Court of Appeal (WA)|1999-08-23|Before: Smart J, Rolfe J, Steytler J, Pidgeon J, Ipp J

Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [1999] WASCA 144 (23 August 1999)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : EASTERN METROPOLITAN REGIONAL COUNCIL -v- FOUR SEASONS CONSTRUCTION PTY LTD [1999] WASCA 144

BETWEEN : EASTERN METROPOLITAN REGIONAL COUNCIL

Arbitration - Appeal - Practice and Procedure - Proceedings commenced in Supreme Court and by way of arbitration - Master staying Supreme Court proceedings - Whether error of discretion

Contract - Construction - Arbitration clause - Turns on own facts

Adelaide Steamship Industries Pty Ltd v Commonwealth of Australia (1974) 8 SASR 425

Christmas Island Resort Pty Ltd v Geraldton Building Co Pty Ltd (No 5) (1997) 18 WAR 334

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

Cremer (Peter) GmbH & Co v Sugar Food Industries Ltd [1981] 2 Lloyd's Rep 640

Ferris & Anor v Plaister & Anor, unreported; CA SCt of NSW; 1994 BC9404937

KB Hutcherson Pty Ltd v Janango Pty Ltd, unreported; SCt of NSW (Smart J); No BC8802430; 25 May 1988

Lloyd & Ors v Wright [1983] QB 1065

Melville Homes Pty Ltd v Prime Ceramics Services Pty Ltd [1991] VicRp 61; [1991] 2 VR 211

O'Neill & Clayton Pty Ltd v Ellis & Clark Pty Ltd [1978] 20 SASR 132

Paparone & Anor v Konstruct Holdings Pty Ltd & Ors, unreported; FCt SCt of WA; Library No 970248; 19 May 1997

PMT Partners Pty Ltd (In Liq) v Australian National Parks & Wildlife Service [1995] HCA 36; (1995) 184 CLR 301

Produce Brokers Co Ltd v Olympia Oil and Coke [1916] 1 AC 314

Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234

Rheem Australia Limited v Federal Airports Corporation (1989) 6 BCL 130

Siporex Trade SA v Comdel Commodities Ltd [1986] 2 Lloyd's Rep 428

Sydney Water Corporation Ltd v Aquaclear Technology Pty Ltd, unreported; SCt of NSW (Rolfe J); 7 July 1995

Taunton-Collins v Cromie [1964] 1 WLR 633

Transpetrol Limited v Ekali Shipping Co Ltd [1989] 1 Lloyd's Rep 62

Turnock v Sartoris [1889] 43 Ch 150

Whitfords Beach Pty Ltd v Gadsdon (1992) 6 WAR 537

1 PIDGEON J: I have read in draft the reasons of Steytler J. I agree with those reasons. I would grant leave if that were necessary, but I would dismiss the appeal.

2 IPP J: I have read the reasons to be published by Steytler J. I agree with them and his Honour's conclusions. I have nothing further to add.

3 STEYTLER J: This is an appeal against the decision of a Master of this Court whereby the learned Master stayed proceedings which had been instituted in the Court by the appellant and dismissed the appellant's application for a stay of arbitration proceedings which had been instituted by the respondent.

4 The appellant is a body corporate constituted under the Local Government Act 1995. The respondent is a construction company. By a contract ("the contract") dated 2 December 1997 the appellant engaged the respondent to carry out earth and drainage works ("the contract works") at a waste disposal site under its control for a sum of $222,222.

5 Clause 47 of the contract, under the heading "Dispute Resolution", contained the following provisions:

If a dispute between the Contractor and the Principal arises out of or in connection with the Contract, including a dispute concerning a direction given by the Superintendent, then either party shall deliver by hand or send by certified mail to the other party and to the Superintendent a notice of dispute in writing adequately identifying and providing details of the dispute.

Notwithstanding the existence of a dispute, the Principal and the Contractor shall continue to perform the Contract, and subject to Clause 44 [which addresses issues of default and insolvency], the Contractor shall continue with the work under the Contract and the Principal and the Contractor shall continue to comply with Clause 42.1 [which deals, inter alia, with payment claims and certificates].

A claim in tort, under statute or for restitution based on unjust enrichment or for rectification or frustration, may be included in an arbitration.

Within 14 days after service of a notice of dispute, the parties shall confer at least once, and at the option of either party and provided the Superintendent so agrees, in the presence of the Superintendent, to attempt to resolve the dispute and failing resolution of the dispute to explore and if possible agree on methods of resolving the dispute by other means. At any such conference each party shall be represented by a person having authority to agree to a resolution of the dispute.

In the event that the dispute cannot be so resolved or if at any time either party considers that the other party is not making reasonable efforts to resolve the dispute, either party may by notice in writing delivered by hand or sent by certified mail to the other party refer such dispute to arbitration or litigation.

