Clause 42.1.2 also makes provision for payments to the Contractor in the event that cost savings are realised. The clause also includes the following:
The details of Actual Costs items shall be substantiated by submission of copies of invoices, payroll payment records or other reasonable documented evidence of current industry prices such as quotations from suppliers.
13 Clause 47 of the General Conditions makes provision for the resolution of disputes, and includes an arbitration agreement, providing for reference to arbitration in the event that disputes are not resolved by other mechanisms provided in the clause. That clause also provides:
If one party has overpaid the other, whether pursuant to a Superintendent's certificate or not and whether under a mistake of law or fact, the arbitrator may order repayment together with interest.
14 The document recording the parties' agreed variations to the General Conditions also includes an additional cl 49, which records the parties' joint commitment to a number of objectives including the monitoring of Actual Costs and the taking of reasonable steps whenever necessary to minimise any cost overruns in actual costs from the budget estimate. The clause also commits the parties to:
[C]ontinually review parts of the Works to determine alternative design and construction processes for the purpose of developing cost efficiency in the construction of such parts of the Works.
15 The clause also requires the Contractor to take a number of steps '[f]or the purposes of maintaining an effective cost control management process' including obtaining quotations from at least three suppliers or subcontractors, as far as practical, in order to achieve the selection of a competitive offer in relation to cost, obtaining prior approval from the Principal for all procurement exceeding $5,000 in value, and providing all major plant and equipment that are wholly owned by the Contractor whenever practical, at hire rates that are below existing hire rates of other plant hire companies.
16 The cost categories in the ECP and the cost categories delineated in cl 42.1.1 do not correspond precisely (43). D & Z lodged progress claims during the contract based on the ECP, but in the arbitration its costs were claimed by reference to the cost categories specified in cl 42.1.1 (44). In the arbitrator's view, that was the correct approach (44). Clause 42.1.1 defined the costs recoverable by D & Z, which were limited to the costs falling properly within the specific wording of one or other of the cost categories (85). The arbitrator carefully analysed each of those categories, and made rulings with respect to their specific components (102) - (153).
The implied term asserted by IHI - costs limited to those reasonably and properly incurred
17 IHI contended that the contract contained an implied term to the effect that only costs reasonably and properly incurred by D & Z were reimbursable (154). The arbitrator accepted that contention, construing 'properly' to mean 'in accordance with the contract' (161). This ruling is challenged in ground 2 of the appeal. The arbitrator went on to express the view that even if the term was not to be implied because such a term would be inconsistent with the express terms of the contract, the same result would be achieved by the operation of cl 49 of the contract, because unless the costs were reasonably incurred, they could not have been incurred in accordance with the cost minimisation commitment contained within cl 49 (162). This view is indirectly challenged by appeal ground 3.
18 The arbitrator recorded his intention to approach D & Z's claim for actual costs on the basis of assessing whether those costs were reasonably incurred and in accordance with the contract (163).
19 The arbitrator elaborated upon his view of the proper construction of cl 49 (181) (197).
20 The arbitrator also recorded his view of the effect of the provisions of cl 42 relating to progress payments. In his view:
[P]rogress certificates are provisional and progress payments are on account. The final certificate under cl 42.8 is the final assessment of the amount determined to be payable by the parties. Progress payment certificates and certificates of practical completion are not admissions of approval by the Principal and can be challenged by either party under cl 47 (198).
...
The progress payments were not progressive payments of the Contract sum that were of a final and binding nature. Instead, the Contract contemplated progress payments could be made during the course of the Contract including for the value of the work performed but these payments were to be provisional and only on account (cl 42.1 unamended AS2124). There is nothing in the Contract that is inconsistent with that or ambiguous in that regard (200).
21 A contention to the effect that the parties had agreed to vary the provisional nature of progress payments was rejected by the arbitrator (202).
22 With respect to that part of cl 42 which makes provision for the substantiation of claims for progress payments by the provision of supporting documents, the arbitrator ruled:
D & Z's submission that Actual Costs were to be substantiated merely by invoices and payroll records plus evidence of current industry prices or quotations where appropriate is true of progress claims but ignores both the provision that progress payments are merely payments on account and the actual and final payment provisions of the Contract. D & Z elevates provisional approval of progress claims to proof of its Actual Costs. However, while such approval may possibly have some evidentiary value, it does not, without more, prove D & Z's Actual Costs or that they were the product of active costs minimisation steps or reasonably and properly incurred or in accordance with the Contract (206).
23 This ruling is challenged by appeal grounds 1 and 4.
24 The arbitrator then considered IHI's rectification claims and concluded that if he was wrong in his construction of the contract, rectification should be ordered to bring the contract in to line with the common intention of the parties (224) (247). As no issue is taken with this aspect of the award in the grounds of appeal, it is unnecessary to refer to it in any detail.
25 The arbitrator expressed the view that the burden of proving D & Z's claim for Actual Costs rested on D & Z, and must be discharged on the balance of probabilities (248). In his view it was necessary for D & Z to show that the costs claimed were actually incurred, had been paid, fall within the categories allowable under the contract, were reasonably and properly incurred, and were incurred in accordance with the contract (248). The arbitrator said that D & Z revised and increased its claim for Actual Costs for works that were previously the subject of progress claims 1 22. As he put it:
In other words, D & Z does not assert that the progress payment claims submitted by D & Z or the progress payment certificates issued by the superintendent represent the Actual Costs of the work the subject of those claims and certificates that it is now claiming, although it does say that its progress claims are reflected in its Amended Schedule and evidentiary weight should be given to its progress claims and some parts of the progress payment certificates (251).
26 It followed that in order to succeed in the arbitration, D & Z had to establish that the total of its Actual Costs as claimed in the reamended points of claim exceeded the amount it had been paid ($109,237,375) (252).
