Hooker Corporation Limited v Leighton Contractors Pty Limited and Ernest Edward Morris [1989] ACTSC 11 (10 March 1989)

SUPREME COURT OF THE ACT

HOOKER CORPORATION LIMITED v. LEIGHTON CONTRACTORS PTY LIMITED and
ERNEST EDWARD MORRIS
S.C. No. 1277 of 1988
Arbitration

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Gallop J.(1)

CATCHWORDS

Arbitration - whether arbitrator validly appointed pursuant to arbitration clause - arbitration clause unintelligible without amendment - language obscure and incapable of definite or precise meaning

Watson v. Phipps (1986) 60 ALJR 1

James Wallace Pty. Limited v. Abbey Orchard Property Investments Pty. Ltd (unreported decision of Glass JA, 21 October 1980)

The Council of the Upper Hunter County District v. Australian Chilling and Freezing Co. Limited [1968] HCA 8; (1968-69) 118 CLR 429

HEARING

CANBERRA
10:3:1989

ORDER

THE COURT makes the following declaration and orders:
(1) a declaration that upon a true construction of the agreement and in the events that have occurred, the purported submission by the first defendant of an alleged dispute or difference to the second defendant for arbitration is invalid;

(2) that, until further order, the first defendant be restrained from treating the purported submission of the alleged dispute or difference to arbitration as a proper or valid submission thereof to arbitration and from doing any act or thing pursuant to or in furtherance of the said purported submission; and

(3) that the first defendant pay the plaintiff's costs.

DECISION

The plaintiff was the proprietor of certain real estate in Canberra and had entered into a building contract with the first defendant for the construction of certain works on the subject land, being Block 2, Section 23, City. A written contract was entered into on 26 June 1985. The work was completed and the actual practical completion date was 27 October 1987.

2. By letters dated 30 March 1988 the first defendant claimed additional costs from the plaintiff in the sum of $259,336. The plaintiff disputed its liability to pay the amount claimed by the first defendant, whereupon the first defendant served upon the plaintiff a notice of dispute under the contract. The amount claimed in the notice of dispute was $510,682. The notice also stated that "pursuant to the arbitration clause" the sum of $500 had been lodged with the Secretary of the ACT Chapter of the Australian Institute of Architects by way of security for costs and expenses of arbitration proceedings.

3. By letter dated 19 July 1988 the first defendant gave notice of the dispute to the Royal Australian Institute of Architects in Canberra and requested the Royal Australian Institute of Architects - ACT Chapter to nominate an arbitrator for the dispute. The letter set out the nature of the dispute. The Royal Australian Institute of Architects - ACT Chapter replied by letter of 22 July 1988 in which it expressed the view that clause 10(a) of the contract between the plaintiff and the first defendant did not empower the Chapter to nominate an arbitrator and, in any event, the Chapter declined to nominate an arbitrator in the circumstances. At the same time the Royal Australian Institute of Architects - ACT Chapter, said in the letter of 22 July 1988 "Obviously, if your client and Hooker Corporation Limited agree in writing to our nominating an arbitrator, we would be prepared to reconsider this decision."

4. Correspondence then ensued between the plaintiff and the first defendant designed to achieve agreement about the appointment of an arbitrator, but no agreement could be reached. By letter dated 1 September 1988 the first defendant purported to require the Royal Australian Institute of Architects - ACT Chapter to exercise its power to appoint an arbitrator under the subject arbitration clause in the contract between the plaintiff and the first defendant and proposed that in default of the Institute so doing, Mr E.E. Morris, who is the second defendant, be appointed to the office of arbitrator. The Royal Australian Institute of Architects - ACT Chapter responded by letter of 5 September 1988 in the following terms:

"I acknowledge receipt of your letter of 1 September
1988.
In those circumstances where the parties use a standard
form of contract published by the Institute the
Institute accepts the responsibility of nominating an
arbitrator to resolve disputes which may arise between
the parties. This is not because the Institute is
under any legal obligation to do so but because it
believes that it has an industry responsibility.
In the instant case the parties have chosen to use a
non-standard form of contract which contains a
seemingly defective arbitration clause. Even if the
arbitration clause were not defective neither your
Company nor Hooker Corporation Limited could impose on
the Institute an obligation to nominate an arbitrator.
The Institute has declined in the present circumstances
to nominate an arbitrator because of the defective
arbitration clause.
I have indicated to you previously that you should seek
legal advice as to your position. It may well be that
Hooker Corporation Limited would accept Mr. Morris as
an arbitrator. That is however a matter for Hooker
Corporation Limited and not for this Institute.
I am certain that your legal advisors would suggest to
you that in the absence of agreement with Hooker
Corporation Limited as to the identity of an arbitrator
you may apply to the Court for an appropriate
appointment. We earnestly suggest this course to you."

5. By letter dated 13 September 1988 from the first defendant's solicitors to the plaintiff's solicitors, the first defendant advised the plaintiff that Mr E.E. Morris was duly appointed to the office of arbitrator and enclosed a copy of the arbitrator's letter of appointment. The plaintiff did not accept the appointment of the second defendant as arbitrator and informed him of that fact by letter of 15 September 1988. Notwithstanding the fact that the plaintiff had not accepted the second defendant as arbitrator, the first defendant contended before the second defendant that the arbitration should proceed.

6. This caused the plaintiff to proceed by way of originating summons issued on 29 September 1988 seeking a declaration that no dispute or difference within the meaning of the agreement between the plaintiff and the first defendant had occurred; a declaration that the purported submission by the first defendant of an alleged dispute or difference to the second defendant is invalid; an order restraining the first defendant from treating the purported submission of the alleged dispute or difference to arbitration as a proper or valid submission; and an order that the second defendant be restrained from treating the purported submission of the dispute or difference to arbitration as a proper or valid submission.

7. The applications for injunctions based upon the non-existence of a dispute or difference under the contract came on for hearing before me by way of notice of motion on 7 October 1988. I refused the orders sought on the grounds that, contrary to the plaintiff's contention, a dispute or difference had arisen between the parties. I delivered some short oral reasons for refusing the orders, intimated that I would give more detailed reasons if either party wanted me to do so and said that I had delivered the oral reasons instanter in the interests of both parties so that the dispute or difference could be resolved and the primary hearing before the arbitrator, which was then fixed for 10 October 1988, would not be delayed.

8. In proceedings before the arbitrator on 10 October 1988 the plaintiff maintained its objection to the appointment of the second defendant as arbitrator. The preliminary hearing before the arbitrator was then adjourned to allow the other issues raised by the originating summons to be resolved.

9. Pursuant to an order made by the Registrar on 7 November 1988 the originating summons was fixed for hearing before this court on 15 and 16 February 1989. At the hearing the plaintiff and first defendant were represented by counsel. A letter from the second defendant submitting to any order or directions that the court might make, except as to costs, was admitted in evidence (Exhibit 2).

10. At the commencement of the hearing on 15 February 1989 it was submitted on behalf of the plaintiff that, in so far as the first defendant had relied upon the terms of the arbitration clause in the contract and the operation of s.8 of the Commercial Arbitration Ordinance 1986, the purported submission by the first defendant of an alleged dispute or difference to the second defendant as arbitrator was invalid.

11. The clause, as it appears in the contract, is not easily intelligible and needs interpolations and amendments to make any sense. Counsel for the first defendant conceded as much and proposed the interpolations and amendments which appear in brackets in the terms of the clause as follows:

"10.(a) In case any dispute or difference shall arise
between the Proprietor and the Contractor
either during the progress of the Works or
after the determination abandonment or breach
of the Contract as to the construction of the
same of (amend to 'or') as to the (amend to
'any') matter or thing whatsoever arising
thereunder or in connection therewith then
either party may give to the other (insert
'notice') in writing of such dispute or
difference and at the expiration on (amend to
'of') one (1) week unless it shall have been
settled such dispute or difference shall be and
is hereby submitted to an arbitration by an
(insert 'architect member appointed by the
Royal') Australian Institute of Architects -
ACT Chapter."

