Supreme Court of WA|2006-01-31|Before: Mr P, Ms P, Hasluck J

Doric Building Pty Ltd v Marine & Civil Construction Co Pty Ltd & Anor [2006] WASC 12 (31 January 2006)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : DORIC BUILDING PTY LTD -v- MARINE & CIVIL CONSTRUCTION CO PTY LTD & ANOR [2006] WASC 12

Commercial arbitration - Leave to appeal against award - Application to set aside award for misconduct - Nature of subject agreement - Whether arbitrator erred in characterising the agreement as a joint venture - Whether joint endeavour provisions qualified meaning of general conditions in standard form sub-contract document - Whether arbitrator erred in finding that warranties had limited application - Whether arbitrator erred in making an award in circumstances where a variation claim under the contract had not yet been determined - Whether the award was premature - Leave to appeal refused - Application to set aside award for misconduct refused

Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99

Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337

Gas & Fuel Corporation of Victoria v Wood Hall Ltd [1978] VicRp 41; [1978] VR 385

Lamac Developments v Devaugh [2002] WASCA 245; (2002) 27 WAR 287

Melbourne Harbour Trust Commissioners v Hancock [1927] HCA 26; (1927) 39 CLR 570

Milligan Contractors Pty Ltd v Jaxon Construction Pty Ltd [2003] WASC 220

Nauru Phosphate Royalties Trust v Matthew Hall Mechanical & Electrical Engineers Pty Ltd [1994] VicRp 67; [1994] 2 VR 386

Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724

Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203

Thiess Contractors Pty Ltd v Water Corporation of Western Australia, unreported; SCt of WA; Library No 970561; 28 October 1997

UDR Equipment Pty Ltd v Afkos Industries Pty Ltd [2000] WASC 57; (2000) 22 WAR 221

United Dominions Corp Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1

Villani v Delstrat Pty Ltd [2002] WASC 112

Arnotts Limited v Trade Practices Commission (1990) 24 FCR 313

Brereton v Milstein [1988] VicRp 57; [1988] VR 508

Commissioner of State Taxation (WA) v Mechold Pty Ltd (1995) 95 ATC 4053

Construction Engineering (Aust) Pty Ltd v Tambel (Australasia) Pty Ltd [1984] 1 NSWLR 274

Forsayth NL v Australasian Gold Mines NL (No 1) (1992) 7 WAR 549

Friend & Brooker Pty Ltd v Eurobodalla Shire Council, unreported; CCA SCt of NSW; Library No 40293; 24 November 1993

Gas & Fuel Corp (Vic) v Wood Hall Ltd & Leonard Pipeline Contractors Ltd [1978] VicRp 41; [1978] VR 385

Glenwood Management Group Pty Ltd v Mayo [1991] VicRp 45; [1991] 2 VR 49

GRD Kirkfield Ltd v First Trade Consulting Pty Ltd [2004] WASC 158

Hayden & Ors v Teplitzky & Ors (1997) 154 ALR 497

Hong Kong Fir Shopping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961] EWCA Civ 7; [1962] 2 QB 26

Natoli v Walker (1994) 217 ALR 201

Plumor Pty Ltd v Handley (1996) 41 NSWLR 30

Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370

R P Robson Constructions Pty Ltd v Williams (1990) 6 BCL 219

Re Iezzi Constructions Pty Ltd and Currimbin Crest, unreported; SCt of Qld; Library No 546; 21 October 1993

Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264

Tharsis Sulphur & Copper Company v McElroy & Sons (1878) 3 App Cas 1040

Tsakiroglou & Co Ltd v Noblee Thori Gmbh [1962] AC 93

Waterford v Commonwealth [1987] HCA 25; (1987) 163 CLR 54

1 It appears from a notice of originating motion dated 9 December 2004 presented by Doric Building Pty Ltd that relief is sought pursuant to provisions of the Commercial Arbitration Act 1985 (WA). First, Doric seeks leave to appeal against the whole of an Arbitrator's interim award dated 26 November 2004 ("the award") pursuant to s 38(4) of the Act in terms of the draft notice of appeal exhibited to the notice of motion (as amended by order dated 21 December 2004). Second, in the alternative, pursuant to s 42(1)(a) of the Act, Doric seeks to set aside the award.

2 I will continue to refer to the applicant for these orders as "Doric". I will refer to the first respondent, Marine & Civil Construction Co Pty Ltd, as "Marine & Civil". I understand that the Arbitrator, who is the second respondent, is content to abide any ruling made by the Court.

3 The matters in controversy arise out of a contract for the design, construction and installation of an underwater observatory at the end of Busselton Jetty. This was called the "UWO" in the award and I will continue to use that term for ease of reference.

4 Before proceeding further, it will be useful to look briefly at the jurisdiction of the Supreme Court concerning judicial review of awards under the Commercial Arbitration Act. By s 38 of the Act an appeal shall lie to the Supreme Court on any question of law arising out of an award with the leave of the Court. I will look at the leave provision in more detail later.

5 Since the enactment of the Acts Amendment (Court of Appeal) Act 2004 (WA), being the vehicle by which the new Court of Appeal was created, various amendments were effected to the Supreme Court Act 1935 (WA). More particularly, s 20 of the Supreme Court Act now provides that the Supreme Court has jurisdiction to hear and determine any application or any appeal, whether by case stated or otherwise, that the Court or a Judge is empowered by written law to hear and determine.

6 Section 58 of the Supreme Court Act, as now amended, deals with the jurisdiction of the Court of Appeal. It provides for the Court of Appeal to deal with appeals from a single Judge and various other appeals. Importantly, for present purposes, s 58(1)(m) provides that the Court of Appeal shall have jurisdiction to hear and determine all causes and matters which (a) by any Act of this State or the rules of court or; (b) by or under any Imperial Act or Act of the Commonwealth of Australia, are required to be heard and determined by the Court of Appeal.

7 Other provisions in the Acts Amendment (Court of Appeal) Act 2004 amended various Acts to provide that where reference is made to an appeal going to the Full Court, such an appeal shall be to the Court of Appeal; for example, appeals from the Criminal Injuries Compensation Act, the Liquor Licensing Act.

8 Put shortly, then, in many circumstances legislation of a specialist kind such as the Liquor Licensing Act has now been amended to provide for appeals formerly going to the Full Court to go to the Court of Appeal. However, the combined effect of s 20 and s 58 is that unless there is a specific designation, then, by s 20, it continues to be the case that a single Judge exercising the jurisdiction of the Supreme Court will hear an appeal.

9 In essence, s 38 of the Commercial Arbitration Act refers to an appeal lying to the Supreme Court on any question of law arising out of an award; that is, not to the Full Court but to the Supreme Court, which can be constituted by a single Judge. It follows, on this analysis, that I have jurisdiction to exercise the appeal jurisdiction contemplated by the Commercial Arbitration Act.

10 I put this analysis to counsel at the commencement of the hearing, and established that they saw the matter in the same light.

11 It is common ground between the parties that on 8 November 2001 Doric and the Shire of Busselton executed a form of formal instrument of agreement for a design and construct contract in respect of the UWO. Doric and Marine & Civil combined in an endeavour to install the UWO but a dispute has arisen between them as to the nature and effect of the arrangements entered into concerning the project. I will turn to the relevant details shortly. Suffice it to say for the moment that the arrangements included documentation providing for differences between the parties that could not otherwise be resolved to be referred to arbitration.