27 The arbitrator summarised the approach which D & Z had taken to the discharge of its evidentiary onus. In very general and somewhat imprecise terms, D & Z relied on records drawn from the MYOB accounting package and spreadsheets used by D & Z at the time it performed the works under the contract (268). Costs were extracted from the data collected using those packages and listed in schedules to D & Z's points of claim (271). The arbitrator reviewed the evidence with respect to the various steps and procedures used by D & Z to collect and record costs and set out his findings in relation to that evidence. That process represents the major part of the reasons given by the arbitrator for his award. I will only note particular aspects of the findings made by the arbitrator in the course of that process which have direct application to the issues raised by the proposed grounds of appeal.
28 Although the arbitrator found that the contract contained an implied term which limited D & Z's claims to costs reasonably and properly incurred, there are very few instances in which the arbitrator rejected costs claimed by reason of noncompliance with that implied term. One such instance concerns D & Z's claim for costs relating to accounts clerks. In the arbitrator's view, two fulltime accounts clerks and two fulltime payroll clerks should have been sufficient, and costs in excess of those costs were not reasonably incurred (444). As will be seen, however, this finding had no impact on the outcome of the arbitration. I will refer to other instances in which the arbitrator found the costs claimed by D & Z were unreasonable later in these reasons.
29 On the subject of the records tendered as substantiation of the costs incurred, the arbitrator found that:
[O]riginals of invoices were critical to determining if the capturing and checking process was followed and to the final entitlement to payment. The fact that the Contract specified that progress claims should be supported by copies of invoices does not detract from the need for original invoices for the final reconciliation, especially where the original invoices have been shown to differ from the copy invoices that accompanied progress claims and so are critical to prove that the process was followed ... Original invoices were not produced by D & Z in this arbitration. The failure to tender the original invoices where they could show a different result about the process to copy invoices is problematic for D & Z on a number of levels (511 512).
30 The problems identified by the arbitrator which arose from D & Z's failure to tender the original invoices included the fact that D & Z relied upon evidence from an expert witness who had himself relied upon original invoices, and therefore upon matters which were not in evidence in the arbitration (512). The arbitrator was also concerned that the copy invoices did not bear a signature of approval, with the result that there was no evidence that the invoices were ever approved for payment, and therefore that the invoices were in fact paid by D & Z (513). Although the arbitrator did not consider that he had to adopt the same standards as would be applied by an auditor (535), he reiterated that D & Z carried the burden of proving its entitlement to Actual Costs (535).
31 The arbitrator summarised his findings with respect to D & Z's claim for Actual Costs in (1017) (1068) of his reasons forming part of the award.
32 The arbitrator found that the system used by D & Z to capture its labour costs wrongly assumed all hours on timesheets when workers were on site were man hours utilised on contract works. This resulted in an overclaim that was difficult to quantify (1017). He further found that the officer responsible for compiling the schedule of labour costs for D & Z took an erroneous approach to the task, being of the view that it was up to IHI to identify unreasonable or excessive claims. That caused the arbitrator to be very concerned regarding overclaims by D & Z (1018).
33 The arbitrator further found that work performed rectifying earlier defective works, and unproductive time were wrongly included in the schedule of labour costs claimed (1019). He further found that there was a major discrepancy of nearly $1.5 million between D & Z's MYOB records and the amended schedules claiming management salaries and wages, which was unaccounted for by D & Z (1020). He also found that D & Z had claimed for wages paid to workers who were not performing work as a result of an industrial injury, when those wages should have been covered by workers' compensation (1021). He also found that D & Z had overclaimed for living away from home allowance and had not substantiated travel allowances claimed for workers on workers' compensation (1022). For these reasons, the arbitrator was not satisfied that the amount of wages claimed by D & Z reflected the amount payable under the terms of the contract, but was unable to quantify the full extent of the amount overclaimed by merely making deductions or allowances (1023) (1024).
34 The arbitrator found that D & Z's claim based on cost invoices included an amount of $3.4 million in respect of which the invoices lacked authorisation, approval or support documentation (1025). Further, in relation to the system used to capture costs paid in response to invoices, the arbitrator found that there was no persuasive evidence of the operation of that process prior to September 2007, and that there was evidence that after September 2007, the process was not followed (1026). He therefore concluded that he could not rely on the process for capturing and verifying the invoices put forward by D & Z, and could not determine what costs falling within this category were recoverable under the contract (1027).
35 The arbitrator found that the evidence identifying the time at which hired plant and equipment left the Bassendean yard of D & Z and returned to that yard was lacking (1028). Further, he found no other satisfactory evidence to support the times on site which had been claimed for D & Z owned minor plant and equipment (1029). In the arbitrator's view, D & Z's claim of a daily rate for six days a week for the hire of minor plant which it owned was excessive (1030), and the appropriateness of the daily rate used by D & Z was not established on the evidence (1031). In the arbitrator's view, the fact that D & Z claimed on a daily rate basis meant that it should have allowed for downtime (when the plant was not in use). No allowance was made for that factor, nor were records kept of the downtime that occurred, with the result that the claim was excessive (1031). If longterm rates had been provided by D & Z, deductions for downtime would not have been appropriate, but because there was no evidence comparing longterm rates and shortterm hire rates, the arbitrator was unable to calculate the amount overclaimed by D & Z (1032).
36 The arbitrator also noted that D & Z conceded that excessive amounts had been claimed for some D & Z owned plant and equipment (1033). He found that charges rendered for sea containers, staffs, vibrator motors and compressors had been exorbitant, and other charges were excessive (such as for tyres) and well in excess of the purchase costs of its plant and equipment (1034). The arbitrator had no confidence that even after concessions and adjustments were made, the amount claimed by D & Z accurately reflected its actual costs properly and reasonably payable (1035).
37 The arbitrator further found that D & Z created and perpetuated 'a deliberate myth' in which it purported to hire plant and equipment from a third party which was in fact its own plant and equipment, with the result that the 20% discount to be applied to plant and equipment wholly owned by D & Z had not been allowed (1036).
