The Nuance Group (Australia) Pty Ltd v Shape Australia Pty Ltd

Judgment

1. HER HONOUR: The parties seek to challenge an arbitral award under sections 31, 34 and 34A of the Commercial Arbitration Act 2010 (NSW). The arbitrator, Dr Richard Manly QC, has advised that he will abide the orders of this Court save as to costs.

SUMMARY

1. The plaintiff, The Nuance Group (Australia) Pty Ltd operates a duty-free store at Melbourne International Airport. The first defendant, Shape Australia Pty Ltd, is a contractor which carries out fit-out and refurbishment works. Nuance and Shape entered into a contract under which Shape would expand and refurbish the duty-free store for $13.8 million. The contract took the form of an unamended Australian Standard General Conditions of Contract (AS 2124-1992), which included an arbitration clause.
2. The Superintendent appointed under the contract was GHD Woodhead. The work was to be performed in five "Separable Portions" known as 1a, 1b, 2, 3 and 4, this being intended to permit Nuance to progressively take back the store for trading purposes as the refurbishment advanced. As the date for practical completion drew near, Shape had not completed work in Separable Portion 4. In order not to delay the opening of the store, the Superintendent created new Separable Portion 4a (completed works) and Separable Portion 4b (incomplete works) and levied liquidated damages for both portions, which Nuance withheld. Shape issued a Notice of Dispute in November 2017.
3. After what appears to have been a protracted process, alongside two related proceedings in the Supreme Court of Victoria under the Building and Construction Industry Security of Payment Act 2002 (Vic), the arbitral hearing finally took place over eight days in October 2020, following which closing written submissions and reply submissions were provided. On 23 December 2020, Dr Manly QC published a "First Partial Final Award" comprising 203 pages and answering 138 questions posed for determination. Put shortly, the arbitrator concluded that Shape's claims concerning latent conditions (clause 12) and contentious variations (clause 40) were largely time-barred by reason of clause 46.1 of the contract. In addition, the arbitrator concluded that the Superintendent was entitled to create Separable Portions 4a and 4b (clause 35.4) but its certification of liquidated damages for Separable Portion 4b (clause 35.3) was void and of no effect. Of the $990,000 withheld for this portion, Nuance was only entitled to $32,699.04; the arbitrator ordered Nuance to remit the balance.
4. The challenges essentially raise three questions. First, did the parties agree that an appeal lies to this Court on questions or law and, if not, are they estopped from suggesting otherwise? This is considered at [24]-[38]; the answer to both questions is no. Consequently, whether the arbitrator erred in his construction of clause 12 (latent conditions), clause 35.4 (separable portions) and clause 46.1 (time for notification of claims) need not be considered.
5. Second, having regard to the pleadings and the arbitrator's findings on liquidated damages, did the arbitrator exceed his jurisdiction by dealing with the parties' claims otherwise than in accordance with the manner in which it was referred to him, such that the award is liable to be set aside under section 34(2)(a)(iii) of the Act? This was essentially a long-running pleadings dispute and is considered at [117]; the answer is no. Finally and relatedly, does the award in respect of liquidated damages conflict with the public policy of this State by reason of a failure to accord natural justice, such that it ought be set aside under section 34(2)(b)(ii) of the Act? This is considered at [136]; the answer is no.
6. Third, are the arbitrator's reasons in respect of latent conditions, separable portions, the time bar and his apparently inconsistent reasons in respect of liquidated damages (clause 35.3) inadequate to comply with section 31(3) of the Act such that the award should be set aside under section 34(2)(a)(iv) of the Act? This is considered at [142]; the answer is no. When the award is read against the list of 138 questions - like the cryptex in The Da Vinci Code - the reasons in respect of liquidated damages are perfectly explicable.
7. Nuance relied on the evidence of its solicitor, Timothy Coleman. Shape relied on the evidence of its solicitor, Gregory Henry, and commercial manager, Cameron Aitken. There was no cross-examination. The documentary evidence comprised eight volumes, being a large portion of the material before the arbitrator. Extensive written and oral submissions were made by senior counsel.

FACTS

1. As mentioned, the refurbishment work was to be performed in five "Separable Portions" known as 1a, 1b, 2, 3 and 4. Separable Portion 1a reached practical completion in December 2016. In January 2017, Shape prepared a variation price submission for additional high-level ceiling works; a 5.2 metre high ceiling now needed to be demolished in places and re-installed to allow for the installation of services. This required demolition of some plasterboard ceiling and framing and installation of a new ceiling. On 6 February 2017, Shape sent a request for information to the Superintendent for review and action, providing photographs, with commentary, on the ceiling conditions where plasterboard had been removed. Problems with the battens and framework beneath the plasterboard were pointed out. Shape and the Superintendent met on site and, on 10 February 2017, the Superintendent provided instructions on how Shape was to proceed with the work.
2. On 22 February 2017, Shape submitted its variation price submission for the high-level ceiling works. Some of the accompanying photographs and commentary appeared to relate to problems located once the plasterboard was removed. The Superintendent raised various queries in respect of the variation and further detail was provided by Shape, including attaching further photographs illustrating problems with the existing framing. On 10 March 2017, Separable Portion 2 reached practical completion.
3. On 18 April 2017, Shape sent a Notice of Delay to the Superintendent as additional plasterboard ceiling needed to be demolished and re-instated, delaying practical completion of Separable Portion 4. Shape advised that it was considering the impact of the additional ceiling "and will submit our EOT in accordance with the contract agreement." On 28 April 2017, the Superintendent certified practical completion of Separable Portions 1b and 3. Shape provided the Superintendent with material in support of the extension of time for the additional ceiling works, claiming an additional 15 working days and $214,405 costs for Separable Portion 4, now expected to complete on 17 June 2017. An updated variation price submission was provided for the additional high-level ceiling works.
4. On 3 May 2017, the Superintendent advised Shape that the claim for an extension of time was not approved as the specification stated that lay-outs of service lines, plant and equipment shown on the drawing were diagrammatic only, with contractors to obtain measurements and other necessary information, and co-ordinate the design and installation in conjunction with all trades, before commencing work, "This note is there so that all trades understand site conditions and what is involved in installing the services documented and one [of] the main reason[s] we requested that all contractors and your relevant subcontractors be present on the tender site visit." Shape disagreed with the Superintendent's assessment, "Our EOT is based on additional demolition & ceiling works which could not be ascertained at tender time." The Superintendent assessed Shape's claim for an extension of time and, on 10 May 2017, approved an extension of two days only as a smaller area of additional ceiling, being 125 square metres, was considered to be additional to that documented during the tender process. The additional 225 square metres which Shape proposed to remove and replace was considered unnecessary. On 19 May 2017, the Superintendent formally confirmed a two-day extension of time under clause 35.5 of the contract.

New separable portions

1. By late June 2017, Shape had not completed several elements of work in Separable Portion 4. In order not to delay the opening of the store, the Superintendent's representative, Padraig Sinnott, advised Shape that he intended to create new Separable Portions 4a and 4b in order for Nuance to be able to occupy the space. This was discussed at a meeting on 14 June 2017, and Shape is said to have agreed (albeit the arbitrator later found there was no consultation on the subject and Shape was simply told). Mr Sinnott attended a practical completion site inspection on 28 June 2017, and again on 6 July 2017, following which the Superintendent notified Shape, "As per Clause 35.4, it has been deemed relevant to divide Separable Po[r]tion No. 04, into two further portions of which will be known as Separable Po[r]tion No. 04a and Separable Po[r]tion No. 04b." Clause 35.4 of the Contract provided: Use of Partly Completed Works If a part of the Works has reached a stage equivalent to that of Practical Completion but another part of the Works has not reached such a stage and the parties cannot agree upon the creation of Separable Portions, the Superintendent may determine that the respective parts shall be Separable Portions. …
2. The Superintendent certified practical completion of Separable Portion 4a, being the exact floor area of the old Separable Portion 4. Shape handed possession of the area back to Nuance. The Superintendent advised that there were a number of incomplete items of work, which would now form part of Separable Portion 4b. As Mr Sinnott later explained, these works were scattered throughout the store and were not contained within localised areas. With careful management, Mr Sinnott considered that Shape could attend to this work without impacting on the modified operation of the store.
3. From 7 July 2017, Nuance was able to occupy the whole of the site whilst defects and outstanding work was being completed. The contract provided for liquidated damages of $7,500 per day for Separable Portion 4. On 14 July 2017, the Superintendent certified liquidated damages for Separable Portion 4a in the sum of $210,000, based on $7,500 a day. On 19 July 2017, the Superintendent approved a contract variation in respect of the addition high-level ceiling works for $49,018.20. In an attached ceiling plan, the Superintendent identified those areas which needed to be removed to install services (180 square metres) with all remaining areas (340 square metres) considered unnecessary to remove.
4. On 22 September 2017, the Superintendent issued a further contract variation in respect of the extension of time for this work, being $25,298 for two working days. The Superintendent also certified liquidated damages in respect of Separable Portion 4b at $397,500, based on $7,500 a day and continuing as the works were then incomplete.

Notice of Dispute

1. On 3 November 2017, Shape issued a Notice of Dispute under clause 47.1 of the contract, including in respect of the Superintendent's assessment of Shape's claims for a variation and extension of time in respect of the high-ceiling works. The Notice of Dispute stated: The dispute relates to: … (e) the Superintendent's notice dated 6 July 2017 purporting to create a new Separable Portion 4B; (f) the Superintendent's purported certification of liquidated damages (as set out in its notices dated 14 July 2017 and 22 September 2017) and [Nuance]'s withholding of amounts from SHAPE's progress claims in respect of liquidated damages … … (k) to the extent of the Superintendent's involvement in the matters described above, [Nuance]'s failure to ensure the Superintendent exercised its functions under the Contract in the manner prescribed by clause 23 of the Contract.
2. It is reasonably apparent from Shape's use of "purported" in the Notice of Dispute that it challenged the validity of the creation of new Separable Portions 4a and 4b and the calculation of liquidated damages in respect of those portions. In addition, Shape alleged that Nuance had breached clause 23 of the Contract by failing to ensure that the Superintendent exercised its functions in accordance with the Contract. Clause 23 of the Contract provided: SUPERINTENDENT The Principal shall ensure that at all times there is a Superintendent and that in the exercise of the functions of the Superintendent under the Contract, the Superintendent - (a) acts honestly and fairly: (b) acts within the time prescribed under the Contract or where no time is prescribed, within a reasonable time; and (c) arrives at a reasonable measure or value of work, quantities or time.
3. Nuance steadfastly contended before, during and after the arbitration that the only issue raised by the notice was a breach of clause 23; the arbitrator consistently ruled otherwise. To a large extent, Nuance's challenge to the award does not stray far from this central complaint, which I have considered further at [123].
4. It will also be noted that the Notice of Dispute was issued 42 days after the Superintendent had issued a variation in respect of the high-level ceiling works and advised the basis on which it was calculating liquidated damages for Separable Portion 4b. Clause 46.1 of the Contract required the notice to be served within 42 days for some matters, but within 28 days for others: see [88]. This became a key issue in the arbitration and on which Nuance was successful.
5. On 2 February 2018, the Superintendent certified practical completion of Separable Portion 4b together with liquidated damages totalling $990,000, based on $7,500 a day. It is this determination with which these proceedings are largely concerned.

SOPA claims

1. On 2 March 2018, Shape issued a payment claim (Payment Claim 13) under the Building and Construction Industry Security of Payment Act 2002 (Vic) for some $3.5 million, including liquidated damages which Nuance had deducted. The same day, Nuance responded to the payment claim, identifying that no monies were payable. Shape initiated an adjudication application for a reduced amount of some $2.2 million, which was referred to an adjudicator. On 13 April 2018, an adjudication determination was issued for some $1.4 million and Nuance made an application for review of the determination. On 30 April 2018, Shape referred the dispute as to what was ultimately payable under the contract to Dr Manly QC for final determination.
2. On 15 May 2018, an adjudication review was issued in respect of Payment Claim 13 for some $1.2 million. On 22 May 2018, Nuance commenced proceedings in the Supreme Court of Victoria seeking to quash the adjudication and review determinations. On 29 June 2018, the determinations were quashed: The Nuance Group (Australia) Pty Ltd v Shape Australia Pty Ltd [2018] VSC 362 per Digby J. On 10 July 2018, Shape issued a further payment claim to Nuance claiming some $1.3 million (Payment Claim 14) in respect of the liquidated damages deducted by Nuance. Nuance issued a payment schedule identifying that no amounts were payable. Payment Claim 14 was the subject of another adjudication application under the Building and Construction Industry Security of Payment Act 2002 (Vic).

