ELSPAN INTERNATIONAL LTD v EUROCOPTER INTERNATIONAL PACIFIC LTD & ANOR

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40513/99 ED 55046/98 SHELLER JA BEAZLEY JA

ELSPAN INTERNATIONAL LIMITED v EUROCOPTER INTERNATIONAL PACIFIC LIMITED & ANOR JUDGMENT

Elspan International Limited, the claimant, applies for leave to appeal from a decision of Einstein J of the 11 June 1999. The first opponent is Eurocopter International Pacific Limited. The second opponent is Geoffrey A Markham. 2 Einstein J dismissed the claimant's application pursuant to s42 of the Commercial Arbitration Act 1984 (the Act) to set aside parts of an award made by the second opponent, as arbitrator, on the grounds of misconduct on the part of the second opponent. His Honour also dismissed the claimant's application for leave to appeal pursuant to s38 of the Act against parts of the award. On this application for leave to appeal the claimant's submissions have been, in substance, submissions which Einstein J rejected. 3 The arbitration followed a referee's report and decision made by the Honourable Gordon Samuels AC QC on the 27 May 1994 that the first opponent had wrongfully repudiated an agreement between the parties and that the claimant had accepted the repudiation and terminated the agreement. The agreement so terminated replaced an earlier agreement (the original agreement) for the design and construction by the claimant of an office and hangar complex at Bankstown airport. The arbitration which led to the second opponent's award concerned a cross-claim by the claimant in which it alleged that the value of the work completed and the materials supplied on the project exceeded the total sum paid by the first opponent to the claimant in respect of such work and materials and claimed in quantum meruit the value of work completed and materials supplied to complete it, for which the claimant had not been paid. During its case, the claimant extended its quantum meruit claim to include claims based on obligations incurred for elements of work not supplied and, as a special detriment, interest incurred on Hong Kong loan accounts with the Westpac Banking Corporation. 4 The claim was for approximately $1.195 million. The second opponent heard these cross-claims during 14 full hearing days between 30 April 1996 to 22 September 1997. One step in the arbitral process was the preparation of joint reports by two quantity surveyors, one, Mr Horley, chosen by the claimant, the other, Mr Moir, by the first opponent. The second opponent made his award some 13 months later on 14 October 1998. He found that the value of the claimant's quantum meruit exceeded the amount paid by the first opponent pursuant to the agreement by the sum of $18,874. 5 One aspect of the second opponent's alleged misconduct was the delay in making the award and what the claimant said were the unsatisfactory explanations the second opponent gave from time to time for this delay. It was suggested that the delay, so far as it was explained at all, was brought about by the second opponent's undertaking and giving priority to other arbitration work. In Goose (Rex) v Wilson Sandford & Co (a Firm) (13 February 1998, English Court of Appeal) Gibson LJ, speaking for the Court, said at para 112: "A judge's tardiness in completing his judicial task after a trial is over denies justice to the winning party during the period of the delay. It also undermines the loser's confidence in the correctness of the decision when it is eventually delivered. Litigation causes quite enough stress, as it is, for people to have to endure while a trial is going on. Compelling them to await judgment for an indefinitely extended period after the trial is over will only serve to prolong their anxiety, and may well increase it."

