Sea Containers Limited v ICT Pty Limited

Court of Appeal (NSW)|2006-11-27|Before: Giles JA, Ipp JA, McColl JA, Rein AJ, Coll JA

CITATION: Sea Containers Limited v ICT Pty Limited [2006] NSWCA 327

JUDGMENT OF: Giles JA at 1; Ipp JA at 4; McColl JA at 76

DECISION: Application for leave to appeal dismissed with costs.

LEGISLATION CITED: Commercial Arbitration Act 1984 (NSW), ss 38, 42

A/B Gotaverken v Westminster Corporation of Monrovia [1971] 2 Lloyd's Rep 505 Krivoshev v Royal Society for the Prevention of Cruelty to Animals NSW Inc [2005] NSWCA 76 CASES CITED: Monie v Commonwealth (2005) NSWLR 729 NAIS v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 80 ALJR 367 Pioneer Shipping Limited v BTP Tioxide Limited (The Nema) (1982) AC 724 Promenade Investments Pty Limited v State of New South Wales (1991) 26 NSWLR 203

PARTIES: Sea Containers Limited (Claimant) ICT Pty Limited (Opponent)

COUNSEL: A W Street SC/J S Emmett (Claimant) D J Fagan SC/E A J Hyde (Opponent)

SOLICITORS: Ebsworth & Ebsworth (Claimant) Deacons (Opponent)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT MEDIUM NEUTRAL CITATION: [2006] NSWSC 134

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40196/06 SC 50114/05

GILES JA IPP JA McCOLL JA

Monday 27 November 2006 SEA CONTAINERS LIMITED v ICT PTY LIMITED Judgment 1 GILES JA: I have had the benefit of reading the reasons of Ipp JA in draft. With the following additional observations, I agree with them. 2 It is not necessary to decide whether delay in delivery of an award can constitute a denial of natural justice, or whether it can thereby give rise to a "question of law arising out of an award" within the meaning of s 38(2) of the Commercial Arbitration Act 1984 ("the Act"). In particular, the provision for setting aside an award for misconduct in s 42 of the Act suggests that the remedy for inordinate delay is via misconduct in the wide sense appropriate to arbitrations. In the reasoning of the Court in NAIS v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 80 ALJR 367 on which Sea Containers relied, for denial of natural justice it must be inferred, at the least, that there was a real and substantial risk that the delay impaired the Board's consideration of the evidence and the issues. As explained by Ipp JA, that inference should not be drawn, and Rein AJ did not err in his conclusion to that effect. 3 I agree with the orders proposed by Ipp JA. 4 IPP JA: This is an application for leave to appeal and, if granted, an appeal from a judgment of Rein AJ. The application for leave to appeal and appeal were heard concurrently. 5 The case concerns four contracts for the construction and purchase of four large high-speed wave-piercing catamarans for use as ferries in Europe. The catamarans were constructed by the respondent ("ICT") and purchased by the appellant ("Sea Containers"). 6 The first of the four vessels (known as 025) was constructed by ICT under a contract (the "025 Building Contract") that Sea Containers and ICT entered into on 16 September 1988. The second vessel, known as 026, was also constructed pursuant to a building contract entered into on 16 September 1988 ("the 026 Building Contract"). The third vessel, (known as 027) was constructed pursuant to a contract entered into on 31 October 1989 ("the 027 Building Contract"). The fourth vessel (known as 028) was constructed pursuant to a contract entered into on 21 December 1989 ("the 028 Building Contract"). The Building Contracts, in substance, were the same. 7 Sea Containers took delivery of Vessel 025 on 18 June 1990 in New York. During the delivery voyage several significant failures, both structural and mechanical, occurred in parts of the vessel. At the time of delivery, Vessel 025 did not fully comply with the requirements of the 025 Building Contract. On the delivery date the parties entered into the 025 Delivery Agreement. Under this Agreement ICT undertook to pay for rectification work, warranted repair work that had been carried out, and undertook to pay for or carry out certain other works. 8 Clause 8.01 of the 025 Building Contract provided for certain guarantees during a 12 months period after the vessel had entered service. The guarantee period expired on 18 June 1991. ICT and Hoverspeed Limited (a wholly owned subsidiary of Sea Containers) then entered into an agreement described as the Warranty Settlement Agreement to which Sea Containers was not a party. By the Warranty Settlement Agreement, Hoverspeed released ICT from all its obligations under the guarantee provisions in the 025 Building Contract and the 025 Delivery Agreement, and ICT agreed to pay Sea Containers certain monies. 9 Vessel 026 also experienced a number of structural problems prior to and during its delivery voyage. Sea Containers took delivery of this vessel on 18 June 1991 and entered into a Delivery Agreement with ICT in regard to it on that date. 10 Vessel 027 was delivered to Sea Containers in Hobart on 30 July 1991. On that date Sea Containers and ICT entered into the 027 Delivery Agreement. This agreement included a schedule of work that was still to be completed at ICT's cost. 11 Vessel 028 was delivered to Sea Containers on 2 April 1992. On this date the 028 Delivery Agreement was signed, again with a requirement for further work to be carried out at ICT's cost. 12 All four vessels continued to experience problems after delivery and after the expiry of the warranty period relating to each. 13 Part of the problems concerned the water jets by which Vessels 025 and 026 were propelled, and their housing, mounts and ducting. These items had been manufactured by Riva Calzoni SpA ("Riva"). Disputes arose between Sea Containers, ICT and Riva as to the responsibility for the defects. Eventually an agreement (known as the "Riva Settlement Agreement"), aimed at settling these disputes, was arrived at. 14 Disputes arose in connection with defects that manifested themselves in the four vessels. These disputes were referred to arbitration before a Board of Arbitrators constituted by Mr G R Easton (Chairman), Mr R E Dubler SC and Mr G A Markham. In the arbitration proceedings, Sea Containers claimed various amounts totalling £2,015,918 plus interest. This aggregate was comprised of some 257 individual items of claim. The Board dismissed Sea Containers' claims. 15 After the Board had handed down its award, Sea Containers sought leave to appeal. Rein AJ dismissed its application. 16 The application for leave to appeal and appeal before this Court seeks to agitate most of the matters raised before Rein AJ. The grounds of appeal fall into the following categories:

