BETWEEN : LAMAC DEVELOPMENTS PTY LTD (ACN 009 337 213)

Arbitration - Award - Leave to appeal - Interest at penalty rate on overdue provisional payments to subcontractor - Finding that claim excessive - Order that excess be repaid to main contractor - Whether interest repayable - Whether interest attributable to overpaid part of claim itself an overpayment - Whether interest payable on whole amount repayable, including interest

Arbitration - Award - Leave to appeal - Costs award - Whether successful party to be identified by final flow of money - Other factors

Commercial Arbitration Act 1985, s 38(5)

BMD Constructions Pty Ltd v Golding Contractors Pty Ltd [2000] QSC 57

Exxon Coal Australia Ltd v Chadtech Pty Ltd [1999] NSWSC 613

Garner v Rohanna Pty Ltd [1999] WASCA 178

Godden v Alford [1960] WAR 235

Kleerstyle Homes v Dixon, unreported; SCt of Qld; 8037/97; 16 September 1997

Lamac Developments Pty Ltd v Devaugh Pty Ltd [1999] WASCA 280

LNC Harper Davidson Pty Ltd v Keywest Building Co Pty Ltd, unreported; SCt of WA (Kennedy J); Library No 7192; 13 July 1988

Masawa Australasia Pty Ltd v J Corp [2000] WASC 5

Minson Nacap Pty Ltd v Aquatec­Maxcon Pty Ltd [2000] VSC 402

Re Caf­Grains [1994] 2 Qd R 252

Re FA Pidgeon & Sons Pty Ltd (1992) 2 Qd R 275

Re Tiki Village International Ltd [1994] Qd R 674

Tuta Products Ltd v Hutcherson Bros Pty Ltd [1972] HCA 4; (1972) 127 CLR 253

Warley Pty Ltd v Adco Constructions Pty Ltd (1988) 8 BCL 300

1 ROBERTS-SMITH J: This is an application for leave to appeal under s 38 of the Commercial Arbitration Act 1985 (WA). It concerns two awards which I shall describe as "the second interim award" of the arbitrator dated 16 November 2000 and "the final award" of the arbitrator dated 12 January 2001.

2 The arbitration has already had a long and chequered history.

3 Devaugh Pty Ltd ("Devaugh") is a building contractor. Lamac Developments Pty Ltd ("Lamac") is a plumbing company. Both conduct their businesses from Bunbury. Devaugh entered into a major contract to construct a hospital and associated facilities known as the Bunbury Health Campus.

4 About 25 November 1996, Devaugh subcontracted the plumbing and hydraulic work to Lamac for a lump sum figure of $3,698,414. The subcontract was based on Australian Standard Subcontract Conditions AS 2545 - 1993 ("the subcontract"). This fact was embodied as an express term of the subcontract. Lamac commenced work in December 1996. The Health Campus opened for patients on 15 March 1999 by which time the works under both the main contract and the subcontract had been completed.

5 The subcontract provided for the appointment of a "Main Contractors' Representative" ("MCR") by Devaugh. That was not done until 23 April 1999 - that is, after the works had been completed.

6 The subcontract also made express provision for claims for progress payments to be made monthly by Lamac. Separate general conditions of contract which were "deemed" to be part of the subcontract provided for claims by Lamac to be submitted to the MCR who was to assess them and issue certificates to Devaugh for payment to Lamac. However, as I have observed, Devaugh failed to appoint an MCR until April 1999 and accordingly, during the course of the works under the subcontract, Lamac submitted its claims for progress payments directly to Devaugh. Devaugh assessed the claims itself and made payments to Lamac accordingly.

7 Clause 42.1 of the subcontract provided that if no payment certificate had been issued by the MCR within 35 days of receiving the subcontractor's claims for payment, the main contractor shall pay the amount of the subcontractor's claim. No payment certificates were issued within the 35 day time frame. Clause 42.9 provided that interest was payable on unpaid monies at a rate of 18 per cent per annum compounded at 6 monthly intervals.

8 Toward the end of the contract, by about 10 March 1999, Devaugh and Lamac were in dispute over a number of claims which had not been paid. These disputed claims all related to variations to the work originally agreed by the subcontract. Ultimately, 17 claims which had been lodged by Lamac with Devaugh between 5 August 1998 and 2 February 1999 were in dispute.

9 Lamac issued a writ and statement of claim seeking payment of the outstanding claims totalling $675,147.14 plus interest.

10 Master Bredmeyer gave summary judgment in favour of the plaintiff on 25 June 1999 (Lamac Developments Pty Ltd v Devaugh Pty Ltd [1999] WASC 76) awarding interest of $62,609.99, making a total of $737,757.13.

11 Devaugh appealed to the Full Court against the order for summary judgment.

12 Meanwhile the arbitration continued. On 14 July 1999 the parties attended a preliminary conference before the arbitrator. Another preliminary conference was held on 9 November at which it was agreed that a Section 27 Conference would be conducted with the arbitrator acting as mediator.

13 On 8 December 1999 the Full Court dismissed Devaugh's appeal against the order for summary judgment (Devaugh Pty Ltd v Lamac Developments Pty Ltd [1999] WASCA 280).

14 Mediation meetings were held in January, February and April 2000. Both parties signed a mediation agreement, but this was terminated by Devaugh on 20 June 2000.

15 On 30 June 2000 a directions hearing was held for the purpose of defining the issues still in dispute and to organise a timetable. The arbitrator was requested to hand down a consent interim award in respect of the claims and counterclaims and that was done on 4 July 2000.

16 There were further hearings before the arbitrator over six days in August 2000 to determine the remaining matters in dispute. On 16 November 2000, the arbitrator delivered his second interim award.

17 On 30 November 2000, Lamac's solicitors sent the arbitrator a notice of Lamac's intention to appeal the second interim award. Following receipt of that notice the arbitrator directed the parties to submit written submissions with respect to costs of the reference and the interim award to him by 16 December 2000.

18 On 12 January 2001, the arbitrator delivered his final award.

19 The applicant's minute of notice of appeal seeks the following orders and sets out the following grounds of appeal:

"a) ... part of the Second Interim Award of the Arbitrator dated 16 November 2000 ('the Second Interim Award') wherein the Arbitrator ordered that the Respondent was entitled to be repaid the sum of $69,023.22 be set aside;

b) that (sic) part of the Second Interim Award of the Arbitrator dated 16 November 2000 ('the Second Interim Award') wherein the Arbitrator ordered that the Respondent was entitled to payment of the sum of $98,857.39 being interest at the default rate of 18% provided for under Clause 42.9 of the General Conditions on the amount to be repaid to the Respondent be set aside; and

c) in lieu thereof it be ordered that the Applicant pay interest on such sum as is ordered to be repaid at the rate prescribed on judgements of this Court;

d) the whole of the Final Award of the Arbitrator dated 12 January 2000 ('the Final Award') wherein the Arbitrator ordered that the Applicant pay the costs of the Respondent with respect to the reference and the award of the arbitration and the mediation and the costs of Mr J Stranger as an expert be set aside;

e) in lieu thereof it be ordered that the Respondent do pay the costs of the Applicant with respect to the reference and the award of the arbitration and the mediation and the costs of Mr S McGarry as an expert;

f) the Respondent pay the Applicant's costs of the Appeal.

