Kenoss Contractors Pty Limitd v Allied Constructions Pty Limited - [2001] NSWIRComm 225 - NSWIRComm 2000 case summary — Zoe

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Kenoss Contractors Pty Limitd v Allied Constructions Pty Limited

[2001] NSWIRComm 225

Industrial Relations Commission (NSW)|2000-08-31|Before: Haylen J

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Source facts

Court

Industrial Relations Commission (NSW)

Decision date

2000-08-31

Before

Haylen J

Source

Original judgment source is linked above.

Judgment (70 paragraphs)

[1]

CITATION : Kenoss Contractors Pty Limitd v Allied Constructions Pty Limited (No 3) [2001] NSWIRComm 225 APPLICANT Kenoss Contractors Pty Limited PARTIES : RESPONDENT Allied Constructions Pty Limited FILE NUMBER: IRC 509 of 2001 CORAM: Haylen J Unfair contract - Notice of Motion seeking reference and report under IRC R 89(5) and Part 72 SCR - Principles - power of Court to depart from referee's report - circumstances in which reference is suitable - application refused - Industrial Relations Act 1996 (NSW), s 106 CATCHWORDS : Practice and Procedure - unfair contract - notice of motion seeking reference and report under IRC R 89(5) and Part 72 SCR - Principles - whether there is a relevant practice, procedure or usage - use of expert evidence and expert's reports - whether Pt 72 SCR applicable - circumstances in which a reference is suitable - Industrial Relations Act 1996 (NSW) s 106, IRCR 89(5) Industrial Relations Act 1996 s 106 Industrial Arbitration Act 1940 s 88F Industrial Relations Commission Rules s 89(5) r 187 & 188 Industrial Arbitration (General) Regulations reg 157 Arbitration Act 1902 s 15 Commercial Arbitration Act 1984 LEGISLATION CITED : Judicature Act 1873 Supreme Court Act 1970 s 124(2) Supreme Court (Commercial Arbitration) Act 1984 Supreme Court Rules (NSW) Pt 72 r 13 r2(1) r 8 r 11 Common Law Procedures Act 1854 (UK) Supreme Court of Judicature Act 1873 (UK) Supreme Court of Judicature Act 1884 (UK) Arbitration Act 1889 (UK) Astor Properties Pty Ltd v L'union des Assurance De Paris (1989) 17 NSWLR 483 Buckley v Bennell Design and Constructions Pty Ltd [1977 - 1978] 140 CLR 1 Gosper & ors v Sawyer & ors [1984 - 1985] 160 CLR 548 Kenoss Contractors Pty Limited v Allied Constructions Pty Limited (2001) 104 IR 66 Kenoss Contractors Pty Limited v Allied Constructions Pty Limited (No 2) [2001] NSWIRComm 36 Metrocall Inc v Electronic Trackings Systems Pty Ltd [2000] NSWIRComm 136 (31 August 20000 CASES CITED : Najjar v Haines (1991) 25 NSWLR 224 Park Rail Development Pty Ltd v R J Pearce Associates Pty Ltd (1987) 8 NSWLR 123 Qantas Airways Ltd v Dillingham Corporation (125 of 1988 - unreported 25 August 1988) SJP Formwork (Aust) Pty Ltd v LEDA Constructions Pty Ltd ( unreported - 19 May 1992) Super Pty Ltd v SJP Formwork (Aust) Pty Ltd [(1992) 29 NSWLR 549] Sydney and Suburban Hydraulic Power Co v Mercantile Mutual Insurance Co (1896) 70 NSWLR 323 Walter Constructions v Walker Corporation ([2001] NSWSC - 20 April 2001) HEARING DATES: 08/20/2001 DATE OF JUDGMENT: 09/21/2001

[11]

