Gaymark Investments Pty Ltd & Anor v Walter Construction Group Ltd [1999] NTSC 143; 16 BCL 449

Gaymark Investments Pty Ltd & Anor v Walter Construction Group Ltd [1999] NTSC 143; 16 BCL 449 - NTSC 1999 case summary — Zoe

[34]

[1] These two applications for leave to appeal, pursuant to s.38 of the Commercial Arbitration Act ("the Act"), from an interim award made by an arbitrator were heard together.

[2] The arbitration arose out of the construction by Walter Construction Group Ltd (formerly Concrete Constructions Group Ltd) ("Concrete Constructions") of the Darwin Central Hotel between October 1996 and April 1997. The hotel, retail and office complex was constructed for Gaymark Investments Pty Ltd and Darwin Central Nominees Pty Ltd ("Gaymark") as principals under an agreement dated 12 October 1995.

[3] Claims were made by Concrete Constructions for $4,900,341 pleaded on a number of bases, but principally for variations, prolongation and disruption/acceleration. Gaymark counter-claimed for $1,545,059, principally arising through the application of liquidated damages in accordance with the contract.

[4] The arbitrator, Mr T M McDougall, a consulting construction engineer, delivered an interim award on 1 March 1999 in favour of Concrete Constructions in the amount of $1,440,486 exclusive of interest and costs. The arbitrator rejected Gaymark's counter-claim for liquidated damages. In reaching that conclusion, the arbitrator expressly indicated that Gaymark would have had an entitlement to 87 days of liquidated damages at $6,500 per day ($565,500) except for the view which he had taken on a particular question of law.

[5] Gaymark applied for leave to appeal from the arbitrator's decision on that particular question of law. Gaymark's notice of appeal seeks an order that the interim award be varied to insert an order that Concrete Constructions pay Gaymark liquidated damages in the amount of $565,500 or alternatively that the award be remitted to the arbitrator for reconsideration.

[6] Concrete Constructions applied for leave to appeal from the arbitrator's rejection of its (alternative) claims for a quantum meruit, for damages for negligent misstatement and for relief under the Trade Practices Act (Cmth).

[7] On 22 October 1999, at the conclusion of submissions, I refused the application of Concrete Constructions for leave to appeal and indicated that I would publish my reasons at a later date. In the case of Gaymark's application for leave to appeal, I reserved my decision. I now set out my reasons with respect to both applications.

[44]

"The expression 'error of law on the face of the award' is one of a type well-known to courts. The award having been examined the question is whether there is apparent (and such is the denotation of the word 'manifest') an error of law. 'Manifest error' is an expression sometimes used in reference to reasons given by judges or the approach taken by juries: see, eg, s 107(c)(iii) of the Supreme Court Act 1970 and the judgments of Kirby P in Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 151 and Otis Elevators Pty Ltd v Zitis (1986) 5 NSWLR 171 at 181. It is used to indicate something evident or obvious rather than arguable: see generally per McHugh JA in Larkin v Parole Board (1987) 10 NSWLR 57 at 70-71. Nothing more is to be learnt from the language used but of course the discretion of the court as to whether or not it will grant leave remains and regard must be had to the requirement of subs (5)(a). The matters referred to by Lord Diplock in the Nema remain important factors in determining whether leave should be given.

However, I have difficulty in defining the significance of an error of law by reference to whether it is apparent to a judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument. I understand the views expressed that decisions on questions of law should be left to the arbitrator with minimal interference by the courts unless the arbitrator may be establishing an erroneous precedent on a matter of law which may affect other cases between other parties as for example where the question concerns the construction of a contract in standard terms. But the paragraph requires a determination as to whether or not there is a manifest error on the face of the award and I do not see why a judge should be required to do that without adversarial argument. If the judge concludes after argument that there is not such an error of law an application based on this ground fails. If there is such an error of law, a question arises as to whether as a matter of discretion leave should be granted and the point made by Brownie J in Graham Evans & Co Pty Ltd v SPF Formwork Pty Ltd Supreme Court of NSW, unreported, 9 April 1991, per Brownie J would, for example, have to be taken into account (at 5):

[53]

'What, as I see it, underlies the philosophy expounded in The 'Nema' and The 'Antaios' [Antaios Campania Naviera SA v Salen Rederierna AB [1985] AC 191] is that there is always a presumption in favour of finality and that, where there is nothing to rebut it, the application should be unceremoniously refused. Rebuttal must always be based upon at least a suspicion that the arbitrator has gone wrong. Being left in the frame of mind that the arbitrator may or may not have been right - being left in real doubt in that sense - is not sufficient. But the degree of suspicion which is requisite may vary according to the seriousness of the consequences of error to the parties and to a wider public.