AGREE TO APPEAL ON QUESTIONS OF LAW?

1. Meanwhile, discussion ensued as to the rules by which the arbitration would be conducted. Notwithstanding that the works had been undertaken in Melbourne, Nuance's solicitors proposed that the arbitration be governed by the New South Wales legislation, while Shape's solicitors considered that the arbitration should be conducted according to the Commercial Arbitration Act 2011 (Vic).
2. On 2 August 2018, Nuance's solicitor pressed for the arbitration to be conducted in accordance with the New South Wales Act, noting: (emphasis added) Our understanding is that the rights of appeal under the Victorian version of the legislation are too narrow given the way it is currently being interpreted. Our view is that both parties should have sufficient rights of appeal if the need arises. Whilst there was no specific response to this email, Shape obviously agreed as it proposed directions to be made by the arbitrator such that the Act would apply.
3. Section 34A was then in the same terms in both New South Wales and Victoria. In particular, section 34A(1) of the Commercial Arbitration Act 2011 (Vic) then provided: (emphasis added) An appeal lies to the Court on a question of law arising out of an award if - (a) the parties agree, before the end of the appeal period referred to in subsection (6), that an appeal may be made under this section; and (b) the Court grants leave.
4. The email of 2 August 2018 indicated that the New South Wales legislation was considered preferable by reference to how it was being applied, rather than by reference to any difference between the terms of the legislation. There being no textual difference between the Acts, the email could not mean anything else.
5. Nuance's solicitor, Mr Coleman, said that, when sending the email of 2 August 2018, he did not understand his correspondence to propose or agree that either party would have rights to appeal on questions of law under section 34A of the Act. Nor did he have instructions to so propose or agree.
6. Shape's solicitor, Mr Henry, however, said that when he received the email, he formed the impression that Nuance had carefully considered its position in relation to the choice of rules for the arbitration and, specifically, whether there should be rights of appeal. Mr Henry understood, based on the email, that Nuance's preference was that rights of appeal should be available and this was an important matter for Nuance. Mr Henry thought it was a sensible suggestion that "both parties should have sufficient rights of appeal". So far, Mr Henry's understanding of the email is unexceptional.
7. Further, based on Mr Henry's understanding of when rights of appeal would normally be available, he assumed that Nuance's solicitor was suggesting that rights of appeal should be available to both parties where an error of law had been made by the arbitrator as, if errors of law were not intended to give rise to rights of appeal, this would significantly limit the circumstances in which either party could appeal. It did not seem to Mr Henry that this would be "sufficient" and he assumed and proceeded on the basis that this was the scenario that Nuance was seeking to avoid. Mr Henry considered that it was also in Shape's interests for there to be rights of appeal where there was an error of law by the arbitrator and, on this basis, accepted Nuance's proposal. It is difficult to understand why Mr Henry formed this assumption where Nuance's email did not specifically refer to this matter, on which specific agreement was necessary.
8. For this Court to have jurisdiction to hear an appeal on a question of law, it must be satisfied that the parties have agreed that an appeal may be made under section 34A of the Act, which provides an 'opt-in' regime for judicial review of awards: Jacobs Group (Australia) Pty Ltd v Commonwealth [2020] VSC 127 at [10], [13]. While the former Commercial Arbitration Act 1984 (NSW) contemplated that parties to an arbitration agreement may exclude the right of appeal on a question of law, the current Act contemplates no right of appeal on a question of law as the default position unless the parties agree otherwise: ASC AWD Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122; [2017] SASCFC 150 at [78] per Nicholson J (Kourakis CJ and Stanley J agreeing). It was entirely within the parties' remit to agree upon the extent to which the arbitrator's decision on legal questions was binding or subject to review by this Court. The Act respects the parties' choice. Here, the correspondence does not evidence an express agreement. Nuance did not ask Shape to agree that an appeal lay to this Court on a question of law. Shape did not even reply.
9. Nor can an agreement to appeal on questions of law be implied as the contract was effective without such a term. In Ashjal Pty Ltd v Elders Toepfer Grain Pty Ltd [2012] NSWSC 545, Hammerschlag J considered that the requirements laid down in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 for an implied term were not met as it was not necessary to give the contract business efficacy at the time that the contract was entered into (as the old Act then gave the parties a right of appeal with leave or by agreement), was not obvious (and, indeed, was obviously not required) and contradicted the express terms of the contract: at [16]-[21]. Likewise in ASC AWD Shipbuilder v Ottoway, Nicholson J considered at [79]: Under each form of the legislation it was contemplated that very significant contractual disputes might proceed to arbitration without there being any right to appeal on a question of law. In these circumstances, it cannot be said that an implied term to the effect of giving rise to such a right of appeal was necessary to give business efficacy to … the arbitration agreement [which] had and continue[s] to have business efficacy whichever statutory regime were to apply and whether or not the parties agreed to opt out [the old Act] or to opt in [the new Act]. Nicholson J, with whom Kourakis CJ and Stanley J relevantly agreed, followed Hammerschlag J's decision in Ashjal v Elders Topfer Grain: at [82].
10. I find that the parties did not, by Shape's acceptance of the proposal in Nuance's email of 2 August 2018, expressly or by implication, agree that an appeal lies to this Court on questions of law.

Estoppel

1. Shape contended that Nuance is estopped from denying there was an agreement to appeal to the Court on a question of law. Shape contends that, by the email of 2 August 2018, Nuance represented that the arbitration should be conducted under the New South Wales legislation and the parties should have a right of appeal on questions of law under section 34A if the need arose. Shape is said to have acted in reliance on this representation in agreeing to conduct the arbitration under the Act and will suffer a detriment if Nuance is now permitted to alter its position. Alternatively, it is said that the parties dealt with each other on the shared assumption that they could appeal as of right from a decision of the arbitrator involving an error of law; this shared assumption should be treated as an agreement for the purposes of section 34A of the Act. If Nuance is now permitted to depart from this shared assumption, then Shape will suffer detriment such that Nuance should be estopped from departing from it.
2. As to whether Nuance made the suggested representation, a representation in estoppel is assessed by how it would be reasonably understood by the addressee in the context of the surrounding circumstances, where equity does not shrink from ascribing meaning to apparently vague, imprecise or incomplete representations: Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86; (2008) 66 ACSR 325 at [134]-[136]; Hammond v JP Morgan Trust Australia Ltd [2012] NSWCA 295; (2012) 16 BPR 30,901 at [53]. I do not consider that the email of 2 August 2018 made the representation asserted: see [27]. Nor does Mr Henry clearly state that he relied on such a representation but rather on his own understanding of when rights of appeal would normally be available and his assumptions about what Nuance considered were "sufficient rights of appeal".
3. There was no shared assumption: see [28]. As the Court of Appeal explained in Miller Heiman Pty Ltd v Sales Principles Pty Ltd (2017) 94 NSWLR 500; [2017] NSWCA 106 at [41], a defence of estoppel may fail where the parties' conduct is equally consistent with them acting in accordance with the contract as with the shared assumption alleged, citing Queensland Independent Wholesalers Ltd v Coutts Townsville Pty Ltd [1989] 2 Qd R 40, where the Court stated at 46: Acts done privately by one party without coming to the knowledge of the other can scarcely be capable of affecting their mutual relations or of raising assumptions capable of forming a conventional or accepted basis governing their relations. To produce that consequence the acts or conduct relied upon must point plainly, if not unequivocally, to the assumption put forward as the conventional basis of relations. A course of dealing that is explicable by reference to some other equally plausible assumption inevitably falls short of establishing that the parties accept as the basis of their relations the particular assumption contended for.
4. As to detriment, Shape must prove that it has suffered a "material disadvantage" which can lie in the loss of a legal remedy or a 'fair chance' of obtaining a commercial or other benefit: Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560; [2014] HCA 14 at [150] per Gageler J. There can be no real detriment if the party asserting the estoppel would have been in the same position in any event: Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19 at [92] per Gageler J. Where the terms of the Victorian and New South Wales legislation were same, Shape suffered no detriment by agreeing to adopt the New South Wales legislation.
5. It is not necessary to decide on this application whether an estoppel can arise in the face of section 34A(1)(a) of the Act - this being ultimately a question of statutory construction (Tudor Developments Pty Ltd v Makeig (2008) 72 NSWLR 624; [2008] NSWCA 263 per Basten JA at [71]; Chief Commissioner of State Revenue v Boss Constructions (NSW) Pty Ltd (2018) 98 NSWLR 473; [2018] NSWCA 270 at [24] per Bathurst CJ) - where I am not satisfied that Shape has established the elements of estoppel in any event.
6. As there was no agreement that an appeal would lie to this Court on a question of law arising out of the award, nor is Nuance estopped from denying such an agreement, it is not necessary for me to decide whether to grant leave to appeal under section 34A(1)(b), nor whether I am satisfied that the matters described in section 34A(3) have been established including whether the award is 'obviously wrong', 'open to serious doubt' or involves questions of general public importance. The bulk of Shape's Cross-Summons also falls away.

PLEADINGS AND EVIDENCE

1. Having agreed upon the legislation which would apply, the parties proceeded to serve pleadings and evidence. By its Points of Claim, Shape sought some $3.5 million including some $900,000 for the additional high-level ceiling works - described in the Points of Claim as "Latent Conditions" - and a number of contentious variations totalling some $565,000. Shape challenged the Superintendent's delineation of new Separable Portions 4a and 4b as being void and of no effect, where it was said that the Superintendent had no power to make such a determination. As such, the date of practical completion of Separable Portion 4 was said to be 6 July 2017 and Shape sought repayment of liquidated damages deducted by Nuance after that date. In the alternative, Nuance's actions in taking possession of the site were said to have prevented Shape having reasonable access to perform the work such that Shape was likewise entitled to be repaid the liquidated damages.
2. Nuance served a defence and cross-claim. By its cross-claim, in a slightly odd pleading, Nuance essentially sought confirmation that Shape was entitled to keep the liquidated damages and that Payment Claim 14 was correctly assessed as nil.
3. On 23 August 2018, the adjudicator issued a determination in respect of Payment Claim 14, determining that he did not have jurisdiction to hear the application: the absence of a reference date made the payment claim invalid, depriving him of jurisdiction to determine the application. In any event, the adjudicator found the amount payable was nil as the entirety of the payment claim was for an excluded amount, being an attempt to recoup Nuance's asserted entitlement to liquidated damages. Shape commenced proceedings in the Supreme Court of Victoria to quash the determination. On 21 December 2018, Digby J held that the second adjudication determination was not affected by jurisdictional error nor liable to be quashed: Shape Australia Pty Ltd v The Nuance Group (Australia) Pty Ltd [2018] VSC 808.
4. The parties gradually served evidence in the arbitration. In May 2019, Nuance served a statement by Mr Sinnott, describing events leading to creation of Separable Portions 4a and 4b, the rationale (to permit Nuance to use the site while the works were being completed), how he calculated liquidated damages (being $7,500 a day) and how the works progressed to completion. Mr Sinnott also addressed the latent defect claim, suggesting that Shape was well familiar with the ceiling cavity as it was already conducting works in the adjacent area when tendering for the work. In September 2019, Shape served evidence in reply, including an expert report by David Madden in which he valued the works in Separable Portions 4a and 4b and assessed the proportion of the value of this work against the works as a whole.