12 A dispute arose and on 18 July 2003 the Chairman of the Western Australian Chapter of the Institute of Arbitrators and Mediators Australia nominated Roger K F Davis to act as Arbitrator of the dispute.

13 The Arbitrator purported to make an interim award dated 26 November 2004 whereby Doric was to pay Marine & Civil the sum of $716,573. The question of interest on the sum awarded, time to pay and costs were dealt with by a final award dated 13 December 2004.

14 Doric disputes that the amount awarded is payable and says that Marine & Civil owes Doric at least the sum of $622,223 plus interest. That stance underlies the Doric application for leave to appeal and for orders setting aside the award.

15 On 16 March and 11 May 2005 the matters the subject of the Doric notice of motion came before Master Newnes. In addition, Marine & Civil brought on for hearing an application for an order that all money payable by Doric under the awards be paid into Court pending determination of Doric's application for relief. Further, an application was made by Marine & Civil to enter and enforce the subject awards as a judgment of the Court.

16 Master Newnes delivered reasons for decision on 14 July 2005 He was of the view that the application for leave to appeal and the merits of the appeal should be heard in conjunction with the application to set aside the awards under s 42 of the Act. He was not satisfied (as appears at par 58 of his reasons) that sufficient evidence had been brought before him to justify an order for payment into Court or to secure the amount of the awards, and declined to make such an order. Further, as appears at par 66 of his reasons, he refused leave to enforce the awards and to enter judgment.

17 It is against this background that I am required to address the issues raised by Doric's application for leave to appeal and draft notice of appeal, and the Doric application to set aside the awards.

18 In or about May 2000 at the instigation of a firm of consultant engineers, Worley Infrastructure Pty Ltd, known in the arbitration proceedings as Worley, Doric and Marine & Civil provided cost estimates for the construction of certain parts of the UWO to a preliminary design and specifications provided by Worley. These parties were all aware that Worley would be responsible for the engineering and structural design of the UWO.

19 In June 2001 the Shire of Busselton invited tenders to design, plan, construct and install the UWO in accordance with published specifications and drawings, essentially as prepared by Worley 12 months earlier.

20 It was agreed at a meeting on 30 July 2001 between Mr Kendall, for Doric, and Mr Neylon, for Marine & Civil, that in order to reduce the tender price the project should be run as an "alliance or joint venture" to avoid doubling up on overheads, contingencies and profit. Once that agreement was reached the meeting considered the allowances each of Doric and Marine & Civil had made for overheads, contingencies and profits. They agreed that the tender should include a profit margin of $200,000, $100,000 for each party, and $50,000 for each company for contingencies or risk. The total margin to be included was thus $300,000.

21 A tender was submitted on 31 July 2001 by Doric, as the proposed head contractor. In the covering letter to the tender submission a director of Doric, Mr Richard Kendall, said that Doric proposed to lead an "alliance" team including Worley and Marine & Civil.

22 The Shire of Busselton advised Doric by letter dated 18 September 2001 that Doric was the preferred tenderer for the project. On 8 November 2001, Doric and the Shire of Busselton executed a formal instrument of agreement for a design and construct contract which incorporated general conditions AS 4300 - 1995. The total contract sum was $2,516,000.

23 On 15 May 2002, Doric and Marine & Civil entered into a "sub-contract" agreement which was destined to become the subject of the arbitration. There is some dispute as to the precise contents of the subject agreement but the core document took the form of a sub-contract order under Doric letterhead.

24 The sub-contract price was noted on the subject order as "$00". This, of itself, suggests that the agreement being entered into was not a conventional subcontract agreement.

25 The material portions of the subject order are as follows:

"1. TRADE

Marine & Civil Construction Co Pty Ltd subcontract for the Busselton Jetty Under Water Observatory is in accordance with the following scope of work:

Subcontract Order Total (Exclusive of GST) $.00

2. SCOPE OF WORK

Marine & Civil Construction Co Pty Ltd under this subcontract form alliance with DORIC Building Pty Ltd to Design and Construct the Busselton Jetty Underwater Observatory (UWO).

The scope of work conforms with but is not limited to the following:

TENDER SUBMISSION

i) The Design and Construction of the UWO will be based on the conforming scheme as amended and outlined in the successful tender submission dated 31 July 2001.

CLIENT PERFORMANCE BIEF [sic]

i) The Shire of Busselton performance tender brief. Client Tender No 24/00. Dated May 2001.

i) Marine & Civil in conjunction with Doric will manage the design and documentation to ensure adherence to the tender submission, client performance brief whilst remaining within the head contract value.

ii) The design team are as follows:

i) Marine & Civil in conjunction with Doric will manage project cost control to ensure the project margin is maintained or improved.

ii) DORIC's total contract value with the Shire of Busselton is $2,516,000 excluding GST

iii) The internal cost plan. Reference - J:\24\18\[210a-busselton UWO - actual.xls] dated 22/4/02

iv) Doric approval is required prior to Marine & Civil issuing any major work orders.

v) All project costs incurred by Marine & Civil and DORIC are to be reported monthly on an "open book" format. All costs will require detailed substantiation and approval by DORIC prior to payment.

vi) All profits (or losses) will be shared equally between Marine & Civil and DORIC Building Pty Ltd.

i) All work is to be in accordance with the construction issue drawings and specification or as approved by DORIC and the respective design consultants.

PROGRAMME

i) All work is to be performed in accordance with the overall construction programme and subsequent revisions and or as instructed by DORIC.

PERSONNEL

i) Marine & Civil's Project Management representative is Alan Sweet.

COMMUNICATION/CO-OPERATION

i) Marine and Civil are to ensure effective communication and co-ordination between all parties involved in the project.

APPROVALS

i) Marine & Civil in conjunction with DORIC are to seek all approvals necessary to complete the work.

i) This Subcontract order is back to back with the Head Contract AS 4000 - 1995 [sic, AS 4300 - 1995] general conditions of contract for design and construct as amended. Refer appendix E, PART A pages 50 to 56 all inclusive.

ii) This subcontract order will be also in accordance with AS 4303 - 1995 general conditions of subcontract for design and construct as amended for the purposes of this subcontract."

26 Practical completion under the head contract was stated to be 9 May 2003. The same date appears for practical completion of the subject agreement in Pt A of the AS 4303 general conditions but there was and is a dispute between the parties as to the effect of that provision.

27 The terms of AS 4303 - 1995; that is, the Standard Form General Conditions of Subcontract for Design and Construct (AS 4303") included (in cl 2) various definitions as follows:

"'Main Contract Works' means the whole of the work to be executed in accordance with the Main Contract, including variations provided for by the Main Contract, which by the Main Contract is to be handed over to the Principal;

'Preliminary Design' means any preliminary design of the Subcontract Works included in the documents stated in Annexure Part A as describing the Main Contractor's Project Requirements;

'Subcontract' means the agreement between the Main Contractor and the Subcontractor;

'Subcontract Works' means the whole of the work to be executed in accordance with the Subcontract, including variations provided for by the Subcontract, which by the Subcontract is to be handed over to the Main Contractor;

'Subcontractor's Design Obligations' means all tasks necessary to design and specify the Subcontract Works required by the Subcontract, including preparation of the Design Documents, and if the documents stated in Annexure Part A describing the Main Contractor's Project Requirements include a Preliminary Design, developing the Preliminary Design;

'work under the Subcontract' means the work which the Subcontractor is or may be required to execute under the Subcontract and includes the Subcontractor's Design Obligations, variations, remedial work, Constructional Plant and Temporary Works."

