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[1988] NTSC 53
Supreme Court of the NT
1988-08-05
Martin J, Nathan J, Vincent J, Crockett J, Mr P
Original judgment source is linked above.
(/cgi-bin/viewdoc/au/legis/wa/consol_act/caa1985219/s2.html). That section reads as follows: (1) "Subject to this section and section 41 - (a) the Supreme Court shall not, under section 38(4)(b), grant leave to appeal in relation to a question of law arising out of an award; and (b) no application may be made under section 39(1)(a) in relation to a question of law, if there is in force an agreement in writing (in this section and section 41 referred to as an "exclusion agreement") between the parties to the arbitration agreement which excludes the right of appeal under section 38(2) in relation to the award or, in a case falling within paragraph (b), in relation to an award to which the determination of the question of law is material. (2) An exclusion agreement may be expressed so as to relate to a particular award, to awards under a particular arbitration agreement or to any other description of awards, whether arising out of the same arbitration agreement or not. (3) An agreement may be an exclusion agreement for the purposes of this section whether it is entered into before or after the commencement of this Act and whether or not it forms part of an arbitration agreement. (4) Except as provided by subsection (1), sections 38 and 39 shall have effect notwithstanding anything in an agreement purporting - (a) to prohibit or restrict access to the Supreme Court; or (b) to restrict the jurisdiction of the Court. (5) An exclusion agreement shall be of no effect in relation to an award made on, or a question of law arising in the course of, an arbitration being an arbitration under any other Act. (6) An exclusion agreement shall be of no effect in relation to an award made on, or a question of law arising in the course of, an arbitration under an arbitration agreement which is a domestic arbitration agreement unless the exclusion agreement is entered into after the commencement of the arbitration in which the award is made or, as the case requires, in which the question of law arises. (7) In this section "domestic arbitration agreement" means an arbitration agreement which does not provide, expressly or by implication, for arbitration in a country other than Australia and to which neither - (a) an individual who is a national or, or habitually resident in, a country other than Australia; nor (b) a body corporate which is incorporated in, or whose central management and control is exercised in, a country other than Australia, is a party at the time the arbitration agreement is entered into." 3. Section 41 of the Act has no application in this case. The first defendant in the arbitrator whose award is the subject of these proceedings. Apart from appearing to be excused from further attendance he has not taken part in the proceedings thus far. I doubt that he should have been joined. The plaintiff a second defendant were the parties to an arbitration in respect of which interim and final awards have been made. The second defendant says that there is in force an agreement in writing between it and the plaintiff which excludes the right of appeal under s. 38(2), in relation to the award made in the arbitration under the Act (s. 40(1)). It is common ground that there was an arbitration between the parties, which was a domestic arbitration (ss. 40(6) and (7)), and there is no dispute that the Act applies. 4. The plaintiff says that there is no exclusion agreement in writing between the parties. That issue was argued before me as a preliminary point, together with the issue as to whether or not leave should be granted in the event that the plaintiff's view as to the alleged exclusion agreement was found to be correct. 5. If the plaintiff is correct and leave is granted the appeal will then be heard. 6. The documents evidencing the alleged agreement are twofold and in identical terms. They comprise letters written to each of the plaintiff and the second defendant by the arbitrator. The first two paragraphs are as follows: "The President of the Master Builders' Association has nominated me to act as Arbitrator to hear and determine the disputes or differences that have arisen between the above named parties. I accept such nomination on the clear understanding that my award as Arbitrator will be accepted by both parties as final and binding and that the costs of, and incidental to the submission reference and award will be paid by the party or parties to the disputes or differences in such sum or sums as the Arbitrator shall decide." 7. The remainder of each letter deals with the fees to be paid to the Arbitrator for his services, incidental expenses, application by the Arbitrator of the deposit paid by the party invoking the arbitration, the payment of the Arbitrator's costs as to time of payment and as between the parties, including in the event of settlement prior to the publication of the award. 8. Below the Arbitrator's signature to each letter are typed the words " I agree to the above conditions" with a space for signature and a date - 18 April 1986, which I consider was the date of the letter. On the day fixed by the arbitrator by those letters, for the preliminary conference, 26 May 1986, the original of the letter addressed to the second defendant was signed on behalf of the second defendant, and handed to the arbitrator on its behalf. 9. The plaintiff's agent also signed, in the space provided on the letter addressed to it, on 8 May 1986 and delivered it to the Arbitrator. When is not certain, although it is not doubted that that occurred on or before the commencement of the preliminary hearing. 10. The position as at 26 May 1986 was that the Arbitrator nominated to act, had received a document from each party, one at least only on that day, in which they each had separately signified expressly to him in writing that they agreed to his conditions of acceptance of the nomination. 11. The communications between the arbitrator and each of the parties to the arbitration were between them. There was no communication in relation to the conditions to apply to the arbitrator's appointment as between those parties. In particular there was no communication in writing between those parties which raised in any way the exclusion of the right to appeal. It would however be reasonable to infer that each party knew that the other had agreed to the conditions of acceptance sought by the arbitrator. 