A pleading point

1. Nuance's solicitor considered Mr Madden's evidence went beyond Shape's pleaded case and suggested that a directions hearing be held to clarify the matter before expert conclaves were arranged. Shape's solicitor replied at length, explaining how Mr Madden's evidence was said to fall within the pleadings and to address Nuance's evidence served in support of its cross-claim for liquidated damages in respect of Separable Portions 4a and 4b. A directions hearing was said to be unnecessary.
2. Over Shape's objection, Nuance raised the matter with the arbitrator and sought a preliminary conference. The arbitrator proposed to deal with the matter on the papers and invited the parties to provide submissions in respect of any issue not already addressed in the correspondence provided to him. On 2 October 2019, Shape provided submissions, as did Nuance. In particular, Nuance emphasised that, to the extent that Shape sought to adduce the evidence in response to Nuance's cross-claim for liquidated damages, Nuance's alternative claim for liquidated damages was pleaded in circumstances where an adjudicator had determined that the liquidated damages could not be taken into account for the purpose of assessing amounts payable in respect of a claim made under the Building and Construction Industry Security of Payment Act 2002 (Vic), a determination subsequently upheld by the Court. Nuance submitted: As a consequence, the cross-claim in the alternative for liquidated damages has become redundant.
3. On 3 October 2019, the arbitrator advised that the "sophisticated" submissions delivered by Nuance needed to be directly addressed by Shape; it was no longer appropriate to determine the matter on the papers as the matter was far more complex than had appeared. The arbitrator proposed to defer ruling on the matter until Shape had conferred with counsel and considered its position in light of Nuance's submissions, including "whether it needs further amendments so as to put its case." On 25 October 2019, Shape provided its submissions in reply, together with a proposed amended pleading. Shape submitted: … in light of the position now adopted by the Respondent in its submissions on the issue of pleadings, the Claimant also proposes at this stage to make further amendments to make it very plain that it disputes the Superintendent's directions that were the subject of the Notice of Dispute and which are already identified in its Points of Claim. Those amendments are designed to avoid any later suggestion by the Respondent that the Claimant may be departing from its "pleaded" case. The proposed amendments cannot be said to introduce any new matters or to take the Respondent by surprise.
4. On 4 November 2019, Nuance's solicitor advised that Nuance maintained its opposition to any amendment to the pleadings at this late stage. The rate of liquidated damages used by the Superintendent was said not to be raised in the Notice of Dispute, being the document which founded the arbitrator's jurisdiction. Whilst it was open to Shape to issue a fresh Notice of Dispute, Nuance considered that Shape would be time-barred in respect of any such claim.
5. On 14 November 2019, the arbitrator heard submissions on this jurisdictional issue and gave a brief ruling in favour of Shape. The arbitrator gave reasons for his ruling on 15 November 2019. After reference to case law and the terms of the Notice of Dispute, the arbitrator stated that he was satisfied that the dispute regarding liquidated damages had been properly identified in the notice and confirmed that he had jurisdiction to rule on that dispute; it was not necessary for Shape to serve a further Notice of Dispute. The arbitrator made the following direction: I determine that the Notice of Dispute dated 3 November 2017 provides the Arbitrator with jurisdiction to determine the issue of liquidated damages, and in particular, the plea in paragraph 174 and the prayer for relief in the Second Amended Points of Claim dated 31 October 2017.
6. (Paragraph 174 of the Amended Points of Claim then pleaded: "The Superintendent's purported determination that there should be new Separable Portions 4A and 4B was void and of no effect in circumstances where the Superintendent had no power to make such a determination".) The arbitrator made directions for the amendment of pleadings, further evidence and discovery.

Amended pleadings

1. As amended (being the Second Amended Points of Claim (PoC)) and in the form finally advanced, Shape continued to dispute the Superintendent's determination of its claim in respect of high-level ceiling works, the establishment of Separable Portions 4a and 4b, a number of contentious variations and the liquidated damages which Nuance had calculated and retained in respect of Separable Portions 4a and 4b.
2. Shape's pleading in respect of liquidated damages warrants close examination. Shape contended that Separable Portion 4 reached Practical Completion on 6 July 2017, when it is said that Nuance took possession of the Site and the Works and commenced trading from all areas of the Site but "the Superintendent purported to determine that there should be new Separable Portions 4a and 4b pursuant to clause 35.4 of the Contract": at [173(f)], PoC. By the Notice of Dispute, Shape had disputed the Superintendent's determination: at [173A], PoC. Shape now pleaded at [174], PoC (amendments underlined): The Superintendent's purported determination that there should be new Separable Portions 4A and 4B was void and of no effect in circumstances where the Superintendent: (a) had no power to make such a determination; and/or (b) failed to give effect to and complete clause 35.3 of the Contract to determine the respective amount of liquidated damages applicable to the new Separable Portion 4A and/or Separable Portion 4B.
3. Clause 35.3 of the Contract provided: Separable Portions … If the Contract does not make provision for the amount of … liquidated damages … applicable to a Separable Portion, the [amount] applicable shall be such proportion of the … liquidated damages … applicable to the whole of the work under the Contract as the value of the Separable Portion bears to the value of the whole of the work under the Contract.
4. In the alternative, Shape contended that, in purporting to determine new Separable Portions 4a and 4b, the Superintendent failed to act honestly and fairly and failed to arrive at a reasonable measure of time. In breach of clause 23 of the Contract, Nuance failed to ensure that the Superintendent, in exercising its functions under the Contract, so acted: at [175]-[176], PoC. In these circumstances, Shape contended that the date of Practical Completion of Separable Portion 4 was 6 July 2017 and Shape was entitled to be repaid the liquidated damages deducted by Nuance for the period after that date: at [177], PoC.
5. In the alternative, Shape pleaded that, by taking possession of the Site or Works on 6 July 2017, Nuance rendered the liquidated damages clause inoperable or invalidated the clause (at [178], PoC), which was also said to be a penalty (at [179], PoC). By taking possession of the Site or Works, Nuance was said to have elected not to rely on the liquidated damages clause: at [180], PoC. By the Notice of Dispute, Shape had disputed the Superintendent's certification of liquidated damages for Separable Portions 4a and 4b: at [181A], PoC. Shape sought repayment of the liquidated damages: at [182], PoC.
6. In the alternative, if it was found that the Superintendent's direction creating new Separable Portions 4a and 4b was valid, then Shape claimed that Nuance was not entitled to claim liquidated damages on various bases including, at [183], PoC: (b) the respective amount of liquidated damages applicable to the new Separable Portion 4A and/or Separable Portion 4B was not determined in accordance with clause 35.3 of the Contract; and/or (c) the Superintendent's failure to give effect to and complete clause 35.3 of the Contract to determine the respective amount of liquidated damages applicable to the new Separable Portion 4A and/or Separable Portion 4B, rendered inoperable the liquidated damages clause in respect of those separable portions.
7. In the circumstances, Shape sought recovery of the liquidated damages deducted by Nuance after 6 July 2017: at [184], PoC. Further, at [184A], PoC: Alternatively, [Nuance] was not entitled to claim liquidated damages in the amount of $7,500 a day (exclusive of GST) for Separable Portions 4A and 4B, and the respective amount of liquidated damages applicable to those separable portions is to be determined in accordance with clause 35.3 of the Contract.
8. Shape sought declarations that the revised date of practical completion for Separable Portion 4 was 6 July 2017 and the portion had been practically completed on that date. In addition, Shape sought declarations including: (d) A declaration that the Superintendent's certification of liquidated damages in respect of Separable Portions 4A and 4B was void and of no effect; (e) Alternatively, a declaration that the Superintendent's failure to give effect to and complete clause 35.3 of the Contract to determine the respective amount of liquidated damages applicable to the new Separable Portion 4A and Separable Portion 4B rendered inoperable the liquidated damages clause in respect of those separable portions; (f) Alternatively, a declaration that the respective amount of liquidated damages applicable to the new Separable Portion 4A and Separable Portion 4B is such amount as is determined by the Arbitrator in accordance with clause 35.3 of the Contract; … Shape sought an order that Nuance pay some $3.2 million.
9. By its amended defence and cross-claim (Third Amended Points of Defence and Cross-Claim (DCC)) and in the form finally advanced, Nuance denied that the additional high-level ceilings works were a latent condition. Whilst accepting that Shape had provided the Superintendent with a request for information in respect of the works, Nuance denied that the notification was made in accordance with clause 12.2 of the contract or, alternatively, the works the subject of the notification were performed more than 28 days prior to the notification being given and were time-barred under clause 12.4 of the contract.
10. As to the Superintendent's rejection of Shape's claim for additional costs and an extension of time associated with the additional high-level ceiling works, Nuance contended that any claim which Shape may otherwise have had was time-barred by the operation of clauses 12.4, 35.5 or 46.1 of the contract as the Superintendent's assessment of the claims was notified on 19 May 2017 and no notice was given by Shape within the time prescribed. Likewise in respect of Shape's claim for contentious variations, Nuance contended that the Superintendent's rejection of the claim had been notified some time ago and no notice had been given by Shape within the time prescribed by clause 46.1 such that the claims were barred.
11. As for the claim in respect of liquidated damages, Nuance contended that the Superintendent's creation of new Separable Portion 4b was made pursuant to clause 35.4 of the Contract. Shape's disputation of the Superintendent's creation of Separable Portions 4a and 4b, as notified in the Notice of Dispute, was said to be time-barred by operation of clause 46.1.
12. Nuance denied that the Superintendent's determination of new Separable Portions 4a and 4b was void and of no effect and further at [174], DCC: 174.5 says further that when the power of the Superintendent to create a separable portion was enlivened (and when the Superintendent determined to so decide) the rates of liquidated damages to apply to the separable portions was a matter to be determined by the Superintendent under the provisions of clause 35.3 of the Contract in conjunction or following the exercise of the power under the provisions of clause 35.4 of the Contract; 174.6 In the premises the challenge made to its discretionary determination to create further separable portions and determine the liquidated damages is not justiciable in these proceedings. That is, the Superintendent's ability to determine the rate of liquidated damages under clause 35.3 and 35.4 of the Contract was discretionary and not justiciable in the arbitration.
13. To the extent that Nuance was not entitled to part or all of the liquidated damages levied, Nuance claimed to be entitled to damages at common law for Shape's failure to achieve practical completion by the required date: at [177], DCC. Shape's disputation of the Superintendent's certification of liquidated damages was also said to be time-barred. As to Shape's contention that liquidated damages was not determined in accordance with clause 35.3 of the Contract, Nuance contended at [183], DCC: 183.3 the Superintendent had a discretion to determine the value of the liquidated damages and acted fairly and reasonably in doing so; 183.4 in the premises the liquidated damages were determined in accordance with clause 35.3 of the Contract; 183.5 alternatively and in the event that the liquidated damages were not determined in accordance with clause 35.3 then that failure arose out of the inoperability of clause 35.3 of the Contract as there were no liquidated damages specified for the whole of the works that would allow the Superintendent to make a proportional assessment of liquidated damages.
14. As to Shape's claim, in the alternative, that liquidated damages be determined in accordance with clause 35.3 of the Contract, Nuance contended that the claim was time-barred but, in the alternative, claimed to be entitled to damages at common law which were said to be equal or greater than the liquidated damages levied (at [184A.3], DCC) or, alternatively, liquidated damages should be calculated taking into account the value of all of the works in Separable Portion 4b.
15. Turning to Nuance's Cross-Claim as finally advanced, Nuance continued to assert that it was entitled to retain the liquidated damages assessed, including under Progress Claim 14. Alternatively, "if the contractual mechanism failed or was inoperable such that the Superintendent was unable to correctly assess the liquidated damages applicable to Separable Portion 4A and/or Separable Portion 4B", Nuance sought damages at common law for Shape's failure to achieve Practical Completion by the required date. Further, at [214A], DCC: Further and/or in the alternative, if the contractual mechanism did not fail and it is found that the determination made by the Superintendent is justiciable before this Arbitrator and he determines that the discretionary determination of the Superintendent can be set aside (all of which is denied) then 214A.1 [Nuance] claims a determination of the amount of Liquidated Damages that are to be applied to newly created Separable Portions 4A and [Separable Portion] 4B; and 214A.2 an order that the amount so determined be applied to the period of days by which the Arbitrator finds that Shape failed to achieve practical completion by the Date for Practical Completion for each of Separable Portion 4A and Separable Portion 4B
16. Whilst Nuance contended that its cross-claim in the alternative for liquidated damages was redundant, as had been submitted to the arbitrator on 2 October 2019 (see [45]), Mr Henry understood that Nuance continued to press the Cross Claim. I cannot fault Mr Henry's logic on this point. Whatever submissions had been made to the arbitrator in October 2019, where Nuance proceeded to amend its cross-claim, including to add claims for relief in respect of liquidated damages, it could not be said that Nuance's Cross Claim in respect of liquidated damages was redundant but, rather, was pressed, and pressed on additional grounds than those previously advanced.

