MATTER : Section 38 of the Commercial Arbitration Act 1985

Arbitration between GRD Kirfield Ltd and First Trade Consulting Pty Ltd

Arbitration - Leave to appeal - Commercial Arbitration Act 1985 (WA) s 38 - Approach to be taken on legal issues determined by lay arbitrator - Appeal on questions of law - Legal principles to be followed

Commercial Arbitration Act 1985 (WA), s 38

To be referred to the arbitrator for decision in terms of the reasons

Respondent : Mr M J McCusker QC & Mr M M Mony de Kerloy

Gordon v MacGregor [1909] HCA 26; (1909) 8 CLR 316

Metwally v University of Wollongong (1985) 60 ALR 68

Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd [1978] HCA 8; (1978) 139 CLR 231

Stirland v DPP [1944] AC 315

1 COMMISSIONER ODES QC: This is an application for leave to appeal and, an appeal under s 38 of the Commercial Arbitration Act (1985) (WA) ("the Act") against the First Interim Award ("the award") made by the arbitrator in the above matter. By agreement between the parties the award was confined to questions of liability, the issue of quantum to be determined at a later stage.

2 It was further agreed between the parties that this application for leave was to be determined by me on the basis of annexures attached to the affidavit of Peter John Bryant, dated 5 February 2004. This agreed bundle, which runs into 585 pages, included the award of the arbitrator and several agreements between the parties and others referred to below. The evidence adduced before the arbitrator was not included in the agreed bundle, the argument of counsel for the parties being directed primarily to the contents of the award and the proper construction thereof in light of the written contracts in the agreed bundle and the oral/implied agreements allegedly concluded by the parties.

3 In these reasons I propose to refer to the applicant and the respondent interchangeably as the builder and the proprietor respectively. A reference in these reasons to "D" followed by a number is a reference to the page number in section D of the award.

4 The applicant carries on business as a builder in Western Australia and the respondent as a property developer. In 2000 the respondent decided to undertake a development by extensively renovating a building situated at the corner of St Georges Terrace and Victoria Avenue, Perth. This involved converting the building into a block of residential apartments known as the St George and Victoria apartments ("the Project"). In order to achieve that objective the respondent approached St George Bank Ltd ("the Bank") requesting that it fund the Project. The amount that would be required in the redevelopment of the Project was in the region of $20 million. The Bank was prepared to lend approximately $17 million. Towards the end of 2000 the respondent agreed with the Bank that a proportion of the required funding (eventually fixed at $3.75 million) would be paid for by the transfer of completed apartments in the building to the builder and certain subcontractors in lieu of cash payments to them for the work and/or materials supplied. The respondent had at the time gathered together what the arbitrator referred to as a "stable of loyal subcontractors" (D3) who were interested in providing goods, services and labour to the Project and would be prepared to defer some part or all of their claims in exchange for the purchase of apartments in the building. They, together with the builder, would accept payment for those claims in the form of a transfer to them of completed apartments or by a reduction in the purchase price for a completed apartment which would be transferred on completion of the building ("secondary funding" or "deferral arrangements").

5 As found by the arbitrator, "the plan involved the co-operation of such subcontractors and suppliers who the Developer (proprietor) considered interested and financially able to negotiate the purchase of one or more apartments if they were able to undertake contractual work on the Project" (D11).

6 At the time of tendering, the builder was aware of the need to provide secondary funding up to the sum of $3.75 million by way of deferred payments and transfer of apartments. Indeed, in order to win the tender put out on the Project the applicant was prepared initially to defer payment to itself to the value equivalent to the purchase price of 10 apartments but later indicated a preparedness to partly fund the Project by the transfer to itself of five such apartments. The applicant was generally agreeable to the secondary funding concept as long as it was protected from all risks "if things went wrong" (D3, D13, D22) and as long as it resulted in "a cash neutral position" for the applicant (D15, D23).

7 It is common ground that the applicant and the respondent did come to an agreement in terms of which the respondent would tender to the applicant the certificates of title to five completed apartments to the value of $1,831,163 in lieu of a cash payment to that value. Where the parties parted company before the arbitrator was whether there was a similar agreement in relation to subcontractors namely whether the applicant would defer seeking payment under the Building Contract for the value of work completed by those subcontractors who had agreed to be paid by receipt of either a certificate of title to a completed apartment or a reduction in the purchase price thereof up to a "likely" value of $2,000,000. The contribution of secondary funding by those subcontractors of "up to an amount of $2,000,000", combined with the applicant's secondary funding of apartments to the value of $1,800,000 would total the amount of $3,750,000 which the respondent had agreed with the Bank would be used for the purpose of the Project.

"It was imperative if GRD (the applicant) was to be awarded the contract it would accept the obligation to co-operate with and successfully facilitate the implementation of the St George loan reduction and payment deferral plan in a manner that retained the integrity of the principle (sic) purpose of the loan. That is what I find the essence of what Mr Amara (the managing director of the applicant) is implied to have agreed to with the Allessrandino brothers (directors of the respondent) once GRD was admitted into the building contract race." (D8).

9 The implied agreement forming the subject matter of argument by counsel was found to have been concluded in or about October/November 2000. At a later stage in his award, the arbitrator found this previously labelled "implied agreement" to have been concluded orally in April 2001 (D 18-19) and later, concluded "orally and by conduct at executive management level" (D38).

10 By an agreement in writing dated 5 February 2001, the applicant/builder agreed with the respondent/proprietor to carry out the construction of six levels of 108 strata titled apartments plus one penthouse apartment with allocated parking bays on three levels and five strata titled retail units at level one at the property described above in consideration of the amount of $17,925,000 exclusive of GST ("the Building Contract"). The Building Contract was the standard JCC-D 1994 lump sum contract which incorporated by reference a number of other documents which are not relevant for present purposes.

11 Among its many provisions, the Building Contract contained the standard provisions relating to the obligation of the respondent to pay to the applicant the amount certified by the architect on a progress certificate within a stipulated period (cl 10.07). The contract also contained a "special condition" which provided that notwithstanding cl 10.07, the proprietor was obliged to issue an irrevocable instruction to its financier to pay to the builder within five days of presentation to the Bank of a duly issued progress certificate "the amount specified in such certificate" (cl 15.03(b)). The Building Contract contained the usual clause in relation to the rights of the builder to determine the contract upon failure of the proprietor to pay the amount due on such certificate (cl 12.06.01). No reference was made in the Building Contract to the deferral arrangement on the part of the applicant in the sum of $1,800,000 referred to above, nor to any similar arrangement between the builder and the proprietor to defer or setoff the claim of subcontractors for work done and materials supplied to the value of up to $2,000,000.