A party served with a notice of dispute may give a written response to the notice to the other party and the Superintendent within 28 days of the receipt of the notice.

Within 42 days of the service on the Superintendent of a notice of dispute or within 14 days of the receipt by the Superintendent of the written response, whichever is the earlier, the Superintendent shall give to each party the Superintendent's written decision on the dispute, together with reasons for the decision.

If either party is dissatisfied with the decision of the Superintendent, or if the Superintendent fails to give a written decision on the dispute within the time required under Clause 47.2 the parties shall, within 14 days of the date of receipt of the decision, or within 14 days of the date upon which the decision should have been given by the Superintendent confer at least once to attempt to resolve the dispute and failing resolution of the dispute to explore and if possible agree on methods of resolving the dispute by other means. At any such conference, each party shall be represented by a person having authority to agree to a resolution of the dispute.

In the event that the dispute cannot be so resolved or if at any time after the Superintendent has given a decision either party considers that the other party is not making reasonable efforts to resolve the dispute, either party may, by notice in writing delivered by hand or sent by certified mail to the other party, refer such dispute to arbitration or litigation.

Arbitration shall be effected by a single arbitrator who shall be nominated by the person named in the Annexure, or if no person is named, by the Chairperson for the time being of the Chapter of the Institute of Arbitrators Australia in the State or Territory named in the Annexure. Such arbitration shall be held in the State or Territory stated in the Annexure.

Unless the parties agree in writing, any person agreed upon by the parties to resolve the dispute pursuant to Clause 47.2 shall not be appointed as an arbitrator, nor may that person be called as a witness by either party in any proceedings.

Notwithstanding Clause 42.9, the arbitrator may award whatever interest the arbitrator considers reasonable.

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.

Nothing herein shall prejudice the right of a party to institute proceedings to enforce payment due under Clause 42 or to seek urgent injunctive or declaratory relief in respect of a dispute under Clause 47 or any matter arising under the Contract."

6 A dispute arose between the parties during the performance of the contract works by the respondent. This led to the giving, by the respondent, of a notice of dispute by way of a letter from its solicitors dated 22 May 1998. That letter summarised a number of points which were then in dispute between the parties. It seems, from the letter, that the appellant contended that the respondent had breached its obligation under the contract to proceed with due expedition and without delay. The appellant had extended, by three weeks, the date which had been fixed for practical completion and it seemingly threatened to claim liquidated damages in respect of the respondent's failure to meet the extended deadline. The respondent, on the other hand, claimed to be entitled to have the time for practical completion extended by seven weeks and to recover the costs of the delay, which, it said, necessitated that extension, from the appellant. It had, in that respect, made a claim for payment of $74,118.94 which had been rejected by the appellant. There appears then also to have been a dispute as to the appellant's entitlement to remove roadworks originally contracted to the respondent and to assign those works to another contractor without the prior written consent of the respondent. Finally, the respondent had lodged with the appellant its Progress Claim No 3 and that claim had been rejected by the Superintendent. The respondent claimed to be entitled to payment.

7 In its notice the respondent informed the appellant that the parties were required to meet within 14 days of receipt of that notice in order to attempt to resolve the dispute and that failing any resolution, the dispute would be referred to arbitration.

8 Then, by letter dated 30 June 1998, the respondent gave to the appellant a second notice of dispute. This related to its Progress Claim No 4. It seems that a number of items in that progress claim had been rejected by the appellant for reasons which it is unnecessary to recount.

9 By letter dated 3 July 1998 the respondent informed the appellant that, 42 days having expired since the notice of dispute dated 22 May 1998 was issued, a meeting with the appellant was requested within 14 days in accordance with cl 47.2 of the contract.

10 By letter from its solicitor dated 9 July 1998 the appellant alleged that the respondent was "in substantial breach" of the contract in a number of respects which were particularised. These essentially comprised the failure to complete specified parts of the contract works, defective work and suspension of the contract works by the respondent in breach of the contract. The appellant required the respondent to show cause in writing why it "should not exercise the rights in clause 44.4 of the General Conditions of Contract". That clause reads, insofar as is relevant, as follows:

If by the time specified in a notice under Clause 44.2 the Contractor fails to show reasonable cause why the Principal should not exercise a right referred to in Clause 44.4, the Principal may by notice in writing to the Contractor -

(a) take out of the hands of the Contractor the whole or part of the work remaining to be completed; or

If the Contractor commits a substantial breach of contract and the Principal considers that damages may not be an adequate remedy, the Principal may give the Contractor a written notice to show cause.

Substantial breaches include but are not limited to -

(b) failing to proceed with due expedition and without delay, in breach of Clause 33.1;

(d) failing to use the materials or standards of workmanship required by the Contract, in breach of Clause 30.1;

(e) failing to comply with a direction of the Superintendent under Clause 30.3, in breach of Clause 23;

(f) failing to provide evidence of insurance, in breach of Clause 21.1; and/or

(g) in respect of Clause 43, knowingly providing a statutory declaration or documentary evidence which contains a statement that is untrue."