Evidence

1. There was then some delay in the progress of matter. Nuance had been directed to provide further discovery by 13 December 2019 and to serve any further lay or expert evidence on which it relied by 28 February 2020. Further directions were made, extending time for Nuance to serve any further evidence by 22 May 2020. Nuance served a statement by Philippe Boyer, its general manager, describing the actual damage said to have been suffered by Nuance after it went into occupation of the premises. This presumably went to both Nuance's defence of Shape's claim in respect of liquidated damages and its cross-claim "if the contractual mechanism failed or was inoperable", being a claim to be entitled to damages at common law.
2. On 9 June 2020, Nuance served a supplementary statement of Mr Sinnott in respect of liquidated damages and the creation of Separable Portion 4a and 4b. Mr Sinnott said he hit upon the figure of $7,500 a day having formed the view that the likely losses suffered by Nuance as a result of the incomplete works exceeded that figure and thus used the existing rate for liquidated damages contained in the contract. In July 2020, Shape served its reply evidence.
3. Mr Coleman said that, in light of the claim raised by Shape by its amendments with respect to the calculation of the rate of liquidated damages for Separable Portion 4b, he was instructed to seek discovery of documents evidencing the trade breakdowns for the cost of items said to be incomplete or defective as at the date for practical completion. These documents would provide a basis by which an alternative calculation of the rate for liquidated damages could be put forward to the arbitrator. Nuance's solicitor sent a request for further discovery on 4 August 2020, to which Shape objected. On 20 August 2020, the arbitrator dismissed Nuance's application for discovery on the basis that he was not satisfied that the documents sought were relevant and where Nuance had delayed requesting discovery for eight months, which delay was unexplained.
4. In light of the arbitrator's directions concerning Nuance's request for discovery, Mr Coleman was instructed to engage Stephen Bolt to produce a report in relation to the costs of trade groups for the incomplete items in Separable Portion 4b. The report was intended to provide an alternative means by which the rate of liquidated damages for Separable Portion 4b could be calculated. Shape objected to Nuance's reliance on Mr Bolt's report. Following a further preliminary conference on 24 September 2020, the arbitrator made directions including rejecting Nuance's application to rely on Mr Bolt's report. Shape did, however, consent to the substitution of expert David Roberts with Mr Bolt, and directions were made accordingly.
5. The parties served written opening submissions on 15 October 2020. On 16 October 2020, Nuance's solicitors wrote to the arbitrator complaining that Shape's opening submissions strayed beyond its pleading. Shape's solicitors protested to Nuance communicating directly with the arbitrator and maintained that its submissions aligned with the pleadings. The parties also could not agree whether counsel ought give an opening or rely on their written submissions.
6. On 17 October 2020, the arbitrator wrote to the parties noting that, whilst he did not read Shape's submissions in the way suggested by Nuance's letter nor, it would appear, to have considered Shape's submissions to have strayed beyond its pleading, "this issue must be clarified by counsel for Shape during Monday's conference." As to Nuance's request that the arbitrator direct Shape to make an oral opening address, the arbitrator noted that the "stop clock" method of conducting arbitral hearings ensured that each party was responsible for the way it chose to use the time available to it, whether by opening submissions, evidence in chief or cross-examination. He declined to require Shape to make an opening.
7. A conference took place on Monday, 19 October 2020. Mr Coleman said that the pleading point raised in his letter of 16 October 2020 was briefly addressed by counsel but the arbitrator did not make any determination on the issue.

Hearing

1. The hearing began on 20 October 2020. For Shape, evidence was given by Shape's project co-ordinators Timothy Harman and Dominique Flaherty, both of whom were cross-examined. On day two, evidence was given by Shape's general manager Adam Head, project manager Hugh Rolland, site co-ordinator Joshua Eller and site foreman Inaki Larrabeiti, each of whom were cross-examined. A statement of Vincent Donato was also tendered. On day three, project manager Robert Hayes and commercial manager Cameron Aitken gave evidence and was cross-examined. On day four, Shape closed its case after tendering various witness statements and documents.
2. Nuance called Mr Sinnott, who was cross-examined for the balance of day four, continuing on day five. Robert Godino then gave evidence. On day six, Mr Godino's evidence continued followed by Jacques Boyer, Claire Audley, Le Thuy Dinh and David Grant (quantity surveyor). On day seven, quantity surveyors Stephen Bolt and David Madden participated in an expert conclave. Valuer Wayne Lonergan gave evidence. On day eight expert John DeLorenzo gave evidence followed by an expert conclave involving George Diab and Timothy Ash. The hearing concluded on 30 October 2020.
3. Mr Henry said a substantial amount of time and money was spent responding to Nuance's lay and expert evidence in support of [212]-[214A] of Nuance's cross-claim, which consumed a substantial amount of time at the hearing. In particular, Nuance's counsel cross-examined Shape's expert witness, Dr Lonergan, whose expert report had been served in response to Nuance's evidence in support of its cross-claim for general law damages.

Final submissions

1. On 18 November 2020, the parties provided written closing submissions. As to jurisdiction, Shape referred to Nuance's "constant refrain" during the hearing and the lead-up to it that it was dealing with the case on the basis of the pleadings. Shape contended that Nuance sought, inappropriately, to impose a regime of strict pleadings on the arbitration where Shape's Notice of Dispute was said to have put Nuance squarely on notice of the items in dispute and where Shape's dispute was not only concerned with Nuance's suggested breach of clause 23 of the Contract. Rather, Shape disputed a number of the Superintendent's assessments and determinations, including its determination to create Separable Portions 4a and 4b and to deduct liquidated damages. Shape claimed an entitlement to repayment of liquidated damages "and puts that claim on eight alternative bases" and, in addition to and alternatively, Shape also claimed that Nuance was in breach of clause 23 of the Contract. The arbitrator was asked to reject Nuance's submission that the only claims that were required to be determined in the arbitration were those alleging breach of clause 23 of the Contract.
2. As to time-bars, Shape submitted that clause 46.1 had no application to a claim for payment of an amount forming part of the contract sum, any variation directed by the Superintendent or to be made under clause 12.3 for a latent condition. Nor did it apply to a claim for an extension of time for practical completion. Thus, Shape contended that it was not time-barred in respect of such claims.
3. Shape submitted that all separable portions had achieved practical completion by 6 July 2017 and, thus, the purported creation of Separable Portion 4b was said to be a "fiction". At the time of its creation on 7 July 2017, Nuance was in possession of the entire site. Thus, Nuance was not entitled to claim liquidated damages after that date. Shape submitted that, when creating Separable Portions 4a and 4b on 6 July 2017, Mr Sinnott did not turn his mind to the question of liquidated damages or the requirements of clause 35.3 but first thought about the matter in September 2017 when he decided that the likely losses that would be suffered by Nuance exceeded $7,500 per day, although the basis of this conclusion was said not to be addressed in his evidence.
4. Thus, it was said that liquidated damages were calculated and deducted on the basis of Mr Sinnott's unexplained assessment of Nuance's general law damages caused by ongoing defect rectification work in the duty free store, without any regard to clauses 23 or 35.3 of the Contract or to the fact that the parties' agreement to $7,500 per day was applicable to the entire area of Separable Portion 4 being unavailable for trading purposes. The Superintendent did not give effect to clause 35.3 to reduce the liquidated damages in proportion to the part of Separable Portion 4 of which Nuance took possession on 7 July 2017. The Superintendent's failure to engage the contract's regime for sectional completion and the associated method for calculating liquidated damages was said to be fatal to Nuance's claim for liquidated damages. Shape relied on Hudson's Building and Engineering Contracts (14th edition) where the learned authors commented at [6-024]: … in the absence of a properly completed contractual mechanism for sectional completion and accompanying liquidated damages, it has been held the liquidated damages clauses are liable to be rendered inoperable or invalidated through the Employer [Nuance] taking possession of a section of the works. Unless there are effective provisions for dividing the single sum between the sections, or reducing it in proportion to the part taken into possession, a claim for liquidated damages will fail.
5. Nuance submitted that any claim not raised in the Notice of Dispute was outside the scope of the arbitration and Shape was not entitled to pursue claims not pleaded in its Points of Claim: Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255 at [32]-[38]. Whilst Nuance accepted that the Notice of Dispute referred to a dispute as to whether completion had been reached and whether, given the stage of completion, the Superintendent should have issued a certificate of practical completion and had the power to create further separable portions, Nuance contended that the Points of Claim made additional claims that did not arise from the Notice of Dispute. Nuance continued to submit that the Notice of Dispute did not raise a dispute in respect of the Superintendent's determination of the rate of liquidated damages and thus the arbitrator lacked jurisdiction to determine that claim, notwithstanding the arbitrator's previous ruling on this subject: see [48].
6. Nuance submitted that Shape's claims were generally time-barred, although accepted that clause 46.1 did not apply to any claim for a variation directed by the Superintendent or made pursuant to clause 12.3. However, Shape's claims were not variations nor latent condition claims but claims for loss and damage by reason of a suggested breach of clause 23; the exemption in clause 46.1 did not apply to breaches of the contract. A variation direction was not issued by the Superintendent in respect of any of the variation claims where liability was in dispute. While there may have been some communication requiring Shape to comply with the terms of the contract, those communications could not be characterised as a variation directed by the Superintendent pursuant to clause 40.1 of the contract.
7. Nuance submitted that Shape's claim to recover liquidated damages was founded on three claims for breach of contract which occurred on 6 July 2017 such that the prescribed notice pursuant to clause 46.1 should have been issued no later than 3 August 2017. As to the alleged breach of clause 35.3, the determination of the rate of liquidated damages was made on 22 September 2017 whilst notice of the alleged breach of clause 35.3 was said not to have been given until the Second Amended Points of Claim was served on 31 October 2019. This claim was also said to be time-barred.
8. As to the exercise of the Superintendent's discretion when determining liquidated damages under clause 35.3, Nuance submitted that there was no evidence that the Superintendent's discretion miscarried, for example, by taking into account irrelevant matters or failing to take into account relevant matters. The Superintendent's determination of liquidated damages was said to be in accordance with the task entrusted to it by the Contract and not beyond the scope intended by the Contract. There was no evidence that the determination was otherwise affected by fraud, collusion or jurisdictional error; the determination was said to be beyond the scope of review as it was discretionary in nature.
9. In reply, Shape submitted that Nuance had "simply refused to engage with the totality of the claims made by Shape in this dispute, and has chosen to focus exclusively on Shape's claims for breaches of clause 23 …" Shape submitted that breach of clause 23 formed only part of the Notice of Dispute and Points of Claim. As to Shape's claim to be repaid the liquidated damages, Shape submitted that, to give effect to clause 35.3, the Superintendent was not only required to determine that "a part of the Works" had not reached practical completion but also to determine that the incomplete part would be treated as a separable proportion and to determine the portion of liquidated damages that should be applied to that part to reflect the value which the separable portion bore to the value of the whole of the works under the Contract. Shape submitted that Mr Sinnott did not turn his mind to these considerations nor undertake the exercise contemplate by clause 35.5.
10. Shape also submitted that Nuance's cross-claim for common law damages should be dismissed, assuming that Nuance pressed this claim, which was said to be "not entirely clear" as Nuance's closing submissions were silent on the issue. In its reply submissions, Nuance repeated many of its pleadings complaints, in particular, it was said that the arbitrator did not have the right to review the Superintendent's determination of the daily rate of liquidated damages as the matter was said not to have been raised in the Notice of Dispute.

