Dixon v South Australian Railways Commissioner [1923] HCA 45; (1923) 34 CLR 71 (1 October 1923)

Dixon Plaintiff, Appellant; and The South Australian Railways Commissioner Defendant, Respondent.

By a contract in writing the appellant agreed with the respondent to construct a railway bridge in conformity with the specification annexed to the contract and subject to the conditions also thereto annexed. The contract embodied conditions that no sum should be considered due or owing to the appellant unless the Chief Engineer for Railways should have given a certificate in respect thereof, and that no action should be brought by the appellant to recover any money for or in respect of or arising out of the contract, or any breach thereof, unless and until a certificate of the Chief Engineer for Railways for the amount sued for should have been obtained. After the completion of the work contracted for, the appellant sued the respondent in the Supreme Court to recover money alleged to be due under the contract and as damages for breaches thereof, and claimed in that action a declaration that the respondent was not, by reason of his conduct and the conduct of the Chief Engineer for Railways as set out in the statement of claim, entitled to rely upon the absence of any certificate or upon any certificate given by the Chief Engineer for Railways.

The allegations on which this latter claim was based were contained in pars. 11, 12, 13 and 15 of the statement of claim and are summarized as follows in the reasons for judgment of Poole J. in the Supreme Court[1]: "(1) Delay of the Chief Engineer in dealing with claims by him and adjudication upon them without notice to and in the absence of the plaintiff; (2) before and after 12th August 1919, reception of evidence by the Chief Engineer in the absence of the plaintiff from the Assistant Engineer for Railway Construction and the Superintending Officer; (3) before and after 12th August 1919, tender of misleading evidence by them and suppression by them of evidence in their possession material and favourable to the plaintiff; (4) after 12th August 1919, that the Chief Engineer acted in his judicial capacity under the defendant's direction and influence, and acted collusively; (5) after 12th August 1919, that the Chief Engineer otherwise acted wrongly and injudicially; (6) after 12th August 1919, that the defendant interfered with the exercise by the Chief Engineer for Railways of his judicial or quasi-judicial functions with regard to certificates and measurements and deciding prices to be paid under the contract; (7) that prior to 28th May 1919 the defendant permitted himself to be influenced by and act under the instructions of the Minister for Railways concerning a dispute known as Claim No. 3, and instructed the Chief Engineer for Railways not to entertain such dispute, and that the Engineer for Railways acted under such influence and instructions, and on 28th May 1919 refused the plaintiff a hearing, and on 14th July 1919 wrongfully determined the dispute; (8) fabrication of evidence by the Chief Engineer or the Assistant Engineer in October 1919."

The respondent in his statement of defence set up (inter alia) that the Chief Engineer for Railways had on 28th January 1920, less than fourteen days before the commencement of the action, certified under his hand that the appellant was entitled to a final payment of £238 18s. 9d. under the contract, and that that sum, after deducting an amount owing by the appellant to the respondent for railway freight, had been paid to the appellant. When the action came on for trial the learned Chief Justice of South Australia, on the application of counsel for the appellant, ordered that, before any other issues in the action were tried, it should be first decided whether the respondent was entitled to rely on the absence of a certificate or on any certificate given by the Chief Engineer for Railways. Evidence having been given on this issue, the Chief Justice held that the respondent was debarred by reason of the conduct of the Chief Engineer for Railways from relying on certificates given by him or on the absence of any certificate in relation to the subject matter of the action. It will be observed that the conduct which was held to operate as a bar to this defence being set up was that of the Chief Engineer for Railways, and not that of the respondent. The ground of the decision is stated in the reasons for judgment in these terms[2]:—"I hold that the defendant is debarred by reason of the conduct of the Chief Engineer for Railways from relying upon certificates given by him, or upon the absence of any certificate, in relation to the subject matter of the plaintiff's claim. At the same time I desire to state that of collusion or moral misconduct on the part of the Chief Engineer or Mr. Andrews or the defendant, I find no evidence whatever. The ground of my decision is that Mr. Moncrieff failed to realize that he had a judicial duty to perform, and acted as if he had only the interests of the defendant to consider. His decisions may have been right, but, as they were not arrived at with that impartiality which is required, they cannot, in my judgment, be allowed to stand in the way of an independent investigation of the plaintiff's claim in this action." This decision was reversed on appeal by the Full Court, and this appeal is brought against that judgment, by which it was ordered that the action be dismissed.

