Liverpool City Council v Casbee Pty Ltd & Anor; Liverpool City Council v... [2005] NSWSC 590 | Case summary

55009/05 Liverpool City Council v Casbee Pty Ltd & Anor 55015/05 Liverpool City Council v Casbee Pty Ltd & Anor JUDGMENT 1 His Honour: Before the court are two matters in each of which Liverpool City Council (Council), the plaintiff, claims against Casbee Pty Ltd (Casbee), the first defendant, orders pursuant to s 46(2) Commercial Arbitration Act 1984 (the Act) that the arbitration between them be terminated, alternatively that the dispute be removed into the court for determination. In No. 55009/05 a claim for a declaration that the parties had abandoned contract No. E14/98 was abandoned during the hearing. A submitting appearance was filed in No. 55009/05 for Timothy Sullivan, the second defendant, and in No. 55015/05 for Robert Hunt, the second defendant. 2 The claim in No. 55009/05 relates to the arbitration proceedings concerning disputes arising from drainage construction work undertaken by Casbee for Council at Hinchinbrook (the Hinchinbrook dispute). The claim in No. 55015/05 relates to similar proceedings concerning disputes arising from stormwater pond construction work undertaken by Casbee for Council at Riverside Park, Chipping Norton (the Riverside dispute). Both disputes were referred to arbitration by Casbee on 10 November 2004. In these proceedings both claims were heard together. It seems that so far the arbitration has not progressed beyond service of points of claim. 3 Section 46 of the Act provides: "46 Delay in prosecuting claims (1) Unless a contrary intention is expressed in the arbitration agreement, it is an implied term of the agreement that in the event of a dispute arising to which the agreement applies it is the duty of each party to the agreement to exercise due diligence in the taking of steps that are necessary to have the dispute referred to arbitration and dealt with in arbitration proceedings. (2) Where there has been undue delay by a party, the Court may, on the application of any other party to the dispute or an arbitrator or umpire, make orders: (a) terminating the arbitration proceedings; (b) removing the dispute into Court; and (c) dealing with any incidental matters. (3) The Court shall not make an order under subsection (2) unless it is satisfied that the delay: (a) has been inordinate and inexcusable; and (b) will give rise to a substantial risk of it not being possible to have a fair trial of the issues in the arbitration proceedings or is such as is likely to cause or to have caused serious prejudice to the other parties to the arbitration proceedings". 4 In s 4(1) "arbitration agreement" is defined to mean an agreement in writing to refer present or future disputes to arbitration. Arbitration agreement 5 Council's application for an order pursuant to s 46(2) of the Act raises the preliminary question whether cl 47.2 of the contract in each case is, on the proper construction, an arbitration agreement for the purposes of the Act. Clause 47.2 provides two alternative mechanisms for the resolution of disputes, upon the failure of each of which either party may by notice in writing delivered by hand or sent by certified mail to the other party refer such dispute to arbitration or litigation. 6 For Casbee it was submitted that the effect of cl 47.2 was to establish a dispute resolution mechanism which permitted a free choice between arbitration or litigation and hence was not an arbitration agreement within the meaning of the Act. It follows that if the contract contained no such arbitration agreement s 46 does not apply. It was acknowledged that to so find would be inconsistent with the decisions of the majority in Mulgrave Central Mill Company Ltd v Hagglunds Drives Pty Ltd [2002] 2 Qd R 514 which considered a contractual provision in similar terms. I was invited not to follow this authority and to uphold the dissenting judgment of Thomas, J. 7 Casbee's submission must be rejected. It is against the weight of authority with which I respectfully agree. Upon its proper construction, cl 47.2 affords the parties the entitlement to make an election to refer the dispute to arbitration and that is sufficient to fall within the definition of an arbitration agreement as defined in s 4 of the Act. (PMT Partners Pty Ltd (in liq) v Australian National Parks & Wildlife Service (1995) 184 CLR 301, at pp 310, 323; Savcor Pty Ltd v State of New South Wales (2001) 52 NSWLR 587 at p 594). 8 It is also apt to refer to the statement of McPherson, J in Mulgrave Cental Mill Company Ltd (para 13) that "This is an area of the law where the making of subtle verbal distinctions are not to be encouraged, and where it is desirable that standard conditions and uniform legislation should, as far as possible, be given the same meaning in jurisdictions throughout Australia". The principles 9 The approach to the question whether the court should order the termination of the arbitration under s 46(2) for want of prosecution was explained by Anderson, J in Carob Industries Pty Ltd (in liq) v Simto Pty Ltd [1999] WASC 258 as follows: "7 … It is the duty of each party to an arbitration agreement to exercise due diligence in prosecuting a dispute referred to arbitration: Commercial Arbitration Act s 46(1) and (2). A court will not terminate an arbitration for delay unless it is satisfied that the delay has been inordinate and inexcusable and will give rise to a substantial risk of prejudice to the other party. Commercial Arbitration Act s 46(3). The test is the same as the common law test. If there is inordinate and inexcusable delay, coupled with a substantial risk that it is not possible to have a fair trial of the issues in the action, or there is a likelihood of serious prejudice to the defendant, the proceedings will usually be brought to an end by the court. Lewandowski v Lovell (1994) 11 WAR 124, especially at 131; Hughes v Gales (1995) 14 WAR 434; Birkett v James [1978] AC 297 at 318; Ulowski v Miller [1968] SASR 277 at 280. 