THE AWARD

1. On 23 December 2020, Dr Manly QC published his award, "First Partial Final Award", leaving interest and costs to be determined in subsequent awards. The award contained 19 parts, of which it is only necessary to mention eight parts.
2. In Part E of the award, the arbitrator considered Clause 12 (latent condition) including its terms, relevant case law and principles, and construed the clause.
3. In Part G, the arbitrator considered the suggested time bar, construing Clause 46.1 having regard to its terms, the User's Manual, industry commentators and academics. Clause 46.1 provided: TIME FOR NOTIFICATION OF CLAIMS Contractor's Prescribed Notice The Principal shall not be liable upon any claim by the Contractor in respect of or arising out of a breach of the Contract unless within 28 days after the first day upon which the Contractor could reasonably have been aware of the breach, the Contractor has given to the Superintendent the prescribed notice. The Principal shall not be liable upon any other claim by the Contractor for any extra cost or expense in respect of or arising out of any direction or approval by the Superintendent unless within 42 days after the first day upon which the Contractor could reasonably have been aware of the entitlement to make the claim, the Contractor has given to the Superintendent the prescribed notice. The prescribed notice is a notice in writing which includes particulars of all of the following - (a) the breach, act, omission, direction, approval or circumstances on which the claim is or will be based; (b) the provision of the Contract or other basis for the claim or proposed claim; and (c) the quantum or likely quantum of the claim. This Clause 46.1 shall not have any application to - (i) any claim for payment to the Contractor of an amount or amounts forming part of the Contract Sum or any part thereof; (ii) any claim for payment for a variation directed by the Superintendent or to be made pursuant to Clause 12.3; (iii) any claim for an extension of time for Practical Completion; or (iv) the provisions of Clause 46.2
4. The arbitrator considered that clause 46.1 applied only to claims for breach of contract (first paragraph) and claims for extra cost or expense arising out of a direction or approval by the Superintendent (second paragraph). A contractor's claim based on a breach of contract was time-barred unless a notice was given to the Superintendent within 28 days of the contractor becoming aware of the breach. The arbitrator accepted Nuance's submission that, to the extent that the arbitrator found that any of the Superintendent's directions were not made in accordance with the Contract, then that amounted to a breach of clause 23 by Nuance. Claims of that nature attracted the 28-day period stipulated in clause 46.1 within which a Prescribed Notice must be given to the arbitrator. The arbitrator did not accept Shape's submission that Clause 46.1 did not operate in relation to disputes regarding a "direction" given by the Superintendent. At [114] of the award: (emphasis added) In turn this is a breach of contract by [Nuance]. SHAPE cannot be liberated from the time bar impediment in clause 46.1 by a "claim" being recharacterized as a "dispute" regarding that claim when a Notice of Dispute is served under clause 47.
5. In summarising his conclusions in respect of the time-bar in clause 46.1, the arbitrator included a table in his award, "Schedule of pleaded claims and defences" which "demonstrates Shape has pleaded a breach of clause 23 by [Nuance] for all of its claims in the Arbitration", except for two claims which are not presently relevant.
6. The table, of course, was no substitute for the pleadings themselves. Further, the fact that Shape pleaded that Nuance had breached clause 23 of the Contract in respect of, for example, liquidated damages simply meant, on the arbitrator's conclusion, that the claim for breach of contract was time-barred. The arbitrator's conclusion did not have the consequence that Shape's other claims for relief were also time-barred, at least to the extent that such claims were not based on breach of contract. The arbitrator said as much at [106]-[109] of his award: (emphasis added) 106. Once it is accepted that the requirement to give a Prescribed Notice, in terms of clause 46.1, is a condition precedent to the right of SHAPE to obtain relief or claim damages where its claim is based upon a breach of contract by [Nuance], then the question is simply what does clause 46.1 require? In my opinion, the answer is relatively straightforward. The same factors which point to clause 46.1 being a condition precedent also point to the need for a Prescribed Notice to be served strictly in accordance with the requirements of clause 46.1. 107. The words used in clause 46.1 make it clear that [Nuance] "shall not be liable upon any claim by the Contractor in respect of or arising out of a breach of the Contract" unless a Prescribed Notice is given by SHAPE to the Superintendent "within 28 days …" (my emphasis). The language of clause 46.1 provides that SHAPE's ability to claim any relief is conditioned upon it having first complied with the requirements of clause 46.1 … 108. … What is absolutely clear is that the Prescribed Notice must be given to the Superintendent if SHAPE wishes to pursue [Nuance] for a breach of contract claim. … 109. Where contracting parties have laid down in clear terms what has to be done by one of them if it is to claim certain relief, then a Court or Arbitrator should be slow to seek to relieve that party from the consequences of failure even if it could be said the clause was "harsh". Subject to what I say at Part R4.1, SHAPE's failure to give Prescribed Notices is fatal to its claims for relief.
7. The arbitrator concluded that, where Shape sought to recover for a breach of contract by Nuance, then clause 46.1 operated to bar Shape's claims as they were pleaded as claims for breach of clause 23. The arbitrator noted at [122] of his award: In the event it later comes to pass a Judge determines I am wrong in my finding about the construction of clause 46.1 and the time barring of SHAPE's claims, I have in Parts Q [latent conditions] and R [other variations] analysed SHAPE's claims on the assumption they are not time barred.
8. Nuance relied on the arbitrator's conclusions in respect of clause 46.1 as the answer to, essentially, all of Shape's claims. Fairly read in context, however, the arbitrator was addressing Shape's claims for breach of contract, specifically, clause 23. To the extent that Shape made a claim otherwise than for breach of contract, the arbitrator's conclusions did not apply more broadly to dismiss that claim as well. The arbitrator's conclusions said nothing about Shape's claims which were not dependent upon an allegation of breach of contract by Nuance.
9. In Part H, the arbitrator considered Clause 47 and whether he lacked jurisdiction to entertain Shape's claims given the terms of the Notice of Dispute, (again) dismissing Nuance's submission that he lacked jurisdiction. The arbitrator considered that the degree of specificity required by Nuance was not mandated by clause 47 and would make the clause unworkable, giving rise to a myriad of disputes about whether a dispute had been adequately identified. Nuance's approach was said to be "wholly uncommercial".
10. In Part J, the arbitrator considered the Superintendent's determination of Separable Portions 4a and 4b. The arbitrator concluded that the Superintendent was entitled to establish the separable portions and, further, the daily rate of $7,500 as liquidated damages for Separable Portion 4a was a proper determination as creation of Separable Portion 4a "was merely a rebadging of the old Separable Portion 4" and "the physical area corresponded precisely with the original Separable Portion 4". Accordingly, it was appropriate to fix the daily rate for liquidated damages for Separable Portion 4a at $7,500 per day, being the rate recorded in the contract as liquidated damages for Separable Portion 4. Having certified practical completion of Separable Portion 4a on 4 July 2017, the arbitrator added, "The claim is time barred due to SHAPE's failure to serve a Prescribed Notice under clause 46.1". The arbitrator did not specify whether this remark was directed to Shape's claim for breach of contract or more broadly.
11. Turning to Separable Portion 4b, the arbitrator did not accept that there was any consultation with Shape about the creation of Separable Portions 4a and 4b. Rather, Nuance and the Superintendent decided it was the only practical course to adopt, and informed Shape accordingly on 14 June 2017. At [226] of the award: I am not satisfied the Superintendent acted unfairly or unreasonably in the creation of Separable Portions 4A and 4B, and accordingly, there has been no breach of clause 23 in that regard. What was done accorded with clause 35.3 of the Contract, save for the determination of the daily rate for LD for Separable Portion 4B which did not comply with the formula provided in clause 35.3. It was strictly not necessary for the arbitrator to consider Shape's claim for breach of contract in respect of the creation of Separable Portions 4a and 4b, given his conclusion that the time bar applied to that claim. It does not much matter as Nuance was successful on the issue in any event.
12. In Part K, "The Wrongful Deduction of LD for Separable Portion 4B", the arbitrator concluded that the Superintendent failed to follow the formula set out in clause 35.3 to calculate the daily rate for liquidated damages for Separable Portion 4b and, accordingly, its calculation was void and of no effect: at [228], award. Further, Nuance's deduction of liquidated damages was wrongful as the daily rate assessed by the Superintendent for Separable Portion 4b was wrong and not calculated pursuant to the contractual formula: at [232], award.
13. The arbitrator then addressed Nuance's submission that Shape's claim for a refund of liquidated damages was a claim for damages for breach of contract, being a breach of clause 23 for which Shape was required to serve a Prescribed Notice under clause 46.1 and was thus time-barred. As to this, the arbitrator simply noted at [235]: As I have ruled on the efficacy of the time bar defence above in Part G … I do not need to say anything further about it here. The arbitrator thereby cross-referenced his earlier finding that Shape's claim for breach of contract was time barred. One should resist the conclusion that the arbitrator was thereby extending that finding to non-contractual claims by which Shape sought payment of the funds.
14. The arbitrator observed that clause 35.3 set up a 'three step process' to which Mr Sinnott did not turn his mind nor attempt to undertake. Mr Sinnott did not determine the liquidated damages until some time after Separable Portion 4b was created and made his determination based on his assessment of the amount of incomplete work, the continued impact of the delays on the operation of the store and his view that the likely losses suffered by Nuance would exceed $7,500 a day. The arbitrator accepted Shape's submission as to the obligations imposed by clause 35.3 and concluded that the calculated daily amount for liquidated damages for Separable Portion 4b was not calculated in accordance with the "contractual code" such that "the deduction of $990,000 is void and of no effect. Accordingly, I set aside the deduction…": at [245].
15. The arbitrator accepted Mr Madden's valuation of the work remaining to be done in Separable Portion 4b at $227,911.70. Based on this valuation, the arbitrator calculated the proper daily rate as $247.72 per day, being $32,700. Where Mr Sinnott failed to follow the procedure he was required to adopt, the decision to fix the daily rate at $7,500 "was improper, and has no force or effect": at [252]. Further, the arbitrator stated at [253]: (emphasis added) The determination of the amount of LD for Separable Portion 4B was unauthorised for want of compliance with the formula provided in clause 35.3. In my opinion, all that is required under that clause is that the Superintendent honestly and fairly form the opinion as to what was "the value of the works under the Contract" comprised in Separable Portion 4B. It failed to do so. Hence its conduct was not reasonable and hence, a breach of clause 23 by [Nuance]. The arbitrator thereby found that Shape was established both its "void" and breach of contract claims, albeit the latter (at least) was time barred.
16. The arbitrator concluded that the daily rate used by the Superintendent was "vitiated by error" and set aside the Superintendent's deduction of $990,000. The arbitrator found that the proper daily rate was $247.72 and determined that liquidated damages properly deductible was $32,699.04. "On the basis that [Nuance] has wrongfully deducted $900,00[0] as LD from monies otherwise due to SHAPE, the proper amount due and payable to SHAPE is $957,300.96": at [262]. That is, the fact that Shape's claim based on breach of contract was time-barred did not preclude Shape succeeding on a non-contractual cause of action.
17. In Part Q, the arbitrator returned to the latent condition claim, noting "In Part G, I determined this claim was time barred under clause 46.1." He dismissed the claim as Shape had failed to establish that it had given notice under clause 12.2. Shape's request for information could not reasonably be construed to have alerted the Superintendent to a potential latent conditions claim. The variation claim was assessed by the Superintendent as a variation because that was how it had been presented by Shape. The claim advanced by Shape was, on its face and in substance, a variation claim and not a latent conditions claim. As the claim had been pleaded only as a latent conditions claim with no alternate pleading of a variation claim, and as clause 12 was not satisfied, the claim failed.
18. In Part R, the arbitrator returned to Shape's contested variation claims, "keeping in mind the discussion of the relevant principles to be applied at [Part G]." The arbitrator allowed and assessed one contested variation to which no breach of section 23 had been pleaded in the amount of some $86,000.
19. In Part S, "Disposition", the arbitrator drew together his findings to answer the 138 questions posed by the parties and to make orders in respect of the relief sought by the parties on the claim and cross-claim. When the findings are considered by reference to the list of questions, apparent inconsistencies fade away. The arbitrator noted that, by reason of the conclusions already arrived at, it was not necessary for him to answer the questions in respect of latent conditions, most of the contested variations or interest. The arbitrator then turned to "Determinations on SHAPE's Claims". As to the contested variations, the arbitrator noted that it was not necessary to answer the bulk of the questions in respect of the variations "[o]n the basis of my finding in Part G that by reason of SHAPE's failure to deliver a Prescribed Notice under clause 46.1". He proceeded to answer questions in respect of the variation which was not time barred.
20. By now, the arbitrator had answered - or noted that it was not necessary to answer - questions 1 to 109, which concerned latent conditions and contested variations and preceded a series of questions concerning liquidated damages and the creation of separable portions 4a and 4b. At [669] of the award, "Further determinations", the arbitrator made the following determinations: i) on the [non-time barred variation Nuance] is to pay SHAPE $86,322.64 ex GST; ii) all of Shape's other claims (except Interest) are dismissed on the basis they are time barred under clause 46.1; iii) I refuse to make the declarations sought [including in 207 "A declaration that the Superintendent's certification of liquidated damages in respect of Separable Portions … 4B was void and of no effect"]; … viii) I declare the Superintendent's assessment of the daily rate of LD at $7,500 per day for Separable Portion 4B was not made in accordance with the formula in clause 35.3 and is void; ix) I declare the certification and deduction by [Nuance] of $990,000 as LD for Separable Portion 4B was void; … xii) I declare [Nuance] is to repay SHAPE the sum of $957,300.76 wrongfully deducted by it from monies otherwise due to SHAPE …
21. At first blush, the determinations appear to conflict, in particular, determination (ii) and the following determinations concerning liquidated damages. When read against the award and list of questions, I consider that, in determination (ii), the arbitrator was referring to Shape's claims for contested variations rather than more broadly.
22. The arbitrator turned to "Determinations on [Nuance's] Cross Claim". After setting out the prayers for relief, the arbitrator determined "[o]n the basis of my finding in Part K" that the deduction of $990,000 in liquidated damages for Separable Portion 4b was wrongful, with the proper amount being $32,699.04 such that Nuance was indebted to Shape for $957,300.96.
23. The arbitrator then returned to the list of questions, which moved to the subject of liquidated damages and the creation of separable portions. He appears to have done so at this juncture as the heart of Nuance's cross claim concerned whether it was entitled to retain the liquidated damages already withheld or, if not, was entitled to damages in another amount. In answering questions as to whether the Superintendent's determination that there should be new Separable Portions 4a and 4b was void and of no effect, the arbitrator answered again: Question 114: Was notice of this claim, as currently pleaded, given in compliance with clause 46.1 and/or 46.2 of the Contract? To the extent that such notice was not given, what is the consequence, including whether any such failure to give notice removes the Arbitrator's jurisdiction. [678] For the reasons set out in Part G above, I have found that SHAPE's claim is time barred by clause 46.1. As already mentioned, in the body of the award the arbitrator referred to his earlier finding that Shape's claim for breach of contract was time barred but did not necessarily extend that finding to non-contractual claims: at [98].
24. The arbitrator proceeded to a group of questions concerning breach of clause 23. The arbitrator answered that Nuance breached this clause by failing to ensure that the Superintended acted reasonably when it fixed the daily rate for liquidated damages for Separable Portion 4b (at [685]) but "For the reasons set out in Part G above, I have found that SHAPE's claim is time barred by clause 46.1": at [687]. This answer was, of course, directed to Shape's claim for breach of contract.
25. Now up to question 132, the topic concerned liquidated damages in the event that Separable Portions 4a and 4b had been validly created. Consistently with the reasoning in the body of the award, the arbitrator provided the following answers: Question 133: Is SHAPE entitled to be repaid the any (sic) or all of the liquidated damages deducted by [Nuance] in respect of the period after 6 July 2017? 704. Yes, for the reasons set out in Part K, SHAPE is entitled to be repaid $957,300.96 Question 134: Was notice of this claim, as currently pleaded, given in compliance with clause 46.1 and/or 46.2 of the Contract? To the extent that such notice was not given, what is the consequence, including whether any such failure to give notice removes the Arbitrator's jurisdiction. 705. For the reasons set out in Part G above, I have found that SHAPE's claim is time barred by clause 46.1. … Question 136: If [Nuance] was not entitled to claim liquidated damages in the amount of $7,500 a day (exclusive of GST) for Separable Portions 4A and 4B, is the Arbitrator empowered to determine that liquidated damages at some other rate is applicable? If so, what is that rate, calculated in accordance with clause 35.3 of the Contract? 708 Yes, for the reasons and in the amounts set out in Parts H and K above. As already observed, the fact that Shape's claim based on breach of contract was time-barred did not preclude Shape succeeding on a non-contractual cause of action: at [100]-[101].
26. Having completed the list of questions, the arbitrator proceeded to "Further determinations" which, as the sequence of headings in Part S makes plain, addressed the relief sought in Nuance's cross claim. The arbitrator declined to make the declarations sought by Nuance to confirm its entitlement to the liquidated damages withheld and dismissed Nuance's claim for common law damages. As matters then stood, Nuance was obliged to return the whole $990,000 to Shape.
27. However, the arbitrator proceeded to deal with Nuance's alternative claim for the arbitrator to declare the liquidated damages which ought to apply to Separable Portion 4b. The arbitrator declared that Nuance was entitled to liquidated damages of $32,699.04 and ordered Nuance to refund $957,300.96 "wrongfully deducted … from monies otherwise payable to SHAPE".
28. Finally, in "Conclusion", the arbitrator stated: 722 On SHAPE's claim, for the reasons set out in Part R4.1 [the non-time barred variation]: i) I order [Nuance] to pay SHAPE the sum of $86,322.64 ex GST; and ii) I dismiss SHAPE'S other claims (except the claim for Interest) on the grounds they are time barred by operation of clause 46.1. 723 On [Nuance]'s crossclaim, I order [Nuance] pay to SHAPE the sum of $957,300.96 on the grounds that: i) it was wrongfully deducted from monies otherwise payable to SHAPE as LD for delay in achieving Practical Completion of Separable Portion 4B; and ii) the daily rate calculated by the Superintendent for LD for Separable Portion 4B was not in accordance with the formula in clause 35.3. Read against the whole award, 722 of the award is a reference to Shape's claims for latent conditions and contested variations rather than all of Shape's claims, whether for breach of contract or otherwise.
29. On 22 January 2021, Nuance's solicitors forwarded a proposed request for interpretation of part of the award under section 33(1)(b) of the Act to Shape's solicitors for consideration. In particular, Nuance proposed to request an interpretation of [719] of the award, ordering Nuance to refund Shape the liquidated damages of $957,300.96 in respect of Separable Portion 4b notwithstanding a finding that the claim was time-barred. Shape did not agree to the request for interpretation. On 25 January 2021, having received no application pursuant to section 33(1)(a) of the Act, the arbitrator made directions for the parties to provide submissions on interest with a view to publishing a Second Partial Final Award on that subject, following which he would move to determination of costs.
30. On 5 February 2021, Nuance's solicitors wrote to the arbitrator seeking clarification of his award, notwithstanding Shape's lack of consent to this course. Shape objected. On 7 February 2021, the arbitrator advised that he had no jurisdiction to amend or revise the award, even if he were minded to do so, being functus officio regarding the findings made in the award. These proceedings were commenced on 19 February 2021.
31. Mr Coleman understood that the arbitrator's award in respect of liquidated damages was made pursuant to Nuance's cross-claim; the arbitrator did not provide any notice that he intended to provide relief to Shape under the cross-claim nor provide the parties with an opportunity to make submissions on the matter. If the arbitrator has provided such notice then Mr Coleman would have submitted that, once the arbitrator found the liquidated damages claim to be time-barred, there was no dispute to which the cross-claim could respond and he no longer had jurisdiction to make a determination in respect of liquidated damages pursuant to the cross-claim or otherwise. Mr Coleman said he would also have advised Nuance to immediately withdraw its cross-claim. Mr Coleman is unable to find any reasoning in the award explaining why the arbitrator was able to award relief to Shape on the basis of Nuance's cross-claim when that cross-claim was only responsive to Shape's claims that were found to be time-barred.