In 1999 the respondent became the head contractor to the New South Wales Department of Public Works and Services in relation to a project for the design and construction of a sewerage scheme in the Moruya area. The nature of the dispute between the parties arises from mistakes and confusion in the tendering process which the applicant maintains must have come to the attention of the respondent. The central problem arose in the following circumstances. The respondent engaged consulting engineers to re-design the sewerage scheme contained in the department's drawings in order to achieve savings in the cost of construction. The applicant was asked by the respondent to tender for a sub-contract for pipe laying and associated works proposed in the consulting engineer's re-design. An initial tender was submitted by the applicant based on this design but the applicant was subsequently requested by the respondent to tender on a reduced scope of works. The respondent and the department entered into a contract for construction of the sewerage scheme at Moruya based on the consulting engineer's re-design. The senior engineer for the applicant involved in the preparation of the tender was overseas when the respondent wrote a number of letters seeking clarification of particular matters and whether they were within the scope of the revised tender. Other representatives of the applicant erroneously indicated that matters were within the ambit of the applicant's tender which were in fact not within its ambit and, the applicant alleges, the respondent must have known this to be the case. Thereafter the respondent submitted a form of sub-contract to the applicant. The sub-contract executed on behalf of the applicant, in the absence of the senior engineer who had been responsible for the initial tender, did not refer to the consulting engineer's re-designed plans and annexed the original departmental plans which were allegedly wider in scope. On the return of the applicant's senior engineer the mistake was discovered and meetings were held with representatives of the respondent. For the applicant it was made clear that it was unable to perform the sub-contract for the sub-contracted price. A meeting held between representatives of the parties agreed that the sub-contract should reflect the re-design rather than the departmental drawings and that variations would be submitted based upon the re-design. Other arrangements were said to be arrived at which ameliorated the mistake made by the applicant in its tender for the sub-contract.

[27]

21 The fifth issue relates to liquidated damages. The essence of this issue is that the respondent has claimed liquidated damages in the sum of $367,000 from the applicant in circumstances where the applicant claims that it was not given access to the site for a period, that the respondent failed to follow the construction programme set out in the sub-contract and altered the programme of works, thus increasing the time for the completion of the works. The applicant says that if proper and reasonable extensions of time had been recognised or granted by the respondent then the works would have been completed within the contract period as extended. For the purposes of determining the actual liability for liquidated damages the respondent says the issues that arise are the factual context in which the work was extended and the nature of the variation sought and whether the clauses of the contract allowing for liquidated damages are in the circumstances fair or should be varied. These clauses are said by the respondent to be "general conditions", however, the applicant wishes to avoid the effect of the clauses by seeking to have them removed from the contract. The applicant supports its position on the basis that the respondent had been granted extensions of time by the principal and had not been required to pay any or any significant liquidated damages for delays in completion and therefore, as a matter of fairness, neither should the applicant have to pay liquidated damages in relation to these matters. The respondent says another matter that arises in relation to this issue is whether it is fair, as they would submit, that the sub-contractor's liquidated damages rise or fall independently of what may occur between the head contractor and principal. 22 The sixth issue concerns "day work" which is covered by cl 41 of the sub-contract. Broadly, this clause allows certain types of variations or the direction of quantities greater than allowed in earlier clause, to be carried out as day work, which is then charged by the sub-contractor on something close to a cost basis plus overheads and profits in an amount nominated in the sub-contract: here that amount is 10 per cent. The applicant claims that this amount should be 22.5 per cent, the amount allowed to the respondent in the head contract. The respondent says that for the purposes of the hearing on liability, besides the factual background, there may be evidence as to the applicant's understanding as to how the day work part of the contract would operate quite apart from the terms of the sub-contract. The issue then would be whether the clause in the sub-contract was unfair and, if so, should it be varied and in what way?