38 In the end result, the arbitrator concluded that the amount claimed by D & Z in respect of the hire of plant and equipment were not an accurate reflection of the amount properly and reasonably incurred by D & Z, and that it was not possible to separate out the legitimate costs from the illegitimate costs claimed (1037). I digress to observe that this is one of the few instances in which the arbitrator referred to his view that costs claimed by D & Z had to be properly and reasonably incurred in order to be recoverable (1037). However, it is clear that this was only one factor, amongst many, which caused the arbitrator to conclude that he could not rely upon the costs claimed by D & Z as providing reliable evidence of costs actually incurred with respect to the hire of plant and equipment.
39 The arbitrator found that there was no evidence of a system of approval or checking of costs claimed for management staff, many of whom did not fill out a time sheet (1038). He further found that excessive charges had been claimed for four nominated management staff, and in relation to head office staff and for the living away from home allowance (1039). The levels of overcharging were such that the arbitrator could not be confident that it was limited to that which had been established during the hearing (1040). He therefore regarded the amount claimed by D & Z for management staff costs as a substantial overclaim, but was unable to confidently quantify the amount properly payable under the contract (1041).
40 The arbitrator found that there were no applicable accounting records governing the amounts claimed by D & Z for materials supplied from its store (1042). Nor did D & Z produce the actual invoices for the purchase of the items claimed (1043). The arbitrator concluded that D & Z had not established, on the balance of probabilities, that the items claimed were in fact supplied or provided in the quantities claimed (1044).
41 The arbitrator found that the evidence did not establish the number of trips undertaken, the hours worked by yard staff, or the amount charged per trip, with the result that he was unable to accurately assess the claim for internal freight costs (1045) (1047).
42 The arbitrator concluded that he was unable to rely on the figures claimed by D & Z as reflecting costs properly payable under the contract (1051). Nor did the evidence provide the information needed to adjust the costs claimed in order to confidently arrive at the figure properly payable (1053). He found that D & Z had embarked on an approach to cost expenditure that did not accurately reflect the contractual cost categories, and had sought to claim for everything, whether or not it was reimbursable under the contract (1055). He concluded that the systems used by D & Z to capture its costs were unreliable and error prone (1056), and when the relationship with IHI went sour, D & Z responded inappropriately by claiming increased costs that had no basis and increasing many costs arbitrarily in an apparent strategy to maximise cost recovery (1057). The arbitrator concluded that he could not rely on the evidence presented by D & Z to establish costs recoverable under the terms of the contract (1063).
43 The arbitrator considered whether there were other ways of calculating the amount properly payable to D & Z under the contract, including what he described as 'top down' or 'bottom up' approaches. However, he concluded that there was no alternative method that would enable him to find the costs properly due and payable to D & Z under the terms of the contract, with the result that D & Z failed to discharge the onus of proof that it was entitled to be paid more than it had already been paid, and therefore D & Z's claim was dismissed (1068).
44 Because the arbitrator was unable to ascertain the amount of the costs properly incurred by D & Z which were reimbursable under the provisions of the contract, it follows that he was unable to ascertain the amount of the fee (or margin) which was payable as a percentage of those costs (1072).
45 IHI had claimed that it was entitled to set off damages which it claimed for various breaches of contract by D & Z against any amounts due to D & Z. However, because the arbitrator was unable to ascertain the amount properly payable to D & Z under the contract, it followed that it was not possible to set off any amounts due to IHI by way of damages against the amount due to D & Z under the contract. Accordingly, the arbitrator assessed IHI's claims as counterclaims for damages (1079).
46 The arbitrator found that D & Z had breached its obligation to monitor and report on Actual Costs compared to the ECP as varied, and that after April 2008, D & Z failed to comply with its contractual obligation to adopt reasonable steps whenever necessary to minimise Actual Costs (1098, 1119). The arbitrator accepted that any amount paid by IHI over and above the amounts properly due and payable to D & Z under the contract could be recovered as damages for those breaches (1131). However, after evaluating the evidence which had been adduced, the arbitrator concluded that even on the assumption that D & Z had complied with its contractual obligations, including its obligation to join in the minimisation of costs, the reasonable value of the work performed by D & Z under the contract would not be below the amount actually paid by IHI ($109,237,375) (1211). Accordingly, the arbitrator was not satisfied that IHI had established an entitlement to damages for the breaches of contract which it had made out, and its counterclaims for damages were dismissed.
47 There were other counterclaims by IHI which were dismissed by the arbitrator. As there is no challenge to the award in this respect, it is unnecessary to refer to those counterclaims. However, IHI was successful in claiming an amount of $623,148.28 from D & Z in respect of defective works, and in its claim that D & Z was obliged to account to IHI in the sum of $429,575.12 for plant equipment and materials that D & Z had purchased for the performance of the works and has retained (1413). Certain other matters were reserved for further consideration, including each party's claim for interest and costs (1414).
49 Expressed in these terms, the ground is difficult to follow. Despite the wording of the ground, it is clear from the submissions advanced in support of the ground that no attack is made upon the arbitrator's view of the standard of proof - namely, that proof was required to establish Actual Costs on the balance of probabilities. The submissions advanced in support of the ground suggest that it is intended to be construed as advancing the proposition that the essential question which the arbitrator had to determine was whether the progress certificates had been substantiated by the copy invoices and other supporting documents supplied pursuant to cl 42.1.2 of the contract and that if he concluded that they had been substantiated by those documents, the sum of the progress certificates established the amount of the Final Payment Claim due under the terms of the contract. Construed in this way, ground 1 is indistinguishable from ground 4 (see [81] below).
50 Ground 1 does not identify any error on the part of the arbitrator which appears from a reading of the award for a number of reasons.