12. The two questions which arise for determination on the preliminary point are whether there was an exclusion agreement and, if so, was it entered into after the commencement of the arbitration? 13. Despite extensive research by counsel and my own, no authority has been found which assists in determining the first question in the context of arbitration legislation. The second defendant contends that the legislation is designed to facilitate people in business having their disputes resolved quickly and finally. Reference was made to s. 28 of the Act, which provides that unless a contrary intention is expressed in an arbitration agreement, the award made by the arbitrator shall, subject to the Act, be final and binding on the parties the agreement, and the condition sought by the arbitrator that his award be "accepted by both parties as final and binding." The argument proceeds upon the basis that, bearing in mind the object of the Act, and the communications in writing between the arbitrator and each of the parties to the arbitration, the Court should find that there had been concluded an agreement in writing, not just as between the arbitrator and each of them, but as well as between each of the parties so as to satisfy the requirement that there be an agreement in writing between the parties. 14. The plaintiff says that although the object of the Act is to enable people to make agreements that their disputes will be referred to arbitration in the expectation of having them determined expeditiously, inexpensively and without resort to the courts, the Act specifically allows for appeal on question of law and that that valuable right is not to be taken away unless the provisions of th Act are strictly complied with. Attention is drawn to s. 40(4) providing that except as provided for in subsection (1), section 38 shall have effect notwithstanding anything in an agreement purporting to prohibit or restrict access to the Supreme Court, or to restrict the jurisdiction of the Court. 15. It seems to me that the word "agreement" in subsection (4) has a wider application than the agreement in writing between the parties referred to in subsection (1), and that it may encompass the condition sought by the arbitrator and agreed to by the parties that his award be accepted by both parties as final and binding. This subsection also serves to emphasize that it is only an agreement strictly within the meaning of subsection (1) which will attract the statutory effect. 16. The statutory power granted to parties to arbitration, to agree to exclude the operation of a statutory right to appeal or to seek leave to appeal is, so f as research shows, unique. It is an enabling power which takes into account the objects of arbitration and the commercial or business like attitude inherent in resort to that process. It may also be designed to overcome the difficulties which arise as to whether it is contrary to public policy to have an agreement to oust the jurisdiction of the courts (as to which see generally Windeyer J. in Felton v Mulligan at pp 385 and 386). Both parties referred to Clarke v The Earl of Dunraven , the second defendant relying upon it and the plaintiff to distinguish it. I have found it helpful to at the decision of the Court of Appeal, "The Satanita", reported in which was affirmed in the House of Lords. The appellant had entered his yacht for a race on condition that he would obey and be bound by certain rules, by one of which the owner of any yacht, disobeying or infringing any of them was liable "for all damages arising therefrom". In breach of one of the rules the appellant's yacht ran into and sank a yacht of a fellow competitor which had been entered upon the same conditions. 17. The first question to be answered, and the only one relevant in these proceedings, was whether there was a contract between the two yacht owners. In the Court of Appeal Lord Esher M.R. put it this way: "Was there any contract between the owners of those two yachts? Or it may be put thus: Did the owner of the yacht which is sued enter into any obligation to the owner of the other yacht, that if his yacht broke the rules, and thereby injured the other yacht, he would pay damages? It seems to me clear that he did; and the way that he has undertaken that obligation is this. A certain number of gentlemen formed themselves into a committee and proposed to give prizes for matches sailed between yachts at a certain place on a certain day, and they promulgated certain rules, and said: "If you want to sail in any of our matches for our prize, you cannot do so unless you submit yourselves to the conditions which we have thus laid down. And one of the conditions is, that if you do sail for one of such prizes you must enter into an obligation with the owners of the yachts who are competing, which they at the same time enter into similarly with you, that if by a breach of any of our rules you do damage or injury to the owner of a competing yacht, you shall be liable to make good the damage which you have so done." If that is so, then when they do sail, and not till then, that relation is immediately formed between the yacht owners. There are other conditions with regard to these matches which constitute a relation between each of the yacht owners who enters his yacht and sails it and the committee; but that does not in the least do away with what the yacht owner has undertaken, namely, to enter into a relation with the other yacht owners, that relation containing an obligation. Here the defendant, the owner of the Satanita, entered into a relation with the plaintiff Lord Dunraven, when he sailed his yacht against Lord Dunraven's yacht, and that relation contained an obligation that if, by any breach of any of these rules, he did damage to the yacht of Lord Dunraven, he would have to pay the damages." 