28 AS 4303 provided in cl 3.1 that unless otherwise provided in the contract, the subcontractor shall execute and complete the work under the subcontract in accordance with the requirements of the subcontract.

29 I pause here to note that as the subcontract was defined to encompass "the agreement" between the subject parties this arguably brought into play any matters of agreement lying outside the AS 4303 standard form such as (in the present case) the subject order form.

30 Clause 4.1 of the AS 4303 subcontract general conditions document dealt with the subcontractor's warranties but "without limiting the generality of cl 3.1". On a literal reading of the document, the subcontractor warranted that it was appropriately qualified and experienced (cl 4.1(a)); it would execute and complete the work under the subcontract in accordance with the design documents, so that the subcontract works, when completed, would be fit for their stated purpose (cl 4.1(e)).

31 The subcontractor warranted also that it had carefully checked that any preliminary designs included in the main contractor's project requirements were suitable, appropriate and adequate for the purpose stated in those project requirements (cl 4.1(c)). The subcontractor acknowledged that the warranties were not affected because the design work (including the preliminary design work) was carried out by or on behalf of the main contractor and included in the main contractor's project requirements (cl 4.2).

32 In AS 4303 a sum of $1000 per day was inserted as the amount of the liquidated damages payable by Marine & Civil in the event that it failed to reach practical completion by the due date. The document provided also that if a failure by Marine & Civil caused Doric to be liable for liquidated damages under the head contract, Marine & Civil would be liable to Doric for the amount of those liquidated damages to a maximum of $200,000.

33 The UWO was to be attached to the seabed by anchors. It became apparent by about December 2001 that the marine ground anchors, which had been relied upon in calculating the tender price, were inadequate for their intended purpose. The design was found to be inadequate when a detailed study carried out after the award of the head contract (but prior to the award of the sub-contract) disclosed that the wave loading that had been included in the preliminary design was inadequate and that more ground anchoring would be required than was originally thought necessary.

34 By May 2002 it was evident that the required changes to the ground anchoring would be expensive. Doric says that Marine & Civil was aware that extensive changes would be necessary when it entered into the sub-contract on or about 15 May 2002. In fact, the change in the ground anchoring increased the construction costs of the marine portion of the works by an amount in the order of $1 million. Doric thereby incurred a very substantial loss under the head contract.

35 The presence of a substantial loss under the head contract gave rise to various differences of opinion between the parties. In his reasons for decision delivered on 14 July 2005, Master Newnes described the situation in this way:

"10. The essential issues that arose between the parties can be summarized shortly. Doric asserted that under the subcontract Marine & Civil assumed the obligation to design and construct the underwater observatory substructure for the sum of $1,256,160 and expressly warranted that the preliminary design was adequate to produce a structure suitable for its purpose. In fact, the preliminary design of the marine ground anchors was either inadequate as a result of negligent design - for which Marine & Civil was liable under the subcontract - or it was a variation of the head contract and the subcontract, in which case the arbitration was premature as the issue of whether it was variation was still unresolved with the Shire of Busselton. In any event, the extra costs flowing from the changes to the ground anchors was a matter for Marine & Civil alone.

11. Marine & Civil contended that, rather than being a conventional design and construct subcontract, the contract between Doric and Marine & Civil was a joint venture or alliance arrangement. Marine & Civil said it was an express term of the agreement that Marine & Civil would, in conjunction with Doric, manage the design, documentation and construction of the work under the head contract and that all project costs incurred by Marine & Civil and Doric respectively would be reimbursed from the proceeds of the head contract and any profit or loss on the contract would be shared equally between them."

36 Formal pleadings were exchanged by the parties as appears from the reasons for interim award. I will look at the pleadings in more detail later. However, broadly described, the pleadings reflected the essential issues I referred to a moment ago, with the fundamental issue being: what was the nature of the agreement between Doric and Marine & Civil? For ease of reference, I will call this the "fundamental issue".

37 In effect, Doric pleaded that the subject agreement amounted to a straightforward subcontract arrangement, partly oral and partly in writing dated 15 May 2002, with the result that Marine & Civil was obliged to carry out the design and construction and installation of the UWO substructure and was liable for the breach of any warranties bearing upon that basic obligation.

38 On the other hand, Marine & Civil contended that the contract between the parties was essentially a joint venture agreement, being an agreement in writing comprised of the subject contract order, the tender submission dated 31 July 2001, the Design Brief, the Internal Cost Plan printed 22 April 2002 and the AS 4303 Subcontract General Conditions (see par 8 of the Marine & Civil points of claim). I will call these the "alleged subcontract documents".

39 Marine & Civil asserted throughout the arbitration hearing that the agreement between Doric and Marine & Civil was one under which the parties would jointly arrange to have the work under the Head Contract carried out with each party entitled to be reimbursed all costs incurred by it in having the work under the Head Contract carried out and that each party would share equally any profit or loss incurred under the Head Contract.

40 Having regard to matters raised later in Doric's grounds of appeal I must pause at this point to draw attention to certain features of the pleadings and the nature of the dispute submitted to arbitration.

41 First, a query is raised by the grounds of appeal as to whether the proper construction of the subject agreement (or subcontract as it was called by both parties throughout the pleadings) was ever an issue on the pleadings. According to counsel for Doric at the hearing before me there was no pleading by Marine & Civil that marked out the line eventually followed by the arbitrator, namely, the subject agreement was ambiguous due to inconsistencies between the subject order and the AS 4303 general subcontract conditions; on its proper interpretation it was not a subcontract in the conventional sense but should be characterised as a joint endeavour or joint venture agreement; this meant that primacy should be given to the subject order with the result that the warranty and liquidated damages clauses had to be read down accordingly and be given little or no effect.

42 The absence of such a plea, counsel for Doric submitted, gave rise not only to errors of law in dealing with the pleaded issues but also to procedural irregularity and unfairness in that Doric was not afforded any or any sufficient opportunity to address these issues by leading relevant evidence and presenting submissions. It was said that the arbitrator's ruling upon the fundamental issue in the absence of such a plea amounted to technical misconduct.

43 I will deal with these issues later. For the moment, with a view to indicating how it came about that the arbitrator felt obliged to make a determination as to the nature of the subject agreement, it will be sufficient to make these observations in passing.

44 It is true that both parties in their pleadings spoke of the subject agreement as a subcontract. However, it is apparent from a fair reading of the pleadings that there were many areas of disagreement as to what the contents of the so-called subcontract were thought to be and matters were mentioned by Marine & Civil in its points of claim which made it clear from the outset that it was speaking of a subcontract of an unusual kind. It referred to Worley, Doric and itself entering into an "exclusive arrangement" to tender for the design and construction of the UWO (par 3(5)); Doric putting in the tender submission as the lead member of an alliance team (par 4(9)); Marine & Civil would, in conjunction with Doric, manage project cost control under the subcontract to ensure the project margin was maintained or improved (par 9(2)); all profits and losses under the subcontract would be shared equally between Marine & Civil and Doric (par 9(5)). It was said in par 11(1) that in breach of the latter term Doric has failed or refused to share the loss equally.

45 The usual rule of pleading is that a claimant is not obliged to anticipate matters of defence or counterclaim. Thus, to my mind, it should not be regarded as surprising or irregular that in its points of claim Marine & Civil did not attempt to characterise the essential nature of this apparently unconventional subcontract or seek to explain how the clauses concerning warranties and liquidated damages should be fitted into the framework of the agreement. These were not matters being relied on by Marine & Civil.