(a) The delay on the part of the arbitrators in delivering the award.

(b) The proper construction of the guarantee provisions of the Building Contracts ("the design ground").

(d) The proper construction of the Riva Settlement Agreement.

(e) Whether ICT was contractually obliged to build the vessels in accordance with the "IMO Code".

(f) The breadth of the obligations imposed by the Delivery Agreement.

(g) Whether ICT should have been allowed to plead a defence of equitable set-off against claims by Sea Containers.

(h) Whether certain defects had been properly notified under the various contracts applicable. 17 Sea Containers' application for leave to appeal heard by Rein AJ was governed by s 38 of the Commercial Arbitration Act 1984 (NSW) which provided relevantly: "38. Judicial review of awards (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, whether 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) … (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 the face of the award, or (ii) strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law. (6) … (7) …" 18 Sea Containers submitted to this Court that the errors of law capable of satisfying the threshold criteria under s 38(5)(b) for leave are the delay ground, the design ground and the IMO ground (referred to in the course of argument as the "primary grounds"). It accepted that, were it to be unsuccessful on all the primary grounds, the other grounds were "incapable of substantially altering the party's rights". 19 Were Sea Containers to succeed on the delay ground, the entire award would be set aside. If it succeeded on the design ground or the IMO ground, it might be entitled to some damages or compensation (depending on the merits of the Warranty Settlement Agreement and the Riva Settlement Agreement grounds). The latter two grounds were not independent sources of a right to damages or compensation. Provisions in the Warranty Settlement Agreement and the Riva Settlement Agreement were relied on by ICT as defences to Sea Containers' claims based on the design ground and the IMO ground and stood as additional barriers to those claims. 20 Mr Street SC (who together with Mr J Emmett appeared for Sea Containers) referred to the remaining grounds as "derivative" grounds. He explained that this term was intended to denote that these grounds did not independently justify the grant of leave under s 38 of the Commercial Arbitration Act. The relevance of the so-called derivative grounds requires some explanation. 21 Sea Containers submitted that should it succeed in persuading the Court that either the design ground or the IMO ground met the criteria in s 38(5) for the grant of leave, "the other errors of law that the claimant seeks to advance in the other grounds do not have to be the subject of further grants of leave". Put in another way, Sea Containers submitted that "if an error of law (alone or with subsidiary/ancillary errors of law) satisfies the criteria under sub-section (5), leave to appeal must be granted and … all questions of law raised in the appeal … may be pursued". 22 In my view there is no substance in this submission. By s 38(2) an appeal lies to the Supreme Court only "on any question of law arising out of an award". By s 38(5)(a) the Supreme Court shall not grant leave unless it considers that "the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement …". The question of law to be determined under s 38(5)(a) is the question of law in respect of which an appeal lies under s 38(2). The Court is not empowered to grant leave to appeal on any other question of law. Thus, leave to appeal can only be granted in respect of questions of law that satisfy the criteria prescribed by s 38(5). 23 I turn now to the ground based on the delay by the Board of Arbitrators. 24 The Board delivered their award more than 19 months after the parties' final written submissions had been exchanged and more than 21 months following completion of the hearing. The hearing commenced on 11 November 2002 and final oral submissions were heard on 4 and 5 September 2003. The actual hearing time involving the giving of evidence and the cross-examination of witnesses involved 31 days. The issue was a complex one. The arbitrators' reasons point out: "The oral evidence and submissions run to 2,311 pages of transcript. There are 81 exhibits, including the witnesses' statements of evidence and expert reports. The bundle of documents tendered as evidence is comprised of some 26 volumes of lever-arch files". 25 The delay was inordinate and is to be deplored. One of the main advantages said to arise from arbitration as a means of dispute resolution is speed. Here, there was tardiness. 26 Sea Containers submitted that the delay constituted a denial of procedural fairness and an error of law. In their written submissions Sea Containers accepted that the delay did not itself constitute an error warranting the setting aside of the award. It accepted that a link to some miscarriage of the decision-making process had to be identified. According to the written submissions: "[T]he delay impacted upon the reasoning as to the factual matrix surrounding cl 8.1/cl11.02 as to the reasoning concerning the 025 Warranty Settlement Agreement and the Riva Settlement Agreement and as to notification of defects and the Board's findings as to the evidence of defective work". 27 In the course of argument, however, Mr Street expanded this submission. He argued that the delay in this case was so lengthy that, on its own, it constituted a denial of natural justice and hence an error of law. 28 In later written submissions tendered in the course of argument, Mr Street listed approximately forty findings (said to be factual findings) affected by delay. No attempt was made in this list to categorise the findings as primary findings of fact or the drawing of inferences. Moreover, it is difficult to understand from the list why, according to Sea Containers, the factual findings were in error or affected by delay. The list did not attempt to link any finding with any of the grounds on which Sea Containers relied in the present application. These omissions made it difficult to assess the relevance of the listed findings. 29 In NAIS v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 80 ALJR 367 Gleeson CJ said at 372: "A Court of Appeal, reviewing a decision of a primary judge, may conclude that delay in giving judgment has contributed to error, or made a decision unsafe. Again, the ground of appellate intervention is the error, or the infirmity of the decision, not the delay itself." 30 The Chief Justice referred to Monie v Commonwealth (2005) NSWLR 729. In that case Giles JA at 730, [3] described the principle as being: "Extensive delay may cause an appellate court to take a more stringent approach in determining whether error has been demonstrated in the trial judge's findings or whether the trial judge's reasons are adequate."