12 The appellant's letter dated 9 July 1998 was answered by the respondent's solicitors by letter dated 20 July 1998. Issue was taken with each of the complaints which had been made on the appellant's behalf. The letter concluded by saying that the appellant's "show cause notice" was based on incomplete knowledge of the facts and erroneous information and that it overlooked "the contractual situation created by ... the highly unreasonable actions and decisions of the Superintendent, and in particular his failure to recognise the significance of the delays arising out of the failure to give possession of the site, the progressive exposure of a much greater than expected extent of rock, and the impossibility of working in ground conditions prevailing in the winter months ... ". Consequently, the respondent contended, the appellant had no entitlement to exercise its rights under cl 44.4 of the contract.

13 However on 23 July 1998 the appellant, by its solicitor, gave notice under cl 44.4 of the contract that it terminated the contract. The termination relied upon the matters which had been set out in the letter dated 9 July 1999.

14 The respondent, by its solicitors, wrote to the solicitor for the appellant on 30 July 1998. It said, in that letter, that the appellant's termination was invalid and "constituted a repudiatory breach of the contract". It also said that it elected to accept that repudiation. It returned the keys to the contract site to the Superintendent as it had been asked by the appellant to do. It also informed the appellant that it had no option but to have the dispute referred to arbitration and that it would be writing to the President of the Institute of Engineers to have an arbitrator appointed.

15 On 10 August 1998 the solicitors for the respondent wrote to the Institute of Engineers asking the president of that body to appoint an arbitrator to resolve the disputes which had arisen. That letter enclosed a copy of the notice of dispute dated 22 May 1998 and mentioned that a further notice of dispute had been issued on 30 June 1998 but that the specified time periods under cl 47 had yet to expire in respect of that notice.

16 A preliminary conference was arranged with the proposed arbitrator for 19 August 1998. On 13 August 1998 the solicitor for the appellant wrote to the solicitors for the respondent saying that at that point he did not know what had been referred to the arbitrator for determination and recording that the appellant reserved its rights with respect to the matter generally.

17 The respondent's solicitors responded to that letter by way of a letter dated 17 August 1998 enclosing a copy of the letter which had been written to the Institute of Engineers. The letter went on to say:

"Given that this contract is no longer on foot, we believe that it is in the best interest of both parties that all outstanding issues be resolved in these arbitration proceedings.

Our client therefore intends to make a claim for all amounts which it believes are due from the Principal for this contract as stated in our client's Payment Claim number 5. Most of the items claimed in Payment Claim number 5 have been claimed previously either in Payment Claim number 3 or Payment Claim number 4 and rejected by the Superintendent. This rejection of the items claimed in Payment Claim number 3 was listed as a point in dispute in our Notice of Dispute dated 22 May 1998 and the items claimed in payment claim number 4 and rejected by the Superintendent formed a point in dispute as stated in our client's Notice of Dispute dated 30 June 1998."

18 A meeting with the arbitrator took place on 19 August 1998. The minutes of that meeting read as follows:

"It was agreed by the parties that the dispute resolution process required under alternative 2 of clause 47.2 had been carried out in part. However this process had not been carried out as to disputes regarding the Termination and/or Repudiation of the Contract.

As a result of this the Arbitrator did not enter onto the reference. Instead the parties agreed to submit Scott Schedules to each other setting out all claims, set offs and/or counterclaims and to then complete the step required by clause 47.2 regarding any matters not previously recorded in the letter ... [dated] 22 May 1998. This serves as the preliminary step required before proceeding with the Arbitration [sic].

The parties agreed that ... [the respondent] would submit their Scott Schedule to ... [the appellant] by Monday 31 August 1998 and that ... [the appellant] would complete the responses and counterclaims on the Scott Schedule by Monday 7 September 1998. Hereafter, a meeting as required by Clause 47.2 of the Contract Agreement would be held.

Following the outcome of this meeting one of the parties would advise the Arbitrator as to the continuation of the Arbitration or otherwise as soon as possible.

The Arbitrator advised that he would arbitrate such matters as the parties agreed but that it was better to have all matters in dispute settled in the one Arbitration."

19 The respondent served its Scott Schedule on the appellant on 7 September 1998. On 24 September 1998 the appellant, by its solicitor, wrote to the respondent recording that the arbitration had on 19 August 1998 been adjourned so that the respondent could "identify what is the subject matter of the arbitration ... because the application was on the face of the record limited to the claim dated 22/5/98 whereas in the discussions with the arbitrator there were wider issues raised". The letter went on to record that it was the appellant's clear understanding that, "upon service of the Scott schedule, and to the extent the schedule raised issues other than the claim dated 22/5/98 ... [the respondent] would provide copies of documents relied upon by ... [it] in support of those extra issues ... [and the] parties would then confer as is required by the contract in an attempt to negotiate a settlement and if that fails then all issues are to be referred back to ... [the arbitrator]".