12. In purporting to appoint the second defendant as arbitrator the first defendant relied upon s.8 of the Commercial Arbitration Ordinance 1986. Section 8(1) reads:

"8.(1) Where a person who has a power to appoint
an arbitrator defaults in the exercise of that power, a
party to the relevant arbitration agreement may, by
notice in writing -
(a) require the person in default to exercise the
power within such period (not being a period of
less than 7 days after service of the notice) as
is specified in the notice; and
(b) propose that in default of that person so doing -
(i) a person named in the notice ('a default
nominee') should be appointed to the office
in respect of which the power is
exercisable; or
(ii) specified arbitrators (being the
arbitrators who have prior to the date of
the notice been appointed in relation to the
arbitration) should be the sole arbitrators
in relation to the arbitration."

13. Section 8(2) provides for service of the notice upon each party to the arbitration agreement. Section 8(3) provides that where the notice named a default nominee the nominee shall be deemed to have been duly appointed to the office. The court may, on the application of a party to an arbitration agreement, set aside an appointment and may itself make an appointment to the office in respect of which the relevant power of appointment was exercisable (s.8(4)).

14. By definition (s.4) "power to appoint", in relation to an arbitrator or umpire, means a power to appoint an arbitrator or umpire, to join in the appointment of an arbitrator or umpire, to concur in or approve of the appointment of an arbitrator or umpire or to take any other step in or towards the appointment of an arbitrator or umpire.

15. The purported reliance by the first defendant upon the operation of s.8(1) of the Commercial Arbitration Ordinance 1986 hinges upon a person having a power to appoint an arbitrator and a default by that person in the exercise of that power. The person given the power by clause 10(a) of the contract, without the addition of any words, is an "Australian Institute of Architects - ACT Chapter".

16. In any Ordinance, unless the contrary intention appears, "person" includes a body corporate as well as an individual (Interpretation Ordinance 1967, s.14). The submission on behalf of the first defendant was that the reference in clause 10(a) to an "Australian Institute of Architects - ACT Chapter" should be read as a reference to the Royal Australian Institute of Architects - ACT Chapter. It was asserted by counsel for the first defendant that the Royal Australian Institute of Architects is a body corporate. There was no evidence to that effect. Counsel was not able to assert that the ACT Chapter of the Royal Australian Institute of Architects is a body corporate.

17. Counsel for the first defendant relied upon the following statement of principle in Watson v. Phipps (1986) 60 ALJR 1 at 3 where words or phrases are clearly incorrect as giving rise to an absurdity but the parties' true intentions are obvious:

"The function of a court of construction is to ascertain
what the parties meant by the words which they have
used. For this purpose the grammatical and ordinary
sense of the words is to be adhered to, unless they
lead to some absurdity or to some repugnance or
inconsistency with the rest of the instrument, in which
case the grammatical and ordinary sense of the words
may be modified so as to avoid that absurdity or
inconsistency, but no further."

18. Counsel called in aid the arbitration clause quoted in the judgment of Glass JA in James Wallace Pty. Limited v. Abbey Orchard Property Investments Pty. Ltd (unreported decision, 21 October 1980) as an indication of the sort of arbitration provision which the plaintiff and the first defendant intended to govern their contract. The clause in that case read as follows:

"32(a) In the event of any dispute or difference arising
between the Proprietor, or the Architect on his behalf,
and the Builder (subject to the provisions of clause 10
of these conditions) either during the process of the
Works, or after the determination, or abandonment, or
breach of the Contract as to the construction of the
Contract or as to any matter or thing of whatsoever
nature arising thereunder or in connection therewith
(including but not limited to any matter or thing left
by this Contract to the decision, opinion, discretion,
ascertainment or valuation of the Architect or the
withholding by the Achitect of any Certificate whether
issued or withheld or the measurement and valuation
mentioned in clause 10 of these Conditions or the
rights and liabilities of the parties under clauses 22
or 23 of these Conditions) then either party shall give
to the other notice in writing by certified mail of
such dispute or difference. AT the expiration of 7
days from the date of receipt of such notice by the
Builder or the Proprietor as the case may be such
dispute or difference (unless settled) shall be and is
hereby referred to the arbitration of an architect
member of the Royal Australian Institute of Architects
being the President for the time being of the Chapter
or Area Committee of that institute in the State or
Territory in which this Contract is made, or his
nominee, and a member of the Master Builders'
Association being the President for the time being of
the Master Builders' Association of the State or
Territory in which this Contract is made or his
nominee. If the said Arbitrators shall fail to agree
or to make an award within one month of the completion
of the hearing or within such further period as the
parties may in writing determine upon an Umpire to be
appointed by the Arbitrators upon entering upon the
reference shall enter on the reference in lieu of
them. Provided that if the Builder and Proprietor so
agree the dispute or the difference shall be referred
to an Arbitrator mutually appointed by them or in th
event of disagreement on such appointment the aforesaid
Presidents shall appoint an Arbitrator if so requested
by the parties. The term President as employed in this
sub-clause shall include any person so acting."

19. At the conclusion of the hearing on 15 February 1989 I upheld the submission on behalf of the plaintiff that the words used created an absurdity and that it was not possible to deduce what the plaintiff and the first defendant meant by the words set out in clause 10(a). I indicated that I would publish written reasons if requested, and, at the request of the first defendant, I now publish those reasons.

20. Before dealing with the absurdity submission it is necessary to deal with a submission made on behalf of the first defendant that at the earlier hearing on 7 October 1988 the plaintiff, through its counsel, had conceded that the appointment of the second defendant had been validly made pursuant to s.8 of the Commercial Arbitration Ordinance 1986. As I said earlier, those proceedings were an application by the plaintiff for orders restraining the second defendant from proceeding with the arbitration on the grounds that no dispute or difference had arisen under the contract. The thrust of the plaintiff's argument was that no dispute or difference had arisen either during the progress of the workks or after the determination, abandonment or breach of the contract as to the construction thereof.

21. In opposition to that submission the first defendant contended that the plaintiff's application was inappropriate. The following exchange took place (see pp.12-13 of the transcript of 7 October 1988). Mr Higgins QC was counsel for the first defendant and Mr Byrne was counsel for the plaintiff:

"MR HIGGINS As your Honour pleases. Your Honour, the
first defendant contends that the plaintiff's
application is inappropriate, and perhaps I will just
put in summary form the reasons for making that
statement. The first is that the reference of a matter
to an arbitrator it being not an issue that the
appointment of the arbitrator was made according to the
Commercial Arbitration Ordinance 1986.
HIS HONOUR Would you say that again. I did not quite
follow that.
MR HIGGINS It not being objected that the formal
appointment of the arbitrator is in any way lacking.
In other words, there is no contention that the
procedures required by section 8 of the Arbitration
Ordinance have not been complied with.
MR BYRNE That is so, your Honour.
MR HIGGINS The question then is one which comes down
to this. As I understand the contention, it is that
the - first of all the arbitration clause is too
limited in its term as to comprehend this dispute, and
that it follows from that that the dispute is not one
which may be referred to arbitration, albeit that if it
were otherwise, the arbitrator is validly appointed.
..."

Counsel for the first defendant then developed his submissions in opposition to the application.

22. In my view the concession that the procedures required by s.8 of the Commercial Arbitration Ordinance 1986 had been complied with was not an unequivocal concession that the first defendant had validly appointed the second defendant as arbitrator pursuant to s.8 because of default on the part of a person who had the power to appoint an arbitrator within the meaning of s.8(1).