Giles JA cited Krivoshev v Royal Society for the Prevention of Cruelty to Animals NSW Inc [2005] NSWCA 76 where his Honour (with the concurrence of Hodgson JA and Young CJ in Eq) said at [123]: "Delay is of course undesirable, and is contrary to the public interest in the prompt resolution of disputes. But delay, however undesirable, does not itself mean that on appeal a different result is substituted or a new trial ordered - there would be no sense in causing further delay by a new trial. What must be considered is the effect of the passage of time on the quality of the decision-making, including the perception of an effect." 31 In NAIS at 403, [171], Callinan and Heydon JJ set out arguments by the first respondent in that case to the effect that the Refugee Review Tribunal had not committed jurisdictional error or breached the rules of natural justice in hearing and deciding the matter before it. Their Honours said at 430, [172]: "The answer to these arguments is that unfairness can spring not only from a denial of an opportunity to present a case, but from denial of an opportunity to consider it. Failure by the tribunal to consider a case can arise not only from obstruction by the tribunal of its presentation but also from self-disablement by the tribunal from giving consideration to that presentation by permitting bias to affect its mind: either way the case is prevented from having a fair impact on the tribunal's mind. Another way in which the tribunal can disable itself from giving consideration to the presentation of a case arises where it permits so much time to pass that it can no longer assess the evidence offered. That is what happened here. The first respondent contended that the appellants could not succeed in the absence of findings that 'delay by the Tribunal actually resulted in a material failure to analyse the oral evidence of the Appellants'. That finding ought to be made because it can be inferred from the delay that, in the absence of contrary evidence, the tribunal had deprived itself of its capacity to do so, and there is no contrary evidence." 32 NAIS concerned the application of the principles of jurisdictional error when setting aside administrative decisions made after a period of delay (see at 373, [13] per Gummow J). Whether everything said by the members of the High Court in NAIS is applicable to delay by a judge in curial proceedings remains to be decided. 33 Gleeson CJ's reference to Monie v Commonwealth and his Honour's reference to the ground of appellate intervention being the error in the decision and not the delay itself gives a different emphasis to that propounded by Callinan and Heydon JJ. Nevertheless, the following remarks by the Chief Justice at 373, [10] are not dissimilar to the observations of Callinan and Heydon JJ: "In a case of failure to give a hearing when a hearing is required, the person complaining of denial of procedural fairness does not have to demonstrate that, if heard, he or she would have been believed. The loss of an opportunity is what makes the case of unfairness. The appellants in this case do not have to demonstrate that the tribunal's assessment of them probably would have been more favourable if made reasonably promptly. What they have to demonstrate is that the procedure was flawed; and flawed in a manner that was likely to affect the tribunal's capacity to make a proper assessment of their sincerity and reliability. The procedures required by the Act were designed to give the appellants a reasonable opportunity to state their claims and to have those claims competently evaluated. If the tribunal, by its unreasonable delay, created a real and substantial risk that its own capacity for competent evaluation was diminished, it is not fair that the appellants should bear that risk. The delay on the part of the tribunal in the present case was so extreme that, in the absence of any countervailing considerations advanced in the reasons of the tribunal, it should be inferred that there was a real and substantial risk that the tribunal's capacity to assess the appellants was impaired. That being so, the appellants did not have a fair hearing of their claims by the tribunal." 34 Whatever the position may be in this regard, however, I do not regard the delay on the part of the arbitrators as being so extreme as to give rise to the inference that there was a risk that their capacity to assess the evidence and issues before them was impaired. I come to this conclusion not only by reason of the length and complexity of the case before the arbitrators and the length of the actual delay, but by reference to the award. The award was more than 200 pages long. It set out the issues, the reasoning of the arbitrators and their findings in rational, detailed and clear terms. It gives every indication that the arbitrators gave due and proper attention in an appropriate way to the matters that required their adjudication. 