46 Doric, by its amended defence and counterclaim, affirmed the unusual background to the tender submission and pleaded that it was agreed for administrative simplicity that Doric would co-ordinate the submission and "for administrative purposes only would become the head contractor if the tender was successful" (par 5.7). Doric went on to plead that by the express terms of the subcontract Marine & Civil would perform certain works including the design and construction of the UWO substructure (par 12.1); Doric and Marine & Civil would share equally the profit or loss on the head contract margin (par 12.6).

47 Doric then went on to plead at pars 12.8 to 12.11 and at pars 15.8 to 15.11 that Marine & Civil was bound by and in breach of certain of the cl 4 warranties. Doric pleaded in its counterclaim at par 27 that in breach of its obligations Marine & Civil had failed to bring the works to practical completion by 9 May 2003 and was liable to Doric in liquidated damages for delay.

48 By its amended reply and defence to counterclaim Marine & Civil at par 10 denied that Doric was to be head contractor for administrative purposes only. It referred to a meeting on 30 July 2001 at which it was agreed that Doric and Marine & Civil would form an "alliance" or "joint venture" whereby the parties would share the costs of carrying out the work and share equally in any resulting profit or loss made under the head contract. Marine & Civil denied pars 12 and 15 of the defence and referred to par 9 of the points of claim for the express terms of the subcontract.

49 It seems likely that exchanges of this kind would convey to legal advisers that Marine & Civil would seek to rely on the terms of the subject documents and surrounding circumstances in order to establish that the subcontract, irrespective of the name given to it, was in the nature of a joint venture and that the crucial terms, as pleaded in par 9 of the points of claim were sufficient to rebut the matters complained of by Doric. In other words, there was an issue between the parties as to what documents and events constituted the subject agreement and how it should be construed. Indeed, the case seems to have been fought along these lines at the hearing before the arbitrator, for Doric's submissions dated 3 November 2004 begin by referring in par 1 to the approach made by Mr Kendall of Doric to Mr Neylon of Marine & Civil "with a view to a joint venture being formed to bid for the underwater observatory work being touted by the Shire of Busselton". The submissions note at par 54 that Marine & Civil's case is that the "profit and loss" clause in the subcontract should be construed narrowly and as "a paramount clause" for the purpose of resolving rights and obligations between Doric and Marine & Civil. It was said in par 60 that: "The 50/50 Marine & Civil loss construction of the agreement is a rejected clause of the draft Joint Venture Agreement put up by Marine & Civil." It was said in par 64 that Marine & Civil "wish to construe the 'alliance' as imposing no obligations on Marine & Civil and the subcontract as leaving Marine & Civil without responsibilities."

50 Thus, as I draw all these considerations together I am left with an impression that by the end of the arbitration both parties and the arbitrator were fully aware that the case was likely to turn upon the interpretation of the subject agreement, with possible recourse to the matrix of surrounding circumstances as an aid to interpretation in the event of it being necessary to resolve ambiguities. Moreover, the essential issues were as summarised by Master Newnes later.

51 Second, before proceeding to the arbitrator's findings I must touch on another matter - the so-called prematurity issue - which first arose in the months leading up to the arbitration issue and which has reappeared in the grounds of appeal.

52 I am referring here to Marine & Civil's contention that, with the exception of a minor sum, Doric had arguably been paid in full by the Shire of Busselton by 22 December 2003. By then, as indicated by the arbitrator's entry upon the reference in mid July 2003, the parties were apparently in dispute in that Doric had communicated its unwillingness to share with Marine & Civil the latter's losses on the project arising from the anchor problem.

53 However, according to Doric, there was a prospect that additional funds could be obtained by Doric as the main contractor pursuant to an unresolved variation claim against the Shire. The presence of this and related claims led to a plea at par 16 of the Doric statement of defence that, as the final amount under the main contract had not yet been determined, Marine & Civil was not in a position to substantiate its claim for moneys due from Doric pursuant to the alleged joint venture arrangement. In other words, entitlements under the subject agreement could not be determined until final entitlements under the main contract had been determined. I will call this the "Doric par 16 issue".

54 The Doric par 16 issue led in turn to an application being made by Doric to adjourn the arbitration on the grounds that if the Shire met the unresolved variation claim the dispute between the parties might well fall away; that is, in the absence of any loss on the project there would be no dispute as to sharing the loss.

55 It is apparent from a letter to the parties dated 3 May 2004 that, after a hearing concerning this matter, the arbitrator refused to adjourn the proceedings. He held further that, irrespective of the outcome of the variation claim, there was an arbitral dispute between the parties as to their respective duties and liabilities under the subcontract arrangements. He refused to accede to a submission made by counsel for Doric that it was premature for the arbitrator to embark upon or proceed with the arbitration.

56 I digress to say that the arbitrator's 3 May 2004 ruling might arguably be regarded as a determination that there was no substance in the Doric par 16 issue or, putting it another way, that the Doric par 16 issue was a peripheral issue and of limited importance in resolving the fundamental issue which lay at the heart of the arbitral dispute, namely: what was the nature of the subject agreement? Was Marine & Civil in breach of the cl 4 warranties as alleged by Doric?

57 In due course, the matters in dispute on the pleadings proceeded to a hearing before the arbitrator (Mr Davis) over 6 days in late October and early November 2004 with each party being represented by counsel. Evidence-in-chief was adduced by way of previously exchanged written statements.

58 The arbitrator commenced the award by describing the events giving rise to the dispute. He noted (at par 16) that the project has "to this point made a loss". He noted also that Marine & Civil "seeks to hold Doric liable for half that loss and to account on a similar basis for any future profits or losses".

59 It is apparent from these prefatory observations that the arbitrator felt obliged to resolve the fundamental issue; that is, the nature of the subject agreement. He found that, on the proper construction of the subject agreement, Marine & Civil had formed an alliance with Doric to carry out the whole of the contract work.

60 The arbitrator construed an "alliance" to mean "in association with" or "in a joint venture". To that end, Marine & Civil and Doric were to work together, among other things, to manage the design and documentation to ensure performance of the works as required by the head contract and their respective costs were to be paid from the revenue derived under the head contract.

61 I note in passing that the term "joint venture" is not a technical term with a settled common law meaning, and nor did the arbitrator attempt to say exactly what he meant by the term. However, a joint venture is usually regarded by those in the commercial world as an association of persons for particular commercial or financial undertakings or endeavours with a view to mutual profit. Each participant usually, but not necessarily, contributes money, property or skill: United Dominions Corp Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 at 10. The arbitrator appears to have been using the term in this sense.

62 The arbitrator found also that ultimate profit or loss was to be shared equally. That is, if the revenue from the head contract was more than the costs jointly incurred then that excess was to be shared equally. Conversely, if the revenue was less than the costs jointly incurred then that loss was to be shared equally.

63 The arbitrator observed that there were apparent inconsistencies between the express terms of the subcontract order form of 15 May 2002 and AS 4303, which was expressly incorporated into the subject agreement.