18. At p 260 Lopes L.J. said: "As to the first question, I have no doubt that there was a contract. Probably a contract with the committee in certain cases, but also a contract between the owners of the competing yachts amongst themselves, and that contract was an undertaking that the owner of one competing yacht would pay the owner of any other competing yacht injured by his yacht all the damages arising from any infringement or disobedience of the rules. In my opinion, directly any owner entered his yacht to sail, this contract arose; and it is clear that the owners of the Valkyrie and the Satanita did enter their respective yachts and did sail." 19. Rigby L.J. said at p 262: "The first question is that of contract or no contract. It appears to me that all that is necessary to constitute a contract between the yacht owners is to bring home to each of them the knowledge that the race is to be run under the Yacht Racing Association rules, and that they, the one and the other, deliberately enter for the race upon those terms. In this case we have a written document, signed by each yacht owner, which, if there were any doubt at all, would render it abundantly clear that he was perfectly well aware of the bargain he was entering into. In no other way than that does it appear to me to be material. The contract did not arise with any one, other than the managing committee, at the moment that the yacht owner signed the document, which it was necessary to sign in order to be a competitor. But when the owner of the Satanita on the one hand, and the owner of the Valkyrie on the other, actually came forward and became competitors upon those terms, I think it would be idle to say that there was not then, and thereby, a contract between them, provided always that there is something in the rule which points to a bargain between the owners of yachts. Under rule 24, "If a yacht, in consequence of her neglect of any of these rules, shall foul another yacht, or compel other yachts to foul, she shall forfeit all claim to the prize, and shall pay all damages." To whom is the owner of that yacht to pay those damages? He cannot pay them to the club, nor do I think the club could recover them. The true and sensible construction is that he must pay the owner of the yacht fouled." 20. In the House of Lords, Lord Halsbury L.C. had no doubt that the two yacht owners had an agreement with each other (p 62). At p 63 Lord Herschell said: "The effect of their entering for the race, and undertaking to be bound by these rules to the knowledge of each other, is sufficient, I think, where those rules indicate a liability on the part of the one to the other, to create a contractua obligation to discharge that liability." The remainder of their Lordships agree 21. Although not expressly referred to in the reasons given in the House of Lords, it is plain from the judgments in the Court of Appeal that the obligation of each yacht owner to the other arose from their conduct in taking part in the regatta under conditions known to them both prior to doing so. It was not the written entry forms of themselves that established the liability. Here the agreement to exclude appeal must be in writing between the parties. Their agreements with the arbitrator do not meet that statutory requirement. That each party entered upon or continued the arbitration process knowing what it and the other party had agreed with the arbitrator may amount to an agreement between them but it is not an agreement in writing between them. 22. The plaintiff also argues that even if the agreement between each of the parties and the arbitrator amount to an agreement in writing between the parties, it is not an agreement which excludes the right of appeal under s. 38(2) in relation to the award. The words used in the arbitrator's letters are "I accept such nomination on the clear understanding that my award as Arbitrator will be accepted by both parties as final and binding." 23. Unless a contrary intention is expressed in an arbitration agreement, the award made by an arbitrator shall, subject to the Act, be final and binding on the parties to the agreement (s. 28). No contrary intention appears from the arbitration agreement. Clause 32 (d) of the building contract entered into between the plaintiff and second defendant expressly provides that the award made by the arbitrator under the arbitration provisions of that contract shall be final and binding on those parties. On any view of the law that agreement was entered into before the commencement of the arbitration. For an exclusion agreement in respect of a domestic arbitration to be valid, it must be entered into after the commencement of the arbitration (s. 40(6)), a subject to which I will return. 24. On the present assumption that the purported exclusion agreement was entered into after the commencement of the award, does it exclude the right of appeal under s. 38(2)? I do not think it would be right to approach this question on the basis that either the arbitrator or the parties to the arbitration were ignorant of the provisions of the Act. They would know that no appeal is provided for on questions of fact and thus to agree that the award would be final and binding can not be interpreted as being a restriction on a non-existent right. The words must be given some work to do and, in the context of an agreement between people in business as opposed to legislative draftsmen or parliamentarians. The parties did not agree in writing that a question that arose in the course of the proceeding should be determined otherwise than according to law (s. 22(1)). The Act provides for an appeal on a question of law. The agreement, if there be one, can only have meaning if it was directed to excluding that qualified right of appeal. In the context of voluntary arbitration and the agreement authorised to be made by the Act, cases on interpretation of "finality" provisions in statutes do not assist. 25. Again there appear to be no authorities dealing with the question of the form of, or of the way in which an agreement is to be expressed if it is to be effective as an exclusion agreement. 26. Here the parties to the agreement, if there be one, were the parties to the arbitration and there is no argument that the application for leave to appeal relates to the award made upon their arbitration agreement. 27. Text writers are not agreed on the formulation of a valid exclusion agreement. The English Arbitration Act 1979 contains similar provisions. The authors of the 20th edition of Russell on Arbitration at p 293 concentrate thei attention on the necessity of paying regard to both the exclusion of appeal and of the right to apply to the Court to determine a question of law arising in the course of arbitration. Their model form at p 532 reads: "It is hereby agreed that if any question of law arises in the arbitration award or arises in the course of this reference, no appeal may be made to the High Court under section 1 of the Arbitration Act 1979 and no application may be made under section 2 of the said Act." 28. It is not necessary in this case to consider whether the words employed would be effective to exclude the right to have a preliminary question of law determined by the Court. 