GROUNDS OF APPEAL

A. The Arbitrator erred in law in holding, in Answer to Question 6 of the Second Interim Award, that

a) the Respondent was entitled to repayment of the sum of $54,343.59 being

i) default interest, ordered pursuant to Clause 42.9 of the General Conditions by reason of the Respondent's breach, paid by the Respondent pursuant to the judgement of Master Bredmeyer made on 25 June 1999 CIV 1240 of 1999 ('the Master's Judgement) as affirmed by the Full Court on 8 December 1999 FUL 87 of 1999; and

ii) interest paid by the Respondent pursuant to Section 142 of the Supreme Court Act being interest on the Master's Judgement for the period between 25 June 1999 and 8 December 1999.

b) the Appellant was in default on 25 June 1999 contrary to the finding in the Master's Judgement, as affirmed by the Full Court, which found that the Respondent was in default and judgment was entered accordingly;

c) the Respondent was entitled to repayment of the sum of $14,679.63 being interest at the default rate of 18% provided for under Clause 42.9 of the General Conditions on the amount of interest paid pursuant to the Master's Judgement;

d) the Respondent was entitled to repayment of the sum of $98,857.39 being interest at the default rate of 18% provided for under Clause 42.9 of the General Conditions on the amount to be repaid to the Respondent.

e) In the premises the Arbitrator lacked jurisdiction to order the payment of interest as set out in clauses (a) and (c) hereof and that part of the Award should be set aside.

f) In the premises the Arbitrator's award of interest at the default rate in the sum of $98,857.39 should be set aside and interest should be ordered at the rate on judgements of this Court.

B. The Arbitrator erred in law in holding, in the Final Award, that the Respondent was the successful party and making costs orders accordingly when

a) the moneys paid to the Applicant in Action CIV 1240 of 1999 were moneys paid on account only;

b) at all material times the Applicant bore the onus of proof in the arbitration;

c) in its Notice of Dispute dated 7 May 1999 the Respondent asserted that it had paid the Applicant all monies that were due pursuant to the subcontract conditions.

d) by reason of the Respondent's assertion that no money was due to the applicant it was necessary for the Applicant to proceed with the arbitration.

e) pursuant to the 2 awards made by the Arbitrator the Applicant has been found to be entitled to a total sum of $366,011.

Interim Award of 4 July 2000 $343,935

Award of 16 November 2000 $22,076

$366,011

f) in the premises the Applicant was the successful party and accordingly entitled to its costs."

20 The respondent seeks leave to cross-appeal. By draft notice dated 8 January 2001 it seeks to cross-appeal from the interim award of the arbitrator dated 16 November 2000, as follows:

"... the Respondent will seek orders setting aside so much of the interim award of the Arbitrator Mr P G Dyer dated 16 November 2000 as determined the Applicant was entitled to interest for late payments of $31,622 and in lieu thereof it be ordered that no amount was payable for interest for late payments.

AND FURTHER TAKE NOTICE that the grounds of the appeal are as follows:

1 The Arbitrator erred in law in finding that $31,622 was payable as interest for late payments when the Applicant had conceded in its written submissions to the Arbitrator that no interest for late payment was payable.

2 Alternatively, the Arbitrator erred in law in finding that $31,622 was payable as interest for late payment when there was no evidence of such a finding to be made."

21 The provisions of s 38 of the Act are central to this application. So far as is relevant here, they provide:

(1) Without prejudice to the right of appeal conferred by subsection (2), the Court shall not have jurisdiction to set aside or remit an award on the ground of error of fact or law, on the face of the award.

(2) Subject to subsection (4), an appeal shall lie to the Supreme Court on any question of law arising out of an award.

(3) On the determination of an appeal under subsection (2), the Supreme Court may by order -

(a) confirm, vary or set aside the award; or

(b) remit the award, together with the Supreme Court's opinion on the question of law which was the subject of the appeal, to the arbitrator or umpire for reconsideration or, where a new arbitrator or umpire has been appointed, to that arbitrator or umpire for consideration,

and where the award is remitted under paragraph (b) the arbitrator or umpire shall, unless the order otherwise directs, make the award within 3 months after the date of the order.

(4) An appeal under subsection (2) may be brought by any of the parties to an arbitration agreement -

(a) with the consent of all the other parties to the arbitration agreement; or

(b) subject to section 40, with the leave of the Supreme Court.

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

(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 -

(i) a manifest error of law on he 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 he certainty of commercial law...."

22 The section was amended in 1997. Subsections (5) and (6) of that section were repealed and the new subs (5) was inserted.

23 It can be readily appreciated that leave can only be granted under subs (4)(b) if the condition in subs (5)(a) is met together with one of either (i) or (ii) in subs (5)(b). In other words, the applicant must show that the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement and there is either a manifest error of law on the face of the award, or strong evidence that the arbitrator made an error of law and that the determination of that question may add, or may be likely to add, substantially to the certainty of commercial law.

24 The provisions of s 38(5) were examined in some considerable detail by Steytler J in UDR Equipment Pty Ltd v Afkos Industries Pty Ltd [2000] WASC 57; (2000) 22 WAR 221. His Honour noted that the test incorporated by the Commercial Arbitration Amendment Act 1997 (WA) is more stringent than it had previously been. In its earlier form the section only required satisfaction of the first limb of s 38(5). The new prerequisite for the grant of leave followed equivalent provisions in other jurisdictions. His Honour referred, in particular, to Promenade Investments Pty Ltd v New South Wales (1992) 22 NSWLR 203 for the proposition that by the more stringent provision, the legislature was seeking to constrain the exercise of court control over arbitral awards in the manner described by the House of Lords in Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724. As Steytler J pointed out, The Nema had been decided on United Kingdom arbitration legislation which was in substantially the same terms as s 38(5) of the Act prior to its amendment.

25 What have been described as the "Nema guidelines" were articulated in that case by Lord Diplock. Broadly speaking, they were to the effect that where the question of law involved was the construction of a "one off" clause, leave to appeal should not normally be given unless it be apparent to the Judge on the face of the award, without the benefit of adversarial argument, that the meaning ascribed to the particular clause by the arbitrator is obviously wrong. That is so even though the Judge may be of the view there is a possibility that argument might lead him or her to the conclusion that the arbitrator might be right. Somewhat less strict criteria are appropriate where questions of construction of contracts in standard terms are concerned. If the decision of the question of construction in the circumstances of a particular case would add significantly to the clarity and certainty of commercial law, leave should be granted - although even in such a case, not unless the Judge considers that a strong prima facie case has been made out that the arbitrator had been wrong in his construction. As Steytler J pointed out (ibid 232) the Court in this State has, prior to the amendment of s 38(5), questioned how much weight should be given to the "Nema guidelines", referring to the view of Parker J in Thiess Contractors Pty Ltd v Water Corporation WA, unreported; SCt of WA (Parker J); Library No 970561; 28 October 1997, that while those guidelines may properly be taken into account in determining whether leave to appeal should be given, they are no more than relevant and important aids to be considered along with the other circumstances of the case in the exercise of what is an unfettered discretion whether or not to grant leave.

26 Steytler J then turned to what Sheller JA had said in Promenade (at 225 - 226) about the meaning of the words "manifest error", those words being used to indicate something evident or obvious rather than arguable and observing that the discretion of the court as to whether or not it will grant leave remains and the matters referred to by Lord Diplock in The Nema remain important factors in determining whether leave should be given. Sheller JA acknowledged the view that decisions on questions of law should be left to the arbitrator with minimal interference by the courts unless the arbitrator may establish an erroneous precedent which may affect other cases between other parties. However his Honour could not see with respect to "manifest error" why a Judge should be required to determine the existence or otherwise of that without adversarial argument, although he reiterated that "manifest" in the context, connotes an error of law that is more than arguable, and so concluded before leave is granted that there should be powerful reasons for considering on a preliminary basis, without prolonged adversarial argument, that there is on the face of the award an error of law.