12 On 11 June 2001 the parties together with the Bank entered into a Builders Side Deed or, as is referred to by the arbitrator in his award as the Tripartite Agreement ("TPA") in terms whereof the Bank agreed with the proprietor to fund the Project, it being a condition of the provision of the financial accommodation to the proprietor that the builder enter into that deed for the Bank's benefit. The builder signed the TPA as a party. The relevant portion of the TPA for present purposes is cl 8 which provided that the applicant acknowledged and agreed with the respondent and the Bank that provided the practical completion of the works occurred by 30 June 2002, it, the builder, would defer the balance of progress claims under the Building Contract when the cost to complete the works amounted to $1,800,000 which sum would be offset against the purchase of strata titled units in the Project.

13 Because of the importance attached by counsel in argument to the contents of the TPA and the negotiations leading up to its conclusion it is opportune at this stage to refer to the evidence and findings of the arbitrator on this aspect of his award.

14 The first draft of the TPA was sent to Mr Amara of the applicant on 9 March 2001 which was a standard document making no reference to the need to reduce the project costs by means of deferring payment for work done by the builder and subcontractors who were agreeable to purchasing apartments to an agreed value. A provision relating to deferral arrangements was inserted in a later draft by the Bank's solicitors on 2 April 2001 as a new cl 8. At a meeting of all the parties held on 4 April Mr Gavranich representing the applicant protested at the insertion of that provision as a result of which a full meeting took place on 4 April in order to negotiate a solution. The draft wording of the new clause would have the applicant responsible to defer some $5,100,000 in payments pending settlement of all contractor (including subcontractors) related apartments. Of this, a sum of $3,100,000 related to subcontractor deferral arrangements (set out in cl 8(b) of the draft) and the sum of $2,000,000 to builder deferrals (set out in cl 8(a) thereof). During the TPA negotiations the $2,000,000 builder sum was corrected by the pre-agreed 10 per cent discount. The builder had no difficulty with the concept of having to defer payment for work done by itself up to a value of $1,800,000 in exchange for its purchase of apartments and accordingly agreed to retain subclause (a) of cl 8 in the TPA to that effect. However, the applicant succeeded in having the subcontractor deferral arrangement provision in cl 8(b) of the draft TPA deleted.

15 There were obvious risks to the builder agreeing to a subcontractors' deferral arrangement of up to $2 million. Problems could arise in the event of delays by the subcontractor in question (D9). The builder would need to have protection by being formally released by the subcontractor from liability for payment and possibly indemnified against claims from the proprietor.

16 The arbitrator was fully alive to these problems when accepting that "appropriate payment discharges had to be provided by subcontractors, the work must have to be done and certified, the builder must maintain its contractual rights and access to withholdings in relation to the subcontractor" and the builder "must find itself in a cash neutral position and be financially compensated for any unforseen costs" (D23). The proprietor would also have had to enter into a deed of sale of a particular apartment with a particular subcontractor. None of these details had been agreed by the proprietor and/or builder with any of the subcontractors.

17 At D18 to D19 of the award, the arbitrator found that the applicant, respondent and the Bank:

"... agreed in April 2001 to the subcontractor deferral wording being removed from the new cl 8 of the draft TPA and left to be resolved as 'an administrative matter' the development of a substitute protocol that would achieve the equivalent of subcontractors' deferrals in a way that would not diminish the relevant intent and purpose of the prevailing St George funding plan."

18 Because of the importance attached to the requirement for subcontractor deferral arrangements, the arbitrator concluded that:

"... it is not logical that [the proprietor] and [the Bank] would have allowed such a prima facie deletion without the mutual understanding that the Builder would co-operate to work out a suitable protocol that would conform to [the Bank's] conditions precedent to funding and not impact upon basic principles of primary funding." (D17-18)

19 The arbitrator has used the word "protocol" many times in the course of his award but does not state what precisely he meant thereby. He may have used it interchangeably with the phrase "administrative procedures" but there is no certainty about that either. Counsel for the respondent in this argument, conceded that the word was misleading and could mean anything (TS69-70).

20 By "protocol" the arbitrator presumably meant (although as stated above there is no clarity of its precise import) a document or documents recording the amount of instalments (and dates thereof) which each subcontractor agreed would progressively have to be deducted from moneys due to them under progress certificates issued during the course of construction. It could also embrace the preparation of the legal documentation necessary to protect the interests of the proprietor and/or builder vis-à-vis the subcontractor as well as the documentation necessary for the transfers of the apartments by the proprietor to the individual subcontractors. Whatever its meaning, the arbitrator found that the failure of the builder to produce a "protocol" when certificate 14 had been issued for payment constituted a breach of the implied agreement referred to above (D18, D23, D36-7, D38, D39), and it was this finding which formed the basis of his ultimate conclusion that the builder was not entitled to suspend the works. I deal with this aspect more fully below.

21 The applicant then proceeded to work on the apartments in terms of the Building Contract and in March 2002 presented progress claim number 14 for certification. On 15 March 2002, the architect in terms of cl 10.02 of the Building Contract issued progress certificate number 14, certifying the sum of $1,427,629 (including GST) as due and payable to the builder on 22 March 2002. The architect thereafter issued progress payment certificate number 15 dated 11 April 2002 certifying in effect that the sum of $1,167,341 including GST was due and payable on 18 April 2002.

22 Upon receipt of progress certificate number 14, the respondent requested the applicant to implement the deferral arrangements and provided the applicant with a written schedule of subcontractors which brought into account all the then known approved amounts due to the applicant under the Building Contract including the value of the completed apartments, the names of a contact person and telephone numbers of the subcontractors who had agreed to defer making claims against the builder for work, labour and materials, the amounts of such deferred claims and the amounts paid to the applicant by the respondent to date (D42). It should be noted that no releases by subcontractors were signed nor produced by the respondent when certificate 14 was presented by the applicant for payment (TS66).

23 The progress payment certificate number 14 was not paid, the applicant alleging this to be in breach of the Building Contract because there was no obligation on its part to offset any amounts owing to subcontractors while the respondent alleged that it was not obliged to pay the amount in cash by virtue of the agreement requiring the amounts owing to the subcontractors to be offset as had been arranged earlier. The respondent in fact alleges that the applicant refused to honour any of its promises and/or agreements and failed to implement any of the agreed deferral arrangements which is what the arbitrator found. Instead - so the arbitrator found - the applicant began to issue late claims for variations for work done up to 12 months previously making it impossible for the respondent to compute its final contract costs (D39) and continued to issue progress claims and to insist that they be paid in cash notwithstanding the deferral arrangements and promises it had made.

