Northbuild Construction P/L v Discovery Beach Project P/L

(a) The interim award merely makes a number of rulings and is not an award for the payment of money capable of enforcement under s 33 of the Act.

(b) If contrary to the respondent's principal submission, there is an enforceable award, the most recent progress certificate issued shows that more moneys are owing to the respondent under the building contract than to the applicant. It would thus be unjust to make the order;

(c) The respondent terminated the building contract. There is thus no utility in attempting to construe the arbitrator's "ruling" as declarations. The agreement has no role to play with respect to recommendations for progress payments made after termination.

[3] I now turn to a consideration of each of the above contentions.

[4] The award commences by the arbitrator stating that for the reasons set out in "this Interim Award" rulings are made. There are then five paragraphs. The last three paragraphs deal with questions of interest and costs which are stated to be reserved.

"a) on the proper interpretation of Clause 8.1 of the Interim Agreement dated 19 August 2004, DBP is not entitled unilaterally to set-off or deduct an amount from any amount payable to Northbuild, whether or not a Variation Order has been issued, unless the amount of the set-off or deduction has either been agreed between the parties or determined by expert determination, arbitration or litigation; and

b) Discovery Beach Project Pty Ltd make no deduction from payments to Northbuild Construction Pty Ltd with respect to each of the following Variation Orders (VO's); VO71, VO72, VO73, VO74, VO75, VO76, VO77, VO78, VO79, VO83, VO84, VO85, VO86, VO87 and VO 89 until such time as the amount of any deduction is either agreed between the parties or determined by expert determination, arbitration or litigation;"

[6] Mr Dunning, who appears for the applicant, submits that paragraph b) is, in essence, an order for the payment of a sum of money. In order to test the validity of that contention it is necessary to go, in a little detail, to the contents of the award which is 24 pages in length.

[7] It appears from discussion under the heading "SCOPE OF THIS DECISION"[1] and under the heading "INTERPRETATION"[2] that the preliminary question posed for the arbitrator's determination went beyond the construction of clause 8.1 of an agreement between the parties described as the "Interim Agreement dated 19 August 2004". It was not suggested in argument that the arbitrator's ruling was outside the scope of the issues submitted for his determination or that the respondent was denied natural justice.

"CLAUSE 8.1 OF THE INTERIM AGREEMENT DATED 19 AUGUST 2004

a) Has any set-off or deduction been made from amounts otherwise payable to Northbuild?

b) If yes, has Northbuild consented to any deduction or set-off?

c) If no, is there a resolution of the dispute by expert determination or litigation which authorises the deduction?

50. The Respondent by correspondence, dated 28 January 2004, has confirmed that '...Northbuild has not consented to the relevant variation orders and there has been no determination with respect to them either through expert determination or litigation'."

[9] Referring to certain quantity surveyor's recommendation for progress payments, the arbitrator observes:[3]

"What is apparent from these recommendations ...is that deductions have been made from the amount payable to [the applicant]. Some of those deductions have been attributed to relevant Variation Orders."

[10] In paragraph 78, the arbitrator records a submission by the respondent, which he accepts, that "no order may be made" by him with respect to variation orders 91 to 94 as they do not form part of the arbitration. In paragraph 79, the arbitrator finds that deductions have been made from amounts payable to the applicant that had not been either agreed between the parties or determined by expert determination or litigation.

"...the Claimant has made good its submission that it is entitled to payment of the amounts that have been deducted, without agreement or determination by expert determination or litigation, in respect of Variation Orders 71, 72, 73, 74, 75, 76, 77, 78, 79, 83, 84, 85, 86, 87 and 89."

[12] The arbitrator also makes findings,[5] either expressly or by necessary implication, as to the due dates for payment of the progress payments, the subject of the interim award. It is relevant also that the arbitrator rejects a submission that he should refuse to make an interim award as an award in favour of the applicant might result in the applicant's being overpaid for work not done.

[13] Paragraphs 86, 87, 88 and 89 contain a discussion about an award of interest. Paragraphs 86 and 87 deal with the arbitrator's power to award interest on awards for the payment of money.

[14] Paragraphs 88 and 89, against that background which appears to assume that the award is one for the payment of money, provide:

"88 The Respondent has made no submission as to contrary intentions in the arbitration agreement.[6] However at the conference held on 15 February 2005, the Respondent submitted that if interest was to be awarded it considered that it may be recoverable if the ultimate determination of the amount of any deductions differs from the amounts paid in the interim. The Respondent submitted that if it was correct in that submission it would unnecessarily complicate the final award and require the Respondent to enter a counter-claim for that interest.

89 I therefore reserve any award of interest in accordance with the provisions of 31(1) and 32(2) of the Act."

[15] Again, this discussion assumes that the award is for the payment of money. I return to the arbitrator's ruling on page 1 of the Award. I note that paragraphs a) to e) of the ruling are identical to the five unlettered paragraphs in paragraph 92 under the heading "DECISION". They are introduced by the words "For the reasons set out above, I rule that:".

[16] Paragraph a) of the ruling concerns the construction of clause 8.1 of the Interim Agreement and is declaratory in nature. Paragraph b) is different in form. It orders that the respondent "make no deduction from payments to" the applicant with respect to the variation orders under consideration.

[17] Elsewhere in the award, as the above discussion shows, the arbitrator has found that moneys are due and owing and that the deductions made in respect of the subject variation orders were unlawful. There is an express finding that the applicant is entitled to payment of the amounts deducted by the variation orders and that such deduction has been made "without agreement or determination by expert determination or litigation".[7]

[18] Having regard to the foregoing, it is difficult to escape the conclusion that the arbitrator intended to make an award for the payment of money and understood that he was doing so. The language of his ruling (b) however falls short of that objective. There is an obvious distinction between an order not to make deductions from payments and an order to make payments without deduction. It is unfortunate also that the arbitrator did not specify the sum or sums implicitly found to be payable in his award and that he has included the qualifying words "until such time ..." at the end of paragraph (b). Those words refer to future conduct and are incompatible with the view that paragraph (b), properly construed, is a simple money order.