51 First, the ground misconstrues the terms of the contract between the parties. Clause 42.1.2 specifies the procedure to be followed in relation to what are characterised by the contract as 'payment claims' and which are also described (by cl 42.1.2) as progress payments. By the terms of annexure Part A to the contract, such claims were to be submitted on the fifth day of every month by reference to the ECP, which, as a matter of fact, does not correspond exactly to the cost categories reimbursable pursuant to cl 42.1.1. Clause 42.1.2 sets out the manner in which each progress payment is to be computed and specifies the documents that are to be lodged in support of each claim (see [12] above).
52 Clause 42.1 (which I have set out at [10]) clearly and unequivocally emphasises the provisional nature of progress payments made following the submission of a claim.
53 The provisional nature of progress payments is reinforced by other provisions of the contract. Clause 42.2 provides that the Superintendent may, by the issue of a further certificate, correct any error which has been discovered in any previous certificate, other than a Certificate of Practical Completion or Final Certificate. Further, cl 42.6 provides that the issue of a payment certificate is not to constitute approval of any work or other matter, nor shall it prejudice any claim by the Principal or the Contractor.
54 The provisional nature of the process for the submission and payment of progress claims is to be contrasted to the provisions relating to what is characterised by the contract as the 'Final Payment Claim'. Clause 42.7 provides that within 28 days after the expiration of the Defects Liability Period the Contractor is to lodge such a claim with the Superintendent. Within 14 days after receipt of that claim, the Superintendent is required to issue a final payment certificate endorsed 'Final Certificate'. In that certificate the Superintendent is required to certify the amount which in his opinion is finally due from the Principal to the Contractor or vice versa (cl 42.8). The same clause provides that unless either party, either before the Final Certificate has been issued or within 15 days thereafter, serves a notice of dispute under cl 47:
[T]he Final Certificate shall be evidence in any proceedings of whatsoever nature and whether under the Contract or otherwise between the parties arising out of the Contract, that the Works have been completed in accordance with the terms of the Contract and that any necessary effect has been given to all the terms of the Contract which require additions or deductions to be made to the Contract Sum, except in the case of ... (certain exceptions not presently relevant).
55 Clause 47 of the contract deals with the resolution of disputes. It includes an arbitration agreement (cl 47.3). The arbitration agreement includes a provision in the following terms:
If one party has overpaid the other, whether pursuant to a Superintendent's certificate or not, and whether under a mistake of law or fact, the arbitrator may order repayment together with interest.
56 The structure and effect of these provisions is clear. Progress payments provide the Contractor with the cash flow needed to continue the work. Clause 42.1.2 specifies the procedure which is to be followed by the Contractor when making a claim for a progress payment. That clause provides that the claim must be presented by reference to the ECP, and must be accompanied by copies of invoices, payroll payment records, or other evidence capable of sustaining the claim. However, a progress payment made in response to such a claim is a payment on account, to be credited towards the amount ultimately due from the Principal to the Contractor which is the amount established through the Final Payment Claim process. The Actual Costs reimbursable pursuant to cl 42.1.1, and the cost categories specified in that clause define the Contractor's entitlement to the Final Payment claim. Progress payments are expressly stipulated to be made without prejudice to the right of either party to contest the amount properly due and payable pursuant to the terms of the contract. In that sense, progress payments are provisional only, and the contractual obligation to submit documentation in support of a claim for a progress payment must be viewed in that context.
57 This approach to the construction of the relevant provisions of the contract is consistent with wellestablished principles relating to the effect of progress payments made under a building contract, and with specific authority relating to the proper construction of cl 42.1 of the Australian Standard Contract, being the contract used by the parties in this case.
58 In Re Concrete Constructions Group Pty Ltd [1996] QCA 086; [1997] 1 Qd R 6, McPherson JA and Helman J construed cl 42.1 in these terms:
... the process involved is one of making, certifying and paying progress claims. Such claims and payments are, in building contracts in the common form, always intended to be provisional only. See Hudson's Building and Engineering Contracts (11th ed., 1995), at paras 6.186-6.189. That is to say, they await the day when a final certificate issues, in which the ultimate indebtedness by one party to the other is ascertained and fixed. Before that stage is reached, it is generally correct to say that no payment is capable of finally determining the rights of the parties with respect to matters in dispute between them. So much is expressly recognised in this instance by cl. 42.1, providing as it does at the end of the fourth paragraph of that clause that a payment made pursuant to it does not prejudice the right of either party under cl. 47 to dispute whether the amount so paid is the amount properly due and payable. If the dispute is determined under cl. 47, a liability then attaches to one party or the other to pay the difference between the amount already paid and the amount that was properly due and payable (12).
(See also Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd (1998) 14 BCL 215; Daysea Pty Ltd v Watpac Australia Pty Ltd [2001] QCA 49; Aquatec-Maxcon Pty Ltd v Minson Nacap Pty Ltd (2004) 8 VR 16).
59 In support of ground 1, the appellant asserts, in effect, that copies of invoices, payroll records and other substantiating documentation which it provided to the Superintendent in support of its claims for progress payments should be regarded as conclusive evidence of its Actual Costs, and therefore of its entitlement to payment under the contract. This submission draws no support from the terms of the contract, or the proper construction of the payment provisions to which I have referred.
60 The appellant submits that the provision requiring the submission of substantiating documentation should be read as extending beyond the procedure relating to claims for progress payments. However, even if that view of the contract were taken, there remains a vital gap in the appellant's argument. There is nothing in the language of the contract which would suggest that copies of substantiating documentation submitted to the Superintendent have any quality or effect of conclusiveness. Put another way, there is no provision in the contract capable of supporting the conclusion that copied documentation submitted by the Contractor to the Superintendent is anything other than evidence of the incurring of a reimbursable cost under the contract, which is capable of being rebutted by evidence to the contrary. That was the approach correctly taken by the arbitrator.
61 The appellant also placed reliance on cl 1.3.7 of exhibit 2 to the Formal Instrument of Agreement, which formed part of the contract between the parties. That clause provides:
The Contractor shall establish and maintain a system of records which provide objective evidence that the requirements of the Contract are satisfied - refer Table 1-F. The Contractor shall ensure that Subcontractor records pertinent to the Contract are covered by this system.
