Arbitration - The award - Judicial review - Grounds for remitting or setting aside - Error of law on face of award - Error of law in factual finding in the absence of evidence did not vitiate decision.

Leichhardt Municipal Council v Seatainer Terminals Pty Ltd & Anor (1981) 48 LGRA 409, referred to.

Arbitration - The award - Judicial review - Grounds for remitting or setting aside - Other grounds - Whether expert arbitrator who relied on own experience and knowledge to make a finding without advising parties amounted to denial of procedural fairness.

Jordeson & Co v Stora (1931) 41 Ll LR 201; Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, referred to.

Judgment Number: [2000] TASSC 51

GLENORCHY CITY COUNCIL and THE STATE OF TASMANIA

1 The applicants seek leave pursuant to the Commercial Arbitration Act 1986 ("the Act"), s38 to appeal the award of an arbitrator on a question of law. The arbitrator was called upon to arbitrate a dispute between the applicants, as principals of a project involving the construction of a sewer outfall pipe into the River Derwent at Prince of Wales Bay, and the respondent, which was the contractor. The respondent contended that it was entitled to claim compensation for inter alia latent conditions encountered during piling installation. The arbitrator, Mr Hurd, of Hobart was appointed jointly by the parties, the respondent's solicitors asserting in a letter to the Australian Commercial Dispute Centre, a copy of which was sent to the applicants' solicitors that "we understand Mr Hurd has extensive experience in pile driving which is the main aspect of Tacon's claim". The applicants' solicitors, in a letter some weeks later, agreed to his appointment and said, "obviously, most of the issues which will arise in this case are technical matters, which Mr Hurd will be competent to decide." After a preliminary conference with the arbitrator, it was agreed that written submissions would be provided in place of a formal hearing and that the arbitrator's decision would be an interim one addressing liability only. It was also agreed that if the arbitrator required a site inspection, both parties would be advised and a visit would be arranged by the applicants.

2 The arbitrator having examined the documents submitted by the parties and having conducted a site inspection in their presence, delivered an award on 14 December 1999 in which he found that a claim for latent conditions did exist.

3 The first three grounds of appeal were argued together and are as follows:

"1 The arbitrator erred in law by finding that the tendering information, of which the Oceaneering Survey Report was said to form part, had no formal value by reason of clauses 2.2 and 5.11 of the Specification of the contract.

2 The arbitrator erred in law in finding that the respondent examined all the information made available in writing by the principal, in that there was no evidence, or no sufficient evidence, by which the respondent could establish that it had examined the Oceaneering Survey Report.

3 Alternatively, the finding referred to in ground 2 was against the evidence and the weight of the evidence."

4 With some variations, the contract was subject to the General Conditions of Contract

(AS 1224 - 1992) and specifically to cl 12, which provides:

(a) Physical conditions on the site or its surroundings, including artificial things but excluding weather conditions, which differ materially from the physical conditions which should reasonably have been anticipated by the Contractor at the time of the Contractor's tender if the Contractor had:

(i) Examined all information made available in writing by the Principal to the Contractor for the purpose of tendering; and

(ii) Examined all information relevant to the risks, contingencies and other circumstances having an effect on the tender and obtainable by the making of reasonable enquiries; and

(iii) Inspected the Site and its surroundings; and

(b) Any other conditions which the Contract specifies to be Latent Conditions."

The respondent contended that the physical conditions encountered by it differed from what should reasonably have been anticipated by it and had necessitated additional pile driving because the sea bed was considerably deeper and covered by a greater quantity of silt than anticipated.

5 In "Comments on Findings" which formed part of his award, the arbitrator adverted to cl 12 above and addressed the question whether or not the respondent had examined all information made available in writing. To avoid confusion, as he referred to the present applicant variously as the respondent and the principal, I shall transpose his references and use those appropriate to this application. He said:

"From the Outline of Claim submitted by the [Respondent] and the Response by the [Applicant] there is disagreement as to whether the Oceaneering Report was available at the time of tender. However, Attachment 'A' to the [Respondents] outline, a report by P Wood, makes reference to reports by Oceaneering dated 29/5/96 and 26/5/96 (I assume this should be 26/9/96 as there is no listed report dated 26/5/96) as material which was available at tender indicating the [Respondent] did have the Oceaneering Report. Hence it is found the [Respondent] did have access to all available information provided by the [Applicants].