8 It seems that there are five main matters which are to be considered, they being the length of the delay, the explanation for the delay, hardship to the plaintiff if the action is dismissed and the cause of action left statute-barred, the prejudice to the defendant if the action is allowed to proceed notwithstanding the delay and the conduct of the defendant in the proceedings. Lewandowski v Lovell ( supra ) at 133". (This approach was held to be correct on appeal in Clements v Simto Pty Ltd [2001] WASCA 183 paras 7 and 8). 10 In those cases it was emphasised that even where there has been inordinate and inexcusable delay the court shall not terminate arbitration proceedings unless that delay: "46(3)(b) will give rise to a substantial risk of it not being possible to have a fair trial of the issues in the arbitration proceedings or is such as is likely to cause or to have caused serious prejudice to the other parties to the arbitration proceedings". 11 It was common ground that "inexcusable" means "without reasonable explanation". Evidence 12 Casbee's evidence went principally to the issue of delay in each case and the explanation for it. 13 Mr Franco Maiolla is a director and manager of Casbee. He engaged Mr Sam Wilson in April 2002 to advise on the Hinchinbrook claim, and in January 2003 to advise on the Riverside claim. Beyond that his evidence was of little worth. He had no direct knowledge or involvement with either project or with matters relevant to the detail or progress of the claims. He referred to problems in locating documents attributable to the use of some by the Independent Commission Against Corruption (ICAC), and the loss of some in floods at Riverside Park and at Casbee's office and yard in Jedda Road. He did not identify the relevance and nature of these documents, and was unable to say when the floods took place. 14 Mr Wilson gave evidence that from about June 2002 he undertook an initial review of available documents concerning the Hinchinbrook contract. He engaged a sub-consultant quantity surveyor, Mr James Spencer, to investigate and complete a report of delays and costs. The documentation was disorganised and incomplete. He said that in about mid-July 2002 he and Mr Maiolla met Council officers and it was agreed that a detailed claim should be submitted to a contract administrator employed by the Council, Mr John Burgess. He said that from June 2002 to about January 2003 his work was slowed by missing and incomplete documentation. 15 Mr Wilson said that floods in 2000 and 2001 caused the loss of some documents, the nature of which was unknown. He understood that Casbee's documents in relation to its contracts with Council had been seized by ICAC in June 2000 for investigation. These documents were returned during the period from about 19 June 2001 to about 7 January 2003. He says that his task was time consuming and difficult by reason of the need to assemble and assort the documents. He engaged Mr John Reid to take over the work between January and May 2003. Upon reviewing this work in June and July 2003 he found it to be unsatisfactory, but Mr Reid declined his request to return to it made in September 2003. In February 2004 he briefed Mr N R Turner to develop the claims for submission to Council. 16 Mr Wilson said he sent a letter to Council dated 11 June 2002, and had telephone conversations with Mr Burgess on about 23 April and in November 2002. His understanding of events and issues was generally based on the documents, and by May 2003 he had all that was available. He made no communication with Council that the claims were in the course of preparation. 17 Mr Wilson was engaged on the Riverside claims in January 2003. He wrote to Council on 15 January and 11 February 2003 concerning the dispute as to the existence and terms of an agreement in about June 1999 as to latent conditions and removal of surplus material on site. There was no further communication between the parties until the meeting between their representatives on 29 April 2004. There was no explanation given in respect of this period. 18 Mr Turner said that he began work on the Hinchinbrook claims in February 2004. He was unable to produce a detailed claim until 21 September 2004 and he explained the delay as attributable to the lack of some primary records by reason of floods or retention by ICAC, and to the complexity of the claims, and to his involvement in other matters. He said that generally the documents provided sufficient evidence for the claims, but occasionally he spoke to Mr Maiolla or others for confirmation. During this period he had no communication with Council.