The contract is in a form commonly used in connection with public works. It is a lump sum contract for the construction and erection of the bridge complete as specified and to the satisfaction of the Chief Engineer for Railways, and the contractor is by cl. 2 required to receive and obey instructions from the Superintending Officer or the Chief Engineer for Railways, who is given wide powers of direction and control of the work. Cl. 27 provides for progress payments and for payment of the balance in fourteen days after the Chief Engineer for Railways shall have certified that the work had been completed and that such balance is due to the contractor. It confers on the Chief Engineer for Railways a power of rectifying by any certificate any of his prior certificates and makes every certificate of the Chief Engineer for Railways binding and conclusive on the Commissioner and the contractor, subject to appeal therefrom in the cases and as thereinafter provided, and subject to the powers of rectification given to the Chief Engineer for Railways. Cl. 32 provides in very wide terms for the reference of disputes to the Chief Engineer for Railways whose decision is to be final and conclusive, with a proviso that in certain cases reference may be made by way of appeal to the award of a disinterested civil engineer, but it expressly provided that it shall not extend to or affect any decision, determination or certificate of the Chief Engineer for Railways on any other matters or questions than those in respect of which an appeal shall lie under the proviso above mentioned. Cl. 33 provides that the Chief Engineer for Railways may enter upon all matters left to his decision or which are to be governed by his certificate without formal notice to the parties or either of them, and that to the Chief Engineer for Railways shall be referred (inter alia) the determination of any sum of money at any time to be paid by the Commissioner. Cl. 34 provides that all the certificates and decisions of the Chief Engineer for Railways shall be final and binding on the parties, subject only to the right of appeal given by cl. 32. Cl. 35 protects the Chief Engineer for Railways against actions by either party, and relieves him from the obligation to answer or explain any matter touching any certificate given by him or to state his reasons or produce documents, and contains the usual provision making the obtaining of a certificate for the sum sued for a condition precedent to any action to recover money in respect of the contract or of any breach thereof. The interpretation clause defines "Chief Engineer for Railways" as meaning the Chief Engineer for Railways for the time being in the employ of the respondent, and in his absence the Acting Chief Engineer for Railways.

The first question to consider is what test is to be applied in a case in which, under a contract such as that now sued on, the plaintiff seeks to maintain an action either without having obtained a certificate for the amount sued for or in spite of a certificate having been given for a smaller amount. Three different tests were applied by the learned Judges in the Supreme Court, and it is, therefore, not surprising that they failed to arrive at the same conclusion. The Chief Justice thought that fraud or corruption or injudicial conduct on the part of the Chief Engineer for Railways or improper influence on the part of the defendant would obviate the necessity for a certificate, and that, while there was no evidence of collusion between the Chief Engineer for Railways and the defendant or his agent, the Assistant Engineer, or of moral misconduct on the part of any of them, the Chief Engineer for Railways failed to realize that he had a judicial duty to perform and acted as if he had only the interests of the defendant to consider, and that as his decisions were not arrived at with that impartiality which is required, they could not be allowed to stand in the way of an independent investigation of the plaintiff's claim. Poole J. held that in order to disqualify a certifier or arbitrator in a contract such as this—in order to excuse the plaintiff from the performance of the condition precedent—there must be some conduct which unfits the individual to be any longer a judge between the parties and that mere erroneous decision is not sufficient. There must be something to show that he is not desirous of being fair. Angas Parsons J. held that, for the plaintiff to succeed, he must establish that the arbitrator was a person who would not, or probably would not, act fairly, and he expressly declined to regard "injudicial conduct" on the part of the certifier as a sufficient ground for dispensing with the necessity for a certificate without a definition of the meaning of that expression. I share his objection to the use of a slippery expression such as "injudicial conduct," as a measure of legal obligations.

In this conflict of opinion guidance as to the standard to be applied to the facts proved must be sought, and can, I think, be found, in reported decisions. The decisions in Page v. Llandaff and Dinas Powis Rural District Council[3] and Hickman & Co. v. Roberts[4] were referred to by the Chief Justice as supporting his view, but a close examination of these decisions has convinced me that they fall far short of doing so.

In Page's Case[5] the decision was that, as the council had interfered (though without any fraud on their part) with the surveyor in the exercise of his functions as quasi-arbitrator, the certificate was not conclusive. Channell J., in the course of his judgment, said that the surveyor fell into the way of taking a certain amount of instruction from the council with reference to either part of his duties, that of certifier as well as that of agent of the council; that the evidence established that the surveyor felt that pressure was being put on him by the council; that the surveyor had admitted having received instructions from the committee of the council as to how the measurements were to be made; that, in effect, he had surrendered his judgment to that of one of the parties. The ground of his decision appears to have been that the defendant instigated the misconduct of the surveyor, and so made itself responsible.