All applicable records shall be available for audit and review by the Principal prior to the release of goods and services.
Records shall be retained by the Contractor and Subcontractors for a period of seven years from the last Date of Acceptance of the Contract unless stipulated for a longer period by the Contract or by the appropriate Statutory or Regulatory requirements.
62 Table 1-F sets out a matrix of documents to be maintained by the Contractor, on a variety of subjects and topics. The table contains no specific provision dealing with invoices or records of costs incurred.
63 The Contractor's obligation to establish and maintain records providing objective evidence that the requirements of the contract are satisfied, and to make those records available for audit and review by the Principal, does not support, by any process of logical reasoning, the appellant's proposition that copy documents provided to the Superintendent in support of a progress claim acquire some quality of conclusivity or special evidentiary value merely by reason of that process. If anything, these contractual provisions support the construction of the contract which I have set out above, by requiring that a database which allows for the computation and assessment of the final amount ultimately due from the Principal to the Contractor be maintained and available for audit. If anything, the provisions are inconsistent with a construction which would attribute some special contractual quality or character to copy documents submitted in support of a claim for a progress payment.
64 In support of its argument, the appellant referred to the decision of the Scottish Court of Session in SGL Carbon Fibres Ltd v RBG Ltd [2012] Scot CS CSOH 19. The case was an appeal (with leave) from the decision of an arbitrator in relation to a dispute between parties to a building contract which contained payment provisions which are quite different in their terms to the provisions of the contract between the parties to this case. Like many building contracts, the payment provisions in SGL Carbon Fibres Ltd involved the making of progress payments certified by, in that case, the Project Manager. The court noted that the payment provisions of the contract had not been the subject of extensive reported case law.
65 Significantly, Lord Glennie referred to one previous case, RBG v SGL Carbon Fibers [2010] BLR 631, dealing with the construction of the relevant contractual provisions which emphasised that they operated on the basis of an accumulating figure described in the contract as the Price for Work Done to Date ('PWDD'). That amount was certified by the Project Manager from time to time. The obligation of the Project Manager was described as 'an exercise in calculating an accumulating total'. In the context of that contract, Lord Glennie observed:
That sum certified to be due at any particular assessment date is, and remains for the purpose of future calculations unless corrected by the Project Manager (or the adjudicator or the arbitrator), the sum which is to be regarded as having been due at that assessment date. Any party wishing to have a prior assessment corrected must at least bear the burden of persuasion [24].
66 The payment provisions contained within the contract considered in SGL Carbon Fibres Ltd are quite different to those which apply in this case. The contract did not contain any provisions equivalent to the express stipulations in cl 42.1 of the contract currently in question to the effect that progress payments certified as due by the Superintendent do not provide evidence of the value of work or an admission of liability, and that payment of money pursuant to a progress payment claim is to be regarded as a payment on account only. Accordingly, the observations of Lord Glennie, to the effect that, pursuant to the contract applicable in that case, the payment certificate issued by the Project Manager stands until corrected either by the Project Manager or the arbitrator has no application to the contract between the parties to these proceedings.
67 Having regard to the express terms of cl 42.1 of the contract between these parties, which clearly and unequivocally provide that progress payments lack any element of conclusivity, and are to be regarded as provisional only, it would be quite inconsistent with the structure of the contract to attribute any special evidentiary quality or character, or any element of conclusivity, to the copy documents submitted by the Contractor to the Superintendent in support of a progress payment claim, and the arbitrator was correct to construe the contract in this way.
68 There are other reasons why ground 1 fails to disclose any error of law by the arbitrator. Those reasons derive from the manner in which the arbitration was conducted and, in particular, from the manner in which D & Z presented its case. As the arbitrator recorded in the interim award, D & Z did not present its case by reference only to the progress certificates and the copy documentation provided in support of its claims for progress payments. To the contrary, unlike the claims for progress payments which were presented by reference to the ECP, D & Z's claim in the arbitration was presented by reference to a schedule of costs appended to its pleaded case, organised by reference to the categories of cost reimbursable in accordance with cl 42.1.1. The costs claimed in the arbitration overlapped with, but did not correspond exactly with the costs claimed in the claims for progress payments. Accordingly, D & Z did not present its case to the arbitrator on the basis which it now contends he erred by not accepting. It is difficult to see how an arbitrator can be said to have erred in law by not accepting a case which was never put.
69 Further, it is clear from the terms of the interim award that issue was joined between the parties to the arbitration on the fundamental question of the quantification of the Actual Costs reimbursable to D & Z pursuant to cl 42.1.1 of the contract. D & Z sought to prove its case by adducing evidence of the systems which it employed for recording and capturing costs incurred in the performance of the contract, as well as evidence from its personnel with respect to those costs, and expert evidence derived from a review of its systems for recording costs. The arbitrator carefully analysed all that evidence and concluded that D & Z failed to establish the Actual Costs it incurred in the performance of the contract works for a number of reasons. That was a conclusion of fact by which D & Z is bound. Ground 1 is no more than a palpable and ultimately futile attempt to invoke an asserted error of law so as to overcome an adverse finding of fact. That attempt must fail.
70 Ground 2 challenges the arbitrator's conclusion that there was an implied term to the effect that in order to be reimbursable under the contract, Actual Costs had to be reasonably and properly incurred by D & Z. Given that the arbitrator construed 'properly' to mean nothing more than 'incurred in accordance with the contract', the challenge was primarily directed at the arbitrator's conclusion that only costs reasonably incurred by D & Z were reimbursable under the contract. However, when it was put to counsel for D & Z that the essence of the argument was to the effect that D & Z was entitled to be reimbursed for unreasonable costs, or costs which were unreasonably incurred, counsel expressly resiled from that proposition (ts 25). I must confess that I was unable to follow counsel's attempts to reconcile that position with the proposition which necessarily underpins ground 2. Clearly the positions are irreconcilable. Ground 2 can only succeed if, on the proper construction of the contract, D & Z is entitled to reimbursement of costs actually incurred, notwithstanding that the amount of those costs is unreasonable, or that the costs were unreasonably incurred.