In any case, in the Tendering Information, Clause 1.2.2, Sub-Bottom Profiling contained a summary of the Oceaneering Survey Report (undated but with attached covering letter dated 29/5/96).

The Tender Information is qualified in the documents (in Clause 2.2 - Tender Documents and Clause 5.11 - Information Supplied) as being provided for information only and shall not form the basis of part of the Tenderers submission. In other words the information provided in the Tender Information has no formal value and the Contractor must interpret and make his own conclusions.

I find the [Respondent] did examine all information made available in writing by the [Applicants] at the time of the tender."

He then addressed the question whether or not the respondent had made reasonable enquiries and said:

"The site consists of soft materials such as silts and clays overlying dolerite or basalt bedrock. The weathering of dolerite or basalt bed-rock has been found in other similar sites in Tasmania (and on this site in hindsight) to be very variable in respect of the uniformity of the top surface of the weathered dolerite or basalt. Piles which have been driven relatively close to each other can show large differences in penetration depths due to the highly variable nature of the top surface of the dolerite or basalt.

The Response to the Claim suggested enquiries should have been made of Incat in respect of site conditions encountered in constructing the large sheds around Prince of Wales Bay. The results of such enquiries would not necessarily have yielded relevant information in respect of pile penetration depth due to the highly variable nature of the of top [sic] surface of the weathered dolerite or basalt.

I find the [Respondent] has made all reasonable enquiries regarding factors having an effect on the tender."

6 The Oceaneering Report, found by him to have been not only available to, but examined by, the respondent at the time of the tender, was the subject of the following comment by the arbitrator:

"The Oceaneering Report is described as rudimentary and draws conclusions regarding depths to sub-strata from what is inaccurate, unconfirmed information. I believe it was not possible to have drawn worthwhile conclusions from the type of site testing carried out by Oceaneering. With the benefit of hindsight it is now clear the conclusions reached in the Oceaneering Report were grossly inaccurate.

The results of the site investigation although inaccurate were better than no information at all in respect of the tender. The report's conclusions could have been used to base pile quantities on for tender purposes only. In fact the [Respondent] did use the results of the site testing to base pile quantities on (with some practical allowance for inaccuracies in the testing) as there was no other information available at time of tender.

The documents allow for a variation in pile lengths. The [Respondent] allowed about 1.5 to 2m additional length per pile. This would be a reasonable additional length to allow in the tender stage and would be what a lot of experienced engineers would adopt based on the available information."

He concluded his findings in respect of liability in respect of latent conditions with these words:

"A critical aspect of the definition of a latent condition is that the latent condition must be one that could not have been reasonably anticipated by the Contractor at the time of tender.

In my opinion the [Respondent] has met the qualifying requirements of the General Conditions of Contract, Clause 12.1 (a)(i), (ii) and (iii) in respect of a latent condition.

I believe a Latent Condition exists in that the actual penetration of the piles could not have been reasonably anticipated based on the information available at the time of tender."

7 Before the applicants can succeed, they must show that the arbitrator made an error of law. What is alleged to constitute that error is his finding that the respondent examined the Oceaneering Report at the time of tender. It is contended that the respondent had claimed in its submission to the arbitrator that that document had not been made available to it until several months after the close of tenders and that the finding that it had examined the document was therefore unsupported by any evidence. A factual finding for which there is no evidence can constitute an error of law (Sittingbourne Urban Council v Lipton Limited [1931] 1 KB 539; Mersey Docks and Harbour Board v Assessment Committee for West Derby Assessment Area and Bottomley [1932] 1 KB 40; McPhee v S Bennett Ltd (1935) 52 WN (NSW) 8; Poricanin v Australian Consolidated Industries Ltd [1979] 2 NSWLR 419; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139; Yates Property Corporation Pty Ltd v Darling Harbour Authority (1991) 24 NSWLR 156). However, as Moffitt P pointed out in Leichhardt Municipal Council v Seatainer Terminals Pty Ltd & Anor (1981) 48 LGRA 409 at 419:

"It is not sufficient to show that some error of law appears in the judgment or during the course of the trial. The error has to be one upon which the decision depends, so the decision is vitiated by the error. ... It will not suffice to establish that one or some only of a number of alternate findings upon which the decision was given involved errors of law, if one alternative involved no error of law."

(See also Collins v Minister for Immigration and Ethnic Affairs [1981] FCA 147; (1981) 58 FLR 407 at 413; Bisley Investment Corporation Ltd & Anor v Australian Broadcasting Tribunal & Anor (1982) 59 FLR 132 at 146; Director-General of Social Services v Hales [1983] FCA 81; (1983) 78 FLR 373 at 401; and Commonwealth Banking Corporation v Percival [1988] FCA 240; (1988) 20 FCR 176 at 182).

8 In the present case, if the arbitrator erred in law in making a finding that the respondent examined the Oceaneering Report when there was no evidence upon which that finding could be justified, it did not, however, vitiate his finding that a latent defect existed. The applicants' case proceeded on a misconception of the proper construction of cl 12 of the General Conditions of Contract in that it was contended that the fact of examination of such a report had to be established before the definition of a Latent Condition could be satisfied. In effect, the applicants' case was that examination of the information was a condition precedent to the existence of the latent condition. Latent conditions are defined as:

"(a) Physical conditions on the site or its surroundings ... which differ materially from the physical conditions which should reasonably have been anticipated by the Contractor at the time of the Contractor's tender if the Contractor had:

(i) Examined all information made available in writing by the Principal to the Contractor for the purpose of tendering; ... "

The definition contemplates a difference of conditions between what are in fact encountered and what the contractor should reasonably have expected if he had examined the relevant information, rather than between what are encountered and what the contractor, having examined the information, did reasonably expect. Whether the contractor examines the relevant documents or not is irrelevant. He may fail to do so, merely assuming what their contents are. He thereby takes the risk that an examination of them would have alerted him to conditions other than those he expected, but such a failure does not preclude him from asserting that the conditions encountered were different from those he should reasonably have anticipated were he to have examined them. The arbitrator's findings were that the Oceaneering Report contained some material which was grossly inaccurate and that, crucially, he believed "a Latent Condition exists in that the actual penetration of the piles could not have been reasonably anticipated based on the information available at the time of tender". That was a factual conclusion open to him. Whether it flowed from an acceptance that the Oceaneering Report was not available at the time of tender (contrary to his earlier finding) or from the view that even if the report were available, it was unreliable, his conclusion that the contractor could not reasonably have anticipated the conditions encountered was a determination of fact which this Court has no jurisdiction to review. It did not flow from any error of law in finding that the respondent had examined the report at the time of tender. Accordingly, there is no substance in grounds 1 - 3.

"4 The arbitrator erred in law in that in finding that the claimant made all reasonable enquiries regarding factors having an effect on the tender he took into account an irrelevant consideration, namely that:

'[T]he weathering of dolerite or basalt bed-rock has been found in other similar sites in Tasmania ... to be very variable in respect of the uniformity of the top surface of the weathered dolerite or basalt. Piles which have been driven relatively close to each other can show large differences in penetration depths due to the highly variable nature of the top surface of the dolerite or basalt.'

5 Alternatively, in taking the consideration referred to in ground 4 into account, the arbitrator denied the parties procedural fairness in that he failed to notify the parties that he proposed to take that consideration into account and invite them to tender further evidence, or make further submissions to him in respect of the relevance, weight, or effect of that consideration."