27 Steytler J also referred to Natoli v Walker, unreported; FCt SCt of NSW; No 40351 of 1993; 26 May 1994 in which Kirby P said that the limitation deliberately imposed by Parliament in the amended s 38(5) was imposed because it was considered, amongst other things, that the approach previously adopted by the courts was unduly disturbing of the use and finality of arbitral awards. Kirby P said the clear preference of Parliaments throughout Australia "has been for the more robust and narrow approach favoured by the House of Lords" in The Nema. Steytler J saw that same preference reflected in the Second Reading Speech by the Minister for Health who moved the Commercial Arbitration Amendment Bill 1997 in the Parliament in Western Australia on 13 November 1997, in which the Minister used words which Steytler J described as "reminiscent of what was said by Lord Diplock in The Nema":

"One of the major objectives of this uniform legislation is to minimise judicial supervision and review. If arbitration is to be encouraged as a settlement procedure and not as a 'dry run' before litigation, a more restrictive criterion for the granting of leave is desirable and the parties should be left to accept the decision of the arbitrator whom they have chosen to decide the matter in the first place."

28 Steytler J concluded consequently that what had been said by the New South Wales Court of Appeal in Promenade should be followed in this State in any consideration of s 38(5) of the Act.

29 I respectfully agree with that view and accordingly both the application and the respondent's cross-application are to be determined having regard to those principles (see also De Francesch Builders Pty Ltd v Riley [2000] WASC 301 per Parker J at [8] - [11]).

30 The applicant also relies upon Carpaolo Nominees Pty Ltd v Marrosan Nominees Pty Ltd [1997] NTSC 1; (1997) 112 NTR 1 in respect of what was described as the alternative threshold test under s 38(5)(b)(ii), namely "strong evidence that the arbitrator ... made an error of law". In the context of the provision in subs (5)(b)(i) which requires "manifest error of law on the face of the award", subs (5)(b)(ii) contemplates an error of law which is not manifest on the face of the award but which is demonstrable by evidence. The evidence of such error must be "strong" (Promenade, supra per Sheller AJ at 226). As to this, in Carpaolo, Kearney J noted (at 14) that an error of law may still arise "out of an award" although demonstrable only by reference to materials not forming part of the award, such as the transcript of proceedings before the arbitrator, citing Commonwealth v Rian Financial Services and Developments Pty Ltd (1991) 105 FLR 239 at 244 (which was reversed on appeal but not for any reason presently relevant). As his Honour observed, (at 15), what is "strong evidence" of an error of law remains imprecise; in the absence of pertinent Australian authorities he considered it appropriate to have regard to the English authorities dealing with the test of a strong prima facie case of error flowing from the decision in The Nema, given the similarity between the tests proposed in s 38(5) and those in The Nema.

31 Summary judgment was given by Master Bredmeyer on 25 June 1999. The amount awarded was $737,757.13, being the amount of the interim payment claim of $675,147.14 plus interest of $62,609.99. The applicant describes that interest as "default interest" awarded pursuant to cl 42.9 of the subcontract. It was ordered on the basis the respondent was in breach of its obligations to pay the interim payment under cl 42.1.

"At the times for payment of claims stated in the Annexure and upon issue of a Certificate of Substantial Completion and within the time prescribed by Clause 42.7, the Sub-contractor shall deliver to the Main Contractor's Representative claims for payment supported by evidence of the amount due to the Sub-contractor and such information as the Main Contractor's Representative may reasonably require. Claims for payment shall include the value of work carried out by the Sub-contractor in the performance of the Sub-contract to that time together with all amounts then due to the Sub-contractor arising out of or in connection with the Sub-contract or for any alleged breach thereof.

Within 21 days after receipt of a claim for payment, the Main Contractor's Representative shall issue to the Main Contractor and to the Sub-contractor a payment certificate stating the payment which, in the opinion of the Main Contractor's Representative, is to be made by the Main Contractor to the Sub-contractor or by the Sub-contractor to the Main Contractor. The Main Contractor's Representative shall set out in the certificate the calculations employed to arrive at the amount and, if the amount is more or less than the amount claimed by the Sub-contractor, the reasons for the difference. The Main Contractor's Representative shall allow in any payment certificate issued pursuant to this Clause 42.1 or any Final Certificate issued pursuant to Clause 42.8 or a Certificate issued pursuant to Clause 44.6, amounts paid under the Sub-contract and amounts otherwise due from the Main Contractor to the Sub-contractor and/or due from the Sub-contractor to the Main Contractor arising out of or in connection with the Sub-contract including but not limited to any amount due to be credited under any other provisions of the Sub-contract.

If the Sub-contractor fails to make a claim for payment under Clause 42.1, the Main Contractor's Representative may nevertheless issue a payment certificate.

Subject to the provisions of the Sub-contract, within 35 days after receipt by the Main Contractor's Representative of a claim for payment or within 14 days of issue by the Main Contractor's Representative of the Main Contractor's Representative's payment certificate, whichever is the earlier, the Main Contractor shall pay to the Sub-contractor or the Sub-contractor shall pay to the Main Contractor, as the case may be, an amount not less than the amount shown in the Certificate as due to the Sub-contractor or to the Main Contractor as the case may be, or if no payment certificate has been issued, the Main Contractor shall pay the amount of the Sub-contractor's claim. A payment made pursuant to this Clause shall not prejudice the right of either party to dispute under Clause 47 whether the amount so paid is the amount properly due and payable and on determination (whether under Clause 47 or as otherwise agreed) of the amount so properly due and payable, the Main Contractor, or Sub-contractor, as the case may be, shall be liable to pay the difference between the amount of such payment and the amount so properly due and payable.

Payment of moneys shall not be evidence of the value of work or an admission of liability or evidence that work had been executed satisfactorily but shall be a payment on account only, except as provided by Clause 42.8 ..."

33 It is convenient at this point to also set out the following provisions of the subcontract:

The issue of a payment certificate or a Certificate of Substantial Completion shall not constitute approval of any work or other matter nor shall it prejudice any claim by the Main Contractor or the Subcontractor.

Within 21 days after the expiration of the Defects Liability Period, or where there is more than one, the last to expire, the Sub-contractor shall lodge with the Main Contractor's Representative a final payment claim and endorse it 'Final Payment Claim'.

The Sub-contractor shall include in that claim all moneys which the Sub-contractor considers to be due from the Main Contractor under or arising out of the Sub-contract or any alleged breach thereof.

After the expiration of the period for lodging a Final Payment Claim, any claim which the Sub-contractor could have made against the Main Contractor and has not made shall be barred.

Within 28 days after receipt of the Sub-contractor's Final Payment Claim or, where the Sub-contractor fails to lodge such a claim, the expiration of the period specified in Clause 42.7 for lodgement of the Final Payment Claim by the Sub-contractor, the Main Contractor's Representative shall issue to the Subcontractor and to the Main Contractor a final payment certificate endorsed 'Final Certificate'. In the certificate the Main Contractor's Representative shall certify the amount which in the Main Contractor's Representative's opinion is finally due from the Main Contractor to the Subcontractor or from the Subcontractor to the Main Contractor under or arising out of the Sub-contract or any alleged breach thereof.