64 Having reviewed a number of well-known decided cases bearing upon the interpretation of written instruments including Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 and Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 at 352, the arbitrator made these observations:

"18. I must, therefore, seek first to discern the parties' intention from the words of the instrument, without recourse to any surrounding circumstances as an aid to construction. Only if that is not possible should I look to the background facts as an aid to determining the parties' presumed intention. In my opinion, until the reader of this subcontract reaches the heading General Conditions the intention of the parties is clear on the plain language used. It is only the introduction of the general conditions of SA 4303 that introduces ambiguity or doubt."

65 I digress to say that in making these observations the arbitrator was clearly drawing attention to the incongruities inherent in an agreement constituted in part by the subject order, which spoke of an alliance between the parties and referred to profits and losses being shared equally, and, on the other hand, in part by standard form conditions which suggested that the work was being undertaken by an independent subcontractor for an agreed price (especially in circumstances where an agreed price had not been fixed).

66 At a first glance the arbitrator's observations do not strike me as surprising. However, I note in passing that they were later relied upon by Doric in support of a contention in its first ground of appeal that the arbitrator erred in finding that the introduction of the general conditions gave rise to an ambiguity.

67 The arbitrator considered the evidence of various witnesses as to the circumstances in which the parties entered into the subject agreement. He concluded from the evidence that Marine & Civil did not represent to Doric that it had expertise in the design of marine structures, nor did Marine & Civil price the work on behalf of the "alliance" for the purposes of the tender. The arbitrator was of the view that the subject agreement did not define a discrete scope of work for Marine & Civil, separate to the work it was to perform jointly with Doric, and did not contain a lump sum price to be paid to Marine & Civil because it was intended that Marine & Civil would be paid under the profit or loss sharing arrangement.

68 Having regard to what he called "the background facts and circumstances", the arbitrator was of the view that while the head contract was a true design and construct contract, the subject agreement was not. Marine & Civil's obligation was confined to managing the design and documentation of others, in conjunction with Doric, to achieve a stipulated objective. Marine & Civil was to be paid the costs it incurred and otherwise was to share equally in the profit or loss under the head contract. The arbitrator found that the intention of the parties in incorporating AS 4303 was "to include a framework within which the preceding 'back to back' clause was to operate". It was not intended to alter the fundamental nature of the subject agreement.

69 The arbitrator rejected Doric's contention that Marine & Civil was liable under the warranties contained in AS 4303. In essence, the arbitrator found that the warranty in cl 4.1(a) did not apply because Marine & Civil did not have a discrete obligation under the subcontract to execute the relevant areas of the work. Its obligation under the subject agreement was to manage the work jointly with Doric.

70 The arbitrator found that Marine & Civil did not, by cl 4.1(c), warrant the design of the substructure, which included the anchor system. Under AS 4303, the warranty applied to a "preliminary design" of the 'Subcontract Works' included in the documents in annexure "A" to AS 4303. Those documents, the tender submission and the client tender brief, included Worley's original design of the anchor system. The "Subcontract Works" meant, relevantly, the whole of the work to be executed in accordance with the subject agreement.

71 The arbitrator noted that the subject agreement provided that Marine & Civil was to perform all of the work under the head contract in alliance with Doric. However, he found that Doric and Marine & Civil had each priced separate portions of the work, with the intention that each would in due course carry out that portion of the work. The arbitrator therefore construed cl 4.1(c) to apply only to those portions of the work priced by Marine & Civil. As Marine & Civil had not priced the anchor system, the warranty had no application to it. The arbitrator reached a similar conclusion in respect of the warranty in cl 4.1(d) of the General Conditions. He said: "As with GC 4.1(c), the scope of the warranty is limited by the extent of the Subcontract Works" (par 36.8).

72 I note in passing that these observations indicate (notwithstanding suggestions to the contrary in Doric's grounds of appeal) that the arbitrator did not exclude or refuse to give any or any proper weight to the warranties, but, rather, having regarding to the terms of the joint venture arrangement reflected in the subject order, concluded that the warranties were of limited effect.

73 This approach appears to be consistent with the rules concerning the construction of commercial documents enunciated by Gibbs J in the ABC case (supra) at 109 whereby such documents must be construed fairly and broadly and in a manner that will render them harmonious with one another.

74 On the claim by Doric for liquidated damages under the head contract, the arbitrator found there was no evidence that any delay to Doric's performance of the head contract was caused by a breach of the subcontract by Marine & Civil. The claim therefore failed.

75 On the claim by Doric under the subject Doric/Marine & Civil agreement, the arbitrator observed that it was clear the work had not been completed by the date for practical completion under the head contract. However, he concluded that, as there was no discrete scope of work for Marine & Civil under the subject agreement, it could not be said that Marine & Civil had failed to reach practical completion by that date.

76 The arbitrator also concluded that it had not been established on the evidence when practical completion under the subject agreement had been reached. He added that the notion of liquidated damages in the context of a joint enterprise was inconsistent and unenforceable.

77 Put shortly, as appears at par 43 of the award, the arbitrator held that Doric's defence to Marine & Civil's claim for moneys due pursuant to the subject agreement failed. He dismissed the Doric counterclaim.

78 The arbitrator ordered Doric to pay Marine & Civil $716,573. By his final award dated 13 December 2004, the arbitrator awarded interest on that sum at the rate of 5 per cent per annum from 1 January 2004 until the earlier of payment or the entry of the awards as a judgment.

79 The arbitrator also ordered Doric to pay Marine & Civil's costs on the Supreme Court scale, on a party/party basis to 5 May 2004 and thereafter on an indemnity basis, plus the arbitrator's fees and the expenses of the arbitration, except for transcription costs which were to be borne by Marine & Civil.

80 In dealing with the question of costs the arbitrator took into account the making of an offer to compromise by Marine & Civil on 5 May 2004 pursuant to O 24A of the Rules of the Supreme Court. Doric's position was that it should not be required to pay Marine & Civil costs until all possible claims and payments had been finalised. This brings me back to the Doric par 16 issue and Doric's contention that the award was premature.

Observations concerning the Doric par 16 issue

81 In the course of his final award the arbitrator made these observations about the Doric par 16 issue:

"6. I do not accept the submission for Doric that the parties to the subcontract have no obligation to share profits or losses on the project until the last possibility of a claim on the part of any party involved against any other party involved has been settled or extinguished and every last possible payment made. If that were the case, in the absence of goodwill the obligation could be postponed indefinitely and the parties can be presumed not to have intended that result. On the other hand, the subcontract is silent as to when that reckoning should take place. I do not consider GC 42.1, as amended, covers the situation. That clause relates to on-payment to M&C of money received by Doric in payment for work performed by M&C. It does not require Doric to make a payment to M&C to bring the parties into a situation where profits and losses to that point have been shared.

7. In my opinion it is reasonable, and in conformity with the subcontract, for M&C to expect Doric to take that step when the final payment, for all practical purposes, was received from the Shire. At that point there may or may not have been a valid claim against the Shire for a variation and there may also have been potential liabilities, known or unsuspected, to be dealt with in due course. On the evidence, Doric had from April 2003 communicated its unwillingness to share with M&C the losses on the project and it has maintained that position ever since. M&C issued a notice of dispute pursuant to the terms of the general conditions on 21 May 2003. Thus, as at the end of December 2003, Doric was aware that M&C was asserting a contractual right to have Doric share in the losses incurred on the project and, further, had received virtually all the money it was due under the head contract, with the exception of its outstanding claim for payment on a variation. Doric did not make the payment because, for reasons I have found to be misconceived, it disputed its liability to pay."