35 Rein AJ dealt fully with the issue of delay. His Honour raised the question whether delay in the delivery of reasons could give rise to a "question of law arising out of an award" within the meaning of s 38(2) of the Commercial Arbitration Act (particularly bearing in mind the power under s 42 to set aside an Award on the ground of misconduct on the part of an arbitrator). His Honour did not resolve this question but held against Sea Containers on the basis that, even if delay did amount to a question of law within s 38, he was not persuaded that the delay "has or may have been productive of unfairness". In coming to this conclusion, his Honour said: "My first impression when I read the Interim Award was that it was a detailed and fair consideration of the issues. In my view, the Interim Award is expressed in clear terms and presents the competing arguments in what appears to be a comprehensive way. I regard it as of significance that Issues (1), (3), (4), (5), (6) and (7)(b) and (c) are all issues of construction of the various agreements and do not involve issues of credibility of witnesses. Issue (2), whilst not a construction point, does not appear to be based on any adverse finding of any witness's credit but rather is based on inferences to be drawn from undisputed facts. This case is therefore quite different to NAIS (even putting aside the fact that it was concerned with a tribunal acting under a statute). It is true that the Interim Award does not embark upon detailed analysis of much of the evidence that was before it but I agree with the submissions made by ICT and which I have set out above in [72] that the absence of such analysis is explicable in terms of the Board's findings. It has not been demonstrated that any factual finding of the Board ignores or wrongly rejects specific evidence that was before it, or that its summary of the general problems with SCL's evidence of defects (para 15.1-15.12 TB 581-585), which underpins its approach on that aspect of the case, was based on a misperception of the evidence which it had received. There does follow an examination of each of the categories of claimed defects which in the context appears comprehensive. Having had the benefit of Mr Street's submissions, I am not persuaded that the long delay in delivery of the Interim Award has or may have been productive of unfairness to SCL because the Board's perception of testimony had been dulled or diminished, or that the failure to advert to the specifics of oral evidence points to any unfairness. The Board's conclusions are in my view expressed with clarity and do not instil disquiet as to the likelihood that time has eroded perception or pressed the Board into an easy path." 36 In my view Rein AJ did not err in the conclusion to which he came. Thus, it is unnecessary to consider whether delay gives rise to a "question of law arising out of an award" within the meaning of s 38(2). 37 I now turn to the ground that relates to the construction of the guarantee clause in each of the Building Contracts (the design ground). 38 The relevant guarantee clause is cl 8.01 in the 025 and 026 Building Contracts and cl 11.01 in the 027 and 028 Building Contracts. The wording of the guarantee clauses in each contract is the same. Clause 8 reads as follows: "8. GUARANTEE 8.01 If within twelve (12) months from entering service of the Vessel, or fifteen (15) months after delivery whichever is the earlier, this period being referred to as the guarantee period, the Buyer shall notify the Builder that any part of the Vessel manufactured by the Buyer [Builder] has become defective on account of inferior or faulty materials or workmanship but not through fair wear and tear, inadequate maintenance or incorrect operation, or if such defect is discovered prior to delivery as a result of experience with a similar Vessel purchased by the Buyer from the Builder, the Builder hereby undertakes to remedy the defective part without charge, or to pay the costs involved or to arrange for it's representatives to carry out such work. All expenses of transportation of replacement parts shall be paid by the Builder. 8.02 In respect of parts and components fitted during the building of the Vessel under the Contract but not manufactured by the Builder (excluding items supplied by the Buyer) the Builder will provide or arrange with supplier to provide similar guarantee terms to those provided in Clause 8.01 and will pass to the Buyer the benefits of any warranty or guarantee given by the manufacturer. 8.03 Except for the guarantees which are expressly provided in this Contract and the undertakings contained in this Clause 8 all conditions, warranties and guarantees whether statutory, expressed, implied or constructive or arising by reason of any description used are hereby excluded and every form of liability for consequential loss or damage is expressly excluded. 