38 On 18 February 2005 Council filed the summons in these proceedings. 39 In deciding whether there has been inordinate and inexcusable delay on the part of Casbee within s 46(3)(a) it is unnecessary to review the history evidenced in the correspondence between the parties for the whole of the period from 15 December 2000 to 21 September 2004. In my opinion, in the circumstances of this case, the relevant period is from the rejection of the claims by Council on 4 January 2002 until Casbee notified Council of the dispute on 21 September 2004. 40 In their letter of 17 October 2001 to Council, Casbee's solicitors provided details of its claims purportedly under cl 46 and cl 47 of the contract, which included one for the sum of $1,668,671.80 for delay and prolongation. In response to Council's request for all supporting evidence Casbee's solicitors, on 29 November 2001, provided documentation said to detail and substantiate the claims. The claims were rejected by Council's letter of 4 January 2002 and at the same time the final certificate was issued. 41 It might reasonably be expected that Casbee would have seized the opportunity to promptly notify Council of its intention to refer the obvious dispute to arbitration, and to take steps to do so. Instead, it waited until April 2002 to engage Mr Wilson to undertake the preparation of the claims. Thereafter the matter proceeded with glacial speed, the slowness of which was attributed in part to the loss of documents in a flood, and to the disorganised state in which many documents were returned by ICAC. The evidence on this issue was in very general terms, and no attempt was made to identify categories of documents relevant to any component of a claim which was ultimately referred to arbitration. I was not persuaded that the delay during this period was neither inordinate nor inexcusable. 42 Mr Wilson also referred to problems associated with staff to whom some responsibility for investigation and preparation had been delegated. I was not persuaded that these considerations serve to relieve Casbee of its responsibility to proceed with diligence or to excuse the delay. 43 In my opinion the intention and effect of s 46(1) is to require a party to exercise due diligence by taking necessary steps, in the first instance, to refer a dispute to arbitration at the time it arises. Subject to the circumstances of the case it seems to me that it is not ordinarily open to a party to delay taking the positive steps involved in having the dispute referred until after, for example, such time as the preparation of its case for the purposes of a hearing has been completed. 44 I consider that from the time it was notified of the rejection of its claims on 4 January 2002 Casbee was under a duty to proceed with diligence to refer the dispute to arbitration. This duty was not discharged merely by the engagement of Mr Wilson and his company to assist. There was, apparently, sufficient material to enable a claim to be outlined with some detail in the letter of 17 October 2001, and to be supported by the documentation sent to Council with the letter of 29 November 2001. These letters support the finding, which I make, that in the reasonable exercise of due diligence Casbee should have referred the dispute to arbitration promptly after receiving Council's letter of 4 January 2002. That Mr Wilson caused Council and/or Mr Burgess to be informed that claims were in the course of preparation on occasions in 2002 does not reduce the relevant period of delay. 45 Having regard to the whole of the evidence on the issue of delay I am satisfied that the 20 month period which elapsed between the rejection of the claims and the notification of 21 September 2001 constituted a delay which was inordinate in the circumstances, and for which Casbee provided no reasonable explanation. 46 It is therefore necessary to turn to the question under s 46(3)(b) whether there was a substantial risk of an unfair trial or whether the delay was likely to cause, or to have caused, serious prejudice to Council in the arbitration proceedings. 47 For Council it was submitted that the delay will give rise to a substantial risk that it would not be possible to have a fair trial of the issues or is such as is likely to cause it serious prejudice in the arbitration proceedings. It was submitted that delay gives rise to a presumption of prejudice in that it is likely to lead to the deterioration in quality of the evidence available to the parties for the fair trial of the issues. (cf: Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at p 551 per McHugh, J). It was also put that the delay was likely to be prejudicial to Council by reason of its inability to call some former employees as witnesses. 