6 A court concerned with a challenge to a delayed decision may need to look with special care at any finding of fact challenged in case it was not justified by the evidence or was the result of oversight or forgetfulness. 7 In the reasons for his award the second opponent said: "Mr John Ellen, a Director of Elspan Australia Pty Limited ('Elspan Australia') was the authorised representative of Elspan in the cross-claim and also gave evidence. During the original and second agreements, Mr Ellen was responsible for the management of the construction works on site. During the hearing before Mr Samuels on Eurocopter's and Aerospatiale Holding's claims, in the main, Mr Ellen conducted Elspan's defence. Mr Samuels had found at that time that he regarded Mr John Ellen as, on the whole a reliable witness who endeavoured to describe events as he believed them to have occurred. Later in his report, he qualified this by saying that, as might be expected, Mr Ellen's evidence was affected by his advocate's role and that he was adversely influenced by his understandable attempts to give evidence from the bar table. In his later report and decision on costs dated 27 May 1994, the former learned Arbitrator came to the conclusion that Mr John Ellen had deliberately decided not to inform the tribunal of the substantial legal work undertaken by Elspan's solicitor and that this was in order to obtain the forensic advantage in procedural matters that a litigant in person might enjoy (p19-21). This deception was clearly of concern to Mr Samuels as it is to me. In my opinion, it demonstrates bias on Mr Ellen's part over a continuing period. Mr Ellen's credibility was the subject of several attacks by Counsel for Eurocopter during the hearing and in submissions. I will return to this matter later. During the security for costs hearing, I accepted that Elspan was probably owned by Muse Consultants Limited. In that hearing, Mr Ellen gave evidence that Muse owned no assets. I found this evidence to be non persuasive absent supporting documents. I made this finding at a time when I had not read Mr Samuel's [sic] report and decision on costs."

8 Later the second opponent came to deal with a claim about concrete strength. He said: "The quantity surveyors assumed that the wall panels were constructed with a characteristic concrete strength F'c of 35 or 32 MPa. Based on concrete test cores out from the floor slabs, Mr Ellen told Mr Horley: 'That the strength of concrete used in the wall panels is 65 MPa.' Assuming this fact, Mr Horley recommended that the value of the concrete in the wall panels be increased by $3,600. Mr Moir generally agreed on the same assumption. What Mr Ellen did not do was refer Mr Horley to page 1 of Schedule of the second agreement which specified that the wall panels were to have a characteristic concrete strength F'c of 40Mpa. F'c or more correctly f'c is defined in AS 3600 - 1988, the Concrete Structures Standard. I have not been able to identify with certainty what concrete strength was specified for the floor and roof slabs. Page 26 of the specification, which formed part of the original agreement, scheduled the concrete strengths, as follows: "Minimum Design F'c = 40MPa and 50MPa" From this, I think it is reasonable to infer from Elspan's specification that F'c 50 MPa concrete was probably specified for the suspended slabs. With grade 50 MPa concrete specified, compressive strength test results in the range of 55 MPa to above 60 MPa could be expected and this is consistent with the core strength tests. Mr Ellen in his affidavit said that the same specification concrete was used throughout the works and that the effective concrete strength was 65.5 MPa. Effective concrete strength is not a term normally used by engineers. On this issue, I have formed the view that Mr Ellen, who is an experienced engineer, deliberately sought to mislead Mr Horley and the tribunal, to Elspan's advantage, in an attempt to increase a sum agreed by the quantity surveyors. As the quantity surveyors had assumed a panel strength of F'c of 32 or 35 MPa and Elspan's specification stated F'c 40MPa, an increase of $600 is appropriate for the concrete wall panels. Based on Mr Samuel's [sic] adverse finding on Mr Ellen's conduct, Mr Ellen's evidence on the Muse matter, both referred to earlier and his deception, which seems to me to be deliberate, on the concrete panel strength issue, I have significant reservations concerning Mr Ellen's credibility. As a consequence, I do not accept Mr Ellen's evidence unless it is corroborated by independent documents or other credible material."

9 The claimant says, and with this the first opponent agrees, that Mr Ellen never gave evidence that Muse Consultants Limited owned no assets and that Mr Ellen was never cross-examined to suggest that he deliberately sought to mislead Mr Horley. Counsel for the first opponent did put to Mr Ellen that he was prepared to deceive the arbitrator on any issue if he thought it would provide a forensic advantage to the first opponent in the proceedings. Mr Ellen has put on evidence that if he had been asked he could have explained what he said about the strength of the concrete to the quantity surveyor. 10 Einstein J said: "It is clear then that Elspan's complaint is that Mr John Ellen was not cross examined by counsel for Eurocopter in relation to specific facts ultimately found by the arbitrator and further, that Mr John Ellen was not given notice by the arbitrator in relation to the arbitrator's finding of deception about the issue of concrete strengths."

