Parliament House Construction Authority v Citra Constructions Limited Sca [1989] ACTSC 63 (20 December 1989)

SUPREME COURT OF THE ACT

PARLIAMENT HOUSE CONSTRUCTION AUTHORITY v. CITRA CONSTRUCTIONS LIMITED
S.C.A. No. 63 of 1989
Arbitration

COURT

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

CATCHWORDS

Arbitration - interim award - leave to appeal - Commercial Arbitration Act 1986 (ACT), s.38(2)(4) and (5) - Nature of discretion - leave to appeal refused.

Warley Pty. Limited v. ADCO Constructions Pty. Limited (unreported, NSW Court of Appeal, 30 November 1988)

Pioneer Shipping Ltd. and Others v. B.T.P. Tioxide Ltd. (1982) AC 724

Karenlee Nominees Pty. Ltd. and Another v. Robert Salzer

Constructions Pty. Ltd. (1988) VR 614

Costain Australia Limited v. Frederick W. Nielsen Pty. Ltd. (unreported, Supreme Court of Victoria, 21 May 1987

Thompson and Another v. Community Park Developments Pty. Ltd. (unreported, Supreme Court of Victoria, 4 March 1987

QANTAS Airways Ltd. v. Joseland & Gilling and Another (1986) 6 NSWLR 327

The Queen v. The Australian Broadcasting Tribunal and Others; ex parte 2HD Proprietary Limited [1979] HCA 62; (1979) 144 CLR 45.

HEARING

CANBERRA
20:12:1989

Counsel for the Plaintiff: Mr. S.P. Charles, Q.C.

with Mr. Digby

Solicitors for the Plaintiff: Macphillamy Cummins & Gibson

Counsel for the Defendant: Mr. G.K. Downes and
Mr. R.H. Macready

Solicitors for the Defendant: Gallens Crowley & Chamberlain

ORDER

The application for leave to appeal against the award of the arbitrator dated 22 August 1989 be refused.

The applicant pay the respondent's costs.

DECISION

This is an application for leave to appeal on a question of law arising out of an interim award of an arbitrator. The application is made pursuant to the Commercial Arbitration Act 1986 (ACT) (the Act). The Act came into operation on 2 March 1987.

2. The parties to the appeal were parties to a building contract dated 23 April 1985 (the contract). The applicant is the Parliament House Construction Authority (the Authority) and the respondent is Citra Constructions Limited (the contractor). The interim award of the arbitrator (the award) was made on 22 August 1989 pursuant to a reference to the arbitrator, concerning a dispute over the entitlement of the contractor to payment of certain moneys pursuant to the contract.

3. The relevant sub-sections of s.38 of the Commercial Arbitration Act provide as follows:

".....
38.(2) Subject to sub-section (4), an appeal
shall lie to the Supreme Court on any question of
law arising out of an award.
.....
(4) An appeal under sub-section (2) may be
brought by any of the parties to an arbitration
agreement -
....
(b) subject to section 40 (exclusionary
agreements) with the leave of the Supreme
Court.
(5) The Supreme Court -
(a) shall not grant leave under paragraph (4)(b)
unless it considers that, having regard to
all the circumstances, the determination of
the question of law concerned could
substantially affect the rights of one or
more of the parties to the arbitration
agreement; and
....."

4. Hence an appeal lies only by leave and only on a question of law arising out of an award.

5. The award of the arbitrator in the present case was embodied in a written instrument and was in the following terms:

"I FIND AND DECLARE that the Claimant is entitled
to payment by the Respondent of the additional
costs incurred in the supply of imported materials
as a direct result of the devaluation of the
Australian Dollar since the contract was awarded."

6. The arbitrator's reasons for the award immediately follow the award itself in the written instrument.

7. There was no issue between the parties to the application that I should look at the reasons for the award as well as at the terms of the award itself: cp Warley Pty. Limited v. ADCO Constructions Pty. Limited (unreported, NSW Court of Appeal, 30 November 1988).

8. An initial question that arises is the nature of the discretion to grant leave to appeal under s.38. Two distinct approaches to this question have emerged in cases concerned with similar legislation elsewhere. The English authorities, notably Pioneer Shipping Ltd. and Others v. B.T.P. Tioxide Ltd. ("The Nema") (1982) AC 724, have established guidelines which suggest that the question of whether leave to appeal should be granted should be decided as a matter of first impression on reading the award and any other appropriate documentation, with or without concise argument, but certainly without comprehensive argument on the merits of the issues of law which are suggested to have been raised. According to the guidelines, leave to appeal will be more readily granted when the contract in question is in a common or standard form, but even in those cases leave should be granted only if a strong prima facie case of error is apparent. On the other hand, where the contract in question is "one off", that is to say in terms arrived at by the parties themselves, then, according to the guidelines, leave should be granted only where the error is obvious as a matter of first impression. The Supreme Court of Victoria has followed the Nema guidelines (Karenlee Nominees Pty. Ltd. and Another v. Robert Salzer Constructions Pty. Ltd. (1988) VR 614 (Crockett J.), Costain Australia Limited v. Frederick W. Nielsen Pty. Ltd. (unreported, Supreme Court of Victoria, 21 May 1987 (O'Bryan J.)) and not followed them, Thompson and Another v. Community Park Developments Pty. Ltd. (unreported, Supreme Court of Victoria, 4 March 1987 (Vincent J.)).