48 The effect of the delay is to be determined objectively by reference to the nature of the issues in the arbitration proceedings, and to the ability of Council to advance its case and to meet that of its opponent. It is important to keep in mind the requirement of the legislature that the degree of risk to be established is substantial, and the degree of prejudice is serious. In this context it is relevant to refer to the passage from the dissenting judgment of Mahoney, JA in Gill v Walton (1991) 25 NSWLR 190 at p 212: "As was indicated in Jago (Jago v District Court of New South Wales (1989) 168 CLR 23), it is not every disadvantage accruing to a party which will constitute for this purpose unacceptable injustice. Records may be lost, witnesses may die, and recollections may fade in ordinary cases. And these are matter which, as I have indicated, a tribunal will be expected to take into account in any trial or proceeding. It is only where the disadvantages which have accrued are of such an order that the injustice to the party would be of such dimensions as to be, notwithstanding such matters, unacceptable. In Jago (at 34, 60, 78); cf (at 53) per Brennan J; this situation was described by terms such as "special" and "exceptional". It is necessary that the doctors establish such a case". 49 Thus more will be required than a demonstration that the delay may result in less than perfect justice in the proceedings. 50 In order to prove either a substantial risk of impossibility of a fair trial, or the likelihood of serious prejudice, it would ordinarily be necessary to demonstrate the disadvantage caused by the delay, for example, the unavailability of the testimony of a potential witness, or the loss of documents, or that sources of information had dried up. Accordingly, in my opinion in this case it is necessary for Council to show that the likely consequence of the delay is to deprive it of the opportunity of a fair trial, or that it was so seriously prejudiced that justice would not be done in the proceedings. Thus the question posed under s 46(3)(b) requires an evaluation of the evidence of the extent to which the delay is likely to disadvantage, or has in fact disadvantaged, Council. (See, e.g., the analysis and findings of McHugh JA in Herron v McGregor (1986) 6 NSWLR 246 at pp 265-266). 51 Council relied upon Mr Wiedersehn's evidence on the issue of disadvantage. His principal concern was that a number of persons who had been involved with the project as employees of Council either could not be found or were unwilling to assist. However there was no evidence, other than in most general terms, which demonstrated the nature of the involvement of any of these persons in any particular matter referable to a claim, or that he was a witness to events whose testimony was relevant to an identified issue. There was no evidence to suggest that the outcome of an issue would turn on the oral evidence of a witness who was unavailable. There was no exploration in any depth of the issues under the claims or whether proof of matters relevant to such issues would require oral evidence. 52 Nevertheless it is clear that Council will have the benefit of Mr Wiedersehn's evidence and probably that of Mr Burgess. Furthermore, the only limitation to Mr Letizia's assistance is a present unwillingness to attend court apparently if required for cross-examination. 53 Assuming that Messrs Stewart and Mitchell cannot be found, the extent to which Council is thereby disadvantaged is a matter of speculation absent evidence of the testimony each could give relevant to an identified issue and the same may be said of Mr Winterfeldt. 54 It is also relevant to take into account that merely because Mr Winterfeldt has stated that he is unwilling to assist Council in any way, and because Mr Letizia is reluctant to attend a hearing, it does not follow that their evidence will be lost to Council. There is no basis for assuming that they would not attend under subpoena for examination before the arbitrator or, if necessary, before the court pursuant to the procedures under s 17 and s 18 of the Act. 55 Mr Wiedersehn's evidence shows that his command of the matter was sufficient to enable him to reject the claims by his letter of 4 January 2002 having made enquiries, and investigated the documentation, and being satisfied that no extension of time applications had been made by Casbee either in writing or orally. For Council it was not put that either by reason of the loss and/or incompleteness of any of its records it will be disadvantaged in defending the claims, or that details of particular events relevant to a claim are unavailable. 56 It is relevant to take into account that in the preparation of the claims on behalf of Casbee, Mr Wilson and Mr Turner relied almost entirely on the documents available to them. Mr Turner said that generally the documents provided sufficient evidence for the claims, although he occasionally spoke to Mr Maiolla or others for confirmation. There was no evidence to indicate reliance upon oral testimony, or which identified a representative of either party as a potential witness on any issue. 