Unless either party, either before the Final Certificate has been issued or not later than 8 days after the issue thereof, serves a notice of dispute under Clause 47, the Final Certificate shall be evidence in any proceedings of whatsoever nature and whether under the Subcontract or otherwise between the parties arising out of the Subcontract, that the Works have been completed in accordance with the terms of the Subcontract and that any necessary effect has been given to all the terms of the Subcontract which require additions or deductions to be made pursuant to the Sub-contract, except in the case of -

(a) fraud, dishonesty or fraudulent concealment relating to the Works or any part thereof or to any matter dealt with in the said Certificate;

(b) any defect (including omission) in the Works or any part thereof which was not apparent at the end of the Defects Liability period, or would not have been disclosed upon reasonable inspection at the time of the issue of the Final Certificate; or

(c) any accidental or erroneous inclusion or exclusion of any work, plant, materials or figures in any computation or any arithmetical error in any computation.

Within 14 days after the issue of the Final Certificate which certifies a balance owing by the Main Contractor to the Subcontractor, the Main Contractor shall release to the Subcontractor any retention moneys or security then held by the Main Contractor.

If any moneys due to either party remain unpaid after the date upon which or the expiration of the period within which they should have been paid then interest shall be payable thereon from but excluding the date upon which, or the expiration of the period within which they should have been paid, to and including the date upon which the moneys are paid. The rate of interest shall be the rate stated in the Annexure and if no rate is stated the rate shall be 18 percent per annum. Interest shall be compounded at six monthly intervals.

The main Contractor may deduct from moneys due to the Subcontractor any money due from the Subcontractor to the Main Contractor otherwise than under the Subcontract and if those moneys are insufficient, the Main Contractor may, subject to Clause 5.5, have recourse to retention moneys and, if they are insufficient, then to security under the Subcontract.

...

Arbitration shall be effected by a single arbitrator who shall be nominated by the person named in the Annexure, or if no person is named, by the Chairperson for the time being of the chapter of the Institute of Arbitrators Australia in the State or Territory named in the Annexure. Such arbitration shall be held in the State or Territory stated in the Annexure.

Unless the parties agree in writing, any person agreed upon by the parties to resolve the dispute pursuant to Clause 47.2 shall not be appointed as an arbitrator, nor may that person be called as a witness by either party in any proceedings.

Notwithstanding Clause 42.9, the arbitrator may award whatever interest the arbitrator considers reasonable.

If one party has overpaid the other, whether pursuant to a Main Contractor's Representative's certificate or not and whether under a mistake of law or fact, the arbitrator may order repayment together with interest."

34 There were some inconsistencies between the various contractual documents, including the subcontract and a number of annexures to it, and the letter of acceptance. In addition, none of the annexures to the subcontract had been completed, so that the clauses in the subcontract which depended for their operation on that information, had nothing on which to operate. These differences were adverted to by Malcolm CJ in the Full Court judgment at [29] - [32] and Parker J at [80], [85] - [92]. It is said none of these deficiencies directly affect the present application because it turns on contractual provisions which are unaffected by them. However, given the strong submission on behalf of the applicant that leave should be granted because the appeal concerns the interpretation and application of clauses in an Australian Standard set of contract conditions and hence a decision of this Court would be on a matter of substantial commercial importance, it is apposite to set out the observations of Parker J at [90] - [92]:

"90 What has been outlined so far in these reasons as to the nature and specific terms of the contractual relationship between the parties makes it starkly clear, however, that whatever may prove to be the true and full terms of the subcontract concluded between the parties, it was never intended by them that AS2545 1993 would form part of the subcontract in a complete, or substantially complete, form.

91 The task of determining the full terms and effect of the subcontract as agreed between the parties is, fortunately, unnecessary to undertake for the purposes of this appeal. Only one or two limited areas need to be considered. Even this limited task necessarily proceeds, therefore, on the basis that AS2545 1993 was intended to apply only in a somewhat limited and modified form as part of the terms of the subcontract.

92 Whatever else, this appeal does not turn on the true construction of AS2545 1993 as a complete and coherent document. The specific contractual terms agreed by the parties preclude that."

35 I consider those remarks are just as apposite to the applications before me, insofar as they rely upon the standard form nature of the subcontract as militating in favour of the grant of leave.

36 The respondent ultimately paid the judgment sum and interest on the judgment pursuant to s 142 of the Supreme Court Act, being interest on the Master's judgment for the period between 25 June and 8 December 1999. The total interest payable was $85,031.43, comprising of $62,609.99 pursuant to cl 42.9 of the subcontract and $22,421.44 pursuant to s 142 of the Supreme Court Act.

37 Question 6 of the second interim award, as posed by the arbitrator, was:

"Has the claimant (appellant) been overpaid and by how much and is the respondent due the return of interest or part thereof, in relation to the payment of $675,147.14 plus interest of $85,031.43?"

38 The answer to that question was in the affirmative, nominating the amounts of $204,752.99 and $69,023.22 respectively. His reasons and calculations were as follows:

Is the Respondent due the return of interest or part there of in relation to the payment of $675147.14 plus interest of $85031.43.

The claim was in fact in error because the Claimant was not entitled to all the money claimed so Lamac were in fact in default.

To attempt to keep interest on monies that were not due is not contractually correct.

The Claimant was not kept out of all their money, because they were not owed all of it.

I have read the judgement of the Supreme Court 1999 WASCA 280, which deals with the appeal by Devaugh against the judgement by Master Bredmeyer on 25th June, 1999, in which Devaugh were ordered to pay Lamac the sum of $675147.14 plus interest of $62609.99.

The decision of the appeal was delivered on 8th December, 1999, by which time the interest had amounted to $85031.43, calculated at the rate of 18% per annum, compounded at 6 monthly intervals.

The claimant has repaid the sum of $179218.46 on 4th July, 2000 as a result of the agreements reached at mediation. The Claimant also repaid a further sum of $145,987.32 on 15th August, 2000 as a result of a reduction of claims made in Folder F and an amount of $400.40 as a result of back charges. This makes a total repayment of $325606.18.

At 57 on page 22 of the Supreme Court Judgement. Malcolm CJ says in the last sentence, 'In the event the claims were found to be excessive Lamac would be obliged to refund any excess to Devaugh.

In my view, if Lamac are obliged to refund part of the principal they must also be obliged to refund part of the interest.

As the original interest was calculated at 18% per annum as set in Cl 42.9 I see no reason to alter that percentage figure for the purpose of calculating refund amounts of interest and under Cl 47.3 I consider the amount of 18% per annum compounded at 6 monthly intervals to be reasonable in this instance.

I do not agree with counsel for the Claimants submission, that the Arbitrator is being asked to overturn a decision on interest, of the Full Court. Rather my understanding of the judgement is that the interest was calculated on the amount claimed for the time outstanding. If the amount claimed was excessive then the interest would also be excessive.

The total amount of the over payment is $431501.78 as shown in the following calculations.

The amount of $31622 has not been included in the amount of progress payments made by Devaugh. (see reason - question 5).