JURISDICTION OF ARBITRATOR

1. Nuance seeks an order that specified paragraphs of the arbitrator's award and orders - being those which concern the Superintendent's calculation of liquidated damages for Separable Portion 4b and the correct figure based on Mr Madden's evidence - be severed as arrived at otherwise than in accordance with the terms of the Act. Nuance recited the procedural history of the arbitration and contended that "Consistent with its written submissions dated 2 October 2019, no part of [its] submissions … supported the Cross Claim as that claim was not pressed as it was redundant …".
2. Nuance maintained that the Notice of Dispute did not refer to such arguments but merely asserted a breach of Clause 23. Nuance submitted that all of Shape's claims in respect of liquidated damages were pleaded as breach of clause 23 of the Contract. Given the arbitrator's finding that such claims were time barred by clause 46.1, Shape's claims were finally determined. The arbitrator was said to be found that Shape's primary and alternate claims were time barred. Consistent with this, the arbitrator made no award in respect of Shape's time barred claims. The arbitrator's finding that the determination was void and of no effect was said to be made in the event that he was later found by a judge to be wrong about this (I think this submission mis-reads the award: the arbitrator only proceeded in this manner in respect of latent defects and contentious variations, not liquidated damages). Further observations, said to be obiter, did not re-enliven his jurisdiction to deal with claims which failed at a threshold level.
3. Nuance submitted that, when its defence and cross claim was read as a whole with Shape's pleading and in light of the circumstances that existed when it was drafted, the cross-claim did not give rise to a claim for relief until such time that it was found that Shape was entitled to relief. Even as finally amended, declarations were only sought if the arbitrator found that he had jurisdiction to determine Shape's liquidated damages claim and considered that Shape was entitled to relief. Once Shape's claim was found to be time barred, the cross-claim had no further operation. The cross-claim was only enlivened where the arbitrator found he possessed jurisdiction to entertain Shape's challenge to the Superintendent's determinations. Having found he lacked such jurisdiction, the cross-claim did not provide a jurisdictional avenue for the arbitrator to act in the manner he did. The arbitrator's finding that Shape's claims were time barred meant that Shape's claims could not be pursued. Thus, any determination made in respect of liquidated damages was not a determination made under the Contract and was beyond the Arbitrator's jurisdiction.
4. Nuance contended that the arbitrator exceeded his jurisdiction by dealing with Shape's claim regarding liquidated damages for Separable Portion 4b otherwise than in accordance with the manner in which it was referred to him, such that the award was liable to be set aside under section 34(2)(a)(iii) of the Act. Nuance submitted that the Court should quash the arbitrator's findings in excess of jurisdiction: Ashjal Pty Ltd v Alfred Toepfer International (Australia) Pty Ltd (2012) 82 NSWLR 93; [2012] NSWSC 1306. Having made the findings he did about time bars, the arbitrator had no residual jurisdiction to deal with Shape's claims about liquidated damages and to do so exceeded his jurisdiction.
5. Shape did not accept that the Cross Claim was "redundant" given its terms and that Nuance's claims for common law damages was the subject of evidence and cross examination at the hearing. Nuance led evidence from Mr Boyer and cross-examined Shape's witness, Mr Lonergan, on the subject. The cross-claim was raised against the prospect that the contractual mechanism failed or was inoperable, in which event Nuance claimed to be entitled to damages for Shape's failure to achieve practical completion. If Shape succeeded on its 'void' case, then Nuance was not entitled to retain any of the liquidated damages unless it succeeded on the cross-claim as, otherwise, Nuance had no entitlement to retain the funds held as a result of a void determination. Absent the cross-claim, Shape would have been entitled to the whole of the $990,000. What the arbitrator did was to arrive at the sum which Shape was entitled to retain, being a lesser sum than it was holding. That is how Shape's claim and Nuance's cross-claim 'sat together'.
6. Whilst Shape accepted that there was some "clunkiness" and difficulties with the award, the better understanding of the award was said to be that Shape's 'void' claim was not time-barred but its contract claims were. The 'void' claim did not fall within clause 46.1. The arbitrator found the 'void' claim was justiciable and that he had jurisdiction to entertain it. Although a lot of tension had arisen between the parties on receipt of the award, this was because of the arbitrator's failure to be precise about the various causes of action.