57 Having regard to the extent of the delay it must be recognised that it will occasion some disadvantage to Council in the arbitration proceedings. However, it may be expected that any disadvantage will be alleviated by the considerable body of documentation in the case and the fact that the substantial part of the evidence in the proceedings is likely to be documentary. In the circumstances I am not satisfied that the unavailability of Mr Stewart and Mr Mitchell and the apprehended unavailability of Mr Winterfeldt or other inconveniences resulting from delay give rise to a substantial risk that a fair trial would not be possible, or are likely to cause serious prejudice to Council. 58 Accordingly, as I am not satisfied of the matters in s 46(3)(b) I am unable to make an order under s 46(2), and I will order that the summons be dismissed. The Riverside dispute 59 On 14 December 1998 the parties entered into contract No. E21/98 under which Casbee agreed to carry out for Council construction and landscaping work on urban stormwater and treatment ponds at Riverside Park. The work was to be carried out in three stages namely stage 1A, stage 1B, and stage 2. By cl 47 of the general conditions the parties agreed to refer disputes arising out of or in connection with the contract to arbitration or litigation. The date of practical completion for stage 1A was 15 February 1999, for stage 1B was 8 February 1999, and for stage 2 was 11 January 1999. 60 By letter of 15 June 1999 to Council, Casbee made a claim in the sum of $415,000.00 for costs attributable to the latent condition of the site. 61 By letter of 23 June 1999 to Casbee, Council requested confirmation of a proposal put at a meeting on 8 April 1999 for a lump sum payment for extra work to include the removal of surplus soil and stockpile material, and some further excavation. 62 By letter of 24 June 1999 Casbee indicated to Council its substantial agreement subject to specified exceptions, and invited a response. 63 By letter of 29 June 1999 Council advised its acceptance of what it described as "… The terms of the accepted offer are as detailed in Council's facsimile dated 23 June 1999 and confirmed in your letter of 24 June 1999". It stated that the agreement would constitute a variation to contract No. E21/98 for which variation orders would be issued for endorsement. 64 By letter of 9 July 1999 to Council, Casbee stated, by way of clarification, its understanding of details of the agreement and, in effect, invited a response if Council had a different view. 65 By letter of 13 August 1999 Council sent its response in which the view was stated that for the additional sum of $60,000.00 Casbee was obliged, inter alia, to remove and dispose of surplus soil. On the same date Council gave written confirmation of a verbal direction by Mr Stewart for the cessation of sand extraction. 66 By letter of 18 August 1999 to Council, Casbee made a further statement as to its understanding of the scope of the recent agreement. This led to a meeting on 26 August 1999 between representatives of the parties at which an adjustment in Casbee's favour in respect of a shortfall in sand was agreed. The minutes of the meeting record that its purpose was to review all outstanding invoices, retentions and variations between the parties. 67 On 18 October 1999 for stage 1B, and on 3 November 1999 for stage 1A, the date of practical completion was certified to be 1 October 1999, and the end of the defects liability period to be 30 September 2000. 68 On 23 December 1999 the date of practical completion for landscaping works was certified to be 1 November 1999, and the end of the defects liability period to be 31 January 2000. 69 By letter of 6 November 2002 to Council, Casbee made a claim for $13,556.00, and requested the return of two bank guarantees. There had been no correspondence or communication between the parties since 23 December 1999. 70 By letter of 20 November 2002 Council informed Casbee of sand and surplus material on site, and directed its removal within 30 days after which its claims would be considered. It enclosed the correspondence of mid-1999 concerning the agreement for this work. 71 By letter of 30 November 2002 Casbee, in effect, reiterated its claims and made plain its disagreement as to the scope of its obligations. 72 By letter of 9 December 2002 Council rejected Casbee's claims, and repeated its direction for the removal of the surplus material. 73 In January 2003 Mr Wilson was appointed to assist Casbee in resolving the claims with Council. In his letter to Council of 15 January 2003 he expressed the view, having reviewed the correspondence of mid-1999, that no agreement had been reached on matters including the disposal of soil and latent conditions. He included some analysis of the correspondence and claimed entitlement to extra costs incurred in respect of these matters. The letter invited response. 74 By letter of 11 February 2003 to Council, Mr Wilson again raised the question of removal of the surplus soil. He requested Council to advise whether it adhered to its requirement for Casbee to carry out the removal at its cost, and to suggest "… how the impasse might be resolved".

Liverpool City Council v Casbee Pty Ltd & Anor; Liverpool City Council v Casbee Pty Ltd & Anor

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Judgment (20 paragraphs)

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