9. The Court of Appeal of New South Wales has taken a firm contrary view and considers that "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 other requirements to which his Lordship refers. It is a discretion to be exercised after considering all the circumstances of the case": QANTAS Airways Ltd v. Joseland & Gilling and Another (1986) 6 NSWLR 327 at 333.

10. In my respectful opinion, the preferred view is that of the New South Wales Court of Appeal. A court of appeal or a full court of an Australian Supreme Court is very strong persuasive authority for a judge sitting at first instance in another Australian Supreme Court. There are other reasons.

11. The statements of Lord Diplock establishing the Nema guidelines appear to be influenced by policy considerations concerned with the position of London as a world centre for the settlement of international commercial disputes. More importantly, s.38 of the Act does not impose any restriction or offer any guidance on how the discretion to grant or refuse leave is to be exercised (apart from the limited provisions of sub-s.38(5)). In that situation "the general rule is that a discretion expressed without any qualification is unconfined except insofar as it is affected by limitations to be derived from the context and scope at purpose of the statute": The Queen v. The Australian Broadcasting Tribunal and Others; ex parte 2HD Proprietary Limited [1979] HCA 62; (1979) 144 CLR 45 at p 50.

12. I conclude, therefore, that the discretion under s.38 to grant leave to appeal is a discretion to be exercised having regard to all the circumstances of the case, and that the Nema guidelines, whilst relevant, are neither necessary nor sufficient to determine the way in which the discretion ought to be exercised. I take into account the purposes of the Act which, as Mr. Downs, Q.C. for the contractor submitted, include the objects of strengthening the arbitration system and enabling parties to commercial disputes to have their differences settled without recourse to the courts. On the other hand, it must be remembered that the arbitration system will not gain strength from decisions which are clearly wrong in law. The Act was surely not designed to avoid, by-pass or weaken the rule of law.

13. It is necessary then, before the application may be decided, to give some consideration to the point of law to be raised in the appeal.

14. Under the terms of the contract the contractor agreed to carry out certain building work on Parliament House then in the course of construction. The contract incorporated a standard form known as General Conditions of Contract NPWC Edition 3 (1981). One of the General Conditions provided that "all prices and sums of money and all payments made under the Contract, shall be in Australian currency". There was no provision in the contract for any increase or decrease in cost to the contractor of imported materials or components arising from fluctuations in the value of the Australian dollar on the international currency market. Some time before 23 October 1986 there was a devaluation of the Australian dollar and on that date the contractor made a written claim on the Authority for "additional costs incurred in the supply of imported materials". The Authority rejected the claim.

15. On 14 May 1987 the Authority and the contractor entered into a further or supplementary agreement in writing relating to the works (the agreement). The recitals to the agreement read as follows:

"WHEREAS:
A. Pursuant to a Contract identified in Item 2
of the First Schedule (hereinafter called
"the Contract") the Contractor agreed to execute
certain work described in Item 3 of the First
Schedule (hereinafter called "the Works").
B. The Contract provides for a contract sum
described in Item 4 of the First Schedule to
be paid by the Principal to the Contractor
for the execution of the Works (hereinafter
called "the Contract Sum").
C. There have been delays in the execution of
the Works and variations outside the general
scope of the Works which have given rise to
claims by the Contractor for extensions of
the time for Practical Completion of the
Works for extra costs under the Contract or
for damages at common law.
D. Negotiations have taken place concerning
extensions of the time for Practical
Completion and the adjustment to the Contract
Sum as a result of the said claims and the
parties hereto are desirous of entering into
a formal agreement for the execution of the
balance of the Works consequent upon the
delays and variations."

16. Agreement clause 4 provides that the contractor release the Authority from any liability for any claim which the contractor had arising out of the execution of the works commencing or in existence on or before 16 March 1987.

17. Agreement clause 4.3 contains the following terms:

"4.3 Notwithstanding the provisions of Clause 4.1
hereof the Contractor shall be entitled to
have those variations to the Work detailed
in the Fifth Schedule valued in accordance
with the provisions of Clause 40 of the Contract."

18. The Fifth Schedule to the agreement bears the heading "Statement of Variations" and includes an item "177 Cost of Devaluation".