8.04 Any claim made upon the Builder for the enforcement of Clause 8 shall be made by notice to the Builder effective on receipt within the guarantee period or within the period of the relevant manufacturer's guarantee as the case may be." 39 Sea Containers' written submissions correctly summarised the decision of the majority of the Board of Arbitrators in relation to the guarantee clauses as follows: "(a) under the terms of each of those contracts, ICT was responsible for deficiencies in design up until the point of delivery of the vessels; (b) ICT's liability following delivery of each vessel was governed solely by the guarantee clause within that vessel's building contract; (c) ICT's liability under the guarantee clause was limited to defects arising from 'inferior or faulty materials or workmanship'; (d) the guarantee clause and in particular the word 'workmanship' as used in the phrase 'inferior or faulty materials or workmanship' within that clause did not embrace defects or deficiencies in the design of the vessel; and (e) accordingly, post delivery of the vessels, ICT did not have any ongoing responsibility under the guarantee clause for defects arising from the design of the vessels and was not thereby liable for the cost of repair work that was necessary due to deficiencies in the design of the vessels." 40 Mr Dubler dissented from the majority on the basis that the phrase "inferior or faulty materials or workmanship" in cl 8.01 was, in his opinion, sufficiently wide to encompass design errors where the relevant design formed part of the work that ICT contracted to perform. This, in essence, was the argument advanced by Sea Containers. 41 Sea Containers relied on A/B Gotaverken v Westminster Corporation of Monrovia [1971] 2 Lloyd's Rep 505. Donaldson J, in the course of his reasons, considered whether "workmanship" incorporated "design" in a particular clause of a contract. His Lordship said at 512: "The contract, as varied, required Gotaverken to supply watertight hatch covers. This required good workmanship both in the design and the execution, and, if there were design errors, I see no reason why these should not be characterised and attract liability as bad workmanship. The alternative view would be that Gotaverken escaped all liability …, which seems an improbable result for the parties to have intended." 42 The Board distinguished the contract in the Westminister Corporation case from the building contracts it was required to construe in the present case. The Board had regard to dictionary meanings of the word "workmanship" (which emphasised the execution of work, rather than design) and a passage from a textbook on shipbuilding which asserted: "Shipbuilding makes a traditional distinction between defective execution of the specification and plans, through bad workmanship or faulty materials, on the one hand, and defective or faulty design in the preparation of the specifications and plans, on the other hand …" (Shipbuilding Contracts, ed Clarke, 2nd ed (1992)). 43 Rein AJ held: "The construction taken by the majority of the Board was entirely open to them and is one that does not appear, without the need for extensive analysis, to be obviously wrong." 44 Mr Fagan SC, who together with Mr Hyde appeared for ICT, drew attention to provisions in the Building Contracts that provided for extensive sea trials (at which Sea Containers representatives were entitled to be present) prior to the delivery of the vessels. He submitted that, under the contracts, this process and the provisions for the acceptance of delivery were the agreed mechanism whereby Sea Containers would be protected against design defects for which ICT was responsible. He argued that the intention of cl 8 was to limit the potential liability of ICT after delivery solely to defects of workmanship and materials. 45 On this argument, the design defects were to be dealt with by the sea trial and delivery procedures and after the tests had been passed and delivery had been agreed, there would be no claim for design. This, indeed, was the view to which the majority came. They considered that ICT was responsible for deficiencies in design only up to the point of delivery. 46 A later amendment to Building Contracts 026 and 027 incorporated the following provision: "Without derogation to the Builder's duties and the Buyer's rights pursuant to cl 8 hereof and subject to any unfinished works and the remedy of any inherent vice or defects in design not reasonably discoverable on acceptance following trials but which have become apparent on inspection before delivery, or for any other damage or claims arising on the delivery voyage or for any minor defects (if any) which shall [be] listed in a Schedule to the Protocol the Buyer shall not be entitled to make or maintain any complaint in relation to or seek any compensation for, the performance of the vessel after the execution of the Protocol." 47 Mr Fagan submitted that this amendment continued to limit liability for design to those defects that became apparent before delivery. On that basis, he submitted, the amendment effected no change to ICT's liability for design as had been provided under the unamended guarantee provisions. 