82 The arbitrator also made these further observations about the issue in question:

"11. Counsel for Doric asserts that paragraph 16.1 of the points of defence is a pleading that M&C's claim is premature and that I have not dealt with that allegation in my interim award. He submits that the omission is fatal because I have dealt with the issues raised and am therefore now functus officio. From that proposition he submits further that I should not now make an award requiring Doric to pay the sum awarded until all accounts, possible claims and payments in relation to the project have been dealt with.

12. With respect to that submission I make the following observations:

12.1 Paragraph 10 of the points of claim and paragraph 16.1 of the points of defence relate to the costs, revenue and profitability of the project. It is not a plea that M&C's claim is premature. There was no such averment for me to consider. It was not necessary for me to consider and rule upon the pleading that all claims for payment have yet to be determined.

12.2 Since paragraph 16.1 was pleaded the Superintendent under the head contract has certified for practical completion.

12.3 I have considered in relation to M&C's claim for interest and rejected the submission that because there may be further revenue or costs incurred on the project Doric is not presently liable to pay the sum awarded.

12.4 While Doric did not plead that the claim was premature, its counsel did raise the issue in submissions. That submission is clearly dealt with in the interim award."

83 For ease of reference, I will refer to the observations at pars 6, 7, 11 and 12 of the final award as the "arbitrator's observations concerning the Doric par 16 issue".

84 It will be apparent from earlier discussion that Doric is dissatisfied with the outcome and has brought these proceedings with a view to setting aside the Arbitrator's findings and the terms of the awards. I will turn firstly to issues relating to the proposed appeal.

85 In applying for leave to appeal, Doric seeks to persuade the Court that there are manifest errors of law on the face of the award and that the other criteria reflected in s 38(5) of the Commercial Arbitration Act (being considerations governing the grant of leave to appeal) are applicable in the circumstances of the present case. Doric relies essentially upon the grounds set out in its draft notice of appeal dated 9 December 2004 which are said to reflect errors of law in the interim award. The draft notice of appeal was exhibited to the notice of originating motion for leave to appeal of the same date and was later amended on 21 December 2004 to add grounds 8, 9 and 10.

86 The draft notice of appeal records that by the interim award dated 26 November 2004 Doric is required to pay Marine & Civil the sum of $716,573. It seeks an order that in lieu thereof the award be varied to read that Marine & Civil is to pay Doric the sum of $622,223. Further, any liquidated damages imposed upon Doric by the Shire of Busselton pursuant to the head contract are to be paid by Marine & Civil.

1 Erred in finding it was 'only the introduction of the general conditions of AS4303 that introduced ambiguity or doubt' into the terms of the contract in that:

1.1 the Australian Standard Design and Construct Subcontract Conditions AS4303 ('AS4303') are not ambiguous or doubtful and do not make any other terms of the subcontract ambiguous or doubtful or uncertain;

1.2 there was no issue, pleaded or otherwise, before the arbitrator for resolution or any doubt or uncertainty in the Subcontract based upon the AS4303 creating any such ambiguity or doubt or uncertainty about any other terms of the subcontract;

1.3 the Subcontract Order and the AS4303 can be read together to resolve tensions between them, if any, without the need for extrinsic evidence.

2 Erred in finding the contract to be a 'joint endeavour' and in reliance upon that finding construing the AS4303 so as to exclude, or substantially exclude, any sensible application of the Design and Construct warranties and the liquidated damages clauses in AS4303 in that:

2.1 The arbitrator does not say what a 'joint endeavour' contract is;

2.2 Whatever a 'joint endeavour' contract may be it does not exclude expressly agreed Design and Construct warranties and liquidated damages clauses that are certain and not in dispute between the parties on the pleaded issues or otherwise.

3 Consequently erred in finding Marine & Civil gave no warranties to Doric and made no representations as to such warranties in that clauses 4.1 and 4.2 of the AS4303 do just that;

4. Erred in not dealing at all with the Doric pleaded Defence and Counterclaim that the Marine & Civil claim was premature.

5 Erred in failing to find Marine & Civil were bound by the contract to construct the works in accord with the construction method statement and failing to act upon the uncontested evidence that Marine & Civil failed to so construct the works and further failed to construct the works for the contracted sum.

6 Erred in taking into consideration irrelevant material in making a finding of fact that Marine & Civil were not responsible under the subcontract for the 'substructure' works and in reliance thereon to find it was the 'substructure' works that drove the cost increases when it was admitted by Marine & Civil at all times that the faulty design of the ground anchor system was the substantive cause of the cost increases.

7 The above errors resulted in the arbitrator's further erroneous findings that:

7.1 The AS4303 was not a Design and Construct Subcontract;

7.2 Marine & Civil did not warrant the design of the works prepared by Worley and that Marine & Civil did not represent to Doric any expertise in the design of marine structures;

7.3 Marine & Civil had no defined scope of works;

7.4 Marine & Civil did not agree or represent to Doric that the works as defined in the Preliminary Design and the Tender Brief could be constructed so as to be fit for their intended purpose for the cost of approximately $2.1 million.

8. The Arbitrator erred in finding that Marine & Civil is entitled to interest on the sum awarded in the interim award from 1 January 2004.

9. The Arbitrator erred in treating the Order 24A offer of compromise made by Marine Civil in isolation to the main contract variation claim submitted to the Shire.

10. The Arbitrator consequently erred in finding that Marine & Civil is entitled to costs incurred after 5 May 2004 taxed on an indemnity basis."

88 It will now be useful to look at the statutory provisions and legal principles bearing upon applications for relief of the kind presently before me.

89 The Commercial Arbitration Act 1985 (WA) contains various provisions dealing with the conduct of arbitration proceedings. By s 14, subject to the Act and the arbitration agreement, the Arbitrator may conduct proceedings under that agreement in such manner as the Arbitrator thinks fit. By s 19, evidence may be given orally or in writing. Further, an Arbitrator is not bound by rules of evidence but may inform himself as he thinks fit.

90 By s 22, unless otherwise agreed, any question that arises shall be determined according to law, although, if so agreed, the Arbitrator may determine any question by reference to considerations of general justice and fairness.

91 The decided cases suggest that these provisions should be read subject to the requirements of natural justice; that is, the Arbitrator should be free of any bias, or any reasonable apprehension of bias, and each party to the dispute should be given reasonable notice of the issues to be addressed at the hearing.

92 I note in passing that in civil litigation the statement of claim and subsequent pleadings usually set out the material facts on which a party relies, but not the evidence by which those facts are to be proved.

93 Pleadings and particulars have a number of functions. They furnish a statement to the case sufficiently clear to allow the other party a fair opportunity to meet it. Further, they define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial. Apart from those cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings: Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658 at 664.

94 In looking at the extent to which an Arbitrator's award can be reviewed, an appropriate starting point is s 28 of the Act which provides that an award shall, subject to this Act, be final and binding on the parties to the agreement.

95 Section 38(1) of the Act provides that without prejudice to the right of appeal conferred by s 38(2), the Court shall not have jurisdiction to set aside or remit an award on the ground of error of fact or law on the face of the award.

96 By s 38(2), an appeal shall lie to the Supreme Court on any question of law arising out of an award, but this right of appeal is expressly made subject to s 38(4)(b), which requires that an appeal may be brought with the leave of the Supreme Court.