11 However, his Honour accepted the submission that Elspan and its legal advisers could not seriously assert that it was not assumed throughout the arbitration that the evidence of Mr Ellen was in contest and were under no illusion that Mr Ellen's evidence was in contest in its entirety. No submissions were put to the arbitrator on Browne v Dunn (1893) 6 R 67 principles. 12 On delay his Honour said that he was not satisfied that the delay involved and the matters relied upon in association with it amounted relevantly to misconduct. Further, he was not satisfied that the delay resulted in a particular prejudice to the claimant. 13 It is common enough for judges and arbitrators to prefer the evidence of one witness to the evidence of another and to conclude that evidence given is not true. It is usually unnecessary to go further. A witness may give untrue evidence for a variety of reasons, most of which have to do with the frailty of human memory. It is quite another matter to conclude that a witness, knowing the truth, has deliberately set out to mislead a tribunal of fact. If it is necessary to reach such a conclusion it should be based on the surest of ground. In the present case, the conclusion sprang from the second opponent's error and was reached without the witness being given an opportunity to answer the charge. Based on that foundation the second opponent went on to say that as a consequence he did not accept Mr Ellen's evidence unless it was corroborated by independent documents or other credible material. 14 On a leave application, a question is whether the claimant has arguable grounds for appealing. In my opinion, on the question of misconduct arising from delay and the credit findings to which I have referred, the claimant does have arguable grounds; but see Re Brace [1966] 1 WLR 595; Bulstrode v Trimble [1970] VR 840 at 848; Thomas v Van Den Yssel (1976) 14 SASR 205 at 207 and Seymour v ABC (1977) 19 NSWLR 219; all cases to which Einstein J referred. 15 Einstein J listed those parts of the award which the claimant sought to have set aside on the ground of misconduct, namely claims: * for higher strength concrete in wall panels; * in respect of jacking; * for awning canopies; * for a hanger crane; and * for doors. Those matters and others referred to as plans of steel and concrete buildings, scrap value of steel, special detriment, decommissioning and design fee led to claims for remitter in particular in respect of two matters which it was said the second opponent had not dealt with. 16 It may be, though it is far from clear, that the claim of $3,600 for additional concrete additives (higher strength concrete) was decided, in part, on the basis of the credit findings. In the passage from his reasons already quoted, after referring to the specification, which formed part of the original agreement, the second opponent said that he thought it was reasonable to infer from the claimant's specification that F'c 50 MPa concrete was probably specified for the suspended slabs. It was open for the arbitrator to draw this inference from the specification. 17 Of the claim in respect of jacking the claimant said that the rejection of Mr Ellen's evidence that the amount of deposit reflected in the long span lease of the jacking equipment was a factor leading to the rejection of the higher claim for jacking of $78,300. Einstein J said that the claimant's submission overlooked an important finding of the arbitrator set out in para 32 of the award which was as follows: "Mr Horley, in his 20 June 1997 report, allowed a sum of $220,940 for preliminaries which included the supervision of jacking. In his 26 June 1997 report in reply, Elspan's expert stated: 'I note the statement in item 23.3 of the affidavit of John Ellen dated 23/6/97 that, in his opinion, the cost of lifting the roof and office slabs was $164,000.00 compared to my assessment of $72,720.00. In my opinion the difference between the two amounts is due to my allowing the supervisory costs of this process in the preliminaries section. This allowance in preliminaries explains my contention that preliminaries appear high.' "

Einstein J went on to say: "The preliminaries are of course the indirect costs of the nature of overheads and may be compared, for example, with items which are purchased or materials which are purchased or labour which is paid for directly by way of the works. Particularly important here is the fact, as the Arbitrator indicates, that Mr Horley had allowed a sum of $220,940 for preliminaries, which sum included the supervision of jacking. Mr Horley, being Elspan's own expert, stated that Mr John Ellen had allowed the supervisory costs of the relevant process in the costs of that process."