24 The applicant then issued a series of notices pursuant to cl 12.06 of the Building Contract requiring the respondent to pay the amounts reflected in certificate number 14 within 10 days of receipt and indicating that the applicant intended to exercise its right under cl 12.06 to suspend the execution of the whole works should the respondent fail to comply. In response to those notices the respondent sought to have the applicant honour its promises and informed the applicant that the respondent could not pay the claims in cash because they had never been funded having regard to its deferral arrangements with the Bank.

25 The applicant thereupon suspended the whole of the works from 14 May 2002 until 27 June 2002. In order to break the log jam occasioned by the suspension, a written agreement was entered into between the applicant and the respondent on 27 June 2002 ("the Heads of Agreement") in which the applicant agreed to return to work and bring the works to a practical completion as soon as possible in consideration of certain payments and on the terms set out therein. The Heads of Agreement were entered into by the respondent in mitigation of its position and inter alia secured for the applicant an additional $1,427,629 in finance from the Bank payable immediately and a further $86,383 also payable forthwith at a cost of an establishment fee of $125,000 plus additional interest to ensure that the builder returned to work. The architect issued a certificate of practical completion on 2 December 2002 after the applicant recommenced the works on 1 July 2002.

26 The arbitration hearing was held by the arbitrator over 14 days, during June and July 2002. An agreed bundle of documents comprising 14 volumes of written exhibits and two volumes of drawings were handed in. The arbitrator was, by agreement, to have regard only to those documents in the bundle to which reference was expressly made in evidence.

27 On 8 December 2003, the First Interim Award ("the award") was published, confined to the issue of liability, the question of quantum to be resolved by the parties through independent quantity surveyors, Rider Hunt. If unresolved, the quantum would then be arbitrated. The arbitrator dealt with disputed variations, extension of time claims, suspension costs, liquidated damages, additional financial costs issues and interest on late payment claims. In all, the award covered 170 pages.

28 It is not necessary for me to detail the findings made in relation to each of the claims and counterclaims made. For present purposes it suffices to refer almost exclusively to the section of the award marked "D" and headed "Issues related to Project Funding Deferral of Cash Payments. Suspension of Contract" because it is the arbitrator's findings in this section to which the grounds of appeal in this application are primarily directed. Section D represents a substantial portion of the award and covers 51 pages.

29 The relevant findings made by the arbitrator (apart from those already referred to in the "Background" section above) are found at D51 as follows:

"... I find that the May/June 2002 suspension of the contract by the builder was not only wrong but could have been obviated by own choice ...

If (sic) also find, as to the non-payment of certificate #14 by the proprietor in March, that this could not have been obviated by own choice because the non-availability at that stage of primary loan funds was the planned result of a jointly known paramount condition of funding ...

My finding is the suspension was invalid and that the non-payment of certificate #14 was valid for the not unreasonable period it took to pay."

The Application for Leave to Appeal and Appeal

30 The applicant applies to this Court in terms of s 38(4)(b) of the Act which requires the leave of the Court. Section 38(5) of the Act provides as follows:

"(5) The Supreme Court shall not grant leave under subsection (4)(b) unless it considers that ¾

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

(b) there is ¾

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

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

31 It is important to note that the Act requires the arbitrator to determine any question that arises in the course of proceedings, "according to law" (s 22(1)). Section 22(2) allows the parties by agreement in writing to determine questions "by reference to considerations of general justice and fairness", but no such agreement was entered into by the parties in the present proceedings.

32 Although counsel for the applicant relied on both grounds referred to in s 38(5)(b), the thrust of his argument was directed primarily to the manifest error of law on the face of the award.

33 The legal principles governing the application for leave and the appeal from arbitration proceedings are set out in the applicant's outline of submissions from which I borrow liberally.

34 Central to the determination which I am required to make is that the alleged error of the arbitrator is one of law and not of fact as leave to appeal under the Act is limited to questions of law (s 38(2)). A perusal of the numerous authorities to which I have been referred reveals that the following propositions relevant to the question of what constitutes an error of law may be extracted:

1. There is no error of law simply in making a wrong finding of fact: Waterford v The Commonwealth (1987) 164 CLR 54 at 77.

(a) whether there is any probative evidence in support of a particular fact and

(b) whether a particular inference may be drawn from the facts found or agreed. See Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321 at 355-356 Roads Corporation v Dacakis [1995] VicRp 70; [1995] 2 VR 508 at 520; Skinner & Edwards (Builders) Pty Ltd v Australian Telecommunications Corp (1992) 27 NSWLR 567 at 572. It must be borne in mind (as was observed by Mason CJ in Australian Broadcasting Tribunal (supra) at 356) that "want of logic is not synonymous with error of law. So long as there is some basis for an inference -in other words, the particular inference is reasonably open - even if that inference appears to have been drawn from illogical reasoning ... no error of law has taken place" (original emphasis).

3. It is an error of law where the arbitrator has failed to find the facts necessary to support his conclusion (Friend & Booker Pty Ltd v Eurobodalla Shire Council, unreported; NSWCA (Court of Appeal); 24 November 1993); Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203 at 222, 225; R P Robinson Constructions Pty Ltd v D & M Williams (1990) 6 BCL 219 at 222-223).

4. Errors of law will also be committed where the arbitrator has taken into account irrelevant facts (Forsayth NL v Australasian Gold Mines NL (No 1) & Anor (1992) 7 WAR 549 at 599), where the arbitrator misdirected himself as to the questions of fact which by law, he was required to answer (Forsayth (supra) at 599)

5. The misapplication of legal principles as opposed to their mere misdescription constitutes an error of law (Skinner v Edwards (supra) at 572).

6. No authority need be cited for the proposition that a question of the proper construction of a contract is a pure question of law. It should however be noted that an award is not immune from appeal merely because some facts must be found before the question of the construction of a contract arises or where the matter is properly to be treated as one of mixed fact and law (Tsakirolglou & Co Ltd v Noblee Thorl Gmbh [1962] AC 93 at 123-124, 129, 134; Cosemar SA v Marimarna Shipping Co Ltd v Mattew [1990] 2 Lloyds Rep 323 at 326).

7. The question of whether facts constitute a breach of contract involves a question of law or of mixed fact and law.

35 As to what constitutes "a manifest error of law" such an error must be an apparent error of law evident or obvious on a preliminary basis. That does not mean that it must be determined without the benefit of adversarial argument. Promenade Investments (supra) at 222, 225-226 as discussed in UDR Equipment Pty Ltd v Afkos Industries Pty Ltd [2000] WASC 57; (2000) 22 WAR 221 at [46]; Lamac Developments Pty Ltd v Devaugh Pty Ltd [2002] WASCA 245; (2002) 27 WAR 287 at [60], [132]. As was pointed out in Anaconda Operations Pty Ltd v Fluor Australia Pty Ltd [2003] VSC 275 an error is manifest if it is "evident and obvious rather than merely arguable". Larkin v Parole Board (1987) NSWLR 57 at 70 - 71.