Original Contract sum 3698414.00

Extras agreed before mediation 18044.00

Extras agreed at mediation 325891.00 343935.00

4042349.00

External services claim (Folder F) 22076.00

4064425.00

Progress claims paid.

a) Paid for works 3774362.64

b) Paid for works outside

the contract, but in the

contract sum 46417.00

c) Paid by order of Supreme Court 675147.14 4495926

Resulting over payment $431501.78

Therefore the claim for $675147.14

Should have been for $243645.36

Which is 36.09% of the original claim

Therefore the interest payable is:

$85031.43 x 36.09% = $30687.84

The amount of interest over paid is $54343.59

Interest calculation on interest repayable

Amount of interest repayable 54343.59

Interest from 25/6/99 to 26/12/99 4890.92

59234.51

Interest from 27/12/99 to 26/6/00 5331.11

64565.62

Interest from 27/6/00 to 16/11/00

140 days @ $31.84 per day 4457.60

69023.22

Total interest repayable $69023.22

Interest Calculations on Over Paid Amount

Amount over paid 43501.78

Interest from 25/6/99 to 26/12/99 38835.16

470336.94

Interest from 27/12/99 to 26/6/2000 42330.32

512667.26

Interest from 27/6/2000 to 4/7/2000

7 days at $252.82 1769.74

514437.00

First repayment 4/7/2000 179218.46

335218.54

Interest from 5/7/2000 to 15/8/2000

42 days at $165.31 per day 6943.01

342161.56

Second repayment 15/8/2000

(including $400.40) 146387.72

195773.84

Interest from 16/8/2000 to 16/11/2000

93 days at $96.55 8979.15

204752.99

Amount to be repaid $204752.99"

39 The applicant's attack on the second interim award begins with the arbitrator's finding that Lamac's claim was in fact in error because it was not entitled to all of the money claimed so Lamac was in fact in default. It is submitted this is a fundamental error of law because Lamac was never in default and there was no basis for the arbitrator so holding: on a proper construction of cl 42.1 Lamac was entitled to payment of the amount claimed.

40 The decision of the learned Master, upheld by the Full Court, recognised that Lamac was entitled to payment of the amount claimed under cl 42.1. That clause envisaged that within 21 days of receipt of a claim for payment from the subcontractor, the MCR would issue a payment certificate stating the payment which in the MCR's opinion should be made by the main contractor. The payment would also include other amounts due from the main contractor or be reduced by amounts due from the subcontractor, so long as in either instance they were amounts arising out of or in connection with the subcontract.

41 Of course, no MCR having been appointed by Devaugh, the claim for payment could not be made to the MCR. The Full Court held that in the circumstances that no MCR was appointed, it was an implied term of the subcontract that Devaugh stand in place of the MCR.

42 Clause 42.1 stipulated that payment had to be made within 35 days after the receipt by the MCR of the claim for payment or within 14 days of the issue by the MCR of a payment certificate, whichever be the earlier. Furthermore, if no payment certificate was issued the main contractor was obliged to pay the amount of the subcontractor's claim. It was this which gave rise to Devaugh's obligation to pay the full amount of Lamac's claim here.

43 Payment of the full amount claimed did not prejudice Devaugh's right subsequently to dispute that the amount was properly due and payable and if successful, to have Lamac repay the difference between what was properly payable and the amount in fact paid on the claim. That is what happened.

44 The applicant's contention is that the obligation to repay arises only upon the determination made under cl 47 of the amount so due.

45 By cl 47.1 both the main contractor and the subcontractor are obliged to continue work under the main contract and subcontract and to comply with cl 42.1. The rationale for these provisions is well recognised as being to enable the work to be continued and for the subcontractor to continue paying for labour and materials whilst the dispute is being resolved.

46 The appreciation that pursuant to cl 42.1, Devaugh was obliged to pay the full amount of Lamac's claim but that such payment was only provisional, underpinned the judgments of Master Bredmeyer and the Full Court. That was pointed out by Malcolm CJ in the Full Court at [57]:

"The payment was provisional, subject to the final payment claim and final certificate procedures and, finally, to the dispute resolution procedure under cl 47. In the event the claims were found to be excessive Lamac would be obliged to refund any excess to Devaugh."

47 As Mr Edmonds, counsel for the respondent, correctly pointed out, the term "default interest" is one used only by senior counsel on behalf of the applicant and does not appear elsewhere. The term was not used by Master Bredmeyer nor by the Full Court. Its genesis appears to have been in the arbitrator's use of the word "default".

48 The applicant's argument is that the arbitrator erred in law in finding that Lamac was in default of its obligations under the contract, as at 25 June 1999 - a finding which is then said to be contrary to what was held by Master Bredmeyer and the Full Court, namely that Devaugh was in default.

49 I would not understand the arbitrator's reasons that way. In the context of the question posed by him, I would be inclined to understand the arbitrator as saying simply that Lamac was at fault in claiming the amount it did because it was not in fact entitled to that amount. At the very least the arbitrator's reasons can be read that way. The statement made does not reflect an error of law at all.

50 It is then said that the arbitrator made an error of law in stating that:

"To attempt to keep interest on monies that were not due is not contractually correct.

The claimant was not kept out of all their (sic) money, because they (sic) were not owed all of it."

51 The moneys were due in the full amount claimed at the relevant time. The learned Master and the Full Court so held.

52 Clearly Lamac was entitled to receive the full amount claimed. Being kept out of the use of the money would properly give rise to a claim for interest. When a subsequent adjustment is made to the amounts paid as between the main contractor and the subcontractor under cl 47.1, that adjustment might in principle be expected to include repayment of that part of the principal not in fact due together with the interest paid on it. That was the conclusion to which the arbitrator came. The conclusion is challenged by the applicant who submits there is simply no logic in fact or law for holding that if the applicant is obliged to refund part of the principal, it must also be obliged to refund part of the interest.

53 As a broad proposition that, in my view, is unsustainable.

54 The arbitrator's statement could not be regarded as a manifest error of law on the face of the record; whether or not it reflects an error of law having regard to the particular contractual provisions turns on further development of the argument.

55 For the applicant it runs this way. The contract interest paid on the judgment sum ("the original interest") was calculated at 18 per cent per annum pursuant to cl 42.9. That was because Devaugh was in default of the contract, not having paid the amount specified on the payment claim in accordance with cl 42.1. The only reason to apply the same rate of 18 per cent to the repayment by Lamac was if Lamac had been in default of its contractual obligations so as to attract that rate of interest under cl 42.9. However, Lamac was not in default in receiving the judgment sum and so the arbitrator was not entitled to fix interest under cl 42.9. It is argued that the arbitrator has jurisdiction only to order repayment at what he believes to be a "reasonable rate" and since he erred in holding that the applicant was in default, the basis for his application of 18 per cent as a reasonable rate by analogy to the "default rate" applied to the payment by Devaugh, was erroneous. The applicant was not contending that the arbitrator should not have awarded any interest, but contended it had to be a reasonable rate of interest and in the absence of evidence the rate of 6 per cent applicable under s 142 of the Supreme Court Act would obviously be reasonable. Furthermore, it was argued that under cl 42.9 the arbitrator had no power (and there was no basis in fact) to award compound interest.

56 The arbitrator was mindful that he was effectively awarding a refund of interest, and that he was exercising power to award interest under cl 47.3: he expressly referred to that clause.

57 It gave him the power to award whatever interest he considered reasonable. What is reasonable in a particular situation will depend upon the circumstances. This was an unusual situation where a payment had not been made by the main contractor to the subcontractor when it should have been. Interest at the contractual rate then had to be paid on that amount until the date it was paid and subsequently under other provisions of the contract it was determined that the total claimed had been too high and the excess had to be refunded. I do not accept that the arbitrator's reasoning here was that the 18 per cent rate was applicable because Lamac was in default. I accept the respondent's submission that the arbitrator's intention was to put the parties in the position in which they would have been had the excess amount not been claimed and paid (with interest on that amount). It was on that basis that he applied the 18 per cent rate. That approach was logical. In those circumstances there is no manifest error in requiring repayment of the actual amount of interest paid by the main contractor at whatever rate that was calculated. To put it another way, it could not be said to be unreasonable of the arbitrator to come to that conclusion - and an award of interest under cl 47.3 is expressly left to his discretion. Nor am I satisfied that this was an error of law at all, or even if it were, that determination of the question may add, or would be likely to add, substantially to the certainty of commercial law.