29. In Mustill and Boyd "Commercial Arbitration" at p 591, it is suggested that there is no reason why any particular form of words should be employed to simply exclude the right of appeal and go on: "Consistently with the general practice of the courts to give effect to the commercial policy underlying the 1979 Act, it would be quite permissible to take a clause generally purporting to oust the supervisory jurisdiction of the courts, treat it as ineffective in relation to those jurisdiction which cannot be ousted (e.g. to set aside the award for misconduct) and give effect to the remainder as an exclusion agreement." 30. They conclude with the warning: "It must, however, be acknowledged that there is some room for uncertainty as to what exactly the Act contemplates by way of exclusion agreement, and we believe that the safest course will be to use a form of words which, by express reference to section 3(1) of the 1979 Act, excludes all right of appeal." 31. Having put forward what they describe as a suitable draft of an exclusion agreement making reference to the provisions of the Act, Gibson-Jarvie and Hawker in "A Guide to Commercial Arbitration under the 1979 Act" at p 47 say, "but any reasonable formulation will suffice, provided that it is clear and unambiguous and identifies the disputes (or the reference) to which it is to apply and the kinds of judicial review that are to be excluded. 32. Sharkey and Dorter in their work on the Australian legislation "Commercial Arbitration" make only passing reference to the subject at p 268. 33. Although it is undoubtedly preferable that the terms of an exclusion agreement incorporate specific reference to such of ss. 38(2) and 39(1)(a) as the parties seek to exclude from operation, it is not necessary that they do so. The Act does not expressly require it and such a requirement should not be implied. It is up to the parties as to how they express their agreement and if an intention to exclude the right of appeal (or to have a preliminary exclusion of law determined) can be fairly seen from the words they choose to employ then it should be made effectual. I consider that if parties agreed that they would both accept an arbitrators award as "final and binding" they thereby exclude the qualified right of appeal under s.s 38(2). 34. It is not necessary for me to decide whether the purported exclusion agreement was entered into after the commencement of the arbitration but, as with the issue just considered, it is a question arising between the parties and as counsel having argued it at some length, I should record my views. The plaintiff argues that since the letters from the arbitrator set out the condition precedent to his accepting appointment to that position the purported exclusion agreement was not made after the commencement of the arbitration. The second defendant points to authorities which indicate that an arbitration commences when a valid notice of dispute is given invoking the arbitration process. 35. In short, clause 32(a) of the building contract provides that in the event of dispute or difference arising between the Proprietor and the Builder (the second defendant and plaintiff respectively) either party shall give to the other notic in writing of such dispute or difference. At the expiration of 7 days from the date of receipt of the notice the dispute or difference (unless settled) "shall and is hereby referred to the arbitration" of certain identifiable persons. (The parties appear to have varied that agreement by agreeing to one person being appointed as arbitrator). Such a notice was given and there was disagreement as to its validity, but nothing now turns on that. 36. The required security for costs was paid. The person nominated to be the arbitrator wrote the letters referred to to each party and at the same time, in anticipation of his conditions of acceptance being agreed to, fixed the date for the preliminary hearing. The parties agreed to those conditions, one of them on the day appointed for the preliminary hearing, which then proceeded. 37. Mustill and Boyd point out, at p 135, that expressions such as "the commencement of the arbitration" must have different meanings in various contexts of which examples are given. The context in this case is within s. 40(6) of the Act and the purpose behind the requirement that the exclusion agreement be made after the commencement of the arbitration is not readily apparent. The phrase is defined in the Act but only for the purpose of the transitional provisions (s. 3(5)). For that purpose the arbitration shall be deemed to have commenced if a dispute has arisen and a party has given notice or taken any other step contemplated by the arbitration agreement with a view to referring the dispute to arbitration. Similar provision is made in s. 48 of . 38. Lord Denning M.L., in The Agios Lazaros , acting on an agreement between the parties that the equivalent section of the English should be applied by analogy to a contractual time bar clause in an arbitration agreement, and thinking it important that there be clear rules as to when an arbitration is deemed to have commenced, held that a proper notice requiring the difference to be submitted to arbitration was sufficient. Goff L. and Shaw L.J. expressed the same opinion (the decision is extracted in Russell on Arbitration 20th Edition at p 70 et seq). 39. Sharkey and Dorter at p 31 draw attention to the decision of the Court of Appeal in Gosford Meats Pty Ltd v Queensland Insurance Co Ltd in which it was held that a requirement that differences "be referred to the decision of an Arbitrator" within one year, was satisfied if the parties intention to go to arbitration was sufficiently manifested within that period. 40. The arbitration agreement in this case provides a self executing reference to arbitration once notice of the dispute or difference is given. Any difficult which might arise in regard to the appointment of an arbitrator are dealt with by the Act (see for example s. 8). In s. 39(1)(a) an arbitrator is described as having "entered on the reference" not as having "commenced the arbitration". That distinction, the authorities and considerations to which reference has been made, lead to the view that once the dispute or difference arose and proper notice had been given the arbitration had commenced. Accordingly, if there be an exclusion agreement then it was entered into after the commencement of the arbitration. 