36 Mr McCusker QC who, together with Mr de Kerloy appeared on behalf of the respondent, submitted that an over critical view should not be taken by the court in relation to decisions of an arbitrator who is a non-lawyer. He submitted further that s 38 of the Act places constraints on a court in deciding whether leave to appeal should be granted. In making those submissions counsel relied on a dictum of Parker J in Masawa Australasia Pty Ltd v J Corp Pty Ltd [2000] WASC 5 who observed as follows:

"Section 38, like similar provisions in other jurisdictions, is concerned with finality in arbitration proceedings. It is designed to limit the intervention of the courts in arbitration. The philosophy of the new Act is that the election of parties to have their disputes resolved by arbitration should be respected in the sense that awards should not be criticised with an overcritical eye and the courts should exercise restraint in seising themselves of legal questions ... From the nature of these additional requirements [here his Honour referred to the 1997 amendments to s 38(5)] and the terms in which they are expressed, it is clear that the legislature has sought to reinforce the policy of the provision against too ready intervention by this Court."

37 (See also Ukrainian Association of Western Australia in Perth (Inc) v Squire Constructions Pty Ltd [2004] WASC 4 in which Pullin J cited Masawa with approval).

38 On the basis of the latter authorities, counsel for the respondent argued that the correct approach to be taken to the award of an arbitrator is to adopt an holistic approach to the award by analysing what in substance the arbitrator has found rather than by subjecting the award to microscopic scrutiny to determine whether there were errors of law to be discerned in particular passages of his award. It is understandable and indeed desirable in my opinion, that greater flexibility should be permitted in viewing the findings of a lay arbitrator by reason of the fact that a strictly legalistic approach could well undermine a form of proceeding which the parties have deliberately elected to invoke in order to settle their dispute. Where - as in the instant case - the arbitration is complex and technical, extending over several weeks, an overcritical approach could well render the underlying purpose of such proceedings completely nugatory. The unravelling of technical building disputes by a lay arbitrator specialising in the building industry (in the instant case, an architect), should not generally be set at nought because he or she may not meet the exacting demands of a court of law in categorising with precision, the legal relationships existing between the parties. Parties may well be discouraged from resorting to arbitration if awards were to be overturned too readily because a lay arbitrator may be unable to evince the expertise of a lawyer in dealing with legal issues, which frequently arise.

39 On the other hand it is important to note in adopting that approach that care must be taken to ensure that the court determining an application of this kind does not lose sight of the fact that it must ascertain what in essence the arbitrator has in fact found rather than what, on the facts before him, he should have found. The flexible approach which is required to be taken in analysing an arbitrator's findings does not extend to drawing inferences which he should have drawn but did not, nor to conclusions at which he should have arrived but which he failed to do. On no basis can the arbitrator's findings in his award in my view yield to the gloss which counsel may wish to put upon them. The function of the court, even on the most charitable and flexible approach, is to interpret the award, not to rewrite it.

40 It will be noted however that, consistent with the flexible approach required to be taken, I have refrained from dealing with the written submissions of the parties relating to the niceties of pleadings raised by them. I accordingly propose to deal with each of the issues raised as if each is covered by the pleadings.

41 It was common ground between counsel for the parties that the issues raised for my consideration in this application broadly relate to:

(a) the existence of an agreement for secondary funding by subcontractors and the related suspension of works by the builder. As indicated above the arbitrator found that the suspension of works by the builder from 15 May to 27 June 2002 constituted a breach of the agreement between the parties. That finding had an important impact on the builder's claim for its extension of time claim (in which the arbitrator allowed 20 days out of 233 days claimed) and, on the obverse side of the coin, on the proprietor's claim for liquidated damages for a period of 31 days from 12 - 26 June and 16 August to 2 September 2002. (It will be seen that the period 12 - 26 June is common to both claims).

(b) the findings by the arbitrator relating to the deeming provisions of the date of practical completion;

43 At the heart of the dispute between the parties is the claim made in relation to progress payment certificate number 14 which was due for payment on 25 March 2002. The applicant submits that this claim was not paid as a result of which it suspended works from 15 May to 26 June. The applicant relies on a finding by the arbitrator (at D38 - D39) that he had found no issue with the applicant in terms of the Building Contract that the builder was entitled to suspend works for non-payment. The respondent's answer to that allegation is that there was in fact no breach of the obligation under the Building Contract to pay the amount of the certificate because in effect the manner of payment was varied by agreement in that the amounts reflected thereon should have been offset by virtue of an implied or oral agreement relating to secondary funding by subcontractors reached between the parties. The respondent further contended that the deferral arrangements agreed to earlier did not constitute a variation of the Building Contract but merely constituted a different manner of payment. It submits therefore that there was no failure to pay the amount reflected on payment progress certificate number 14 as the amount to be offset from that certificate constituted payment. It therefore argued that the suspension of works on the part of the applicant constituted a breach of the agreement referred to above.

44 It is clear from the introduction/preamble to section D of his award (Pt D1) that the arbitrator fully appreciated the arguments proffered on behalf of each of the parties (see D2). The arbitrator indicated that the case:

"For the builder, [was] that the deferred payment plan existed in writing in respect to the builder's own work and own apartments but not in relation to participating sub-contractors own work and own apartments. The builder insisted on receiving payment in cash for all related work done by participating sub-contractors as and when certified but claimed that it would have been willing to facilitate 'offsetting' of the net value of payments for the work of participating subcontractors if it had been provided with appropriate documentation and legal releases at the time."

Counsel for the applicant admitted that this correctly reflected the stance taken by the applicant at the arbitration save to qualify the above statement by saying that the use of the phrase "in writing" in relation to subcontractors' deferral arrangements was not entirely correct because in fact the contention was that there was no agreement at all whether in writing or oral in respect of the participating subcontractors.

45 The arbitrator understood the respondent's argument to be that it had been agreed that a deferral arrangement plan be implemented where the applicant and participating subcontractors would not receive payment in cash for their own project work in exchange for the equivalent value of the apartment which each had contracted to buy and that they then defer "payment" until after practical completion of the works whereupon ownership in the apartments was to be transferred to each as payment for the value of that work (D2).

46 The question therefore to be decided is how in substance the arbitrator dealt with these issues and what findings he in fact made in relation thereto bearing in mind the legal principles and the dicta referred to in Masawa's case above as elaborated upon by me, in relation to the approach to be taken by the Court to findings of lay arbitrators.