58 The applicant's argument that the arbitrator had no power to award compound interest begins with s 31 of the Commercial Arbitration Act which, so far as is relevant here, provides that:

"31. Interest up to making of award

(1) Unless a contrary intention is expressed in the arbitration agreement, but subject to subsection (4), where the arbitrator or umpire determines to make an award for the payment of money (whether on a claim for a liquidated or an unliquidated amount), the arbitrator or umpire shall have power to include in the sum for which the award is made interest at such rate as the arbitrator or umpire may direct (being a rate not exceeding the rate at which interest is payable on a judgment debt of the Supreme Court) on the whole or any part of the money for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

(2) ...

(3) ...

(4) This section does not -

(a) authorize the awarding of interest upon interest;"

59 It may immediately be seen that the power given to an arbitrator by s 31(1) to award interest at a rate not exceeding that applicable on a judgment debt of the Supreme Court is subject to subs (4) of s 31, which precludes an award of compound interest. Further, the operation of subs (1) may be excluded by the expression of a contrary intention in the arbitration agreement. It was common ground between the parties that at common law an arbitrator cannot award compound interest (and see Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1981-1982) 149 CLR 337, per Mason J at 371). The respondent's primary submission on this is that on the proper construction of cl 47.3 the arbitrator may award whatever interest he considers reasonable, including compound interest. Its alternative submission is that if it is arguable that cl 47.3 does not allow an arbitrator to award compound interest, then in the present case it would not properly be said the determination of that question of law could substantially affect the rights of either or both the parties under the subcontract. In short, it is put that the different calculation would not result in a sufficient amount to take the applicant across the threshold of s 38(5)(a).

60 In my view the approach of the arbitrator in ordering repayment of the amount by which the payment claim exceeded that which was owing, together with the interest in fact paid in respect of that amount, does not reveal a manifest error of law. There is an argument that cl 47.3 does not authorise an award of compound interest, but I accept the respondent's submission that in the circumstances of this case the amount involved would not be sufficiently substantial to meet the requirement of s 38(5)(a).

61 The applicant submits there is simply no basis for the arbitrator's conclusion that if the amount claimed by Lamac was excessive, then the interest on that amount would also be excessive. This is said to be because although the amount claimed was provisional, the interest was paid as a result of Devaugh's failure to comply with its contractual obligations. Had it complied with those obligations, no interest would have been payable by it. (That much can be accepted, but it is not in fact what happened). The applicant then says that the words "payment of monies" which is expressly said by cl 42.1 to be a payment on account only, must (and can only) mean payment of moneys pursuant to a claim for payment - which does not include a claim for interest. The submission is that if there is a breach of cl 42.1, then the other party is entitled to interest pursuant to cl 42.9 and there is nothing provisional about a payment in respect of "default interest", any more than there is about interest paid on a judgment sum pursuant to s 142 of the Supreme Court Act. The analogy though, is fallacious - payment of a sum pursuant to a court judgment is not a provisional payment.

62 The next step in the applicant's argument is that an arbitrator's order for repayment under cl 47.3, depends upon a finding that one party has overpaid the other. Such overpayment can only be pursuant to cl 42.1. The argument is that the payment of "default interest" by Devaugh did not constitute an "overpayment". Interest was ordered by reason of a failure to make a provisional payment in accordance with the terms of the contract; the interest was not a payment in excess of what was then due. The argument then is that the arbitrator made an error of law in ordering repayment of the "default interest" - he should have awarded payment of reasonable interest on that part of the principal sum that was overpaid.

63 In one sense it must be true to say that there is nothing provisional about a payment of interest under cl 42.9 (I express it that way because I wish to avoid using the term "default interest", convenient shorthand though it may be). The party to whom it is paid is entitled to the interest because that party has been kept out of its money in the meantime. To that extent also, therefore, it is true to say the interest payment is not one in excess of what is then due. But for present purposes that is not the relevant time. That time is the point at which the arbitrator makes a determination under cl 47 of the amount which was properly due and payable under cl 42.1. It is upon that determination that the subcontractor becomes liable to repay the difference - and that is the point at which the power of the arbitrator to order payment of interest under cl 47.3, arises.

64 That clause is expressed broadly. It deals with overpayments made "whether pursuant to a Main Contractor's Representative certificate or not" and whether "under a mistake of law or fact". There is no limitation on the nature of the overpayment. I see no reason why an amount of interest which was paid on a principal amount which itself was an overpayment, should not be regarded as an overpayment. The total payment (the excessive part of the principal plus interest on that) was more than that to which Lamac was entitled. So regarded, the whole was an "overpayment".

65 Were the construction advocated on behalf of Lamac correct it would, as counsel for the respondent submitted, give Lamac a windfall profit as a result of its own excessive claim. That to my mind is not a logical construction of the contractual provision and it would be an inequitable result. I do not see that it is what was intended by the parties.

66 I do not accept Devaugh's submission that an overpayment can only be pursuant to cl 42.1. To put it another way, the arbitrator's view that if Lamac was obliged to refund part of the principal, it must also be obliged to refund so much of the interest as was paid on that part, is at the very least arguably correct.

67 The applicant also attacks the arbitrator's calculations and in this respect the respondent concedes there has been some miscalculation, but says that is no more than a mistake of fact.

68 The arbitrator determined that the total contract sum, inclusive of amounts agreed before and during mediation, was $4,064,425. The total amount paid by Devaugh to Lamac was $4,495,926.78 - a difference of $431,501.78. That last figure was therefore the resulting overpayment. Lamac's claim for $675,147.14 should therefore have been a claim for $243,645.36. The amount properly payable was accordingly 36.09 per cent of the amount in fact claimed. That part of the interest paid which was attributable to the amount properly owing, was accordingly 36.09 per cent of the total interest paid, namely $30,687.84, leading to the conclusion that the amount of interest overpaid was $54,343.59.

69 The applicant complains that the arbitrator then applied interest at 18 per cent per annum on $54,343.59 (thereby charging interest on interest) of $14,679.63. The arbitrator has then applied an interest rate of 18 per cent with six monthly rests to the sum of $431,501.78 to calculate interest of $98,857.39.

"If the arbitrator is right there is no consequence for breach and the applicant is penalised for the respondent's breach. In effect the respondent profits from its own breach because the arbitrator ordered the applicant to pay penalty interest on penalty interest" (applicant's outline [19]).

71 The fallacy in the applicant's argument derives from its conceptualisation of the calculation being one of "interest upon interest".

72 It was the finding of the arbitrator that the $54,343.59 was repayable because it was an overpayment of interest - that is to say, it was interest calculated to the date of payment by Devaugh to Lamac, and so became part of the total amount the arbitrator ultimately found to be payable by Lamac to Devaugh. The interest calculation he then made was for the time that Devaugh was kept out of that money, namely from 25 June 1999 to 16 November 2000. I accept the respondent's submission that having found an overpayment of principal and the associated interest, it was logical for the arbitrator to allow interest under cl 47.3 on the whole amount for the period from June 1999 to November 2000. It was in that way he added to the amount of $54,343 interest at 18 per cent per annum ($14,679) to reach a total of $69,023. I also accept it was equally logical for him to award interest on the principal overpaid, namely $431,501.