48 The design ground concerns only the "one-off" wording in the four building contracts, the subject of this case. The determination of the question raised by it could not therefore "add, substantially to the certainty of commercial law" as required by s 38(5)(b)(ii) of the Commercial Arbitration Act. Thus, for leave to be granted under s 38, the Court would have to decide that there was a manifest error of law on the face of the award (within s 38(5)(b)(i)). 49 In Promenade Investments Pty Limited v State of New South Wales (1991) 26 NSWLR 203 Sheller JA (with whom Meagher JA agreed) said at 222: "A manifest error of law on the face of the award may be an error which would be apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument." 50 His Honour's views in this regard were based substantially on the following statement by Lord Diplock in Pioneer Shipping Limited v BTP Tioxide Limited (The Nema) (1982) AC 724 at 742: "Where, as in the instant case, a question of law involved is the construction of a 'one-off' clause the application of which to the particular facts of the case is an issue in the arbitration, leave should not normally be given unless it is apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument, that the meaning ascribed to the clause by the arbitrator is obviously wrong." 51 Lord Diplock went on to say that, even in cases where questions of construction of contracts with standard terms are concerned, leave should not be given "unless the judge considered that a strong prima facie case had been made out that the arbitrator had been wrong in his construction". 52 In the present case, the error contended for by Sea Containers is by no means apparent upon a mere perusal of the award itself. Indeed, in my opinion, there is a great deal to be said in favour of the argument advanced by ICT in this regard (which the majority of the arbitrators upheld). I am not persuaded that Rein AJ was wrong in the conclusion to which he came in regard to the design ground. 53 The last primary ground is that described as the "IMO Issue". 54 The relevant clause (cl 1.03 of the 025 and 026 Building Contracts) provides: "The Vessel shall be built to Det Norske Veritas Class + 1A1 Light Craft (CAT) + MV R280 Passenger Ship EO Car Ferry B (PET) and Bahamas Register of Shipping Short International Voyage Passenger Vessel categorised as a Dynamically Supported Craft in accordance with IMO Code of Safety Resolution A.373 (X) 14th November, 1977 in compliance with the By-Laws, requirements and recommendations of the Survey Authorities …" 55 Sea Containers contended that cl 1.03 required the vessel concerned to be constructed in accordance with the IMO Code. The Board found that the words "categorised as a Dynamically Supported Craft in accordance with IMO Code of Safety Resolution A.373 (X) 14th November, 1997" were words of description and did not impose a contractual obligation to build in accordance with the IMO Code. Rein AJ held that the Board's construction of the clause was correct. 56 The Building Contracts provided that the vessel concerned was to be built in accordance with an identified specification. A typical specification (I shall refer to the specification attached to 025 Building Contract) provided: " 1.2.2 Classification and Survey The vessel will be built under Survey by Det Norske Veritas and Classed + 1A1 light craft (cat), + MV, R280, passenger ship, EO, car ferry. The vessel may be categorised as a dynamically supported craft in accordance with IMO Code of Safety, Resolution A.373 (X) 14th November 1977 in so far as it is applied by the National Authorities. It is recognised that this Code applies to vessels up to 450 passenger capacity." 57 In essence, the Board's conclusion was that cl 1.0.3 defined the class to which the vessel was to be built, and the reference to the IMO Code was merely part of the classification description. 58 The reference to Det Norske Veritas and the Bahamas Register of Shipping supports this construction as these are bodies that are concerned with the classification of vessels. The Det Norske Veritas Rules themselves provide that they are "aimed at conformance with the intentions of the IMO Code of Safety for Dynamically Supported Craft - Resolution A.373(X) 1978." They "apply to High Speed Light Craft having a defined restricted service". The restricted service is specified by reference to a restricted maximum distance of sailing from nearest harbour or safe anchorage and a limited vertical acceleration of the craft resulting from a restricted sea state to speed relationship. The Det Norske Veritas Rules define acceptance criteria for the design, construction and testing of High Speed Light Craft of various lengths and speeds and apply the IMO Code only to a limited extent. Different rules apply depending on the particular classification. These matters support the Board's construction of the relevant clause. 59 There is a further consideration, in regard to this issue, to which Mr Fagan referred. Clause 4.03 of the relevant Building Contracts provides: "After delivery of the Vessel, all responsibility and/or liability of whatsoever nature on the part of the Builder in respect of such Vessel shall cease excepting only that laid down in cl 8."