71 A construction of the contract to that effect is, on its face, startling. It is said to draw support from two decisions of the Supreme Court of Ohio - Burton v Durkee 158 Ohio St. 313 and Mid-Ohio Mechanical Inc v Eisenmann Corporation 2009 - Ohio - 5804, notwithstanding that those decisions concerned the construction and effect of very different contractual provisions. The proposition which underpins ground 2 is arguably inconsistent with the decision in OneSteel Manufacturing Pty Ltd v United KG Pty Ltd [2006] SASC 119; (2006) 94 SASR 376 (Debelle J) (OneSteel), although that case also concerned a contract which was in terms rather different to the contract between these parties. Nevertheless, some of the observations made in that case were made at a level of generality which would render them applicable to many cost reimbursable contracts vis:
As a matter of general principle and ordinary commercial common sense, it is quite obvious that, in the absence of a clear expression to the contrary, a provision in a building contract which entitles the contractor to be reimbursed for costs incurred will be subject to an implied term that the cost will be reasonably and properly incurred. In the absence of such a provision, the building owner has an entirely openended obligation or, looking at the other side of the coin, the contractor has been handed a blank cheque. Such a contract would put a premium on inefficiency and extravagance. There would be no proper accountability for incompetent or unnecessary work. There are, I think, compelling reasons why it is proper to imply a term that Reimbursable Costs should be reasonably and properly incurred [36].
72 In OneSteel Debelle J placed reliance on passages from the two leading texts dealing with building contracts - Duncan Wallace I, Hudson's Building and Engineering Contracts (11th ed, 1995) [3.045], and Furst S and Ramsey V, Keating on Building Contracts (7th ed, 2001) (421). Each of those passages suggests that a term to the effect that reimbursable costs must be reasonable and properly incurred will be implied in the absence of express provisions within the contract defining with precision the obligations of the parties with respect to reimbursable costs. In my view, it is arguable that cl 49 of the contract between these parties does in fact define the obligations of the parties with respect to cost minimisation, leaving no room for the implication of the term found by the arbitrator.
73 Casting the issue in terms of the five requirements which must be met before a term will be implied into a contract (see BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40; (1977) 52 ALJR 20, 26; (1977) 180 CLR 266, 283; Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337, 346 7), it is clear that the asserted term satisfies four of the five requirements - namely, it is reasonable and equitable, it is so obvious that 'it goes without saying', it is capable of clear expression, and would not contradict any express term of the contract. However, it is doubtful that the term is necessary to give business efficacy to the contract, in the sense that the contract would not be commercially effective without it (see Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 423), given the presence of cl 49 of the contract, which expressly specifies the obligations of the parties with respect to the minimisation of cost.
74 It is unnecessary to resolve this issue for the purposes of this application. That is because in order to secure the grant of leave to appeal, D & Z must establish that the determination of the question of law which would be the subject of the appeal could substantially affect the rights of at least one of the parties to the arbitration agreement. During argument I requested that counsel for D & Z identify costs claimed by D & Z which had been disallowed by the arbitrator on the basis that they were unreasonably incurred. The following interchange then took place:
CLIFFORD, MR: You won't find them because they're not there, he did not make those findings.
MARTIN CJ: Well, then I think you've got a problem in the first limb of 38(5), haven't you?
CLIFFORD, MR: That depends upon the proper construction of who carried the onus ... If the onus was carried by IHI and he didn't find that they were unreasonable, they fail.
MARTIN CJ: Well, that goes back to ground 1 then, doesn't it?
CLIFFORD, MR: It does, yes. ... (ts 11)
75 It seems from this passage that the proposition which underpinned ground 2 is not a complaint to the effect that the arbitrator disallowed costs claimed by D & Z on the basis that they were unreasonable in amount or unreasonably incurred, but rather the proposition that the copy documents provided by D & Z in support of its claim for progress payments established its entitlement to payment of the moneys claimed, thereby casting the onus upon IHI to prove that those costs were either unreasonable in amount or unreasonably incurred. Viewed in this way, the success of ground 2 depends upon the success of ground 1. As ground 1 must fail, if ground 2 is construed in this way, it must also fail.
76 Counsel's assertion that the arbitrator did not disallow costs claimed by D & Z on the basis that they were unreasonable in amount or unreasonably incurred is incorrect in one sense, but correct in another sense. It is incorrect in the sense that, as I have noted, the arbitrator found that some labour and management costs were incurred unreasonably, and one of the reasons the arbitrator rejected D & Z's claim for the cost of plant and equipment owned by it was that that costs claimed were unreasonable (1037). On the other hand, counsel's assertion is correct, in the sense that those findings had no effect upon the outcome of the arbitration. D & Z's claim failed because the arbitrator found, as a fact, that D & Z had failed to establish the Actual Costs which were reimbursable pursuant to cl 42.1.1, plus the margin due to D & Z and therefore failed to establish that the amount due from IHI under the contract exceeded the amount which had already been paid. IHI's counterclaim failed because the arbitrator found, as a fact, that IHI had failed to establish that the Actual Costs reimbursable to D & Z pursuant to cl 42.1.1 of the contract, plus the margin due to D & Z, were less than the amount which had already been paid. The presence or absence of an implied term to the effect that Actual Costs must be reasonably and properly incurred would have no effect whatever upon the critical findings of fact made by the arbitrator. It follows that the determination of the question of law underpinning ground 2 could not substantially affect the rights of one or more parties to the arbitration agreement, and leave to appeal must be refused in respect of that ground.
The learned arbitrator erred in law in finding ... that the appellant would have no entitlement to be paid unless it proved that it incurred its Actual Costs in accordance with cl 49.1(c) of the contract in that the said finding is in conflict with the express term in cl 42.1.2 of the contract.