23. It was no part of the plaintiff's case for injunctions to contend that the second defendant had not been validly appointed. The submission on behalf of the plaintiff was based upon the absence of a dispute or difference under the contract. Even if I am wrong in that respect and that the plaintiff could be regarded as having made some sort of concession, it was no more than the adoption of an assumed state of affairs for the purpose of an argument that no dispute or difference had arisen. It could not have been regarded, and I did not regard it, as a concession made for all purposes. Accordingly I rejected that submission based upon an assumed concession which was never made.

24. The suggested interpolation of the words "architect member appointed by the Royal", seem to me to add a new dimension to clause 10(a). Assuming that the parties intended to refer to the Royal Australian Institute of Architects - ACT Chapter, a possible meaning is that any dispute or difference would be submitted to an arbitrator by the Royal Australian Institute of Architects - ACT Chapter. With the other modifications, which are merely grammatical, it seems to me to be possible to construe the clause, without other modification, in that way.

25. The argument on behalf of the first defendant was that it would be unlikely that the parties would intend to confer the power to arbitrate on the ACT Chapter of the Royal Australian Institute of Architects because the Chapter would no doubt consist of a number of people. I rejected that argument during the course of the hearing. Although the implementation of the clause so understood may have raised all sorts of practical difficulties, it seemed to me to be one possible meaning and would not produce a result of uncertainty.

26. In my opinion it is not obvious that the parties intended to confer upon the Royal Australian Institute of Architects - ACT Chapter the power to appoint an architect member of that Chapter to be the arbitrator. They may simply have intended to make the ACT Chapter of the Royal Australian Institute of Architects the arbitrator. I note that even the interpolation of the words suggested by the first defendant would still leave a doubt about whether the Royal Australian Institute of Architects - ACT Chapter was a "person" within the meaning of s.8 of the Commercial Arbitration Ordinance 1986.

27. As long as a contract is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, the arbitrator, decides is its proper construction. As Barwick CJ said in The Council of the Upper Hunter County Council v. Australian Chilling and Freezing Co. Limited [1968] HCA 8; (1968-69) 118 CLR 429 at 437:

"The question becomes one of construction, of
ascertaining the intention of the parties, and of
applying it. Lord Tomlin's words in this connexion in
Hillas & Co. Ltd. v. Arcos Ltd. (1932) 147 LT 503, at
p 512 ought to be kept in mind. So long as the
language employed by the parties, to use Lord Wright's
words in Scammell (G.) & Nephew Ltd. v. Ouston [1980] UKHL 6; (1941)
AC 251 is not 'so obscure and so incapable of any
definite or precise meaning that the Court is unable to
attribute to the parties any particular contractual
intention', the contract cannot be held to be void or
uncertain or meaningless. In the search for that
intention, no narrow or pedantic approach is warranted,
particularly in the case of commercial arrangements.
Thus will uncertainty of meaning, as distinct from
absence of meaning or of intention, be resolved."

28. In any event and even adopting the modifications suggested, it would still not be obvious that the parties intended to confer the power of appointment upon the ACT Chapter of the Royal Australian Institute of Architects. A better form of words is that used in the arbitration clause quoted by Glass JA above, where the arbitrator is to be "an architect member of the Royal Australian Institute of Architects being the President for the time being of the Chapter or Area Committee of that institute in the state or territory in which (the) contract is made or his nominee".

29. It is for the above reasons that I made the declaration that upon a true construction of the agreement and in the events that have occurred, the purported submission by the first defendant of an alleged dispute or difference to the second defendant for arbitration is invalid, and ordered that, until further order, the first defendant be restrained from treating the purported submission of the alleged dispute or difference to arbitration as a proper or valid submission thereof to arbitration, and from doing any act or thing pursuant to or in furtherance of the said purported submission. I also ordered that the first defendant pay the plaintiff's costs.

30. I also ordered that time for lodgment of an appeal not run until I had delivered these written reasons.