97 The criteria in regard to leave are set out in s 38(5), which reads as follows:

"(5) The Supreme Court shall not grant leave under subsection (4)(b) unless it considers that -

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

(b) there is −

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

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

98 I pause here to say that s 38 in its current form clearly reflects an intention to limit judicial interference in the arbitral process and the Court must take account of this purpose in applying the criteria and dealing with an application for leave to appeal.

99 The relevant criteria were examined in some detail by Steytler J in UDR Equipment Pty Ltd v Afkos Industries Pty Ltd [2000] WASC 57; (2000) 22 WAR 221. In that case the applicant contended that the Arbitrator made three manifest errors of law on the face of the award and that in each case the determination of the question of law could, having regard to all the circumstances, substantially affect it rights. Steytler J refused leave to appeal on the grounds that, in the circumstances, the Arbitrator's decision was reasonably open and did not disclose any manifest error of law.

100 His Honour noted that the test reflected in the subject criteria is more rigorous than it had previously been. In its earlier form the section only required satisfaction of the first limb of s 38(5). However, the new requirements for the grant of leave followed equivalent provisions in other jurisdictions whereby the legislature was seeking to constrain the exercise of court control over arbitral awards in the manner described by the House of Lords in Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724.

101 What has been described as the Nema Guidelines were articulated in that case by Lord Diplock. Broadly speaking, they were to the effect that where the question of law involved was the construction of a "one off" clause, leave to appeal should not normally be given unless it be apparent to the Judge on the face of the award, without the benefit of adversarial argument, that the meaning ascribed to the particular clause by the Arbitrator is obviously wrong. That is so even though the Judge may be of the view there is a possibility that argument might lead him or her to the conclusion that the Arbitrator might be right. Somewhat less strict criteria are appropriate where questions of construction of contracts in standard terms are concerned.

102 If the decision of the question of construction in the circumstances of a particular case would add significantly to the clarity and certainty of commercial law, leave should be granted, although even in such a case, not unless the Judge considers that a strong prima facie case has been made out that the Arbitrator had been wrong in his construction.

103 Steytler J gave consideration to what Sheller JA had said in Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203 about the meaning of the words "manifest error". Those words were used to indicate something evident or obvious rather than arguable. The discretion of the Court as to whether or not it will grant leave remains and the matters referred to by Lord Diplock in Nema (supra) remain important factors in determining whether leave should be given. Sheller JA acknowledged the view that decisions on questions of law should be left to the Arbitrator with minimal interference by the courts unless the Arbitrator may establish an erroneous precedent which may affect other cases between other parties.

104 Steytler J indicated that the limitation upon the grant of leave was imposed because it was considered, amongst other things, that the approach previously adopted by the courts was unduly disturbing of the use and finality of arbitral awards. This was reflected in the relevant Second Reading speech in Hansard in which it was said that one of the major objectives of the uniform legislation was to minimise judicial supervision and review. If arbitration is to be encouraged as a settlement procedure and not as a "dry run" before litigation, a more restrictive criterion for the granting of leave is desirable and the parties should be left to accept the decision of the Arbitrator whom they have chosen to decide the matter in the first place.

105 Steytler J concluded that what had been said by the New South Wales Court of Appeal in Promenade (supra) should be followed in this State in any consideration of s 38(5) of the Act.

106 This view was endorsed subsequently by Matthews AJ in Lamac Developments v Devaugh [2002] WASCA 245; (2002) 27 WAR 287. In that case, the Full Court was concerned with the question of whether an appeal lies to the Full Court from the grant or refusal of leave. However, Matthew AJ observed at 318 that one of the clearest and most succinct expositions of the meaning to be attributed to the criteria set out in s 38(5)(b) was that enunciated by Sheller JA in Promenade (supra).

107 It emerges, then, that the criteria to be considered by the Court since the amendments were enacted in 1997 are that the appeal must be based on a question of law arising out of the award, the Court must not grant leave unless it considers, having regard to all the circumstances, that the determination of the questions of law concerned could substantially affect the rights of one or more of the parties, and that there is a manifest error of law on the fact of the award or 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. A determination of that kind may be a determination of a question of the construction of a contract in standard terms rather than the construction of a one off clause.

108 It seems that where the point of construction does not concern a standard form contract but is referable to unusual or unique documentation it may be difficult to bring the case within s 38(5)(b)(ii).

109 It emerges from my review of the legal principles that in order to obtain leave to appeal I must be satisfied by Doric that there is a manifest error of law on the face of the award or strong evidence that the arbitrator made an error of law and that determination of the question may add substantially to the certainty of commercial law.

110 This obliges me to look closely at the grounds of appeal with a view to ascertaining whether the issues in question can be characterised as errors of law of the required kind. In doing so, I am conscious that this process is an exception to the general rule reflected in s 28 and s 38(1) of the Commercial Arbitration Act that an award made by an arbitrator is final. As to errors of law, the statutory provisions concerning leave suggest that mere dissent of the Court from the arbitrator's conclusion on the construction of a contract is not enough.

111 I will deal with each of the grounds of appeal in turn eventually. However, for the sake of an orderly discussion, I must begin by observing that the grounds of appeal save for grounds 4, 8, 9 and 10 appear to be essentially concerned with what I have called the fundamental issue: what was the nature of the subject agreement between the parties?

112 Indeed, at par 17 of the applicant's amended outline of submissions dated 10 March 2005 it was said on Doric's behalf that the arbitrator erred in law in three key respects being an alleged failure first, to properly construe and apply the warranty provisions of the subcontract; second, to make a finding or provide any reason as to why the arbitration was premature; third, to apply the liquidated damages clause in favour of Doric.

113 It is immediately obvious that the so-called first and third questions are directly related to the fundamental issue, and the second question is likely to be affected by the determination of that issue. I proceed from the premise that an error in interpreting the effect of contractual documents can give rise to an error of law. I accept that in the present case a ruling as to how the documents should be interpreted could be regarded as a determination substantially affecting the rights of the parties within the meaning of s 38(5) of the Act.

114 There is no need for me to say anything further about these requirements, I am principally concerned with the requirements of s 38(5) that any error of law complained of be a manifest error of law or an error of law the determination of which may be likely to add to the certainty of commercial law.

115 The arbitrator does not appear to have made an explicit finding that the subject agreement was constituted by the alleged subcontract documents as pleaded by Marine & Civil. However, that view of the matter appears to be implicit in his conclusion (after reviewing the decided cases concerning the parol evidence rule) that he should seek first to discover the parties intention from the words of the operative documents (see interim award par 18). To my mind, the arbitrator's approach was justified by the decided cases and his summary of the law in that regard was sufficient and correct.

116 When one turns to the subject order, I consider that it was open to the arbitrator to conclude that the subject order bore the meaning described in par 19 of the interim award being, essentially, that Doric and Marine & Civil were associated in a joint venture whereby profits and losses were to be shared equally. He did not attempt to define the term "joint venture" but his observations concerning the fundamental issue indicate that he was employing the usage described in Brian's case (supra), namely, it covers a particular transaction to be undertaken in association by those with an interest in the matter with a view to mutual profit.

117 The arbitrator undertook a careful review of the considerations justifying his conclusion including reference to the absence of any stand alone obligations imposed on Marine & Civil save for an obligation to ensure effective co-ordination between the relevant parties and the absence of a designated subcontract sum. Moreover, the subject order refers expressly to an "alliance" between the parties which underpins the notion that they were to work in conjunction. Profits and losses were to be shared equally.