20 The appellant served its reply on the respondent on 28 October 1998 and its counterclaim on 13 November 1998.

21 A further meeting between the parties was held on 16 November 1998 in what the respondent's managing director described as an "attempt to settle the disputes raised in the partys' [sic] Scott Schedules".

22 On 16 November 1998 the respondent wrote to the arbitrator informing him that an attempt had been made to settle or reduce the number of items to be referred to arbitration but that no agreement had been made. The arbitrator was requested to convene a further preliminary hearing in order to confirm his appointment as arbitrator and to give directions in respect of matters required to progress the arbitration.

23 However, by a writ and statement of claim filed on 18 November 1998 the appellant sought from this Court a declaration that it had lawfully terminated the contract in accordance with cl 44.4 of the contract. It claimed damages from the respondent. It alleged that the respondent was in breach of the contract by failing to complete various of the contract works, by performing work in a deficient manner and by having suspended the works in breach of the contract.

24 Notwithstanding this the arbitrator, on 18 November 1998, wrote to the parties saying that he "formally ... [entered] upon the reference in the Arbitration between the parties".

25 Then, on 2 December 1998, the respondent lodged a chamber summons seeking an order that the appellant's action in the Supreme Court be struck out or stayed pursuant to s 53 of the Commercial Arbitration Act 1985 ("the Act").

26 On 2 February 1999 the appellant sought orders that the arbitration proceedings be permanently stayed, or alternatively that they be stayed pending the determination of the Supreme Court action.

27 The two chamber summonses were heard together by the learned Master who ordered that the Supreme Court action be stayed pursuant to s 53 of the Act and dismissed the appellant's chamber summons.

28 Counsel for the appellant had contended before the learned Master that the arbitration should be stayed on three grounds. The first was that, as the learned Master put it, "there was no dispute properly before the arbitrator and ... no basis for staying the action" upon the grounds that the notices which had been issued, and the procedures adopted, had not complied with cl 47 of the contract. The second was, the learned Master said, that "the contract was now at an end and it was therefore not appropriate for the arbitrator to continue to deal with matters which were largely questions of law". The third was that the "balance of convenience" favoured having the dispute litigated in the Supreme Court.

29 It was ultimately conceded by counsel for the appellant, during the course of the appeal, that all of the matters in dispute which had not been made the subject of the existing Notice of Dispute, including the question whether the contract had lawfully been terminated by the appellant, had been agreed to be referred to the arbitrator for arbitration pursuant to the provisions of s 25 of the Act. That section provides that:

(a) pursuant to an arbitration agreement a dispute between the parties to the agreement is referred to arbitration; and

(b) there is some other dispute between those same parties (whenever the dispute arose), being a dispute to which the same agreement applies,

then unless the arbitration agreement otherwise provides, the arbitrator or umpire may, upon application being made to the arbitrator or umpire by the parties to the arbitration agreement at any time before a final award is made in relation to the first-mentioned dispute, make an order directing that the arbitration be extended so as to include that other dispute.

(2) An arbitrator or umpire may make an order under subsection (1) on such terms and conditions (if any) as the arbitrator or umpire thinks fit."

30 That concession, which was in my opinion undoubtedly correct in the light of the contents of the appellant's solicitor's letter dated 24 September 1998 when read in the overall context of the exchanges between the parties, led to some of the grounds of appeal falling away.

31 It also became unnecessary, in the light of that concession, for us to rule on the question, raised by the respondent's notice of contention (which should, more correctly, have been a notice of cross appeal), whether or not the learned Master erred in refusing to allow the respondent to file, at the last minute, additional affidavit evidence going to the issue of what had been agreed to be referred to the arbitrator for his determination.

32 The only remaining issues are consequently those of whether the question whether the contract had lawfully been terminated or had been repudiated was capable of being referred to an arbitrator under cl 47 of the contract and whether the balance of convenience favoured arbitration of those matters which were arbitrable rather than litigation in the Supreme Court.

33 I will consequently deal only with the learned Master's reasons for decision insofar as they touch upon these two issues.

34 The learned Master said, in these respects, the following:

"Turning then to the plaintiff's claim that, as the contract has been terminated, the arbitration cannot continue. This question is bound up with the wider issue of whether or not, in circumstances such as this, it is appropriate to have this matter dealt with by an arbitrator or whether the matter would be better dealt with by the courts: see O'Neill & Clayton Pty Ltd v Ellis & Clark Pty Ltd (1978-79) 20 SASR 132 at 143; Trade Practices Commission v Collins Constructions Co Pty Ltd (1994) 53 FCR 137. The plaintiff purported to terminate the contract on 23 July 1998. By that stage the dispute resolution procedure had been put in train. It was subsequent to that date that the arbitrator was appointed. The question is whether the dispute resolution procedure between the parties which had been initiated transcended the termination of the contract. In other words, does the dispute resolution procedure envisage considering whether or not the contract had been terminated, not just matters arising under the contract itself.