The House of Lords' guidelines with regard to one-off contracts, that an obvious case of error should be shown, I think assumed that the effect would also be one-off. This might well be true of the last rent review, particularly if the remainder of the lease were relatively short. It would not, however, be true of earlier rent reviews. There the long-term effect on subsequent reviews would be analogous to the effect of decisions on standard terms, the only difference being that the same, rather than different, parties might be affected.

Accordingly it may well be that in most rent review disputes the 'standard terms' approach will be justified: a strong prima facie case of error should be shown. But 'strong' is an imprecise term and I do not think that the House of Lords intended that the same degree of strength should be called for in every case. This is, after all, a matter which parliament has left to the exercise of judicial discretion, Consistency of approach is important, but it must not negative a discretion based upon the facts of individual cases.

So how strong is strong? No meter can be applied or indeed devised. It is a matter of relative values. If the chosen arbitrator is a lawyer and the problem is purely one of construction, the parties must be assumed to have had good reason for relying upon his expertise and the presumption in favour of finality or, to put it the other way round, the strength needed to rebut it will be greater. So too if the dispute really centres upon an issue calling for non-legal expertise, albeit with some underlying question of law, and the chosen arbitrator has that expertise. But if the chosen arbitrator is not a lawyer and the whole dispute centres upon a difficult question of law, less strength may be required.

Similarly, the degree of strength will be affected by whether the clause in question is one of a class commonly encountered, so that others would benefit from an authoritative decision on its meaning or application, and I see no reason why some account should not be taken of the seriousness of the consequences to the parties of the arbitrator's error, if error there be. But the bottom line must always, I think, be that the judge concludes that there is a more or less strong, but still 'strong', prima facie case that the arbitrator has erred in law. To adopt any other approach would be to fly in the face of the legislative preference for finality.'"

[76]

"R12 There appear to be two limbs to this argument. The first is that the misleading and deceptive conduct lay in the stamping of the tender drawings as 'construction issue'. There is no doubt that to so describe them as wrong in some important respects (pace Messrs Wilkins and Brears). This is particularly so as to the roof drainage design, on the evidence of Mr Graham, and (if you accept that the design had to conform to the BCA) as to the fire rating, on the evidence of Mr Wilkins himself.

R13 However, as I said earlier, in my view it is quite unrealistic for a contractor to conclude at the outset that 'These are the drawings, there will be no changes and I can go for my life'.

R14 But, even if one did, one would only, in consequence, be misled if the contract did not provide for extensions of time, delay costs and recovery of the cost of variations. If it does, the effect of such conduct is a matter of degree only and the effect can be recovered under the contract. The fact that the claim based on false and misleading conduct cannot be time barred under the contract, if it be so, is one thing - the remedy for it lies in claims under the contract and is presumably still caught by the limitation provisions.

R15 The second limb of the argument is that Gaymark warranted that the Superintendent would provide proper, fair and impartial administration of the contract.

R16 There are two difficulties with this argument. One is that for much of the time, the Superintendent acts as the agent of the Principal and is both entitled to, and expected to, look primarily after the Principal's interests. That leaves the Superintendent with a wide area of discretion in much of what he/she does.

R17 The other difficulty is that, as a result, if you could classify Superintendents into the categories of 'Good', 'Bad' and 'Indifferent', the latter category would (in my experience and by my standards, anyway) contain the vast majority of them, and with no two persons agreeing to the boundary between the classes.

R18 Essentially, in my experience, you take what you get by way of Superintendent and keep your fingers crossed, hoping that whoever is appointed is prepared to exercise a reasonable amount of discretion.

R19 For a claim based on the Superintendent's conduct to have a reasonable chance of success, the latter has to be unrelievedly awful.

R20 In short, I do not think that a claim based on these Acts can succeed."

[84]

[44] At para R13 of his reasons, the arbitrator makes clear that notwithstanding the falsity of the tender drawings being stamped "construction issue" it is quite unrealistic for an experienced contractor, such as Concrete Constructions, to suggest that it was induced to contract with Gaymark because of an implied representation that the Darwin Central Hotel could and would be built without variation to the tender drawings. At para R14, the arbitrator goes on to say that even if a contractor was misled by such an implied representation this could occur only in the case of a contract which did not provide for extensions of time, delay costs and recovery of the costs of variations (which was not the case here). As with the claim in negligent misstatement, such findings of fact are fatal to Concrete Constructions' claim under section 52 of the Trade Practices Act and similarly fatal to an application for leave to appeal an error of law.