Consideration

1. The arbitration clause, clause 47, permitted the parties to refer a wide range of disputes to arbitration. Clause 47 provided: (emphasis added) 47.1 Notice of Dispute If a dispute between the Contractor and the Principal arises out of or in connection with the Contract, including a dispute concerning a direction given by the Superintendent, then either party shall deliver … a notice of dispute in writing adequately identifying and providing details of the dispute. … A claim in tort, under statute or for restitution based on unjust enrichment or for rectification or frustration, may be included in an arbitration.
2. It was sufficient that the dispute "arose out of or in connection with" the contract. Tortious, statutory or restitutionary claims and claims for rectification (an equitable remedy) or frustration could be referred to arbitration. As Brereton J observed in respect of the phrase "arising from" in Quintano v B W Rose Pty Ltd [2008] NSWSC 793, the words require that there be some causal connection, with the requisite nexus being a less proximate relationship than that required by the phrase "caused by"; it is sufficient if it originates in, springs from, or has its foundation in the matter, "In my view, a claim can be said to arise from a matter - at least - if it has a foundation in that matter, so that the matter is one of the underlying facts that, if they exist, together justify the claim": at [7]-[8].
3. Consistent with this, clause 46.1 provided that a notice of dispute was to include particulars of inter alia "the breach, act, omission, direction, approval or circumstances on which the claim is or will be based" and "the provision of the Contract or other basis for the claim or proposed claim".
4. Using the terminology of the Act, the parties had thereby agreed to a "domestic commercial arbitration" as the parties agreed that any dispute that had arisen or may arise between them was to be settled by arbitration: section 1(3)(b) of the Act. The arbitrator's power to decide a dispute between the parties arose solely from the agreement of the parties; the parties were not compelled to resolve their disputes by arbitration but did so because that was their agreement and any award bound the parties because they had agreed to abide by the arbitrator's decision: Ashjal v Alfred Toepfer at [53]-[54] per Stevenson J.
5. Subsection 34(2)(a) of the Act relevantly provides: (2) An arbitral award may be set aside by the Court only if: (a) the party making the application furnishes proof that: … (iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside, or (iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Act from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Act, or …
6. As Stevenson J explained in Ashjal v Alfred Toepfer, the Court retains an adjudicative role to determine on limited bases whether the award may be enforced, with these bases largely directed to the fairness of the conduct of the arbitration: at [80]-[81]. Section 36(1)(a)(iii) of the Act provides that enforcement of an award may be refused if the award "deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration" or "decisions on matters beyond the scope of the submission to arbitration". At [83]: That provision gives the Court the power to intervene in circumstances approximating (if not replicating) those of jurisdictional error (making a decision "outside the limits of the functions and powers" of the decision maker or doing "something which he or she lacks power to do": per Hayne J in Re Refugee Tribunal; Ex parte Aala [2000] HCA 57; (2000) 204 CLR 82 at [163]; cited by the plurality in Kirk at [66]). Likewise under section 36(1)(a)(iii) of the Act, an award (or parts of an award) which deals with a dispute not falling within the terms of the submission to arbitration may be set aside.
7. Here, as earlier mentioned, it is reasonably apparent from Shape's use of "purported" in the Notice of Dispute that it challenged the validity of the Superintendent's certification of liquidated damages for Separable Portion 4b and, in addition, Shape alleged that Nuance had breached clause 23 of the Contract by failing to ensure that the Superintendent exercised its functions in accordance with the Contract. By its pleadings, Shape advanced a number of claims in respect of liquidated damages. Whilst Nuance maintained all were claims for breach of contract, that was clearly not the case. Shape also sought declaratory relief to the effect that the Superintendent's purported certification of liquidated damages for Separable Portion 4B was void and of no effect: see [57].
8. An application for declaratory relief in connection with disputes involving contractual rights is a well-trodden path used, for example, to establish the existence or non-existence of a contract between the parties, the proper construction of a contract, whether what a party has done amounts to performance of the contract, whether the contract has been terminated under the doctrine of frustration, whether a party is in breach of contract and whether a contract has been validly terminated. Declaratory relief is often seen as a less drastic and coercive form of relief than exercising contractual remedies where there are uncertainties about a contract which the parties are concerned to resolve without the risk of repudiating the contract; a declaration enables the parties to re-establish the basis of the contractual relationship without irreparable harm: see PW Young QC, Declaratory Orders (2nd edition, 1984, Butterworths), Chapter 11 "Contracts" and Chapter 19 "Commercial contract".
9. The jurisdiction to make declaratory order without consequential relief has been described as a large and most useful jurisdiction: Commonwealth v Sterling Nicholas Duty Free Pty Ltd (1972) 126 CLR 297 at 305; [1972] HCA 19 per Barwick CJ. An example mirrors the case at hand. In MacMahon Construction Pty Ltd v Crestwood Estates [1971] WAR 162, Burt J made declarations that the owner was not entitled to claim liquidated damages for the builder's failure to complete within the stipulated time because of a failure by an engineer to nominate a completion date following variation and extension of the works.
10. Also noteworthy, a challenge to a claim referred to arbitration on the basis that it is time barred is not a challenge to the jurisdiction of the arbitrator. As the Court of Appeal of the Republic of Singapore explained in BBA v Baz [2020] SGCA 53, the fact that a claim made in an arbitration turns out to be time barred does not deprive the arbitrator of jurisdiction. Jurisdiction is concerned with the power of the tribunal to hear a case; jurisdictional challenges relate to the interpretation and application of the jurisdictional clause that a claim should not be arbitrated due to a defect in, or omission to, consent to arbitration and success of the challenge necessarily negates consent to the forum: at [74]-[77]. "Consent serves as the touchstone for whether an objection is jurisdictional because arbitration is a consensual dispute resolution process: jurisdiction must be founded on party consent. For this reason, arguments as to the existence, scope and validity of the arbitration agreement are invariably regarded as jurisdictional": at [78]. A plea that a claim is time-barred goes not to jurisdiction but to the claim itself, that is, the claim is defective and should not be raised at all: at [77]. At [80]: (emphasis that of the Court) … a plea of statutory time bar … it attacks the claim. … the complaint is that the claim is stale and therefore defective, and not … that the bringing of claims that are out of time under limitation laws falls outside the scope of consent to arbitration. …
11. Obviously enough, the fact that the arbitrator found that Shape's claim for breach of clause 23 of the Contract was time barred did not mean that the arbitrator lacked jurisdiction to determine any other claims that were not time barred. As I have endeavoured to explain, when the arbitrator's award is read as a whole, and when Part S is read against the list of questions posed for his determination, the arbitrator's finding that the breach of contract claim was time-barred did not extend to a finding that Shape's application for declaratory relief was also time-barred see [91]-[113].
12. Nor do I accept that Nuance's cross claim was 'redundant' or 'contingent'. As earlier mentioned, whatever submissions had been made to the arbitrator in October 2019 along these lines, where Nuance proceeded to amend its cross-claim, including to add claims for relief in respect of liquidated damages, it could not be said that Nuance's Cross Claim in respect of liquidated damages was redundant but, rather, was pressed, and pressed on additional grounds than those previously advanced. The fact that a claim fails utterly does not have the consequence, without more, that a cross-claim falls away. A claim and cross-claim are independent suits which are determined together by reason of the commonality of parties and issues but, nonetheless, are separate proceedings: Joseph v Parnell Corporate Services Pty Ltd [2021] FCAFC 67 at [96], [98] and [103] per Logan, Katzmann and Snaden JJ.
13. The arbitrator did not exceed his jurisdiction when determining, in Part K, Shape's claim that the Superintendent's certification of liquidated damages for Separable Portion 4B was void and of no effect. That claim was not time-barred by clause 46.1, or at least the arbitrator had made no such determination. Having found in Shape's favour, it followed that Shape was entitled to the relief sought, being the return of the $990,000. Nuance's cross-claim sought relief in this eventuality: see [64]. In proceeding to determine the amount of liquidated damages for Separable Portion 4b which Nuance was entitled to keep, the arbitrator was continuing to exercise his jurisdiction in favour of Nuance to determine the claims for relief in its cross-claim. The award does not include decisions on matters beyond the scope of the parties' submission to jurisdiction. Nuance's claim fails in this regard.

PUBLIC POLICY

1. Nuance was said to have been denied natural justice as the order requiring it to refund the liquidated damages to Shape was made contrary to the arbitrator's finding that Shape's claim was time-barred and in circumstances where Nuance's redundant cross-claim was not pressed. Nuance was taken completely by surprise; when considering the proposed orders in respect of the Cross-Claim, the arbitrator should have notified the parties and requested further submissions. Accordingly, Nuance claimed to have suffered unfairness and practical injustice in being required to refund liquidated damages to Shape such that the award was in conflict with the public policy of this State and liable to be set aside under section 34(2)(a)(iii) of the Act. It was an award not contended for by either party and the Arbitrator did not give notice that he was considering making an award on that basis with the result that both parties were deprived of the opportunity to make submissions on the issues.
2. Subsection 34(2)(b)(ii) of the Act provides: (2) An arbitral award may be set aside by the Court only if: (b) the Court finds that: … (ii) the award is in conflict with the public policy of this State.
3. The principles of natural justice to be applied by arbitrators were described by Fisher J in Trustees of Rotoaira Forest Trust v Attorney-General [1999] 2 NZLR 452, in particular, at 461-463: The key elements are surprise and potential prejudice … Of the two, surprise is the more important. Once it is shown that the fact or idea introduced by the decision maker had not been reasonably foreseeable, it will be a very short step indeed to the possibility that a party was procedurally prejudiced. … … the overriding task for the plaintiff is to show that a reasonable litigant in his shoes would not have foreseen the possibility of reasoning of the type revealed in the award, and further that with adequate notice it might have been possible to persuade the arbitrator to a different result. … Once it is shown that there was significant surprise it will usually be reasonable to assume procedural prejudice in the absence of indications to the contrary.
4. However, in TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 232 FCR 361; [2014] FCAFC 83 the Court described this as a "helpful … but not determinative, expression of approach" and emphasised the need for "real unfairness or real practical injustice in the litigation context of international commercial arbitration": at [141]. The Court considered that, in most, if not all, cases, a party should be able to demonstrate that it has suffered such unfairness or injustice without a detailed re-examination of the facts. "Unfairness or practical injustice in the conduct of international commercial arbitration should, if it exists, be able to be expressed shortly and, likewise, demonstrated tolerably shortly": [113]. Perhaps more forcefully expressed by Hammerschlag J in Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd [2015] NSWSC 735 at [46]-[47]: (emphasis added) 46 The public policy exception in ss 34(2)(b)(ii) and 36(1)(b)(ii) is not concerned with mere procedural imperfections but with a negation of rights which our legal system recognizes as being fundamental and therefore matters of public policy. 47 It is also to be remembered that arbitrators are frequently, as is the case here, non-lawyers. Their procedural behaviour and awards should not be scrutinised with an overcritical or pedantic eye and should be viewed with commonsense and without undue legality … See likewise Spaseski v Mladenovski [2019] WASC 65 at [59]-[67] per Martin J; Ivankovic v West Australian Planning Commission [2020] WASC 401 and Venetian Nominees Pty Ltd v Weatherford Australia Pty Ltd [2021] WASC 137.
5. In Mango Boulevard Pty Ltd v Mio Art Pty Ltd [2018] QCA 39 at [24], Morrison JA found at [24]: (footnotes omitted) ... it is well accepted in the context of arbitrations that a party is denied a reasonable opportunity of presenting its case where the Arbitrator introduces a new idea of his own on which the parties have not been able to comment or adduce evidence. If the Arbitrator intended to raise and rely upon his own issue, he was obliged to fairly reveal the issue so that the parties could, as a minimum requirement of procedural fairness, be given a full opportunity to understand, test and rebut the issue. The obligation on the Arbitrator is to provide a fair opportunity to address his arguments on all of the essential building blocks in his conclusion. In that case, it was suggested that a finding in the award was not sought by the parties, not the subject of pleadings or submissions and where the plaintiff had not been given a proper opportunity to address the proposed use of the finding: at [25]. Nuance made similar submissions here.
6. There is nothing surprising about the arbitrator's conclusions given the claims sought to be advanced by Shape and Nuance, as comprehensively described in their pleadings, further debated in correspondence and preliminary conferences in preparation for the hearing and extensively elaborated upon in closing written submissions. The award is the product of the competing contentions of the parties as the arbitrator has worked his way through the various causes of action, defences and counter-claims. To the extent that Nuance says the arbitrator should have notified the parties and requested further submissions on what he had in mind to do, in which event Nuance would have withdrawn its cross-claim, that would simply have had the consequence that Nuance would have been obliged to remit the whole $990,000 to Shape without retaining a portion for liquidated damages calculated in accordance with the contract. The arbitrator's findings were not of his own creation but sought by the parties. Nuance's claims fails in this regard as well.