The provisions of cl 47 do not make this entirely clear. There is reference to the arbitrator dealing with claims 'in tort, under statute or for restitution based on unjust enrichment or for rectification or frustration'. While this list is not exhaustive, the inclusion of frustration in matters which are to be determined by the arbitrator suggests that questions as to whether or not a contract has come to an end are matters which can be considered in the arbitration.

In my view, cl 47 of the General Conditions embodies an agreement between the parties to refer disputes to arbitration. Its provisions are not mandatory so that a party can at any stage decide to litigate. But once the requirements of the clause have been satisfied and a party gives notice of intention to seek the appointment of an arbitrator, then the respective obligations of the parties crystallise and an arbitration agreement comes into effect. That is an agreement which, although arising out of the Contract, is separate and distinct and continues with a life of its own irrespective of the fate of the contract. The parties have agreed on a dispute resolution procedure. They are bound by its terms.

On a practical level there is much to be said for leaving this matter in the hands of an arbitrator. It is the plaintiff's position that there have been 'substantial breaches' of the Contract by the defendant 'failing to use the materials or standards of workmanship required by the contract'. This inevitably raises questions about the standard of workmanship and the materials used by the defendant. These are technical questions. An arbitrator is ideally placed to deal with these questions and determine whether there has been a breach of cl 30.1. If there has, then there has been default by the contractor and the contract has been properly terminated. If there has not, then the contract has still come to an end and the defendant has the right to claim damages. Apart from all of that, it is clear that an arbitrator could deal with these matters much quicker than they could be disposed of by the court. By the time pleadings are closed, discovery is given, particulars are requested and supplied and, perhaps, interrogatories delivered, the matter is unlikely to be ready for trial for at least six months. That suggests that the action would not be tried before the end of this year. While such delays in and of themselves could not be determinative of whether an arbitration is appropriate in this case, it does strengthen the case for leaving the matter in the hands of an arbitrator.

In all of the circumstances, I am satisfied that the better course of action in this case is to stay these proceedings and leave the matter in the hands of the arbitrator. In my view, all questions at issue between the parties, including the question of whether or not the contract has been validly terminated, can be properly dealt with by the arbitrator. Accordingly, I would make orders in terms of the defendant's chamber summons and I would dismiss the plaintiff's chamber summons."

35 I will deal with each of these two remaining issues in turn.

36 As to the first of them counsel for the appellant contended before us, as had been contended before the learned Master, that on the proper construction of cl 47 the only disputes which fall within its compass are disputes which take place during the continued existence of the contract. He submitted that in circumstances in which both parties are in agreement that the contract is at an end, albeit one claims lawfully to have terminated it and the other claims to have accepted an unlawful repudiation, there is no scope for the operation of cl 47.

37 Counsel for the appellant relied, in this respect, upon the second paragraph of cl 47.1. That clause, as will be apparent from its terms quoted above, requires the principal and the contractor to continue to perform the contract notwithstanding the existence of a dispute. It also provides that, subject to cl 44 (which, as will also be apparent from what I have said above, entitles the principal, in the event of a substantial breach by the contractor, inter alia to terminate the contract after following the procedure therein set out), the contractor is to continue with the work under the contract and the principal and the contractor are to continue to comply with cl 42.1 thereof, dealing with the payment of claims and ancillary matters.

38 He also submitted that the elaborate procedure provided for by alternative 2 of cl 47.2 (being that which had been adopted by the parties) was inconsistent with the notion of an arbitration encompassing a dispute of the kind to which I have referred. He submitted, in that respect, that it was nonsensical to expect the Superintendent to give a written decision on the dispute in circumstances in which the Superintendent was the representative of the party which had purported to terminate the contract and in which his conduct was under attack.

40 The opening paragraph of cl 47.1 makes it plain that any dispute between the contractor and the principal which "arises out of or in connection with the Contract" may be made the subject of arbitration. Those are words of the widest import and, on their plain meaning, encompass a dispute as to the circumstances of termination of the contract, regardless of whether or not the parties regard the contract as any longer being on foot.

41 While it is no doubt true that, in circumstances in which both parties regard the contract as having been brought to an end, there is, practically speaking, no scope for continued performance of the contract, that should not, in my opinion, lead to the conclusion that a dispute of that kind falls outside the compass of the clause. Rather, as it seems to me, the words to which I have referred in the first paragraph of cl 47.1 should be given their ordinary meaning and the second paragraph of cl 47.1 should be taken to apply only to those circumstances in which, notwithstanding the existence of a dispute, there remain outstanding obligations under the contract.