Thus, whatever the reference to the IMO Code might mean in cl 1.03, after delivery Sea Containers' claims are confined to those arising out of cl 8. 60 In my view Sea Containers' reliance on the IMO Code is without substance. The view adopted by the Board was readily open to it and Rein AJ correctly held that this was the case. 61 I turn now to the Warranty Settlement Agreement issue. This concerns vessel 025 alone. Recital C of the Delivery Agreement (to which Sea Containers, ICT and Hoverspeed were parties) recorded that Sea Containers wished, on delivery, to have title to vessel 025 transferred to Hoverspeed. The subsequent Warranty Settlement Agreement recorded that Hoverspeed was the owner of vessel 025 and was also "the beneficiary of various warranties, guarantees and undertakings" given by ICT under the 025 Building Contract and the Delivery Agreement. By the Warranty Settlement Agreement Hoverspeed released ICT from "all its obligations under the guarantee clause in the [025 Building] Contract and under the Delivery Agreement" save to the extent provided by the Warranty Settlement Agreement. As part of the consideration for this release ICT undertook to pay Hoverspeed the sum of £157,894. Further, ICT and Hoverspeed agreed that they would jointly pursue Riva for the payment of £186,000 "representing the amount expended to date by Hoverspeed in respect of repairs to defective water jets on the vessel". 62 The Board noted that when certain payments were due to ICT in respect of the delivery of vessel 027, a settlement sheet was prepared and given to Sea Containers. By the settlement sheet, ICT allowed Sea Containers a credit of £186,000. The £186,000 was one of the amounts required to be paid by ICT to Hoverspeed under the Warranty Settlement Agreement. Sea Containers thereby, according to the Board, "took the benefit of a credit of £186,000 referrable to the 025 Warranty Settlement Agreement". Further, Sea Containers was given credit for the sum of £157,894 in respect of sums owing by Sea Containers for vessel 027. The £157,894 was the further amount owed by ICT to Hoverspeed under cl 1 of the Warranty Settlement Agreement. 63 By reason of these facts the Board concluded: "ICT paid sums of money to [Sea Containers] as a credit under the 027 Building Contract that were otherwise due to Hoverspeed under the 025 Warranty Settlement Agreement".