18 Finally the claimant submitted that the arbitrator's conclusion about credit went to the finding that the invoices relating to the awning canopies were insufficient to support the conclusion that the claimant either paid for the canopies or had a continuing obligation to pay for them, in that case the amount in issue being $4,293. Of this Einstein J said: "The exercise upon which the Arbitrator was engaged, was to determine as a fact the reasonable remuneration for Elspan regarding the canopies. That required the Arbitrator to ascertain if Elspan had in fact done anything for which it could be recompensed. He found that it had not. To my mind there was no error. There is no issue of law raised by this consideration and no error arises on the face of the Award. There is certainly no strong evidence of error of law. I further note in relation to the same matter, that invoices were annexed to the affidavit of Mr John Ellen before this Court, sworn on 18 December 1998 at Tabs 15 and 17. These were the documents before the Arbitrator. They are copies of invoices issued to Elspan Australia Pty Limited which was not a party to the Arbitration. No invoice was issued to Elspan International Limited. To my mind, the evidence adduced before me from Mr John Ellen, took the matter no further. No reason was advanced for Elspan's failure to produce the document called 'guarantee' before the Arbitrator. The Arbitrator must further be taken to have been well aware of the identity and role of Elspan Australia Pty Limited."

19 Einstein J accepted that the claimant's actions during the hearing of the arbitration left the second opponent in no doubt but that he was to approach the matter upon the assumption that Mr Ellen's evidence was in contest on every issue and as to all aspects of his evidence. The claimant and its legal advisers were under no illusion about this. The first opponent submitted that on all the issues with which we are now concerned opposing evidence of a substantial character was before the second opponent. In each instance the evidence of Mr Ellen was elicited to contradict expert evidence in an attempt to increase the amounts allowed by the joint reports of the two experts, one of whom was the claimant's expert witness. Einstein J accepted the first opponent's submissions. He further accepted the submission that the claimant was bound by the course which it adopted at the trial. 20 Beyond the claims relating to concrete strength, jacking and awning canopies, and with one exception, the items the subject of the claimant's challenge depended upon findings of fact based on evidence, or the absence of it, which Einstein J dealt with. In so far as it was alleged that the second opponent failed to deal with items, Einstein J found that the arbitrator was entitled to assume that the issue was abandoned. 21 Special detriment involved a claim to recover interest paid on a bank loan apparently arranged in order to allow the claimant to undertake the work. While such a claim might have been pursued as damages for breach of contract, I am not persuaded that it is recoverable on a quantum meruit. It represented the most substantial part of the claimant's claim. In any event, as Einstein J said, it was open to the arbitrator to find that the claimant was unable to identify any special detriment relating to the interest on the loan. 22 The claim for decommissioning costs was exceptional in that it depended upon a construction of cl 14.5 of the agreement and particularly that part of it which said that the claimant should make no claim upon the owner for costs incurred by it in removing its equipment. This raised a question of law as to whether the first opponent could rely on this clause as applying to the parties' rights on or after termination. There was no apparent error of law in the conclusion that the opponent was entitled to rely on this clause, certainly no error which satisfied the requirements of s38(5) of the Act. 23 The findings about Mr Ellen's credit went only to the claims for concrete strength, jacking and the awning canopies. But the arbitrator's conclusions on these matters were otherwise well founded on the evidence. The claimant submitted that the credit findings reflected also on the question of the costs of the arbitration currently before the second opponent. Apart from the significance of the small amount the claimant recovered in the award the claimant claimed a justifiable lack of confidence in the second opponent being able properly to complete the arbitration. 24 Even though the claimant has an arguable case of misconduct to ground an order under s42 or an appeal under s38, I do not think the appeal to this Court which the claimant seeks leave to bring has any prospect of success. In my opinion, the alleged misconduct, even if established, would not, in the circumstances, justify the removal of the arbitrator, the disturbing of his findings or the remitting of the question of costs to any other arbitrator. In addition to the evidence supporting the second opponent's findings, as Einstein J found, the second opponent's findings on credit were made in the circumstance where Mr Ellen's credit was very much an issue to which the claimant and its advisers were alive. 25 In my opinion, the application should be dismissed with costs. 26 BEAZLEY JA: I agree with Sheller JA *****

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