41. Prior to the commencement of the Act, arbitration in the Territory was governed by the Arbitration Act 1891 (S.A.), and questions of law came before the Court by way of a special case stated for the opinion of the Court. The Court had no discretion as to whether or not it would hear the matter. That position has now radically changed. 42. Appeals on question of law may now only be brought by leave of the Court. The discretion is constrained by s. 38(5)(a) of the Act in that leave is not to granted unless the Court considers that, having regard to all the circumstances, the determination of the question could substantially affect the rights of one o more of the parties to the arbitration agreement. 43. In addition to that constraint upon the granting of leave, the Courts have endeavoured to establish principles or guidelines going to the exercise of the discretion. 44. There are four questions of law involved in this application two of which allege errors by the arbitrator in the construction of the contract between the parties. If such an error was made then it was an error of law. A commonly accepted starting point in such a case is contained in the speech of Lord Diplock in Pioneer Shipping v B.T.P. Tioxide ("The Nema") commencing at 742: "Where, as in the instant case, a question of law involved is the construction of a "one-off" clause the application of which to the particular facts of the case is an issue in the arbitration, leave should not normally be given unless it is apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument, that the meaning ascribed to the clause by the arbitrator is obviously wrong. But if on such perusal it appears to the judge that it is possible that argument might persuade him, despite first impression to the contrary, that the arbitrator might be right, he should not grant leave; the parties should be left to accept, for better or for worse, the decision of the tribunal that they had chosen to decide the matter in the first instance. The instant case was clearly one in which there was more than one possible view as to the meaning of the "one-off" clause as it affected the issue of divisibility. It took two days' argument by counsel before the learned judge to satisfy him that the arbitrator was wrong on this and upon the interdependent question of frustration, four days' argument before the Court of Appeal to convince them that the judge was wrong and the arbitrator right and over three days' argument in trying to persuade this House to the contrary, even though it was not found necessary to call upon the respondent to address us on the merits. Even apart from the reasons special to this case mentioned at the outset, which led Mocatta J. and Donaldson J. to conclude that it was a case in which no court would grant leave to appeal from the arbitrator's award, it is in my view typical of the sort of case in which leave to appeal on a question of construction ought not to be granted. For reasons already sufficiently discussed, rather less strict criteria are in my view appropriate where questions of construction of contracts in standard terms are concerned. That there should be as high a degree of legal certainty as it is practicable to obtain as to how such terms apply upon the occurrence of events of a kind that it is not unlikely may reproduce themselves in similar transactions between other parties engaged in the same trade, is a public interest that is recognised by the Act particularly in section 4. So, if the decision of the question of construction in the circumstances of the particular case would add significantly to the clarity and certainty of English commercial law it would be proper to give leave in a case sufficiently substantial to escape the ban imposed by the first part of section 1 (4) bearing in mind always that a superabundance of citable judicial decisions arising out of slightly different facts is calculated to hinder rather than to promote clarity in settled principles of commercial law. But leave should not be given even in such a case, unless the judge considered that a strong prima facie case had been made out that the arbitrator had been wrong in his construction; and when the events to which the standard clause fell to be applied in the particular arbitration were themselves "one-off" events, stricter criteria should be applied on the same lines as those that I have suggested as appropriate to "one-off" clauses." 45. The other members of the House concurred. 46. That the speeches in The Nema were intended to provide guidelines, rather than to remove the discretion granted to the Judge hearing an application for leave to appeal, is shown by The Antaios and Bulk Oil v Sun International , decisions of the Court of Appeal. In the House of Lords, two of their Lordships who had participated in "The Nema", concurred again with Lord Diplock who said of the general guidelines stated in "The Nema", "Like all guidelines as to how judicial discretion should be exercised they are not intended to be all embracing or immutable, but subject to adaptation to match changes in practice when these occur and to refinement to meet problems of kinds that were not foreseen, and are not covered by" what was there said (Antaios at p 200). At p 203 his Lordship affirmed, however, that in a case that turns on the construction of a standard term, leave should not be given unless a strong prima facie case has been made out that the arbitrator was wrong in his construction. 47. "The Nema" and the 1985 Antaios were both cited in argument before the Court of Appeal comprising Glass, Priestley and McHugh JJ.A. in Qantas Airways Ltd v Joseland and Gilling The Court was not convinced that the statements of Lord Diplock were applicable to s. 38 of the New South Wales Act as they were based on a different background. Just what differences their Honours had in mind does not appear. 