That is to say, ICT "paid" the sums of £186,000 and £157,894 to Sea Containers in reliance upon the representation in the Warranty Settlement Agreement that ICT "was receiving a release from its obligations under the 025 Building Contract and the 025 Delivery Agreement". 64 The Board stated: "In the absence of any direct evidence to the contrary, the Board is satisfied that [Sea Containers] was aware when it received the sums payable under the 025 Warranty Settlement Agreement, that ICT was acting on the basis of the representations in the 025 Warranty Settlement Agreement. Having permitted ICT to act on this basis at the time, the Board agrees with ICT that SCL is thereby estopped from denying that Hoverspeed was in a position to grant an effective release to ICT in accordance with the terms of the 025 Warranty Settlement Agreement … The proposition that the 025 Warranty Settlement Agreement should be construed as obliging ICT to make these payments without in effect obtaining any real release, would deprive the Agreement substantially of its commercial purpose. In the Board's view, the Agreement ought to be construed so that ICT obtained an effective release from all claims that have been made by [Sea Containers] (or Hoverspeed) up to 18 June 1991, pursuant to either the Guarantee Clause in the 025 Building Contract or under the 025 Delivery Agreement." 65 Mr Street submitted to this Court that there was no "unequivocal" representation that Hoverspeed had become entitled to the benefit of the guarantees in cl 8 of the Building Contract. He submitted that there was no evidence that Hoverspeed represented that it was authorised by Sea Containers to release ICT and that Sea Containers knew that Hoverspeed was representing that it had such authority. He also submitted that there was no evidence that ICT relied on any such representations. 66 The representation to ICT that Hoverspeed was the beneficiary of cl 8 of the Building Contract was made in express terms in the Warranty Settlement Agreement itself. The fact that the statement was made in a contract between ICT and Hoverspeed makes it no less a representation of fact. 67 Reliance by ICT on the representation can be inferred from the payments it made of £157,894 and £186,000 to Sea Containers. 68 The knowledge of Sea Containers that the representations were made can be inferred from its acceptance of the payments of the two sums in question and the fact that Hoverspeed was its wholly owned subsidiary. As the Board observed, in the absence of evidence to the contrary, these matters justified the findings of knowledge on the part of Sea Containers and reliance on the part of ICT. 69 Rein AJ, in my view, correctly held that the Board's findings on this issue were not subject to error. 70 The next ground raised is the Riva Settlement Issue. 71 This issue relates to an exchange of correspondence between ICT and Sea Containers over the period November and December 1991. This correspondence culminated in a letter dated 5 December 1991 written by Sea Containers to ICT in which the following was said: "We note that you are now offering AUS$1,280,000 in respect of all our losses and damages, including consequential loss, up to 20 November 1991. Having discussed this internally, and without prejudice to all other matters between us either in contract or in tort, other than for those parts already supplied by Riva and water jet defects already known on vessels 025, 026 and 023, we are prepared to accept your offer and we look forward to receiving your cheque." 72 The Board found that, by the letter of 5 December 1991, Sea Containers released ICT from all claims that Sea Containers might have against it in respect of, amongst other things, water jet defects already known on vessels 025 and 026 (vessel 023 not being presently relevant). Rein AJ considered this construction was open to the Board. 73 I am not persuaded that Rein AJ erred in this respect. It was open to the Board to construe the phrase "other than for those parts already supplied by Riva and water jet defects already known on vessels 025, 026 and 023", as qualifying "all other matters between us either in contract or in tort" and not qualifying "all our losses and damages, including consequential loss, up to 20 November 1991". This is simply a matter of impression from the language used and I do not think it necessary to say more than what I have already said in this respect. 74 As mentioned, Mr Street conceded that the other grounds of appeal (the derivative grounds) would not satisfy the criteria under s 5(b) of the Commercial Arbitration Act. Accordingly, in the light of the conclusions to which I have so far come, it is not necessary to deal with those grounds. 75 I would dismiss the application for leave to appeal with costs. 76 McCOLL JA: I agree with Ipp JA. **********

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Commercial Arbitration Act 1984(NSW)

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Judgment (26 paragraphs)

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