73 The factual error is the inclusion of the first amount of $38,835.16 by way of interest from 25 June to 26 December 1999. That is because Devaugh did not pay the contract rate of interest on that amount, having obtained a stay of Master Bredmeyer's summary judgment order pending the appeal. Devaugh paid $675,147 on 22 December 1999 following the judgment of the Full Court on 8 December. I accept the respondent's submission that this is not an error of law but an error of fact and a slip which was capable of correction under s 30 of the Commercial Arbitration Act. The respondent further submits that in any event it is offset by what it claims is the arbitrator's mistake in relation to interest, being the subject of the application for leave to cross-appeal.

74 Finally, on the issue of certainty of commercial law, it is useful to return to a consideration of the actual circumstances out of which this application arises. They begin with (ultimately) 17 payment claims by Lamac under cl 42.1. No payment certificates were issued by Devaugh. Lamac then issued a writ for payment of the full amount and obtained summary judgment for that amount plus interest of $62,609.99 to 10 June 1999 (AB 183). There was a stay pending the Full Court decision. The Full Court upheld the Master's order for summary judgment for principal and interest. That interest was therefore awarded by the Supreme Court, not the arbitrator. The circumstances which the arbitrator had to address in his second interim award were accordingly quite unusual and his resolution of them is not likely to occasion any confusion nor uncertainty of commercial law.

75 In substance the ground of appeal in respect of this is simple: it asserts the arbitrator erred in law in holding Devaugh was the successful party and in making costs orders accordingly. The structure of the argument appears at par B(a) - (f) of the notice of appeal which I have already set out.

76 The essential parts of the arbitrator's award were as follows:

"1. The general rule for award of costs in any matter is that the successful party shall receive its costs unless there are special circumstances that may indicate otherwise. Where money passes the successful party may generally be defined as the party in whose favour the net balance falls or in another form: The successful party is generally the one who is to receive money regardless of the amount of any claim or counterclaim made during the Arbitration.

2. Both parties claim to be the successful party and although the legal representative for the Claimant put forward a detailed submission as to why they must be considered the successful party I am not convinced other than the Respondent being successful in the ultimate consideration.

3. The Claimant shall pay the costs of the Respondent with respect to the reference and the award of the Arbitration and Mediation with the exception of the costs of the Arbitrator and Mediation with the exception of the costs of the Arbitrator incurred by the section 27 mediation in which case both parties shall pay half the costs of the Arbitrator as set out in clause 9 of the Mediation Agreement signed by both parties and the Arbitrator on12 January 2000. Such costs have been assessed at $7,537.50 as per my account of 13th July, 2000. Each party is liable for $3,768.75.

4. The Claimant shall pay the cost of Mr J Stranger as an expert. Such costs to be calculated at a reasonable rate for the profession of quantity surveyor and to bear some acceptable relationship with the costs claimed by Mr Sean McGarry the quantity surveyor for the Claimant as both quantity surveyors could have been expected to have done similar work and incurred similar costs."

77 The arbitrator appended his reasons, which were:

"Which party was successful?

Both parties in their written submissions made much of the settled practice that costs will always be awarded to the successful party unless there are special circumstances that indicate grounds to decide otherwise.

The Claimant submits categorically that it is the successful party and should receive all its cost.

The Respondent also categorically submits that it was the successful party and should receive all its costs.

The flow of money has been from the Claimant to the Respondent and my award states that the Respondent is the successful party.

The Claimant asserts it was successful based upon the assertion by Devaugh that no money was due to Lamac and it was necessary for Lamac to proceed with Arbitration in order to recover monies due.

As a result of the mediation the parties agreed on the value of all claims by the claimant as set out in the first interim award at $343,935. which (sic) resulted in the Claimant paying to the Respondent an amount of $179,218.46.

The Claimant also repaid an amount of $145,987.32 on 15th August, 2000, as a result of a revaluation of Folder F.

As a result of the second interim award the Respondent has been successful in being entitled to recover a further $121,182 not including interest.

It would then seem that as a result of the arbitration process, which was initiated by Devaugh Pty Ltd, even though they are referred to as the Respondent (the order was changed during the Arbitration process by agreement.) They have managed to recover or are entitled to recover an amount of $446,451.

I agree with the Claimants submission that they have been found to be entitled to the sum of $366,011. However, the respondent had already paid $675,147. to (sic) the Claimant by order of the Supreme Court of WA for claims, that from the result of the Arbitration, were found to be approximately 50% in excess of what was due, plus together with counterclaims have resulted in the Respondent being due the amount of $446,451 plus interest. If Devaugh had not instigated Arbitration proceedings I consider that they would not have recovered or been found to be entitled to recover the amount of $446,451 plus interest.

As was pointed by counsel for the Claimant in Schere (sic: Scherer) -v- Counting Instruments Ltd (1986) 1 WLR 621 in the Court of Appeal (Eng).

'-------the normal rule is that costs follow the event. That the party who turns out to have unjustifiably given another party cause to have recourse to the courts to obtain his rights is required to recompense that other party in costs.'

For the reasons above I consider that Devaugh Pty Ltd must be considered the successful party.

The Respondent has submitted that the cost of Mr J Stranger be included in the award for costs. Section 20(2) of the commercial Arbitration Act 1985 specifically allows for a party to be represented ------- 'by a representative who is not a legal practitioner -----'

Both parties had quantity surveyors assisting counsel and by the nature of the dispute, I consider that a quantity surveyor would be deemed essential, as the major party of the dispute revolved around quantities, rates and re measurement of drawings. In fact the majority of agreements reached during the Section 27 Mediation were done so between the two quantity surveyors and accepted by both parties.

It was obvious from the amount of paperwork generated by both quantity surveyors and the number of hours spent by them in the mediation and arbitration process that a great deal of time was involved in preparation, measuring, remeasuring and presentation of the data.

I consider that under Section 34(1) of the Act. the (sic) arbitrator has power to settle the cost of non legal representatives and it would be a commercial wrong to deny the cost of the successful party in this arbitration. I therfore (sic) accept the submission from the Respondent for the costs of Mr J Stranger. Such costs to be determined as set out in item 4 of the Final Award."

78 It is helpful, I think, to examine the competing claims and counterclaims in chronological order, albeit not in their entirety.

79 In its writ issued 10 March 1999, Lamac originally claimed $845,000 plus interest. The claim was subsequently amended in the course of the hearing before Master Bredmeyer. Devaugh issued a notice of dispute dated 7 May 1999. In that, Devaugh disputed Lamac's claim for $845,934.36, claimed the amount properly payable for variations was $168,480 and in par 5, asserted that it had paid Lamac all moneys due under the subcontract.

80 Summary judgment was ordered on 25 June 1999, Lamac being awarded the $675,147.14 plus interest of $85,031 and the costs of both the application and the action.

81 The applicant emphasises that the payment of the judgment sum by Devaugh following the Full Court appeal was provisional only, by virtue of cl 42.1, that Lamac was entitled to retain the moneys only until such time as the final payment certificate was issued (cl 42.8), that in the absence of arbitration proceedings, Lamac would have had to repay all but $168,480 of that ($168,480 being the amount the MCR, when finally appointed - too late - in fact certified on 7 May 1999) and that Lamac bore the onus of proof on the arbitration. It is submitted that Lamac ultimately vindicated its claim in the sum of $366,011 (that being the total awarded in Lamac's favour by the arbitrator by the interim award of 4 July 2000 ($343,935) and 16 November 2000 ($22,076)). Mr Buss QC submitted that to determine the matter solely by reference to the flow of money from one party to the other when an interim payment has been made, would mean an applicant must always fail in circumstances such as this. The remedy for an interim payment in excess of that ultimately found to be due is an award of interest, not a costs penalty.