78 This ground misstates what the arbitrator found and did. As I have noted (at [17]), the arbitrator expressed the view that if a term to the effect that reimbursable costs must be reasonably and properly incurred was not to be implied into the contract, the same result would be achieved by the operation of cl 49. However, as I have already noted, the arbitrator's views with respect to D & Z's obligations to only incur costs reasonably, and in accordance with the cost minimisation provisions of cl 49, did not form any part of the reasoning process that caused him to reject D & Z's claim. D & Z's claim was dismissed because the arbitrator found, as a fact, that the evidence adduced by D & Z did not establish what costs had been incurred which were reimbursable pursuant to the provisions of cl 42.1.1. D & Z's claim did not fail because the costs which it had incurred were unreasonable in amount, or had been unreasonably incurred, or were incurred in breach of cl 49.
79 One of the grounds upon which IHI counterclaimed for damages was an assertion that D & Z breached cl 49. The arbitrator found that D & Z had breached the clause, but nevertheless dismissed IHI's counterclaim for damages on that basis, for the reasons I have already enunciated.
80 For these reasons, the arbitrator's views with respect to the effect of cl 49 upon D & Z's entitlement to payment under the contract had no effect upon the award. Further and in any event, there can be no doubt that breach of cl 49 by D & Z would entitle IHI to damages, subject to IHI establishing that it had suffered damage by reason of such a breach or breaches. In the circumstances of this case, it would make no practical difference whether compliance with cl 49 was regarded as a prerequisite to the entitlement to payment under the contract, or as imposing obligations, the breach of which gave rise to a claim for damages. For these reasons, the question of law underpinning ground 3 could not substantially affect the rights of either D & Z or IHI, and leave to appeal on this ground must be refused.
The learned arbitrator, having correctly found ... that the respondent's negative certifications for progress payment claims PP17 to PP20 were neither impartial nor reasonable, and ... were unfair, erred in law in failing to find that the respondent's progress payment certificates demonstrated an entitlement to Actual Costs of not less than $126,000,000.
82 This ground is also obscurely expressed. I will do the best I can to distil the essence of the ground from the written and oral submissions advanced in its support. The proposition underpinning the ground seems to be that as a consequence of the arbitrator finding that certain 'negative certifications' in progress payment certificate issued in response to D & Z's claim for progress payments were invalid, it follows that D & Z was entitled to be paid the total of the amounts positively certified in the certificates issued in response to the claims for progress payment. The proposition is advanced notwithstanding the fact that D & Z did not, during the arbitration, contend that it was in fact entitled to each and every amount claimed or certified as due and owing during the process relating to D & Z's claims for progress payments. Rather, as the arbitrator noted, D & Z conceded that there were a number of items the subject of certificates issued in response to its claims for progress payments to which it was not entitled.
83 In any event, it is clear that this ground adds nothing to ground 1. It relies on the proposition that copy documents submitted in support of its claims for progress payments, and certificates issued in response to those claims establish its entitlement to final payment, notwithstanding the express provisions of the contract to the contrary, and the arbitrator's finding of fact that D & Z had failed to adduce evidence establishing the costs which it had incurred and which were reimbursable under the contract. For the reasons given in relation to ground 1, this ground does not disclose any error of law, and leave to appeal must be refused.
84 As D & Z has failed to establish the conditions which must be satisfied before leave to appeal can be granted, its application for leave to appeal must be dismissed.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : D & Z CONSTRUCTIONS PTY LTD -v- IHI CORPORATION [2013] WASC 265 (S)
Practice and procedure - Costs - Consideration of whether judge should fix costs or whether they should be taxed by a taxing officer - Turns on own facts
Legal Practitioners (Supreme Court) (Contentious Business) Determination 2012 (WA)
Rules of the Supreme Court 1971 (WA), O 1 r 4A, O 1 r 4B
Applicant ordered to pay respondent's costs fixed in the amount of $46,712.30
1 MARTIN CJ: On 16 July 2013, I ordered that the application by D & Z Constructions Pty Ltd for leave to appeal from the decision of an arbitrator should be dismissed, and published my reasons for arriving at that conclusion. By consent, I also ordered that issues with respect to the costs of the application be determined on the papers. At the time those orders were made, the respondent had filed written submissions on the subject of costs, together with an affidavit of Ms Bree Duggan in support of the orders which it sought. Further written submissions have been exchanged pursuant to directions which I made. These are my reasons for concluding that the applicant should be ordered to pay the respondent's costs fixed in the amount of $46,712.30.
2 The affidavit of Ms Duggan attaches a draft bill of costs and identifies the time actually spent by the various legal practitioners involved in the preparation and presentation of the respondent's case in respect of each of the items identified in the draft bill, and the charges actually rendered to the respondent in respect of those items. The draft bill has been prepared with regard to the maximum applicable amounts allowable under the relevant cost determination.
3 The respondent contended that it should have its costs in the amount claimed in the draft bill, or some lesser amount following consideration of the amounts claimed in that bill, or alternatively, that it should have its costs to be taxed by a taxing officer but without regard to any of the limits imposed by the relevant cost determination.
4 The applicant opposed the proposition that I should fix the costs and also opposed any order to the effect that costs should be taxed without regard to the maximum amount allowable under the relevant cost determination. It proposed that the respondent should be awarded its costs to be taxed in accordance with the relevant scale. However, detailed submissions were provided in respect of each item in the draft bill of costs attached to Ms Duggan's affidavit.
5 In summary, the applicant accepts that costs should follow the event, and that the respondent should have its costs of the application for leave to appeal. There are two matters in contention. First, should I fix the amount of the respondent's costs, and if so, what should that amount be? Second, should I direct that the respondent's costs be taxed, and if so, should I order that they be taxed without regard to the maximum limits applicable in the relevant cost determination?