42 If, as the first paragraph of cl 47.1 makes plain, the clause is intended to cover any dispute arising out of or in connection with the contract then it follows that the clause will cover a wide range of possible disputes the vast majority of which, no doubt, might occur during the continued performance of the contract. That being so there is every reason for the parties to agree that, in any such case, the contract will continue to be performed notwithstanding the existence of the dispute. However the mere fact that they have agreed accordingly cannot mean that they should, notwithstanding the plain meaning of the first paragraph of the clause, be taken to have intended that, where each of the parties asserts that the contract has been brought to an end (in this case for different reasons), disputes arising out of or in connection with the contract should no longer be capable of being referred to arbitration under the contract.

43 This conclusion is not, in my opinion, altered by reference to the fact that, as counsel for the appellant pointed out, the words "subject to clause 44" in the second paragraph of cl 47.1 condition only the continued performance of the work under the contract by the Contractor and continued compliance with cl 42.1 thereof by both the Principal and the Contractor. It will be apparent from what I have already said that cl 44 empowers the Principal, in the circumstances there provided for, to take the whole or part of the contract works remaining to be completed out of the hands of the Contractor or to terminate the contract. It is plain from that that the obligation to continue with the work under the contract does not apply in a case in which it has been terminated pursuant to cl 44. While it is true that the second paragraph of cl 47.1 does require the parties to "continue to perform the Contract" notwithstanding the existence of a dispute the fact that continued performance is inappropriate in circumstances in which neither party wishes that to occur cannot, as I have said, of itself mean that the first paragraph of cl 47.1 should not be given its plain meaning. Rather, it is, in my opinion, implicit in the clause, when read as a whole, that in such an event the second paragraph of the clause is inoperative.

44 Moreover, the prospect arises that the contract might be terminated by one party under cl 44.4(b) in circumstances in which the termination is accepted as valid by the other contracting party but there remains some dispute as to the contractual entitlement of one of the parties. Clause 44.10 of the contract provides, in this respect, that if the contract is terminated under cl 44.4(b) (or by the Contractor under cl 44.9) "the rights and liabilities of the parties shall be the same as they would have been at common law had the defaulting party repudiated the Contract and the other party elected to treat the Contract as at an end and recover damages". It is difficult to see why, in such an event, the arbitration clause should not be applicable. If it is so applicable, as it seems to me it is, then it is likewise difficult to see why there should be any other consequence in a case in which the allegedly defaulting party does not accept that the contract has lawfully been terminated, contends that it has been repudiated and accepts that repudiation.

45 Similarly, it seems to me that there is nothing in the provisions of alternative 2 of cl 47.2 which supports the construction advanced by the appellant. If it be true that, in circumstances such as those which have occurred, the Superintendent is unlikely to give an impartial decision that cannot mean that disputes of that kind are not intended to be made the subject of arbitration. Alternative 2 makes it plain that if either party is dissatisfied with a decision of the Superintendent or, if he fails to give a written decision within the required time (and it may be that, in particular cases, the circumstances of the dispute are such that no useful purpose would be served by the Superintendent making a decision in respect of it), then, failing resolution, the matter can be referred to arbitration or litigation. There are many possible areas of dispute which might result in decisions of the Superintendent being challenged in circumstances in which the contract is still on foot. It is not suggested, and could not sensibly be suggested, that disputes of that kind should, merely because the procedure provided for in alternative 2 of cl 47.2 contemplates a decision by the Superintendent, be taken to fall outside the reach of cl 47.1. It is difficult to see why the situation should be any different in circumstances in which both parties regard the contract as being at an end.

46 It follows, in my opinion, that the first of the contentions advanced on behalf of the appellant should be rejected.

47 That brings me, next, to the question of the Master's discretion. That discretion arises in part pursuant to the provisions of s 53(1) of the Commercial Arbitration Act 1985 which provides that:

" 53. (1) If a party to an arbitration agreement commences proceedings in a court against another party to the arbitration agreement in respect of a matter agreed to be referred to arbitration by the agreement, that other party may, subject to subsection (2), apply to that court to stay the proceedings and that court, if satisfied -

(a) that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement; and

(b) that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary for the proper conduct of the arbitration,

may make an order staying the proceedings and may further give such directions with respect to the future conduct of the arbitration as it thinks fit.

(2) An application under subsection (1) shall not, except with the leave of the court in which the proceedings have been commenced, be made after the applicant has delivered pleadings or taken any other step in the proceedings other than the entry of an appearance.

(3) Notwithstanding any rule of law to the contrary, a party to an arbitration agreement shall not be entitled to recover damages in any court from another party to the agreement by reason that that other party takes proceedings in a court in respect of the matter agreed to be referred to arbitration by the arbitration agreement."