10 I have already set out the arbitrator's findings in respect of cl 12.1(a)(ii), that is, the effect of information obtainable by the making of reasonable enquiries. Dealing with the applicants' assertion in the Response to the Claim that enquiries should have been made of Incat as to site conditions encountered in another part of Prince of Wales Bay, the arbitrator found as a fact that the results of such enquiries would not necessarily have yielded relevant information in respect of pile penetration depth due to the highly variable nature of the top surface of the weathered dolerite or basalt at the site. He based this on knowledge he claimed to have of the conditions of the site and of similar sites in Tasmania and of the fact that piles driven relatively close together can penetrate to different lengths due to the variable nature of the top surface of the dolerite or basalt. There was no evidence to this effect, but the parties had appointed him to conduct the arbitration on an informal basis without conducting a hearing with legal representation and the applicants' solicitors had acknowledged his competence to determine the technical matters which would arise in the case. He was a Hobart-based engineer and I think it is clear the parties intended that he should use his general and local knowledge in resolving the issues in dispute. The kind of enquiries which the respondent, as contractor, ought reasonably to have made at the time of tender, was such an issue.

11 In Jordeson & Co v Stora (1931) 41 Ll LR 201, Branson J said at 203 - 204:

"Now, I think that the fact that the umpire was an expert in the timber trade and was appointed because he was such an expert must not be lost sight of. I think the parties must be taken to have assented to his using the knowledge which they chose him for possessing; I do not mean to say knowledge of special facts relating to a special or particular case, but that general knowledge of the timber trade which a man in his position would be bound to acquire. For example, had he gone and examined this cargo by himself and had looked and seen with his own eyes that it contained a large percentage of timber which to his own knowledge was faulty, I have no doubt that he could probably use that knowledge without having to do what a Judge might have to do, and that is, call in an expert to give evidence before him that those timbers were unsound and for particular reasons. It is not right to apply to that type of arbitration the strict rules of law and evidence which are applied in this Court."

This dictum was followed by Pape J in Ajzner v Cartonlux Pty Ltd [1972] VicRp 107; [1972] VR 919 at 922 - 923; and in Hammond v Wolt [1975] VicRp 10; [1975] VR 108, Menhennitt J relied upon it for the proposition that "it is not inconsistent with arbitration for the arbitrator to be entitled to rely on his own expertise in arriving at a determination" (at 113). See also Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 where, at 254, Priestley JA said:

"... when parties commit themselves to an arbitration before an arbitrator who is not a professional lawyer but chosen primarily because of his expertise in another field, and also commit themselves to conducting that arbitration without being represented by professional lawyers, they are deliberately aiming at reaching finality by an approach intended to be dominated by practicalities and to keep legalities to the minimum properly possible."

Further support is to be found in Sir Michael J Mustill and Stewart C Boyd's treatise The Law and Practice of Commercial Arbitration in England (Butterworths, 1982) at 321 - 322 where the learned authors state:

"As a matter of general principle, an arbitrator should not rely on his own knowledge of facts relating to the issues before him without telling the parties that he proposes to do so and giving them an opportunity to comment on it or call rebutting evidence.

There is, however, an important exception to the general principle where the arbitrator has been chosen for his special experience or knowledge in a particular field, for here it is clear that the arbitrator not only may but ought to make use of his own experience and knowledge, and may do so without reference to the parties and without the benefit of evidence on the matter in hand."

In these circumstances, I take the view that the arbitrator's factual finding was not attended by error of law, nor did the fact that he relied on his own knowledge without advising the parties of his intention to do so amount to a denial of procedural fairness. In any event, such a claim is not a proper matter to be raised under the Act, s38(4). It is more properly to be regarded as a complaint of the denial of natural justice which, falling within the definition of "misconduct" in the Act, s4, should have been raised by way of application pursuant to the Act, s42. There is no such application before the Court and the time limits laid down by the Rules of Court, PtIX for applications thereunder have passed. The application is dismissed.