[45] The second limb of Concrete Constructions' claim under section 52 of the Trade Practices Act is dealt with by the arbitrator at paras. R 15 - R19 (above). As with the first limb, a fair reading of the arbitrator's reasons leaves no room for doubt that he found as a fact that any warranty by Gaymark that the Superintendent would provide proper, fair and impartial administration of the contract was not misleading or deceptive conduct or conduct likely to mislead or deceive. In reaching this finding it is clear that the arbitrator took into account Concrete Constructions' familiarity with construction contracts, the customary role of a Superintendent and the terms of the contract entered into with Gaymark. It may well be that, as with the arbitrator's reasons for rejecting Concrete Constructions' claims for a quantum meruit and in negligent misstatement, he might have given more detailed reasons for his findings. However, in the circumstances, I consider that the arbitrator's reasons (being based on findings of fact) were sufficient. Leave to appeal must be refused for this aspect of Concrete Constructions' application.

[106]

"G30 It seems to me that there are only three options open. One is to argue for the implication of a term similar to the fourth paragraph of the original Clause 35.4, giving the Superintendent the power to allow an extension in this situation. I would be surprised if that could be done, given the apparent care taken in amending the EOT provisions of NPWC3. Certainly the Superintendent took the view on more than one occasion, in dealing with other time barred situations, that his power was exhausted once the time barrier had been hit.

G31 The second is to say that it is too bad for the contractor. His own carelessness in not observing the conditions of SC19 has simply cost him the right to recover the delay costs involved, in addition to exposing him to the risk of liquidated damages, and that cannot be an absurd result. Looked at from the other side, though, the principal has, if it was responsible for the delay, not only been absolved from the need to pay the contractor's costs of the delay, but is also able to recover liquidated damages for a delay of its own causing. The first of these consequences is not, in my view, absurd (having regard to the responsibilities of the contractor)..... However, the second one, I think, is an absurd one (namely that it is possible to be paid for one's own errors) ...

G32 (The Gaymark submission also contends that "no logical distinction can be drawn between the avoidance of the payment of delay costs and the impositions of liquidated damages: both result in a benefit or 'profit' to the owner". However I think there is a distinction. The first means that the owner does not have to pay costs, as a result of the contractor's lack of competence in pursuing his rights - the second means that the owner gets paid for his own lack of competence.)

G33 This leaves really only the third alternative. This is that the principal, in re-drafting the EOT provisions, is deemed to have elected to take the risk that it would not cause an actual delay to the contractor such as actually to delay the latter in achieving Practical Completion of the works by the due date, or that, if it did, that the contractor would apply for an extension within the stipulated times. In consequence, it did not provide for the possibility that this might happen, with the further risk that, if it did, the obligation to finish by a date which could be determined would be replaced by one only to complete within a reasonable time...".

[127]

[71] In the circumstances of the present case, I consider that this principle presents a formidable barrier to Gaymark's claim for liquidated damages based on delays of its own making. I agree with arbitrator that the contract between the parties fails to provide for a situation where Gaymark caused actual delays to Concrete Constructions achieving practical completion by the due date coupled with a failure by Concrete Constructions to comply with the notice provisions of SC 19.1. In such circumstances, I do not consider that there was any "manifest error of law on the face of the award" or any "strong evidence" of an error of law in the arbitrator holding that the 'prevention principle' barred Gaymark's claim to liquidated damages.

[72] For the sake of completeness, I add that had it been necessary to address the issue, I would also hold that the issue in Gaymark's appeal is not one which "may add, or may be likely to add, substantially to the certainty of commercial law" (section 38(5)(b)(ii) of the Act). The contract between the parties is based on a standard form contract, NPWC Edit 3 (1981), but the substantial amendments by the deletion of standard clauses and substitution of special clauses makes it a "one-off" contract, particularly having regard to the form of SC 19 while retaining the references (GC 35.2 and GC 35.5) to the deleted GC 35.4.

[73] An affidavit of Julie Ann Waters (sworn 25 March 1999) states (para 13) that SC 19 is "substantially the same as general conditions 35.4 and 35.5 in the Commonwealth of Australia, Department of Defence 'Trade Contracts for the Construction of Facilities'" and are "mirrored" in other Defence Department Contracts. Copies of such contracts were not made available and, accordingly, there has been no opportunity to assess the degree of similarity between such contracts and that between Gaymark and Concrete Constructions. Even assuming a high degree of similarity between SC 19 and clauses 35.4 and 35.5 of the Defence Department contracts, it would seem highly unlikely that the latter contracts would have retained any reference to the deleted GC 35.4 of NPWC Edit 3 (1981). I am not persuaded that there would by any substantial gain to the certainty of commercial law by further consideration of the issue raised by Gaymark in the present case.

[74] For the foregoing reasons, the application by Gaymark for leave to appeal is refused.

[75] In all the circumstances, having regard to the refusal to grant leave to appeal in both applications and the time occupied by submissions in each of the applications, there will be no order as to costs.

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