48 Counsel for the appellant contended that the Supreme Court dispute involves the resolution of issues of law and, the arbitrator not being a lawyer, it was manifestly inappropriate to have him decide the matters in issue between the parties rather than the Supreme Court. He also contended that there is a substantial overlap between the issues raised in the Supreme Court proceedings and those which are proposed to be placed before the arbitrator.

49 The propositions of law, suitable for determination by a Supreme Court Judge, were said to centre around the question whether the appellant was entitled to terminate the contract.

50 It will be apparent from what I have said above that cl 44.2 provides a non-exhaustive list of breaches which are to be regarded as substantial, and consequently such as might be included in a notice to show cause, for the purposes of the contract. I have also mentioned that the appellant relied, in terminating the contract, essentially upon the respondent's alleged failure to complete specified parts of the contract works, alleged deficient performance of work by it and what was said to be its suspension of the contract works in breach of the contract. I have mentioned also that the respondent took issue with each of these complaints contending that they were based on incomplete knowledge of the facts and erroneous information and that the Superintendent had behaved in an unreasonable manner, particularly as regards his failure to recognise the significance of delays arising out of the failure to give possession of the site, the progressive exposure of a much greater than expected extent of rock and the impossibility of working in the prevailing ground conditions in the winter months.

51 It is apparent that the issues in dispute comprise mixed questions of fact and law. Self-evidently the question whether, and if so why, the respondent failed to complete work on time, whether work was defectively performed, what were the consequences of a delay in giving possession of the site, what were the ground conditions and what was their consequence and whether it was possible to work in the prevailing ground conditions in winter are all factual matters ideally suited to arbitration by an engineer with expertise in such matters. The proposed arbitrator, as appears from his letterhead, is a civil and structural engineer with a number of relevant qualifications in that field.

52 Against that there are, as counsel for the appellant pointed out, also various legal questions which might arise. He identified nine of these, as follows:

(1) Was the Appellant entitled to issue the notice to show cause having regard for the fact that, by cl 44.2, the Principal may only do so if it considers that damages may not be an adequate remedy in circumstances in which the Contractor has committed a substantial breach of contract?

(2) Was each of the breaches relied upon a substantial breach on the proper construction of cl 44.2?

(3) Is any of the matters mentioned in sub-paras (a) to (g) of cl 44.2 a substantial breach or must there be some evaluation of the degree of breach? So, for example, sub-para (d) refers to a failure to use the materials or standard of workmanship required by the contract. Is any failure, no matter how small, to be regarded, on the proper construction of the contract, as a substantial breach?

(4) Is it open to the Principal to alleged a substantial breach for the purposes of the contract in circumstances in which the breach does not fall within any of sub-paras (a) to (g) but is a serious breach? The answer would appear to be in the affirmative having regard for the fact that cl 44.2 provides that substantial breaches 'include but are not limited to' those listed. However that leaves the question what other kinds of breaches would be regarded as substantial breaches.

(5) Did the Superintendent act unreasonably, dishonestly or unfairly as alleged by the respondent?

(6) If the answer to question 5 is yes, was the appellant, as a consequence, in breach of its obligation under cl 23 of the contract which requires the Principal to ensure that the Superintendent, in the exercise of his functions, acts honestly and fairly and arrives at a reasonable measure or value of work, quantities or time?

(7) If the appellant was in breach of cl 23 of the contract, should that preclude it from issuing a notice to show cause or from electing to act on the notice to show cause in order to terminate the contract?

(8) Did the appellant act reasonably in regarding the attempt by the respondent to show cause as being inadequate?

(9) By what measure is the conduct of the appellant to be assessed in determining whether its conduct in issuing the notice to show cause and in acting upon that notice was repudiatory? So, for example, if its purported termination is found to have relied upon breaches which were not substantial should it be found to have repudiated the contract?

53 Counsel for the appellant submitted that these legal issues are so substantial that the only reasonable conclusion at which the learned Master could have arrived is that the arbitration should be stayed and the Supreme Court proceedings allowed to continue. Were the position otherwise, he submitted, questions of this kind would inevitably end up in the Supreme Court in any event.

54 Counsel for the respondent, on the other hand, contended that the issues are primarily factual and that they are not matters which should be determined by a court. He acknowledged that it was possible that the legal issues identified by counsel for the appellant might arise but said that this was extremely doubtful because the respondent proposed to rely upon a factual, rather than legal, case essentially disputing the factual basis upon which the notice to show cause and the termination have been grounded. Indeed, he submitted, the respondent did not propose to have any legal representation if the matter was to go to arbitration.

55 Counsel for the respondent also pointed, in support of his contentions, to the particularisation of the alleged breaches in the statement of claim which has been filed by the appellant in the Supreme Court proceedings. It appears quite plainly from those particulars, read together with the contract and other documents to which they relate, that they raise many substantial issues of fact. These include whether or not various parts of the contract works were completed in accordance with items in the bills of quantities which encompass various technical engineering matters such as the standard of grading and finishing of land, the cutting and filling of land in order to obtain specified tolerances, whether compaction of the clay liner in the floor of the "cell and ... western batter" as constructed by the respondent failed to comply with the contract specifications and other, similar matters.