ADEQUACY OF REASONS

1. Section 31(3) of the Act provides, "The award must state the reasons upon which it is based…". In Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239; [2011] HCA 37, the majority in the High Court referred to the statement of Donaldson LJ in Bremer Handelsgesellschaft mbH v Westzucker GmbH (No 2) [1981] 2 Lloyd's Rep 130 at 132-3 as explaining what this entails, at [51]: All that is necessary is that the arbitrators should set out what, on their view of the evidence, did or did not happen and should explain succinctly why, in the light of what happened, they have reached their decision and what that decision is. This is all that is meant by a "reasoned award"… The "Bremer Formulation" is the appropriate test for the standard of reasoning required under section 31(3) of the Act: Aircraft Support Industries Pty Ltd v William Hare UAE LLC [2015] NSWCA 229, (2015) 298 FLR 183 per Bathurst CJ at [48]-[49]; Winslow Constructors Pty Ltd v Head, Transport for Victoria [2020] VSC 790 at [51] per Riordan J.
2. Another explanation of the requirement for reasons in an arbitration context was given by Thomas Au J of the High Court of Hong Kong in R v F [2012] HKCFI 1451 at [37]: … the reasoning process expressed in an award must be one that the readers of the award … can understand how and why the conclusion is reached on a particular issue. However, the way the reasons expected to be given in an arbitral award for a particular issue should be proportional to the complexities of how that issue is contended (or not contended) before the arbitral tribunal. Depending on how the issues are contended, the reasons do not necessarily need to be elaborate or lengthy, provided they could be understood in its proper context. It must be borne in mind that an arbitration award is the result of a private consensual process, which is intended and expected to be cost effective, and shorn of complexities and technicalities.
3. Both formulations were embraced in Tayar v Feldman [2020] VSC 66, where Lyons J observed that, when determining whether reasons are adequate, the Court may take in to account the weight of the particular issue proportionate to the other issues in dispute, the position of the parties and what they may understand the reasons to mean: at [151]. The Court is not concerned with assessing the merits of the reasons beyond determining whether they adequately indicate how the arbitral tribunal came to its decision: at [152].
4. Westport Insurance v Gordian Runoff is an example of inadequate reasons. There, the application of a statutory provision was a "critical element" in reaching the award. The Court considered, "the arbitrators were obliged to explain succinctly why the various integers in that complex statutory provision were satisfied": at [55]. There was no indication in the reasons of the factual findings which supported the applicability or inapplicability of one integer in the provision, such that the reasons were inadequate: at [56].
5. As to the orders which the Court may make in the event that reasons are inadequate, in Westport Insurance v Gordian Runoff the Court considered that the appropriate remedy was to remit the matter to the arbitrators for reconsideration, whilst the reinsurers sought "a more drastic remedy" of setting aside the award: at [59]. There the High Court was concerned with an appeal on a question of law, and section 34A specifically provides for a remitter. However, section 34 does not. Section 34(4) does provide: The Court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside of proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal's opinion will eliminate the grounds for setting aside.
6. As this provision has been considered, the Court has the power to remit, or set aside the award, but not both: Mango Boulevard Pty Ltd v Mio Art Pty Ltd [2018] 1 Qd R 245; [2017] QSC 87 at [30]-[35] per Jackson J, following the Court of Appeal of the High Court of Singapore in AKN v ALC [2015] SGCA 63 (not considered on appeal in Mango Boulevard Pty Ltd v Mio Art Pty Ltd [2018] QCA 39); Hui v Esposito Holdings Pty Ltd [2017] FCA 648; (2017) 345 ALR 287 at [257] per Beach J. As noted in Mango Boulevard, the effect of an order to set aside an award is that the arbitral proceedings are set at naught but parties may be able to refer the dispute to arbitration again: at [35]. This would be an undesirable outcome here given the time and resources already invested by the parties in the arbitration, let alone time bar considerations.
7. Another option was effected in Tayar v Feldman, where Lyons J refused to enforce parts of an award on the basis that it did not contain reasons sufficient to satisfy section 31(3) of the Act. The judgment was given pursuant to section 36(1)(a)(iv) of the Act, being a mirror provision to section 34(2)(a)(iv) that deals with the enforcement of an award, as opposed to setting it aside. Similar relief was sought in Winslow Constructors v Head, Transport for Victoria, albeit the applicant was not successful.
8. Turning to the portions of the reasons which are said to be inadequate, it is sufficient to address Shape's challenges collectively, being to the arbitrator's conclusions in respect of latent conditions, the time bar and the creation of separable portions. Shape contended that the arbitrator's reasons did not satisfy section 31 of the Act. Some of Shape's arguments in respect of the time bar were not specifically addressed in the award and it was suggested that the arbitrator had overlooked those arguments altogether. As to the arbitrator's conclusion that the Superintendent's creation of new separable portions was not void and of no effect, it was said that the arbitrator did no more than recite a factual narrative, before expressing a bare conclusion. It was said that the arbitrator consequentially failed to provide any adequate reasons for the ultimate decisions he made, justifying the setting aside of the relevant parts of the Award under section 34. Nuance contended that sufficient reasons had been given.
9. I have spent some time summarising the award in this judgment, not because it is the function of this Court to provide an explanatory guide but hopefully to illustrate that the arbitrator has discharged his obligation to set out the steps in the legal and factual enquiries undertaken and why he came to the conclusions he did. Whether he was right or wrong in his findings is not for me to say - and I should not be taken as suggesting that he was wrong - but it is apparent beyond any confusion as to the reasons for his findings. If the arbitrator did not recite each of the arguments put by the parties, that is probably because the arguments to which he did not refer did not ultimately form part of his reasoning process. The fact that a judgment or award faithfully recites all arguments put by the parties does not mean that decision-maker's reasoning is exposed. Shape's challenges to the adequacy of the arbitrator's reasons fails.
10. Nuance contended that the arbitrator's reasons in respect of liquidated damages were inadequate to comply with section 31(3) such that the award was not made in accordance with the arbitral procedure agreed by the parties and was liable to be set aside under section 34(2)(a)(iv) of the Act. Nuance submitted that the arbitrator's findings were "completely inconsistent". Nuance pointed to those portions of the arbitrator's award where he found that Shape's claim in respect of liquidated damages was time-barred, notwithstanding which "and without providing any reasons", the arbitrator proceeded to make declarations and orders obliging Nuance to repay the bulk of the liquidated damages for Separable Portion 4b.
11. Inexplicably, the arbitrator ordered Nuance to repay the liquidated damages, said to be without reasoning and on the basis of Nuance's contingent cross-claim. It was said to be unclear how the arbitrator made this award where Nuance did not make any claims for relief that were independent of Shape's claims; the declarations were only sought if the Arbitrator found that Shape had justiciable claims that entitled it to relief and the cross-claim only sought to affirm the Superintendent's liquidated damages determinations. Nuance submitted that the arbitrator provided no reasoning as to how he was entitled to proceed in this manner. The interaction between his finding that Shape's claims were time barred and the cross-claim was a 'critical element' of the award: Gordian at 271. The arbitrator thereby failed to comply with the requirements of section 31(3) of the Act. The provision of reasons formed part of the arbitral procedure agreed by the parties; the absence of reasons supported relief under section 34(2)(a)(iv) of the Act and should be set aside.
12. To this, Shape contended that the arbitrator had simply accepted Shape's primary argument that the Superintendent's certification of liquidated damages was void and of no effect; the arbitrator's orders reflected an acceptance that there was no determination and Nuance was not entitled to retain the moneys. Shape's claim that the Superintendent's certification of liquidated damages was void and of no effect was not found to be time barred.
13. Shape submitted that one can read and understand the award as providing that Nuance was obliged to pay to Shape those monies that Nuance had withheld as liquidated damages in reliance on the Superintendent's determination as to liquidated damages for alleged separable portion 4B that was void and of no legal effect. At the same time, Shape's other claims insofar as they concerned the Superintendent's determination of liquidated damages - such a claim for damages for breach of clause 23 - were time barred. Whilst the arbitrator found that Shape's breach of contract case in relation to liquidated damages was time-barred, the arbitrator did not make, and should not be understood to have made, a finding that Shape's claim that the Superintendent's determination was void or was time-barred. As the arbitrator did not find that the 'void' claim was barred under clause 46, there was no inconsistency.
14. Shape submitted that the arbitrator made no express finding that the 'void' claim was barred under clause 46. The arbitrator positively dealt with the 'void' case in Part K of the award. He did not deal with it on the basis that it was time-barred but dealt with the claim extensively. This was hardly suggestive of the arbitrator proceeding on the basis that the claims were barred by clause 46. Unlike Part Q, Part K of the award did not contain an initial paragraph stating that the arbitrator had already found the claim to be time-barred. Another indicator that the arbitrator had not found the 'void' claim time-barred is that he proceeded to order Nuance to pay back the liquidated damages, and would hardly have done so if he had found that the 'void' claim was barred under clause 46.
15. As such, Shape submitted that paragraph [722(ii)] of the award was either an error or should be understood as dealing with Shape's breach of contract claim and not intended to disturb the declarations made in respect of the 'void' at [669] of the award. The 'void' claim was not a claim for breach of contract and the arbitrator's findings in respect of the 'void' claim stood on their own in the arbitration. To the extent that the award referred to Shape's claims being time-barred, this was a reference to the breach of contract claim. Shape's senior counsel submitted: It's a bit clunky, awards often are. But it does work. And your Honour's faced with this choice: Do you interpret it as we do in a way in which everything makes sense, the declarations make sense, the void findings make sense, the amount of the award makes sense, or do you interpret it all in the way my learned friend suggests in which nothing really makes sense, and you have this radical inconsistency. We say your Honour would prefer the former approach.
16. I agree with Shape's submission. It follows from what I have already said that the arbitrator's reasons in respect of liquidated damages comply with section 31(3) of the Act. When read together with the list of questions, the arbitrator's findings are consistent and explicable. He has made plain why he decided what he did. Nuance's claim fails in this regard.

ORDERS

1. For these reasons, I make the following orders: 1. Dismiss the Summons filed on 19 February 2021. 2. Dismiss the Cross-Summons filed on 19 March 2021. 3. Make no order as to costs, with the intent that each party bear their own costs.

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DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 November 2021