47 The applicant's argument was aimed primarily at those findings and/or statements of the arbitrator which - it was submitted - constitute manifest errors of law on the face of the award (s 38(5)(b)(i) of the Act) although counsel did not abandon his argument under s 38(5)(b)(ii).

48 The foundation upon which the applicant's case rests is that it is manifest on the face of the award that no agreement was reached between the parties in relation to secondary funding or deferral arrangements by the subcontractors with a result that there was no obligation on the part of the applicant to offset and/or defer payments due to them for the work done. That being so - so the argument runs - the respondent was obliged to pay certificate number 14 in cash in terms of cl 10 of the Building Contract and its failure to do so legally entitled the applicant to suspend the works.

49 In developing this argument, Mr Edmonds SC (who together with Ms Cahill appeared for the applicant) referred to a number of passages in the award which in his submission indicated findings by the arbitrator of an arrangement as to subcontractors secondary funding which was incomplete and which was subject to future negotiation and agreement. These, counsel indicated, were inconsistent with a finding of a concluded agreement. I do not propose to refer to all the passages cited for fear of rendering these reasons unduly prolix. Several of those passages are referred to above in the "Background" section of these reasons but included among the passages of the award are the following statements or findings in relation to the subcontractor's deferral arrangements, which, counsel argued, supported the applicant's basic contention:

"During the passage of discussions and negotiations, any pressing information on building contract and construction matters together with that on apartment purchasers was reduced to writing by Mr Amara ... Of later relevance is the fact that several of Mr Amara's letters noted the need to 'finalise commercial arrangements'." (D4)

50 Counsel also referred to several findings in the award in which the arbitrator referred to "commercial arrangements" which were to be finalised arguing that these indicated that there had in fact been no agreement reached in relation to the secondary funding or deferral arrangements with the sub-contractors (see D6 - D7).

51 Counsel for the applicant adverted to the passage (at D7) in which the arbitrator found that "the concept of reducing the amount of funds to be paid in cash by exchanging the value of construction work for the purchase of apartments was simple to agree but not so simple to implement". The arbitrator expressed his concern that the parties wrote nothing down about protocols for implementation and timing of the deferrals (D11, D15). These passages, it was argued, demonstrated nothing more than an agreement to agree.

52 Counsel laid particular emphasis on the finding of the arbitrator (at D8) and cited above that:

"It was imperative that if GRD (the builder) was to be awarded the contract that it take upon itself the obligation to co-operate with and successfully facilitate the implementation of the St George loan reduction and payment deferral plan in a manner which retained the integrity of the principal purpose of the loan. That is what I find is the essence of what Mr Amara is implied to have agreed to with the Allessrandino Brothers once GRD was admitted into the building contract race."

53 The finding of an implied agreement in October or November 2000 was attacked by counsel - as I understood his argument - on two main grounds:

(a) The agreement was, on the arbitrator's own findings, incomplete in that it was "subject to commercial arrangements being finalised" (D4). Counsel for the applicant pointed to inconsistencies by querying how the arbitrator could find an oral or implied agreement when he found that the parties had not thought through the manner in which the deferral arrangement would operate (D10), (TS27).

Nothing was recorded in writing relating to the "implementation and timing of the offset/deferral payment plan. But there was a paramount concept on how finance could be guaranteed and pre-sales were assured ...." (D11). Mr Edmonds referred to this passage as demonstrating that on the arbitrator's own finding, no agreement had been reached (TS31). He argued that this passage indicated that the parties were found by the arbitrator to have been aware of the relevant concepts and principles and it was assumed by them - as found by the arbitrator - that "when the time came they could work out reasonable commercial arrangement that was practical and legally safe" (D11-12; TS31). These would be worked out according to the arbitrator "when the TPA came around" (D13).

(b) insofar as the arbitrator found that it was the obligation of the builder to finalise the protocols (at D4, D7, D17-18, D22-23, D38-39) it was erroneous in law (TS22 et seq; 44-46). The applicant contended that the obligation to negotiate with the subcontractor for what in effect was the purchase of a unit or for the reduction of the purchase price of such a unit was that of the proprietor. It was not open to the builder to enter negotiations with the subcontractor in relation to such matters. The builder was quite prepared to co-operate with the proprietor's secondary funding plan in relation to any subcontractor. However, counsel argued that such co-operation was forthcoming only:

(i) if the builder was protected from exposure to the risk of delays by being provided with appropriate payment discharges or releases by the subcontractor;

(ii) if the builder maintained its contractual rights and access to withholdings in relation to that subcontractor and

(iii) only if it found itself in a cash neutral position, being compensated for unforeseen costs.

54 And - so the argument proceeds - the above is precisely what the arbitrator himself found (D2-3, D9, D13, D15, D23, D35). It was contended that when those negotiations were finalised, only then did the obligation to co-operate and use its best endeavours to facilitate the plan arise.

55 Great emphasis was placed by counsel for the applicant upon the TPA and the negotiations of the parties relating in particular to cl 8 thereof. In its original form the TPA provided in the first part of cl 8 for deferrals of $1,800,000 for the applicant while the second part dealt with sub-contractors deferrals. As stated above, the applicant refused to agree to the incorporation into the TPA of the sub-contractors' deferrals and the final agreement was signed being confined only to a reference to the deferrals of $1,800,000 by the builder. Counsel argued that it is not possible to imply a contract from a term which the parties have expressly agreed to exclude and that insofar as there was such a finding of an implied agreement which was inconsistent with the express terms of the TPA there has been an error of law.

56 I must state that I did not understand the argument of the respondent to proceed along those lines. The respondent's argument is that the arbitrator in substance found that there was an "overarching" principle or agreement reached in November 2000 forming the substratum of the entire funding of the Project of which the applicant was aware, which required a secondary funding to the extent of $3.75 million to come from the builder and selected subcontractors, without which the Project would be stillborn. Whether that was in substance what the arbitrator found (as opposed to the interpretation placed on it by respondent's counsel) requires closer inspection.