Should I fix the amount of the respondent's costs?
6 The applicant's submissions in opposition to the proposition that I should fix the amount of the respondent's costs rely upon cases and principles dealing with an award of costs on a lump sum basis. In this context, 'lump sum' means a global assessment undertaken in the broad, without reference to specific items. However, that is not what the respondent proposes. The respondent has provided a draft bill of costs and the parties have exchanged written submissions with respect to each of the items within that bill. They have consented to the question of costs being determined by me on the papers. In these circumstances the question is whether I should fix the amount of the respondent's costs by reference to the draft bill of costs and the submissions which have been exchanged, or whether I should require the process to be undertaken before a taxing officer of the court.
7 With the exception of costs relating to interlocutory matters, it is the usual practice to direct that issues with respect to the quantum of costs be determined by a taxing officer following the process of taxation. There are a number of advantages in this practice. First, it avoids the deployment of the limited time of a judge upon a process of assessment which can, in some cases, be detailed and protracted. Second, taxing officers, by virtue of their experience, develop expertise in the assessment of the reasonable quantum of costs.
8 However, there are also disadvantages in this course. First, the taxing officer will not have the judge's familiarity with the issues involved in the case, and will not therefore have the same ability as the judge to assess the amount of time properly spent in the preparation and presentation of those issues. Second, the process of taxation necessarily requires a separate hearing, with appearances by both parties, thereby adding to the overall costs of the proceedings.
9 In assessing the extent to which these competing advantages and disadvantages suggest the course which should be followed in any particular case, account must be taken of the overriding principles contained in O 1 r 4A and r 4B of the Rules of the Supreme Court 1971 (WA). Those rules require that the practice and procedure of the court are to have as their goal the elimination of delay, and a number of other objectives, including the efficient disposal of the business of the court.
10 In the circumstances of this case, having regard to the relative simplicity of the draft bill of costs, the fact that the parties have exchanged written submissions with respect to each item in that draft bill, and the advantages to be derived from my familiarity with the issues in the case in assessing the amounts claimed, I have concluded that the appropriate course is for me to fix the amount of the respondent's costs.
11 As a result of this conclusion, there is no issue with respect to the maximum amounts allowable under the relevant cost determination, as the draft bill of costs has been prepared having regard to those maxima.
12 I will briefly set out my reasons for concluding that the draft bill of costs should be allowed in full, by reference to each item in the bill. References to 'scale' items are to the Scale of Costs in the Legal Practitioners (Supreme Court) (Contentious Business) Determination 2012 (WA).
13 The applicant asserts that the professional time actually spent on this item was excessive. However, the time actually spent has not been claimed. The only time claimed corresponds to one hour of professional time, which is reasonable. This item is allowed.
14 The applicant again contends that the amount of time actually spent by the respondent's legal representatives on this item (82.7 hours) is unreasonable. However, the respondent does not claim for that time, but only for the maximum hours and corresponding amount applicable to this item under the scale - namely, 40 hours, which is a little under half the time actually spent. That claim is reasonable and is allowed.
15 The applicant again asserts that the respondent claims an excessive amount of time spent in relation to this item. However, the time claimed (6.3 hours) is less than the maximum time allowable under the scale (8 hours) with the result that the costs claimed are less than the maximum allowable. The task performed involved the identification of the documents properly placed before the court at the time the application for leave to appeal was determined. The nature of the grounds of appeal, and the sometimes vexed question of whether a particular document can be said to be incorporated within the award made this a task of some complexity. The amount claimed is reasonable and is allowed.
16 The respondent claims the maximum amount allowable under this item, although the actual costs incurred were almost double that amount. The work related to the issue of whether the question of leave to appeal should be determined at the same time as the substantive appeal (as the parties initially proposed), or whether, as I proposed, consistently with authority, the question of leave to appeal should be determined in advance of, and separately from, the appeal itself. That issue required the consideration of authority and its application to the circumstances of this particular case. The amount claimed is reasonable and is allowed.
17 The respondent has claimed the maximum amount allowable under the scale for the preparation of the case for hearing. However, the time actually spent on that task, and the costs actually incurred, are vastly in excess (by a factor of almost 10) of the times and amounts allowable under the applicable scale item. The amount claimed is reasonable and is allowed.
18 There is no objection to this item. It is allowed.
19 The applicant does not contend that excessive time was spent by senior counsel for the respondent in preparing and attending the hearing. However, it contends that the time should be allowed at a reduced rate, being the rate by which the scale items have been determined, and that GST should be deducted from that rate, on the assumption that the respondent is registered for GST, and will therefore obtain an input credit in relation to GST paid on senior counsel's fees.
20 I have no evidence as to whether the respondent would in fact obtain an input credit in relation to GST, and note that the scale items are specified with reference to amounts that are GST inclusive. I further note that in this case the amount claimed is less than 20% of the maximum allowable, and seems to me to be eminently reasonable, indeed bordering on the miserly, irrespective of whether GST is included or not. In the swings and roundabouts which necessarily involve an assessment of costs of this kind, it does not appear to me to be appropriate to deduct GST in relation to this or any other item.
Items 8, 9, 11 and 13 - scale items 23(k), 30(a), 31 and disbursements
21 These items can be dealt with collectively. Items 10 and 12 are not included within the heading above, because no amount has been claimed in respect of those items. It is sufficient to say that the amounts claimed with respect to an instructing practitioner attending an appeal, drawing of the draft bill of costs, and for photocopying and disbursements are reasonable, and will be allowed.
22 For these reasons I will order that the applicant is to pay the respondent's costs fixed in the amount of $46,712.30.
(2011) 244 CLR 239
(1986) 6 NSWLR 327
(1992) 26 NSWLR 203
(1994) 217 ALR 201
(2004) 8 VR 16
(2006) 94 SASR 376
(1977) 52 ALJR 20
(1977) 180 CLR 266
(1982) 149 CLR 337
(1995) 185 CLR 410