[38]

My reasons are as follows: 1. Such a conclusion finds no support in the language of Pt 72 and is inconsistent with the discretionary powers conferred by Pt 72, r 13. 2. The history of the rule tends against such an approach. The present rules replaced provisions dealing with decisions of arbitrators and referees to whom matters were referred by order of the court. Those decisions were given the effect of a verdict of a jury. The provisions were interpreted by the High Court as meaning that such decisions could be reviewed for error of law, perversity or manifest unreasonableness. There was no general right of review on appeal by way of re-hearing. The modern rules are expressed in language which provides wider discretionary flexibility, but it would be a radical departure from the history of the rules to treat them as giving a dissatisfied party an automatic right to a hearing de novo. … 4. It would be inconsistent with the object and purposes of the rules, and potentially productive of delay, expense, and hardship, that the practical effect of appointing a referee should be simply to add an extra level to the hierarchy of decision-makers in a given case. 5. That consequence would also be inconsistent with the modern trend towards encouragement of alternative dispute resolution, as reflected, for example in the provisions of the Commercial Arbitration Act 1984; see the discussion by Sheller JA of developments in relation to minimising judicial intervention in commercial arbitration in Promerade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203. What is involved in an application under Pt 72, r 13 is not an appeal, whether by way of a hearing de novo or a more limited re-hearing. This is consistent with the right of the referee to conduct the reference as the referee thinks fit and unconstrained by the rules of evidence. Rather, the judge, in reviewing the report and deciding whether to adopt, vary or reject it, has a judicial discretion to exercise in a manner that is consistent both with the object and purpose of the rules and with the wider setting in which they take their place. That wider setting is a system for the administration of justice according to law. In so far as the subject matter of dissatisfaction with a referee's report is a question of law, or the application of legal standards to established facts, then a proper exercise of discretion would require a judge to consider and determine that matter afresh. That was decided by this Court in Homebush Abattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605; see also, Cape v Maidment (1991) 98 ACTR 1 at 4. That conclusion is entirely consistent with the history of the rules and the reasoning of the High Court in Buckley which, although the case related to different provisions is also instructive as to the present provisions. Subject to what has just been said, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised: cf Nicholls v Stamer [1980] VR 479 at 495 per Brooking J. The nature of the complaints made about the report, the type of litigation involved, and the length and complexity of the proceedings before the referee, may all be relevant considerations. The purpose of Pt 72 is to provide, where the interests of justice so dictate, a form of partial resolution of dispute s alternative to orthodox litigation, and it would frustrate that purpose to allow the reference to be treated as some kind of warm-up for the real contest. On the other hand, if the referee's report reveals some error of principle, some absence or excess of jurisdiction, or some patent misapprehension of the evidence, that would ordinarily be a reason for rejecting it: cf Jordan v McKenzie (1987) 26 CPC (2d) 193. So also would perversity or manifest unreasonableness in fact-finding [at 562 - 564].

[40]

32 Both parties relied on the recent judgment of Hunter J in Walter Constructions v Walker Corporation ([2001] NSWSC 283 - 20 April 2001). In that case his Honour was faced with an objection to the adoption of the report of a referee where the report was described as a closely reasoned, referenced, detailed analysis of a mass of evidentiary material and comprising two volumes running into 694 pages. His Honour noted that the referee was appointed for his legal expertise and considerable experience in litigation of the kind there under consideration. His Honour accepted that primarily the principles applicable were those set out in the judgment of Gleeson CJ in Super Pty Ltd v SJP Formwork but noted that the difficulty lay in the application of the principles. At par 16, reference was made to the separate judgment of Mahoney JA in Super Pty Ltd , dealing with the nature of the court's discretion in relation to the disputed findings of the referee: What is required by the obligation to allow a party, for example, to be heard in support of or in opposition to a proposed course under Pt 72 must be determined according to the nature of the issue and the circumstances of the case. In determining what is so required, the court is, in my opinion, entitled to take into account the extent to which the parties' case has been presented to and dealt with by the referee. The extent to which, for example, matters dealt with in detail before the referee should be permitted to be dealt with at length before the judge is to be determined by the exercise of a discretionary judgment by the judge. The right to be heard does not involve the right to be heard twice. I am conscious that, in order that the judge may exercise a discretionary judgment of this kind, it may be necessary that the parties have the opportunity to refer to the relevant issues of fact and law and the evidence relevant to them. But the extent to which it is necessary for this to be done depends upon the circumstances of the case and the judgment of the judge. The judge has, I think, a broad discretion and may determine what is necessary to enable him to conclude that he has a sufficient understanding of the matters in question and when the argument has been sufficiently presented.