57 In relation to the deletion from cl 8 of the TPA and a meeting held in relation thereto on 4 April 2001 the arbitrator found that the effect of the builder in successfully having cl 8(b) in the TPA deleted was to reduce the total amount to be offset and deferred from $5,100,000 (which included the sub-contractor's obligations) to $1,800,000 (which excluded the sub-contractors). In making his findings on this aspect of the matter the arbitrator found in a passage cited above but worthy of repetition in the present context, as follows:

"I have given much thought to this and have to say that with the sub-contractor participation and deferrals being such an important requirement it is not logical that FTC (the owner) and St George (the Bank) would have allowed such a prima facie deletion without the mutual understanding that the builder would co-operate to work out a suitable protocol that would conform to the St George's conditions precedent to funding and not impact upon basic principles of primary funding." (D17-18)

58 The arbitrator then referred to the deletion of the sub-contractor deferrals from cl 8 as part of a two-fold "variation" to the method of implementation of the deferral plan for sub-contractors and found that:

"The second part of the variation was in effect agreed orally at the April 4 meeting to the effect as far as I can establish that it be compiled and once agreed, implemented in good time and in such a way that provide the equivalent result for sub-contractors, Developer and Funder but maintain a cash neutral position for the builder under the head contract." (D18)

59 He then found that the three parties agreed in April 2001 that the sub-contractor deferral wording be removed from the altered cl 8 and that they:

"... left to be resolved as an administrative matter the development of a substituted protocol that would achieve the equivalent of sub-contract deferrals in a way that would not diminish the relevant intent and purpose of the prevailing St George funding plan." (D18-19)

60 These passages - so counsel submitted - demonstrate that the high water mark of the respondent's case is that there was no more than an agreement to agree which was unenforceable. (Coal Cliff Collieries Pty Ltd v Sijahama Pty Ltd (1991) 24 NSWLR 1 at 22, 38; Australian Broadcasting Corp v XIVth Commonwealth Games (1988) 18 NSWLR 540; Vroon BV v Foster's Brewing Group Ltd [1994] VicRp 53; [1994] 2 VR 32).

61 It should be noted at this stage that in April/May 2001, the builder had agreed to payment deferrals of two subcontractors, subject to obtaining from them suitable discharges or releases. Counsel pointed out that the builder agreed, not because it was under any obligation to do so but because it consented to do so when, in fact, it had been sufficiently protected by releases given by those subcontractors (TS25-26). No such releases or discharges were signed or even produced when payment certificate 14 was presented for payment (TS66).

62 The burden therefore of the criticism by the applicant is that although the arbitrator concluded that there was an agreement (whether implied or oral), on his own findings such agreement was incomplete and provisional because there were critical terms still to be negotiated. Moreover, although there was an obligation to co-operate with the implementation of the deferral arrangements, the content of, and responsibility for, the obligation as found by the arbitrator were fallacious. It is accordingly argued that the manifest error of law appears from the award itself in a number of instances cited above as well as others to which I was specifically referred.

63 Counsel for the applicant argued further that the agreement relating to subcontractors' deferral arrangements relied upon by the respondent and which pre-dated both the Building Contract and the TPA constituted a collateral agreement which was inconsistent with the express payment provisions of the written contracts, both of which contain an "entire contract" clause (cl 1.02.05 and cl 2, 3 respectively). The effect of such clauses - so counsel argued (TS28) - is to deprive the earlier arrangements or agreement of all contractual force. (Royal Botanic Gardens & Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 186 ALR 289 at 315; Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23 NSWLR 190 at 196).

(a) Objection to affidavit tendered at the hearing

64 At the commencement of his argument, Mr McCusker sought leave to tender an affidavit of Charles Giglia sworn on 26 May 2004 from the Bar table. Attached to the affidavit is a schedule headed "Deferred Contractor Payment Schedule" (CG1) setting out the names of seven subcontractors with names of contact persons, their telephone numbers, indicating in each case the total contract sum approved, the amount claimed by, and paid to, each with balances left to be paid at settlement.

65 Counsel for the applicant objected to its production arguing that the parties had agreed to a bundle of documents pursuant to directions given by the Court. The Schedule in question - so it was argued - was new evidence which was not before the arbitrator.

66 Counsel for the respondent disputed that the schedule constitutes new evidence and pointed to D31 of the award where the arbitrator referred expressly to Giglia having "presented the deferral schedule to [the applicant]". Counsel further argued that he sought to tender the affidavit "to explain what the evidence was before the arbitrator". He contended that the schedule indicated those subcontractors who had agreed to defer payment of their claims. This was disputed by counsel for the applicant who maintained the applicant's position that no agreements had been reached between the proprietor and the subcontractors in relation to the deferral arrangement, contending that the schedule was merely a document produced by the proprietor which proved little. I was informed from the Bar table that of the seven listed subcontractors listed on the schedule, only three of them were called to give evidence (TS65).

67 The contents of the affidavit basically recite some evidence which was led before the arbitrator, the deponent seeking to argue the importance of the schedule. The affidavit also raises argument relating to the early occupation issues on Level 8 and refers to evidence on which the arbitrator based his findings thereon. The ultimate paragraph (par 11) of the affidavit contains arguments about costs of the arbitration.

68 The arbitrator did not in his award appear to attach the same significance to the schedule as the respondent seeks to do. However, much of the affidavit is argumentative with similar argument having been addressed to me by Mr McCusker. The only evidence contained in the affidavit relevant to these proceedings was the schedule attached thereto.

69 It appears to me that the evidence referred to in the affidavit was before the arbitrator as claimed. The objection which counsel for the applicant raises appears, in essence, to go to the weight of its contents rather than to its admissibility, although, as stated above, he urged its exclusion on the basis that it was not included in the agreed bundle.

70 In the exercise of my discretion, I am prepared to admit the affidavit but I attach little weight to the arguments contained therein, which strictly speaking, should find no place in an affidavit.

71 On the merits, counsel for the respondent contended that if one looks at the award as a whole it appears that the arbitrator in fact found that the substratum to the entire Building Contract and TPA was an oral agreement (not an implied one as found by the arbitrator) by which there was an understanding between the parties agreed to by them that it was essential to the funding of the entire Project that part of the funding would take the form of an offset by a deferral of payments to the builder and to certain subcontractors. These subcontractors were loyal supporters of the owner and as such would be prepared to offset payment by purchasing apartments in the building.

72 Counsel argued that even though there was an express rejection by the builder of an inclusion in the TPA of the need for subcontractors to offset certain payments by purchase of units, that did not affect the "overarching" agreement that it was essential that subcontractors would also have to defer their payments in accordance with the agreement underpinning the entire funding of the Project (TS73). It is clear - so he contended - that the parties had agreed that $3.75 million in total would be required by way of deferrals on the part of the applicant (to the extent of $1.8 million) and the subcontractors to an amount of up to $2 million. This was known to all parties who appreciated the fact that the Project would not go ahead but for such secondary funding. Indeed the evidence was that the applicant was originally prepared to take 10 units in order to "enter the race" when the matter went out to tender but finally agreed to take five apartments by way of deferrals and settles under the deferral arrangement.

73 Viewing the arbitrator's award in a manner which does not scrutinies it "with an overcritical eye" and exercising "the restraint [required of courts] in seizing themselves of legal questions" Mr McCusker argues that in substance the arbitrator's award considered as a whole cannot satisfy the criteria of s 38(5) of the Act and does therefore not warrant an interference by this Court.