118 The arbitrator correctly recognised that the crucial factor in determining the fundamental issue was to reconcile the two key documents, namely, the subject order and the AS 4303 General Subcontract Conditions. To my mind, contrary to what is suggested in the first ground of appeal, it was open to the arbitrator to find (as he did at par 18 of the interim award) that it was only the introduction of the AS 4303 that introduced a degree of ambiguity or doubt. It is ingenuous and unpersuasive for Doric to submit that because the language of a standard form is clear when considered in isolation no issue of ambiguity arises.

119 It was common ground between the parties that in circumstances where the subject order contained an explicit reference to the AS 4303 Subcontract General Conditions such conditions could not be considered in isolation. An attempt had to be made to reconcile two documents that were clearly seeking to establish something other than a conventional subcontract arrangement. This gave rise to an ambiguity that had to be resolved.

120 To my mind, the arbitrator was correct in holding that the contractual arrangements should be characterised essentially as a joint venture. The subject order spoke of an alliance. The absence of a subcontract price (denoted by the entry $.00) and the provision for sharing of profits and losses excluded the possibility that this was meant to be a conventional subcontract.

121 The presence of a joint venture meant in turn that Doric's joint obligations concerning management were inconsistent with insistence by Doric upon literal compliance with the cl 4 warranties set out in the AS 4303 Subcontract General Conditions on the part of Marine & Civil as its alliance partner (see interim award par 36.9). If the Doric view were upheld it would have the effect of making Marine & Civil entirely responsible for the timely and satisfactory performance of the subject work, notwithstanding clear indications in the subject order and surrounding circumstances that the parties were to work in conjunction with each other.

122 It will be apparent from earlier discussion that I give weight to the definition of "subcontract" in AS 4303. The agreement between the parties brought into play the provisions of the subject order which pointed to an "alliance" or joint venture. This suggested that the warranties had to be read down accordingly, for they were to take effect "without limiting the generality of cl 3.1" concerning the scope of the subject agreement.

123 Thus, in an endeavour to reconcile the terms used in the subject order and AS 4303 in order to arrive at a reasonable and harmonious construction of the relevant documents, the arbitrator correctly gave greater weight (or paramount effect) to the subject order as the key document constituting the joint venture and held that the scope of the warranties was limited by the nature of the subject agreement and the extent of the works to be undertaken by the parties to the joint venture. For example, having regard to his ruling on the fundamental issue, he correctly construed cl 4.1(c) to apply only to those portions of the work priced by Marine & Civil.

124 It follows from this that the arbitrator cannot be said to have erred in excluding the warranties or in failing to give them a sensible application. He did not exclude them. He gave them an appropriate, albeit limited, application. In other words, the arbitrator resolved the fundamental issue in the manner contended for by Marine & Civil and found that the subject order created a joint venture. It followed from this that the warranties could not be read in isolation and were found to be of limited application. A conclusion of this kind was clearly open to the arbitrator and did not give rise to a manifest error of law or an error of law of the kind required by s 38(5)(b)(ii) concerning leave to appeal.

125 Further, having regard to the findings of the arbitrator and the evidentiary materials under notice in the course of this appeal, I consider that it was open to the arbitrator to hold that if it were necessary to decide, it would be appropriate to find that the subject order, which the parties fashioned for themselves consistently with the objective matrix of facts, should take precedence over the Subcontract General Conditions introduced by a reference to that effect in the subject order (see par 36.9 of the interim award).

126 The evidence and the findings of the arbitrator indicate that at the meeting on 30 July 2001 there was an oral agreement that in order to reduce the tender price the project should be run as an "alliance or joint venture" (par 30.10 of the interim award). Moreover, there is evidence that two months later, on 26 September 2001, Mr Kendall for Doric handed the Marine & Civil representative a pro forma joint venture agreement for consideration, although that document was eventually put to one side upon the basis that it was too complicated (par 30.14 of the interim award).

127 Let me now turn to the specific grounds of appeal.

128 As to the first ground of appeal, it will be apparent from my general observations that, in my view, the arbitrator did not err in finding that it was only the introduction of the general conditions of AS 4303 that introduced ambiguity or doubt into the terms of the contract; that is, the subject agreement. In order to resolve various issues on the pleadings the arbitrator was clearly obliged to resolve the fundamental issue concerning the nature of the subject agreement and this obliged him to construe the documents comprising the agreement. It was permissible to resolve the ambiguity by reference to the surrounding circumstances.

129 As to the second ground of appeal, for the reasons given in my general observations I do not consider that the arbitrator erred in finding the subject agreement to be a joint endeavour. It will be apparent from earlier discussion that the arbitrator used the terms "joint venture" (par 19.1) and "joint endeavour" (par 19.2) not as a term of art but essentially as a shorthand description for contractual arrangements between the parties whereby a particular transaction was to be undertaken in association by those with an interest in the matter, with a view to mutual profit, being the meaning given to the term in Brian's case (supra).

130 The term was used as a means of distinguishing the subject arrangements from the conventional or simpler contractual arrangements that are usually brought into existence by the engagement of an independent subcontractor at an agreed price pursuant to the AS 4303 subcontract general conditions. The shorthand term was of assistance to the arbitrator in resolving the fundamental issue concerning the nature of the agreement between the parties being an issue that was bound to bear upon the resolution of various subsidiary issues.

131 Mason, Brennan and Deane JJ noted in Brian's case (supra) at 10 that the borderline between what can properly be described as a joint venture in which both parties are entitled to a share of profits and what should more properly be seen as no more than a simply contractual relationship "may on occasion be blurred". However, it will be apparent from my general observations that, in my view, in the circumstances of the present case, the arbitrator construed the relevant documents correctly and in accordance with the principles reflected in previously decided cases such as ABC (supra) and Codelfa (supra). The agreement between the parties could properly be described as a joint venture within the meaning attributed to that term in Brian's case (supra), being the meaning apparently attributed to the term by the arbitrator. His observations are generally consistent with and assume such a meaning.

132 It was a joint venture in that no price had been agreed. Worley was responsible for the basic design work. A particular commercial transaction was to be undertaken in association (or in "alliance") by those with an interest in the matter with a view to mutual profit, for the profits and losses were to be shared equally. The subject order contemplates that the parties will work "in conjunction" to ensure that "the project margin is maintained or improved".

133 To my mind, the allowance for improvement of the margin (thus producing greater profits to be shared equally), is sufficient to dispose of a submission made by counsel for Doric in the course of argument that the special arrangements reflected in the subject order were essentially concerned with the previously agreed project margin, and therefore should not be used to infer that the parties were participants in a joint venture.

134 The joint venture finding led to a conclusion that upon the proper construction of the relevant documents the cl 4 warranties were of limited effect. However, in my view, it cannot be said that the arbitrator's findings operated so as to exclude or substantially exclude any sensible application of the warranties in question and the liquidated damages clauses. The true position was that the warranties were simply not applicable in the manner contended for by Doric once a finding had been made that the subject agreement was in the nature of a joint venture. The arbitrator acted correctly in giving the warranties a limited and sensible application in this contract.

Doric Building Pty Ltd v Marine & Civil Construction Co Pty Ltd & Anor [2006] WASC 12

At a glance

Court

Decision date

Before

Catchwords

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Judgment (271 paragraphs)

Doric Building Pty Ltd v Marine & Civil Construction Co Pty Ltd & Anor [2006] WASC 12 (31 January 2006)

Parties

Legislation Cited (3)

Cases Cited (16)