19. The other relevant clauses of the agreement are:

"1.1 As and from the date of execution hereof,
the Contract shall be read and construed subject
to the terms of this Agreement to the intent that
if there is any inconsistency between the terms
and conditions of the Contract and the terms and
conditions of this Agreement, this Agreement
shall, to the extent of such inconsistency prevail.
1.2 ..... unless there is something ..... inconsistent
therewith all terms and expressions in this Agreement
Agreement shall bear the meanings assigned to them in
the Contract.
2.1 This Agreement shall be supplemental to the
Contract and save and except as herein otherwise
provided to the contrary, the terms and
conditions of the Contract are hereby expressly
ratified and confirmed.
15.1 Any variation ordered by the Superintendent
shall be valued in accordance with the terms of
Clause 40.2 or 40.3 as the case may be ...."

20. It is not necessary to set out the whole of contract clause 40. Sufficient to say that it included a provision that "if, at any time during the progress of the work under the Contract, the Superintendent determines that the form, quality or quantity of the work under the Contract should be varied" then the Superintendent may order the contractor to carry out work which is additional to or different from the work provided for in the contract. Contract clause 40 further provides that before the work to which the variation relates is commenced, then the variation is to be valued in accordance with reference to a bill of quantities and certain schedules of rates or prices.

21. The contractor submits in this application that the arbitrator fell into error in ruling that item "177 Cost of Devaluation" in the Fifth Schedule to the agreement constituted a variation within agreement clause 4.3 and fell into further error in treating it as a variation which had been valued in accordance with contract clause 40. It was submitted that the arbitrator failed to recognize that condition clause 4.3 is not intended to create a positive right or entitlement beyond a right of valuation in defined circumstances and in relation to certain matters, and failed further to recognize that the right of valuation conferred by condition clause 4.3 does not arise until it has been established that there has been a variation under contract clause 40 with a subsequent right to valuation under sub-clause 40.2.

22. The arbitrator in his reasons discussed at length the meaning of the term "variation". He came to a view that the term when used in agreement clause 4.3 was wider in meaning than when used in contract clause 40. It is no doubt arguable that the reasons given by the arbitrator for reaching that conclusion are not compelling. However, I think that the arbitrator was correct in the conclusion he reached. It was submitted on behalf of the contractor that contract clause 40 exhaustively defines the matters which may be the subject of a variation. In my view, that submission ought be rejected, principally because of the provisions of agreement clause 1.1 that the terms and conditions of the agreement are to prevail over those of the contract. The recitals to the agreement show the background against which the agreement was made. The parties wanted a formal settlement of the disputes that had already arisen under the contract, and they wanted terms of settlement which would enable the balance of the outstanding work to be executed without delay. One of those disputes included a claim under agreement recital C "for extra costs". Among those extra costs was the increased cost to the contractor of imported goods and materials used in the work.

23. There are within the Fifth Schedule, as the arbitrator pertinently observed, several items which on the face of it do not appear to fall within contract clause 40. For instance, there is item 174 expressed in these words, "3.8% national wage rise". Clearly, that item appears to be incapable of being a variation within contract clause 40, but on the other hand it is difficult to understand why it is included in the Fifth Schedule unless it is intended by the parties, bearing in mind that the agreement is to prevail over the contract, that the national wage rise is an extra cost under the contract as envisaged by agreement recital C and that that item is a variation under agreement clause 4.3 which the contractor is entitled to have valued. According to agreement clause 4.3 the valuation is to take place "in accordance with the provisions of clause 40 of the contract", which in the circumstances may be taken to mean simply that the procedures and machinery provided for in contract clause 40 are to be utilised. I do not accept the submission that contract clause 40 is incapable of being so utilised. Contract clause 40.2 provides that one of the methods of variation may be by reference to "a schedule of prices if and insofar as the Superintendent determines that those rates are applicable to the variation". It is open to the Superintendent to utilise that procedure for the purpose of valuing the cost of devaluation to the contractor, as indeed it may be utilised for valuing the cost of any increase in the national wage.

24. In my opinion, it is not to the point that the claim of the contractor to be compensated for the additional cost of materials as a result of fluctuations in the value of the Australian dollar is outside the scope of clause 40 of the contract. The contractor's claim is made pursuant to agreement clause 4.3, not to contract clause 40. The relevance of clause 40 to the contractor's claim is that it provides a procedure for the purpose of measuring the cost of devaluation which may take place.

25. The award of the arbitrator, therefore, has not been shown to be demonstrably wrong in law. Furthermore, in the light of the Nema principles, it might be observed that although the contract is in a standard form, the agreement is not. The agreement was reached between the parties as a result of the particular circumstances which had occurred and in order to resolve a series of particular disputes which had arisen. The terms of that agreement, although in part dependent for execution upon the terms of the standard contract, are, in my view, a clear example of a "one off" situatin.

26. The application for leave to appeal against the award of the arbitrator dated 22 August 1989 is refused. The applicant is to pay the respondent's costs.