[19] Mr Hastie relied on a decision of Lord Diplock, then Mr Justice Diplock, in Margulies Brothers Ltd v Dafnis Thomaides & Co (UK ) Ltd[8] for the proposition that, for an award to be enforced pursuant to a provision such as section 33, it had to be for the payment of money and specify the sum to be paid. The case supports that proposition. In the course of his reasons, Diplock J observed[9]

"This award does not purport to be a mere declaratory award; but, although it is one for the payment of money, it does not specify the actual sum to be paid but sets out the manner in which the sum ordered to be is to be calculated.

It was determined by the Court of Appeal last Monday that an award in this form cannot be enforced, in the same manner as a judgment, under Sect. 26 of the Arbitration Act,1950 ...".

[20] In response to the difficulty posed by this authority, Mr Dunning referred to Jugoslavenska Oceanska Plovidba v Castle Investment Co Inc.[10] In that case, the Court had under consideration the question whether an arbitrator's award expressed in a foreign currency could be enforced as an order of the Court under s 26 of the Arbitration Act 1950 (UK). At first instance, Kerr J had regarded himself bound by authorities, including Margulies, to conclude that the award, to be enforceable, had to be capable of being entered as a judgment in the precise terms as the award. On appeal, Lord Denning MR noted that the words in s 26[11] "to the same effect" should not be treated as meaning "in the same terms". He and the other members of the Court concluded that there was no difficulty in converting the foreign currency sums stipulated in the award to sterling for the purposes of entering judgment.

[21] The discussion in Jugoslavenska is centred on quite a narrow point and is thus of limited use for present purposes. It does, however, serve as a reminder, if one is needed, that s 33 of the Act does not require complete identicalness between to the subject arbitration award and the court order giving effect to it. In considering the terms of an award for the purposes of s 33, it would be inappropriate, in my view, to adopt a narrow or pedantic approach to its construction.[12] But it remains necessary to meet the requirement that judgment be "entered in terms of the award".

[22] Application of the above principles does not permit the conclusion that judgment against the respondent in favour of the applicant in the sum of $1,234,488 would constitute the entering of judgment "in terms of the award". As I have pointed out, that is not the effect of the wording of paragraph (b). My tentative view is that the arbitrator intended to order that the amounts deducted from the applicant's claim on account of the subject variation orders be paid. My impression is that the qualifying words at the foot of paragraph (b) were included as a result of an accidental slip on the arbitrator's part. He had already found that the moneys were due and owing and that there had been no agreement or determination in respect of them.

[23] Having regard to these considerations, the appropriate course may be for the award to be corrected by the court or arbitrator. Such a correction may be made under s 30 of the Act on application by a party to the arbitration agreement. No such application has been made and the question of the section's application has not been the subject of submissions. Accordingly, I express no concluded views on whether the award contains an "error arising from an accidental slip or omission" or whether, if there is such a slip or omission, the award may be corrected so as to permit the entering of a money judgment under s 33.

[24] A matter which was touched on briefly in the course of argument is whether it might be appropriate to remit the award to the arbitrator to comply with an implied term in the arbitration agreement that the award for the payment of money be in a form which is capable of being enforced in the same manner as a judgment.[13]

[25] The course I propose to follow is to adjourn the matter for a short while to enable the parties to consider these reasons.

[26] In view of the above conclusions, it is not necessary for me to deal in any detail with the other submissions made on behalf of the respondent. If the August 2004 agreement was terminated prior to the making of the Interim Award, the validity and enforceability of the Interim Award would not be affected. The termination would act in futuro and discharge the parties from further performance of the contract. Their existing rights, including those accruing under the arbitration, would not be divested or discharged.[14] I think it fair to say that Mr Hastie, in the course of argument, accepted that the validity of the Interim Award was unaffected by termination. I have rejected the argument that the second paragraph of the award was merely declaratory in its effect.

The relevance of the shifting balance of account under the building contract

[27] Again, in view of my findings, there is no need for me to now resolve this matter. I note, however, that the arbitrator took it into account prior to handing down his award. The nub of the argument appears to be that it would be unjust for the applicant to be able to enforce its contractual rights under a bargain struck between the applicant and the respondent because the respondent, having failed to perform its obligations, is now able to show that moneys are owing by the applicant to it. It was necessarily contemplated by the parties when they entered into the August 2004 interim agreement that the respondent's inability to make deductions from amounts payable to the applicant in respect of the matters identified in the agreement might lead to that very state of affairs. The respondent's point therefore does not appear to be particularly meritorious. Acceptance of the argument would also entail revisiting the arbitrator's award. Normally it would be inappropriate for such a course to be followed on an application under s 33.[15]

[6] The reference is to the power to award interest given to arbitrators by s 31 and s 32 of the Act unless a "contrary intention" is expressed in the arbitration agreement.

[8] (1958) Ll Rep 20250.

[10] [1974] 1 QB 292 (CA).

[11] Which is very similar in terms to s 33 of the Act.

[12] Cf Selby Whitbread & Co [1917] 1 KB 736 at 748.

[13] cf Margulies Brothers Ltd (supra).

[14] McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 at476-477.

[15] Cf Cockatoo Dockyard Pty Ltd v Commonwealth of Australia (No 3) [1994] 35 NSWLR 688.