[46]

37 The parties had not come prepared to deal with this issue but during the course of the argument took the opportunity to consider the terms of the judgment of the High Court in Gosper. The respondent maintained its stance that a reference out under Pt 72 of the SC Rules was a matter of practice and procedure and simply dealt with the manner in which an issue or all the issues might be tried. The applicant maintained its approach that the reference out of the entire issue of liability and whether or not there was unfairness under s 106 of the Act was an impermissible delegation, and thus was not open to the Court. On the more general question the applicant was inclined to the view that a reference out was probably not a matter of practice and procedure and therefore r 89 could not operate to bring into play Pt 72 of the SC Rules. This last mentioned view was somewhat tentatively expressed by the applicant having regard to its inability in the available time to give full consideration to the issues. The applicant did point to the provisions of r 187 and r 188 as laying down the procedure for obtaining expert reports and receiving them into evidence. These provisions suggested that there was a rule which covered such reports and thus r 89(5) did not apply. The applicant also relied upon the judgment of the Full Court of the Commission in Court Session in Metrocall Inc v Electronic Tracking Systems Pty Ltd [2000] NSWIRComm 136 (31 August 2000) as authority for the proposition that the specialist nature of the jurisdiction and powers of the Court in s 106 proceedings and the nature of the considerations required to be taken into account, would remove a claim from the scope of power which may be exercised by an arbitrator: a submission to arbitration could not confer on the arbitrator authority to exercise the powers of specialist tribunals, including courts of limited or specialised jurisdiction, which do not have general jurisdiction over all controversies and claims as to an agreement or the breach thereof. The respondent denied that Metrocall was relevant to the present circumstances. It may well be that the applicant approached the motion on the basis that the respondent was seeking an arbitration in accordance with the terms of the sub-contract, however, the respondent made it clear that its application was for a reference to a referee under Pt 72. Such an approach may avoid the decision in Metrocall , but ultimately I must determine the application on the basis put forward by the respondent.

[48]

In that case there had been a reference under an order of the Supreme Court in accordance with the provisions of s 15 of the Arbitration Act 1902. Section 15 permitted the Court either by consent or without consent to order the proceedings or any question or issue of fact arising in the proceedings to be tried before an arbitrator agreed on by the parties or before a referee appointed by the court for the purpose. Stephen J noted that, in the laws of arbitration, such a reference was described as a species of trial where the decision was the equivalent to a form of judgment or verdict rather than an award. In his Honour's view the Court could use the provisions of s 15 for the better resolution of the particular proceedings by resort to "this special mode of trial which the legislation has made available" (at 15). His Honour then analysed the origins and development of this mode of trial, noting that the Court of Chancery in England had long been accustomed to refer disputed issues of fact for report by a Master or Chief Clerk or for trial at common law before judge and jury or to be awarded upon by experts especially selected for the purpose. The Common Law Procedure Act 1854 permitted the courts of common law, in matters of account, to refer questions to arbitrators or court officers. Some of these provisions were also taken up by New South Wales legislation but not always in the same terms. The first provision for references under orders of court was introduced in New South Wales in 1892 in the Arbitration Act but, as Stephen J noted, the statutory provisions had nothing in common with conventional arbitrations despite the occasional use of the terms "arbitrator" and "award" in legislation. Contemporary texts on the subject were referred to including Halsbury's Laws of England Volume 1 (1907) where it was observed that references pursuant to an order of the court under an arbitration act were entirely different from arbitrations held pursuant to a submission out of court. Analysis of some of the English cases demonstrated the reference to arbitration in some of the cases was not to a reference pursuant to any statutory power conferred by either the Arbitration Act or by the Judicature Act 1873, but rather was a reference to arbitration after the institution of proceedings by consent of the parties. Of this process Stephen J said: The long-established inherent jurisdiction of courts to make such orders, which result in true arbitrations and conclusive awards to which the statutory provisions for reference under orders of the court have no application, is described in some detail in the judgment of my brother Jacobs (at 20.)