74 In answer to the applicant's submission that the phrase "subject to commercial arrangements" (which laces the award) indicates that the contract was incomplete or that it was an agreement to agree, counsel described the phrase as "high-flown language to describe a pretty simple mechanism" (TS93-96). I cannot agree with that submission, nor did the arbitrator who found that while the concept of deferring payment was simple to agree to, it was not so simple to implement (D7).

75 In examining the above contention raised on behalf of the respondent it is necessary to analyse the secondary funding plan to determine whether its implementation was a simple matter or merely an "administrative" or "procedural" matter as referred to by the arbitrator or whether it was something more.

76 The plan envisaged the transfer of units to the builder and certain subcontractors of units to a value equal to the value of work, materials or services supplied on the Project or a reduction of the purchase price of such units in exchange for the value of such services. Settlement was to take place upon practical completion of the works. That was the concept or "overarching" principle, which, according to the arbitrator was the simple part, but, as found by him, its implementation was far from simple.

77 The arbitrator expressly found that "as to pre-sales, no mention was made how payments would be worked out" (D15) but he labelled these details as "procedural activities ... to be negotiated as commercial arrangements" (ibid).

78 From the builder's point of view, it was significant and material that it had to be protected against the risk to which it could potentially be exposed by the secondary funding plan. These risks were fully recognised and appreciated by the arbitrator, who, as stated above, expressly accepted that the following were some of the "procedural" or "administrative matters" to be negotiated:

• "Appropriate payment discharges have to be provided by subcontractors

• The builder must maintain its contractual rights and access to withholdings in relation to the subcontractor

• GRD (the builder) must find itself in a cash neutral position and be financially compensated for any unforeseen costs." (D23)

79 None of the above details were agreed between the proprietor, the builder and subcontractors.

80 In my opinion there were a number of further matters of considerable importance which had to be negotiated with the subcontractors which could give rise to significant differences between the negotiators. Some of these matters could only have been negotiated by the proprietor and not the builder. As has been seen above, the subcontractor had an option to either "purchase" an apartment by way of delayed payment for work done or claim a deduction from the purchase price of an apartment. The fact that none of the subcontractors opted for the latter option is in my view irrelevant. The presence of such an option serves, in my view, to indicate prima facie where the responsibility to negotiate with the subcontractors lay. Should a subcontractor have chosen that option, it was the proprietor alone who would have had to negotiate the extent of a reduction on the purchase price of an apartment he was prepared to accept and when and how payment of the balance of the purchase price was to be effected. On no basis could the builder have been expected to negotiate such a deduction. Moreover, the location of the particular apartment in the building which the subcontractor was prepared to take was a matter of negotiation which the builder could not have negotiated. Similarly, the question of the stage at which the subcontractor would forego its claims for cash during the course of the works, whether the amount was to be deducted progressively or in one amount and the size of each progressive deduction were all material terms which had to be negotiated as these considerations could have a serious impact on the cash flow of the business of each subcontractor. And since the entire secondary funding concept was devised principally for the benefit of the owner and since the subcontractors were part of "a stable of loyal supporters" of the proprietor (D3), I have some difficulty in concluding that the obligation to negotiate all the above aspects rested with the builder.

81 One would have thought that, in those circumstances, the parties which could most readily have negotiated and agreed to the terms necessary to implement the secondary funding plan were the proprietor and "his stable of loyal supporters" (the subcontractors) and not the builder, whose role, once agreement had been reached, would be to co-operate in its implementation, eg by submitting its progress claims in accordance with such agreed terms. Certainly the basis of imposing such an obligation on the builder, as found by the arbitrator, namely that the builder had to provide a substitute protocol because it insisted on the deletion of cl 8(b) in the draft TPA (D22-23), is untenable and in my opinion, constitutes a manifest error of law on the face of the award.

82 Wherever the obligation to negotiate these details lay, I cannot accept that they were merely "procedural" or "administrative". They were material terms which required to be negotiated, and in their absence, all that was left was an "overarching" understanding in principle or a conceptual arrangement about which the parties gave little or insufficient thought. In my view the implied or oral agreement relied upon by the respondent was incomplete or constituted an agreement to agree and therefore unenforceable. I find that the arbitrator's conclusions to the contrary to be manifest errors of law on the face of the award.

83 In addition to the above the arbitrator also made findings which were either inconsistent or contradictory. The finding of an implied agreement in late 2000 to facilitate the deferral arrangements (D8) is inconsistent with the finding that such agreement was concluded orally in April 2001 (D18-19) and that it was concluded partly orally and partly by conduct (D38). His findings are, in one instance at least, contradictory. Having found that it was a builder's obligation to provide a protocol setting out how the deferred arrangements for subcontractors were to operate (D18, D23, D36-37, D38, D39) he found that the proprietor was negligent in failing to provide those "protocols" (D46-47).

84 Mr McCusker, realising the difficulty confronting him in relation to the finding of the implied agreement, argued that there was no implied agreement but in fact, it was an agreement concluded partly orally and partly by conduct (TS79). He submitted that the findings by the arbitrator that it was "wrong" of the builder not to have had a substitute protocol ready, really meant that it was wrong of the builder to have rejected the failure of the owner to pay the amounts certified in the progress certificates without giving reasons. Counsel contended that the finding of the arbitrator that it was "unfair" on the part of the builder to have suspended the works (D51) and that it was "not only wrong but could have been obviated by own choice" (D36-37, D51), did not mean that the arbitrator was applying "considerations of general justice and fairness" in making an award. Instead he argued that in finding the suspension of the works to have been "unfair", the arbitrator "was not basing his findings on notions of fairness, but was basing his finding on fact".

85 While I am fully alive to the need to avoid taking an overcritical approach to the findings, counsel for the respondent is inviting me to make findings which differ fairly radically from those, which viewed broadly , the arbitrator in fact made. I must decline that invitation, for to accept those submissions would require me substantially to rewrite the award. Thus for example when a layman says it was "unfair" to have suspended the works, I have difficulty in concluding that he was not relying on notions of fairness. Similarly to require me to make the findings urged upon me by counsel for the owner in the immediately preceding paragraph, goes beyond the flexibility and latitude envisaged in Masawa as elaborated upon by me earlier in these reasons.

86 In response to the applicant's submission that the alleged oral/implied agreement concluded by the parties in November 2000 was inconsistent with the express terms of the later written contracts between the parties, respondent's counsel contended that no such inconsistency exists. He argued that the "overarching" agreement, and more specifically the subcontractor's secondary funding portion thereof in no way varied the payment provisions of the Building Contract but merely constituted an alternative mode of performance of the obligations contained therein.