82 Counsel for the respondent submits that Lamac did not have to do anything - it held the judgment sum and could have retained it. Mr Edmonds points out that for the variations the subject of the award of 16 November 2000 (which were compendiously described as the "folder F" claim, which expression I shall use for consistency) were originally claimed by Lamac at $305,981. That is one of the amounts noted by the arbitrator in his award of 4 July 2000 as remaining in dispute between the parties (AB 45).

83 Thus, in that award the arbitrator recorded that as a result of mediation, Lamac had agreed to repay to Devaugh the amount of the summary judgment sum as adjusted for a number of claims and payments therein set out. One such adjustment was the $305,981.54 which Lamac retained because its claim for that amount was still in dispute. The amount actually repaid by Lamac at that time was $179,218.

84 Further arbitration followed. On 17 July 2000, Lamac filed substituted points of claim. In that document the folder F claim was reduced from $305,981.54 to $128.372. It was, of course, still withholding the balance.

85 Devaugh then filed substituted points of defence dated 13 September 2000. It is sufficient for present purposes to appreciate that in those Devaugh raised the issue that Lamac was withholding $305,981.54 in respect of a folder F claim for $128,372. By its points of reply dated 15 August 2000 (AB 409) Lamac acknowledged it was obliged to repay the difference of $146,987. On these pleadings the parties resumed arbitration. Lamac was awarded $22,076 in respect of the folder F claim.

86 Devaugh had a claim for back charges. That claim was originally $55,000. Lamac maintained only $400 was payable. The arbitrator awarded $15,000.

87 The overall result, as can be seen from the second interim award (AB 52) was that Devaugh was entitled to be paid $266,968.

88 The ultimate position was succinctly set out in the reasons of the arbitrator attached to his award of 12 January 2001. It comes to this. Lamac claimed and Devaugh was ordered to make, a provisional payment of $675,147 plus interest. Devaugh initiated arbitration (although by agreement it was treated as the respondent). Lamac was held entitled to payment of $366,011. The balance of the $675,147 and interest, together with the award on Devaugh's counterclaim, resulted in Lamac having to pay Devaugh $446,451 plus interest.

89 On the question of leave, I accept that the costs of the arbitration will be substantial and so would substantially affect the rights of the parties. The threshold test in s 38(5)(a) is therefore satisfied.

90 The arbitrator began with an accurate statement of principle that the general rule is that the successful party shall receive its costs unless there are special circumstances to indicate otherwise (Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [66], [67] - [68], [134]). He also applied the common rule that a successful party is to be identified as that to whom there is a final flow of money (Badge Constructions Pty Ltd v Penbury Coast Pty Ltd [1999] SASC 6; Keywest Construction Group Pty Ltd v Footscray Holdings Pty Ltd, unreported; SCt of WA (Anderson J); Library No 930078; 23 February 1993).

91 His appended reasons were directed to the question of identifying which party was successful. He correctly recognised there had been numerous claims and counterclaims.

92 Lamac's argument that it was necessary for it to proceed with arbitration originally because of Devaugh's claim that no further money was payable to Lamac so that Lamac had to proceed in order to recover moneys due, is true, but is only one of a range of relevant considerations, and it is one to which the arbitrator expressly had regard. It therefore cannot be said that the exercise of his discretion miscarried because he failed to take it into account.

93 It was likewise open to the arbitrator to conclude that if Devaugh had not instituted arbitration proceedings, it would not have been found entitled to receive $446,451 plus interest. There were various factors and considerations which had to be taken into account; the arbitrator seems to have considered them. Beyond that point, it becomes a question of relative weighting. I accept Devaugh's submission that a failure to give sufficient weight to the success of one party on issues on which the party was successful in the context of a determination of costs, will not amount to a manifest error of law (Crewford Pty Ltd v Transit Australia Pty Ltd, unreported; SCt of Qld; 5600/98; 23 March 1999 [13]).

94 What the applicant seeks to complain of here is not the arbitrator's failure to recognise the proper legal principles, but rather the manner of his application of those principles to the circumstances of the case. In short, the complaint is about the exercise of his discretion. That would not normally give rise to a question of law (Miles v Palm Bridge Pty Ltd [2001] WASC 42 (under appeal)).

95 I do not discern in the award, nor the arbitrator's reasons, an incorrect statement of legal principle. In my view, no error of law is apparent. That being so, leave to appeal must be refused.

96 That brings me to the application for leave to cross-appeal.

97 This was filed on 8 January 2001 against the interim award dated 16 November 2000. The grounds of appeal are (AB 42) that:

"1. The Arbitrator erred in law in finding that $31,622 was payable as interest for late payments when the Applicant had conceded in its written submissions to the Arbitrator that no interest for late payment was payable.

2. Alternatively, the Arbitrator erred in law in finding that $31,622 was payable as interest for late payment when there was no evidence for such a finding to be made."

98 In his oral submissions, Mr Edmonds found it necessary to take me in some detail to the pleadings before the arbitrator so as to demonstrate the nature of the errors asserted in these grounds.

99 Shortly expressed, the error was said to be that of the arbitrator's failure to appreciate that by its submissions in reply to him, Lamac had effectively abandoned any claim that the payments made to it included an amount of interest of $31,622.

100 It was argued that this was shown because, by its defence, Devaugh pleaded it paid $3,805,984 for contract work undertaken. By its reply, Lamac pleaded that that sum had been paid but that it comprised payments for works ($3,774,362) plus interest ($31,622) - that is Lamac claimed for and withheld that amount, claiming it was paid by Devaugh for interest, not for work undertaken.

101 It is then said that Lamac by its submissions, in reconciling contract amounts claimed and paid, recorded $3,774,362 plus the $31,622 as payments made against the original contract price.

102 Thus it is said that Lamac, by its submissions to the arbitrator, and without explaining that the claim was no longer pursued, simply recognised that the amount was a contract payment for work, made by Devaugh to Lamac - which was Lamac's assertion.

103 For the purpose of dealing with the application for leave to cross-appeal, it is in this regard sufficient to note that Mr Buss QC contended, again by reference to the pleadings, that no such concession had been made.

104 I think there are obvious difficulties with these grounds.

105 As to ground 1, the contention is that the arbitrator misconstrued the evidence, thus coming to a conclusion that the amount was payable for interest as (sic: for) late payments when it had been a payment for works. That is patently an allegation of an error of fact, not law. So too is the assertion that the arbitrator failed to appreciate that Lamac had conceded in its written submission, no interest for late payment was payable.

106 As to ground 2, a finding for which there is no support at all in the evidence would be an error of law, but certainly not one manifest on the face of the award. Further, the only way in which "strong evidence" of the error could be demonstrated would be by reference to all the evidence before the arbitrator. That is not an appropriate approach for a grant of leave under s 38(5). Most importantly though, there is no prospect that the determination of that question of law may add, or be likely to add, to the certainty of commercial law. In these circumstances the question whether the determination of that question of law could substantially affect the rights of the parties (s 38(5)(a)) becomes otiose, since neither of the threshold requirements in s 38(5)(b) can be met.

107 I would refuse leave to appeal on the cross-appeal.