56 He submitted that the contract is a standard industry contract and that there is no reason why the engineer could not construe it and determine what are substantial breaches for the purposes of that contract. This, he submitted, involves standard industry practice as to reasonableness and is a matter peculiarly within the expertise of an engineer.

57 The learned authors of Mustill and Boyd: Commercial Arbitration, 2nd ed suggest (at 426) that it is impossible to define, and undesirable to attempt to define with any precision, the circumstances which will induce the court to exercise its discretionary power to refuse a stay (see Bristol Corporation v John Aird & Co [1913] AC 241 at 260 per Parker LJ and Fakes v Taylor Woodrow Construction Ltd [1973] QB 436 at 442 - 443). They go on to say (at 477) that the weight to be attached to the consideration that the matters in dispute include questions of law has been much discussed although the reported cases are not in accord. They say (ibid):

"The current position is probably that the presence of an issue or issues of law is not in itself a decisive ground for refusing a stay ... unless perhaps they are the only issues in dispute ... , but that it is a matter to be weighed with other considerations in the exercise of the discretion ... The logic of this distinction may not be compelling, but it makes practical sense.

The parties must be taken to have foreseen, when they agreed to have their disputes resolved by arbitration, that the disputes might involve questions of law as well as of fact; and a skilled arbitration tribunal might be just as successful in resolving a dispute involving both types of issue as a Judge of the High Court ... . Nevertheless, it is precisely in the case where complex issues of law and fact are closely interlocked that the English law of arbitration has been seen at its least successful ... . If the parties are not prepared to entrust the whole of the dispute to the final decision of the arbitrator (and very frequently they are not) they may be better advised not to insist on a stay, but to proceed directly to the High Court."

58 The authors also mention (at 477, footnote 5) that, as Hamilton LJ observed in Rowe Bros & Co Ltd v Crossley Bros Ltd (1912) 108 LT 11 at 17: " ... it is quite as difficult to make the lawyer understand the engine ... as to make the engineer understand the law."

59 The learned Master, in approaching the exercise of his discretion, considered the nature of the dispute before concluding that there was, on a practical level, much to be said for leaving the matter in the hands of an arbitrator. He said, as will be apparent from the above extracts from his reasons, that the questions raised were technical questions involving the standard of workmanship and materials used by the respondent. He considered that an arbitrator is ideally placed to deal with these questions. He took into account also the consideration that an arbitrator could deal with these matters more quickly than would a court. He also considered that the action would not, in a court, be tried before the end of the year whereas an arbitration was likely to be dealt with much more quickly.

60 It seems to me that it was plainly open to the learned Master to find, as he did, that while there are legal questions for determination (and I accept that those raised by counsel for the appellant might arise) the issues in this case are primarily questions of fact better suited to the determination of an arbitrator than that of a court. Of the nine legal issues identified by counsel for the appellant most involve mixed questions of fact and law with the factual component thereof being well suited to arbitration by an engineer. The legal issues appear to me, at this stage at least, to be largely straightforward although I do accept that in one or two cases difficult questions of law might arise. However, if a question or questions of that kind should arise there is, as counsel for the appellant acknowledged, always the option, provided by s 39 of the Act, to refer that question or those questions to the Supreme Court for determination if that course will produce a substantial saving in costs and if the question or questions are such as would be likely to be the subject of the grant of leave to appeal under s 38(4)(b) of the Act.

61 It must also be borne in mind that, as was said by Olsson J in Crusader Resources NL v Santos Ltd, unreported, SCt of SA; Full Court No 2635 of 1989; 21 March 1990, to which we were referred by counsel for the appellant, at 40:

"It is a truism, as the High Court stressed in Paringa Mining and Exploration Co Plc v North Flinders Mines Ltd & Ors [1988] HCA 53; (1988) 165 CLR 452 at 457, that if, in relation to exercises of discretion not going to a determination of substantive rights, a tight rein is not kept upon interference with the orders of Judges of first instance, the result would be disastrous to the proper administration of justice."

62 In all of the circumstances nothing which has been said in the appeal persuades me that the learned Master made any error in the exercise of his discretion such as would justify the interference of this Court. Consequently, while I would grant leave to appeal if, indeed leave is required, the appeal should, in my opinion, be dismissed.

Arbitration Act 1985

Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [1999] WASCA 144

At a glance

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Judgment (145 paragraphs)

Eastern Metropolitan Regional Council v Four Seasons Construction Pty Ltd [1999] WASCA 144 (23 August 1999)

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Legislation Cited (2)

Cases Cited (8)