48. Perhaps they had in mind the concern of their Lordships "to maintain the reputation of London arbitration as a forum for the resolution of commercial disputes", "The Nema" p 734, especially in the field of non-domestic arbitration (p 739) involving shipping, whereas in the cas e before them the questions involved the construction of a building contract in a domestic arbitration. Nevertheless the Court, at p 333, said "The matters to which Lord Diplock referred are important factors in determining whether leave should be given" and went on "But the exercise of the discretion conferred by s. 38 does not depend on whether the claimant has made out a strong prima facie case or fulfilled the other requirements to which his Lordship refers. It is a discretion to be exercised after consideration of all the circumstances of the case." In granting leave to appeal the Court relied upon the fact that the form of agreement was in general use in New South Wales and the arbitrator's decision affected the construction of a number of important clauses in it. 49. A little over 2 months after the decision in the Qantas case the Court of Appeal in England delivered its judgment in Aden Refinery Co Ltd v Ugland Management Co At p 749; having reviewed the earlier authorities, and drawing a distinction between what was held to be the parliamentary intention to promote speedy finality in arbitral awards as opposed to legal technicality, Mustill L.J. went on to say of the guidelines, at p 749: "The speeches could not legislate for every situation which the judge might face. Disputes vary infinitely in complexity and intellectual difficulty, in the prominence which issues of law play in the overall resolution of the dispute; in their size, and in their significance for the commercial futures of the parties. Questions of law vary from those which are of general importance to the community at large, those which are important to the international trading community, those which are important to the members of a particular trade, those which are important to some members of that trade, faced with similar problems,
down to those which are of no importance to anyone except the parties. The answer to the question of law may be obvious or delicately balanced. Awards may be long or short, lucid or opaque. They may reveal unanimity of opinion, or sharp divisions. Every application for leave to appeal is different. No judicial pronouncement, however elaborate, could legislate for them all. It seems to me plain that in stating the guidelines their Lordships did not set out to do so. It involves no disrespect at all to note that experience has cast up problems which the guidelines (as distinct from the statements of general principle) do not cover, and practical difficulties which in some instances make it impossible to put into effect the procedures which they envisage. This situation is precisely what was foreseen when the guidelines were pronounced: see The Antaios (1984) 3 All ER 229 at 232, (1985) AC 191 at 200 per Lord Diplock." 50. Nourse L.J. agreed. It seems to me that what his Lordship there said was a more detailed way of putting that the "discretion is to be exercised after consideration of all the circumstances of the case." 51. A few days earlier, Smart J. in Abignano v Electricity Commission of New South Wales (1986) 3 BCL 290 considered The Nema/Antaios cases and the recently delivered Qantas decision and, on the question of the exercise of the discretion, said at p 297: "In my view it is relevant to consider whether a dispute is a local or an international one, and the nature of the dispute. In international shipping disputes or in other international disputes where there is a need for an urgent decision the guidelines propounded by Lord Diplock are likely to be of prime importance. In construction cases it will often not be possible in one-off cases to approach the application for leave in the manner suggested by Lord Diplock. In such cases there are often extensive contractual provisions, that is, the standard general conditions of some length, the special conditions, incorporated documents and the specification. It is necessary to understand the particular provisions in question, the general nature and terms of the contract, and the factual background. Without a knowledge of these matters it is often hard to assess the correctness of the award.
As a general rule, to justify the grant of leave, there would have to be substantial grounds for saying that the arbitrator had made a relevant error of law and not merely an arguable point. Section 38(5) requires the point to be one which could substantially affect the rights of the parties. The amount in issue is a relevant consideration." 52. His Honour concluded at p 298: "There is much to be said for the view that one of the arbitrator's reasons may not be correct. However, it does not follow that the conclusion he reached as to the construction of the contract is incorrect. While the clause is a one-off clause, large sums are at issue, there was a substantial question to be tried on any view, one of the arbitrator's reasons appears to be of doubtful validity, the contract is a local ongoing one, practical completion had not been reached and the question of construction is at the heart of the dispute between the parties. It is neither possible nor desirable to formulate principles which will have universal application. The best that can be done is to indicate some of the guidelines which may prove useful. As the Court of Appeal pointed out in Qantas, the discretion whether to grant leave to appeal has to be exercised having regard to all the circumstances of the particular case." 53. Justice Nathan of the Supreme Court of Victoria in Zafir v Papaefstathiou (unreported 30 October 1986) was satisfied that that Court should follow the House of Lords in The Nema and Antaios (1985), although no longer bound to do so, rather than depart from it on the basis of an observation in the N.S.W. decision in the Qantas case, in which, after all one of the guidelines in The Nema was applied. It does not appear that His Honour was referred to the English cases which I consider have substantially reduced what at first sight may appear to be fixed principles as opposed to guidelines. 54. The approach of Nathan J. was not adopted by Vincent J. of the same Court in Thompson v Community Park Developments Pty Ltd (unreported 4 March 1987). His Honour in that case was disposed to agree with the Qantas decision in New South Wales. Commencing at p 10, he said:
"It must be appreciated that whilst the guidelines laid down by the House of Lords for use by the English Courts can be assumed to represent an appropriate response to the circumstances of, and experience gained in relation to, the commercial arbitration processes of that country, one could not be confident that they would be appropriate in the possibly different circumstances to be encountered within this jurisdiction. I also have some difficulty with the proposition of Lord Diplock that leave to appeal should only be granted where a prima facie case of error is apparent, or in what were referred to as "one-off cases" in those matters where the error is obvious as a matter of first impression. In my view the significance and consequences of an error are immeasurably more important than the ease with which it may be detected, and consequently it does not appear to me that any threshold question related to the ease with which the error may be detected would be either necessary or appropriate. This is not to say that the complexity of an argument required to demonstrate the existence of an error should not be a factor to be taken into account in the exercise of discretion, but rather that the discretion to be exercised by a Judge requires consideration of all the circumstances of the case, accepting the basic approach that the Courts should be reluctant to intervene in matters which have been referred by agreement to an alternative legislatively sanctioned dispute settlement system." 55. In refusing the application for leave His Honour took into account "the general circumstances of the matter". The arbitration arose out of a small building dispute. 56. On considering an application for leave in regard to the construction of a "one-off" clause O'Bryan J. in that Court in Costain Australia Ltd v Frederick W. Neilsen Pty Ltd (unreported 21 May 1987) followed Nathan J. and referred to a decision of Crockett J. which concluded that "The Nema" principles are applicable to the interpretation of the Victorian legislation". 57. In my opinion the trend of the authorities goes to show that where there are circumstances similar to those described in the guidance offered in The Nema, then that guidance will be of great assistance to the Judge considering an application for leave to appeal. But, those circumstances are not to be regarded on isolation from all of the circumstances of the case. 58. Happily, this Court has not been inundated with applications for leave to appeal under the Act. I am told that this is the first. Whether that arises from the relatively small community which the Court serves, a reliance more on the Court rather than the arbitration process, or the skill of arbitrators I am unable to say. Further, it must be accepted, that notwithstanding that this Court does not appear to have been prevailed upon to give its opinion on a special case stated under the repealed legislation, or to consider errors on the face of the record, with the delays and other iniquities inherent in that process which the text writers and Courts have condemned, the Territory Act is in all material respects an Act modelled on the English legislation and uniform with the Acts of the States of Australia. That Territory conditions may differ from other jurisdictions does not mean that the intentions of the Territory Parliament were different. The Uniform Bill was developed taking into account the desire for uniformity and after a long process of consideration and consultation. To interpret the Act on the basis of local conditions would be to deny the evident desire of the Territory Parliament to bring its legislation into conformity with that elsewhere in Australia, and for the same reasons, even if those reasons had not become apparent here. Given that the Australian States and Territory enactments borrow largely from the English Act of 1979 in relation to appeal from arbitrators' awards, it is most useful to look at not on the substantive law developed by the Courts in that country and elsewhere in this, but also to pay regard to the pronouncements on matters of procedure. The relationship between this Court and arbitration may yet be in its infancy (indeed it could be described as embryonic) but that does not mean that special rules should apply on that account, although some latitude might be granted both in the interests of the Court and the parties before it for a time. If, as it seems, steps are being taken to enhance arbitration in this Territory, then the Court should constantly bear in mind the philosophy lying behind that impetus in the knowledge that ultimately it is up to individuals to decide which method of dispute resolution they wish to adopt. If arbitration, then upon applications to this Court it would be well to bear in mind the words of Lord Diplock in Antaios (1985) at p 199: "Unless judges are prepared to be vigilant in the exercise of the discretions conferred upon them ... ..., they will allow to be frustrated the intention of Parliament, as plainly manifested by changes
in procedure that these statutes introduced, to promote speedy finality in arbitral awards rather than that insistence upon meticulous semantic and syntactical analysis of the words in which business men happen to have chosen to express the bargain made between them, the meaning of which is technically, though hardly commonsensically, classified in English jurisprudence as a pure question of law." 59. I can now turn to the grounds of the application for leave to appeal. Since the parties did not invite me to consider the appeal, if leave is granted, I will not go into great detail. There is no argument that the questions raised are questions of law. The dispute arose out of a building contract. The plaintiff was the builder and the second defendant the proprietor. The contract is in writing and, for these purposes, comprises a combination of two forms in common use with sundry irrelevant amendments. It related to the construction of an office building in Darwin. The price of $1,053,455, was divided into two components, $919,794 being described as the estimated cost of construction and $133,661 as preliminaries. Provision was made that where on completion the actual cost of construction was less than the estimated cost of construction, adjusted for any variations, 60% of the difference would constitute a saving to the proprietor and the contract sum was to be adjusted accordingly. 60. There were a large number of disputes dealt with by the arbitrator and in the end result he awarded $35,546 to the proprietor. He is said to have fallen into error in the following matters. 