87 By reason of the conclusion reached by me in relation to the issue under consideration, it is unnecessary for me to deal with this argument, save to observe that the express provisions of cl 2.3 of the TPA in which both parties acknowledged that the Building Contract constituted the entire agreement between them in respect of the works and the further express acknowledgment by the proprietor that no other agreements between proprietor and builder exist in relation to the Project and the works other than the Building Contract, do prima facie pose considerable difficulty for the acceptance of the submission of the respondent.

88 I have accordingly come to the conclusion that the applicant has satisfied the requirements of s 38(5)(b)(i) of the Act on this issue in demonstrating a manifest error of law on the face of the award in the respects outlined above.

89 Insofar as I am vested with a discretion whether or not to grant leave, notwithstanding the satisfaction of the criteria set forth in s 38(5) of the Act, (Promenade Investments (supra) at 225- 226; UDR Equipment (supra)), I am inclined to exercise it in the applicant's favour by reason of the far reaching consequences my findings have on the outcome of the award. It was in no way contended by the respondent's counsel that a finding in favour of the applicant on this issue would not "substantially affect the rights of one or more parties" to the arbitration.

90 The effect of my finding is that the arbitrator committed manifest errors of law on the face of the award in concluding that:

(a) the parties had entered into an agreement (whether implied, oral and/or by conduct and whether in November 2000 or in April 2001) and;

(b) any such agreement obliged the applicant to produce a satisfactory protocol to provide for secondary funding for subcontractors.

91 He therefore erred in finding that the applicant was not entitled to suspend the works by reason of such agreement.

B. The Findings by the Arbitrator Relating to the Deeming Provisions of the Date of Practical Completion

92 Counsel for the parties did not address argument to me on the above issue but were content to refer me to their respective written submissions.

93 The issue between the parties on this aspect of the application relates to whether the conduct of the parties on 17 May 2002 triggered the deeming provisions of cl 9.10.04 of the Building Contract. That subclause relevantly provides as follows:

"If the proprietor occupies and/or uses the works or part thereof prior to practical completion in the absence of ... other written agreement between the proprietor and the builder then the whole of the works shall be deemed to have reached practical completion on the date of commencement of such occupancy and/or use."

94 The applicant submits that when the builder handed the keys to the eighth floor of the building to the owner on 17 May 2002, that act amounted to occupancy and/or use by the owner as contemplated in cl 9.10.04. Counsel for the applicant submits that 17 May 2002 should have been deemed to have been the date of practical completion of the works, and contends that the arbitrator erred in not making that finding. He submits that the builder should accordingly not have been found liable for liquidated damages for delay beyond that date.

95 The basis for the arbitrator's finding was that it was known to the parties at the tender stage that the Project would have a "show" apartment and sales office and that accommodation therefor in the building itself was essential. A "show" apartment had accordingly been established on the ground floor at a stage prior to the Building Contract being entered into and remained in use during the whole of the building works (E8 of the award). The evidence revealed that the refurbishment of the entire building occurred in a critical path commencing from the top storey (eighth floor) downwards. When refurbishment on the eighth floor was completed, the "show" apartment on the ground floor was relocated with the builder's consent and assistance to the eighth floor in order to allow the builder unhindered access to the ground floor area. The applicant contends that because the owner used the "show" apartment and the remaining apartments on the eighth floor without formal consent the deeming clause for practical completion in cl 9.10 was thereby triggered.

96 The arbitrator rejected this contention finding that the level eight apartments were handed over for "mutual convenience" and given that there was a letter authorising the change of location from the ground floor to the eighth floor by the builder to the owner (the letter at 006-191) that constituted a written consent to the handover. He therefore found there was no triggering of the deeming provisions. There is nothing in cl 9.10.04, in my view, which requires "formal" written consent to be given, as contended for by the applicant.

97 The arbitrator found as to the balance of the eighth floor use, that the builder was not obliged to hand over the whole floor. He found however that the owner took possession in a spirit of co-operation and not "technical entrapment" (E8 of the award), holding that the builder was not compelled to hand over the balance of the eighth floor, unless it was willing to do so.

98 It can hardly be contended by the use and occupancy of a show apartment per se that the deeming provision of cl 9.10 becomes operative. The use and occupancy of a show apartment on the ground floor took place prior to the conclusion of the Building Contract itself. The simple moving of the show apartment to the eighth floor to enable the builder to continue unhindered with its working operations did not in my view trigger the provisions relied upon by the applicant. Such conduct merely constitutes a relocation of an authorised use of one part of the building to another to suit the convenience of the builder.

99 Clause 9.10.04 in my view was inserted in the contract for the protection of the builder. The clause was not intended in my view to trigger the deeming provisions where the use or occupancy has occurred for the convenience of the builder and at the latter's request. It was not intended to give the builder a benefit by deeming an earlier date of practical completion when the move or occupancy occurred in order to enable the builder to complete the works more efficiently.

100 Moreover, the provisions of the Heads of Agreement entered into on 27 June 2002, (some six weeks after the alleged deemed date of practical completion) obligated the builder (in cl B.2 thereof) "to bring the works ... to Practical Completion as expeditiously as reasonably possible as contemplated by the program of Works Annexed hereto". It would seem that this obligation would be wholly redundant if the parties and more particularly the builder had considered that stage to have been reached some one and a half months earlier. Its inclusion in the Heads of Agreement rather suggests the contrary.

101 In my view the findings of the arbitrator were open to him on the evidence adduced, and I am satisfied that he has not erred as alleged by the applicant. I would accordingly dismiss this ground of appeal.

102 I have earlier in these reasons referred to the fact that the award of the arbitrator in the First Interim Award was limited to the liability of the parties and that the question of the quantum of the respective parties' claims has been deferred either to agreement between the parties, failing which referral to the arbitrator.

103 At the hearing of the application and appeal it was agreed by counsel that should I come to the conclusion that the appeal was to be decided in the applicant's favour (as I have found in relation to issue A above) the question of costs be remitted to the arbitrator to be determined in accordance with the reasons furnished by me. I therefore propose to order accordingly, but that the question of costs of the arbitration be determined after the quantum of the claims of each party has either been agreed or failing such agreement, has been determined by the arbitrator.

104 In light of the conclusions arrived at by me, the orders which I propose to make are as follows:

(1) the applicant is given leave to appeal in terms of s 38 of the Commercial Arbitration Act (1985) (WA);

(2) the appeal relating to the secondary funding agreement issue succeeds;

(3) the appeal relating to the deeming provisions of the date of practical completion issue is dismissed;

(4) the matter be remitted to the arbitrator for his determination in accordance with the reasons furnished herein;

(5) the costs of the arbitration be remitted to the arbitrator for his determination in accordance with the reasons furnished herein.