61. In relation to the amount to be allowed to the builder for mechanical services he found that neither party had acted correctly under the terms of the contract. He said "under the circumstances the parties in natural justice share responsibility equally", and went on to award the builder 50% of the difference between what he described as the "offer" and "the final cost". On the material before me the amount payable to the builder, as a matter of law, may have been held to have been as low as $90,300, as high as $142,000, or somewhere in between. The award was $115,678. Section 22 of the Act provides: (1) "Unless otherwise agreed in writing by the parties to an arbitration agreement, a question that arises for determination in the course of proceedings under the agreement shall be determined according to law. (2) If the parties to an arbitration agreement so agree in writing, the arbitrator or umpire may determine a question that arises for determination in the course of proceedings under the agreement by reference to considerations of general justice and fairness." 62. There was not any such agreement. 63. The question of law is whether the arbitrator made an error of law in determining the matter as he did. Given the provisions of s. 22 it is an important question and prima facie the arbitrator erred. Given the sums of money involved, the determination of the question could substantially affect the rights of either party. Leave to appeal is granted on this ground. 64. In calculating the estimated cost of construction adjusted for variations, for the purpose of assessing the saving to the proprietor, the arbitrator had regard to the Bill of Quantities which disclosed a contingency sum of $56,741. He deducted that amount from the estimated cost of construction, thereby reducing that cost so that the difference between it and the actual cost was diminished. In the result he found the builder entitled to $20,686. Had the contingency sum not been so deducted the builder would have been entitled to an additional $22,696.40 65. The questions of law that arise are whether the arbitrator was entitled to look at the Bill of Quantities for the purpose of this calculation and if so, whether he rightly deducted the contingency sum from the estimated cost of construction. The answers depend upon construction of the contract. Prima facie, at least, the arbitrator fell into error. The amount involved is substantial. Leave to appeal is granted on this ground. 66. The contract contains provision for variations to the works shown in the contract drawings and specifications. Such variations were to be valued and "added to or deducted from the contract sum as the case may require". That sum was $1,053,455. As already mentioned it was a special, though not apparently unusual, feature of the contract that where the actual cost of construction was less than the estimated cost of construction, "adjusted for variations", 60% of the difference constituted a saving to the proprietor. The arbitrator considere matters of dispute regarding the cost of the job under Section 5 of his second interim award. On a page headed "Job Cost Schedules" he sets out "The total sums allowed against each item in the Job Cost Schedules after taking into account the award decisions shown in the previous pages of this section". The amount allowed was $821,647. None of those pages dealt with variations; that subject formed Section 4 of that award. There he found that there was an allowance to be made in favour of the builder of $10,040, being the difference between $77,511 for additions and $67,472 for deductions. A perusal of the award leads me to think that the arbitrator probably did not include in the actual cost of construction the value of the variations. They are treated separately in the award, and whereas on the one hand actual cost was to be determined, variations were to be valued and therein may be a difference. Counsel for the plaintiff said that the sum of $821,647, being an actual cost sum, necessarily takes into account variations by way of deductions (since no cost was incurred) and with that I am inclined, at this stage, to agree. He then goes on, however, to say that to that sum should be added the value of variations by way of additions of $77,511, to arrive at the actual cost of construction. The arbitrator does no treat it that way but apparently only adds the $10,040 sum for the purpose of his calculations. Other arguments were put to show that the arbitrator's treatment of this aspect of the matter was in error, but to much the same effect. The plaintiff has demonstrated that there are substantial grounds for saying that the arbitrator erred in law. The amount involved is substantial. Leave to appeal is granted. 67. Lastly, it is said the arbitrator failed to consider and make findings on certain submissions made to him by the plaintiff. Those submissions relate to the fact that it took longer to complete the building than allowed in the contract. Without extension of time being granted the plaintiff was liable for liquidated damages. 68. Further, although it appears that in an early interim award the arbitrator had determined that what were called prolongation costs could be included in the final contract sum, he did not subsequently deal with that matter despite an extensive submission from the plaintiff and reply from the second defendant. 69. The arbitrator did deal with one element of the builder's claim for extension of time, namely, for inclement weather, and I do not understand that there is any error of law suggested in that regard. But the plaintiff says he erred in failing to consider other heads of claim for extension of time (which, if granted, would reduce its liability to liquidated damages) and its claim for prolongation costs (which, if granted, would increase the amount payable to it). Liquidated damages payable by the plaintiff are $700 for each of 5 days in each 7 days of delay. The date of practical completion appears to have been about 25 days after the due date. The plaintiff claims $15,191 for prolongation costs. Consideration of the submissions made to the arbitrator, and a determination on the various claims by him, could substantially affect the rights of both parties The question in this instance is as to whether the arbitrator erred in law in failing to deal with those matters. It is an important question in the field of arbitration generally. Leave to appeal is granted. 70. I rule that there was no exclusion agreement, and leave is granted to the plaintiff to appeal on each of the grounds submitted by it.
White Constructions (NT) Pty Ltd
Ronald Mutton and Flavius Pty Ltd [1988] NTSC 53; 57 NTR 8; 91 FLR 419
(1971) 124 CLR 267
(1970) 3 NSWLR 400
(1986) 6 NSWLR 327