The speeches of the learned Lords in Hickman & Co. v. Roberts[6] were strongly relied on as supporting the view that "injudicial conduct" on the part of the certifier was of itself, and apart from the conduct of the defendant, sufficient to destroy the binding force of the certificate. In my opinion these speeches, when read in the light of the reasons given by the Lords Justices for their decisions, afford no support to this view. Both Hamilton J. and the Lords Justices held that the plaintiff was prevented from getting the necessary certificate by the conduct of the architect in acting in collusion with, and by the instructions of, the defendants. Vaughan Williams L.J. spoke of the conduct of the architect as amounting to collusion and involving turpitude, and said that the relations between the defendants and the architect as disclosed in the correspondence were such as to render the architect an unfit person to be allowed to settle disputes as between the parties at all; that his conduct was contrary to good faith and honesty. Fletcher Moulton and Farwell L.JJ. concurred in these expressions, the former adding that misconduct on the part of an architect in allowing himself to receive instruction from one of the parties and to act in that party's interest goes to the status of the architect and makes him incapacitated to act as judge; that he was no longer fit to be a judge because he had been acting in the interests of one of the parties and by their direction. Farwell L.J. said it was perfectly clear that the architect did not consider himself a free agent; that he considered himself bound to obey the directions of the building owner, and points out the impropriety of one of the letters written by the building owner to the architect. He adds that there is the clearest evidence of the misconduct of the architect and collusion with the building owner. In the House of Lords the decision of the Court of Appeal was affirmed. The Lord Chancellor thought that the words "turpitude" and "fraud" were not apt, but said it was undoubted that the defendants tried to lead the architect astray in their own interests, and spoke of their letters to him as "unworthy communications." Lord Ashbourne referred in general terms to the lack of judicial independence on the part of the architect, and expressed his agreement with the decision of the Court of Appeal on this point, but without adopting the words "turpitude" and "fraud." Lord Alverstone, after referring at some length to the correspondence between the defendants and the architect, said that the effect on the architect's position of the defendants' letters was that he did without justification and against his own opinion abstain for some time from issuing one certificate and did not issue his final certificate till he was directed by the solicitors of the defendants to do so. Lord Atkinson held that the architect had ceased to be a free agent, that he had forfeited his independence as an arbitrator and had allowed himself to be under the control or influence of the building owner, and that he never recovered his independence, but that "collusion," "corruption" and "fraud" were rather extravagant terms to apply to his conduct. Lord Shaw said that the architect accepted the instructions or orders of the owners and their solicitors on questions affecting the issue of the certificate and the amount thereof, and spoke of a letter of the architect as an open and frank avowal that the judicial actor on the stage was playing his part under instructions and orders from one party in the cause. His Lordship concluded that the grant of a certificate could not be a condition precedent to a right to recover if the architect's conduct and judgment were controlled as had been stated. In my opinion, it is impossible to regard this decision as laying down the proposition that misconduct of a certifier under such a contract is of itself, and apart from any collusion between the certifier and the defendant, or any improper interference by the defendant or his agents with the certifier in the performance of his duties under the contract, sufficient to preclude the defendant from insisting on the objection that the plaintiff has failed to perform the condition precedent by obtaining a certificate that the amount sued for is payable. Nor do I think it was intended in that case to overrule the decisions in Clarke v. Watson[7] and Smith v. Howden Union Rural Sanitary Authority[8]. With regard to the former I am supported in this view by the judgment of the Lord Chief Justice in Eaglesham v. McMaster[9], in which that case is treated as still good law. In my opinion no new principle or rule of law is laid down by the decision in Hickman & Co. v. Roberts[10], for, as I have pointed out, all the learned Lords except Lord Ashbourne drew attention to the improper conduct of the defendants in giving instructions to the architect and to the fact that the architect failed to maintain his independence and yielded to the pressure put on him by the defendants.

Clarke v. Watson[11] was decided on demurrer by a Court consisting of Erle C.J. and Williams, Willes and Keating JJ. in the year 1865. The declaration alleged that the plaintiffs had done all things necessary to entitle them to have a certificate of the surveyor that the work had been completed to his satisfaction, but that he had not given such a certificate but wrongfully and improperly neglected and refused so to do. A demurrer to this declaration was allowed. Erle C.J., who had taken part in the earlier decision of Scott v. Corporation of Liverpool[12], drew attention to the absence of any allegation of collusion between the defendant and the surveyor, and said that if the plaintiff had intended to rely on the withholding of the certificate as a wrongful act on the part of the defendants, they should have stated how it was wrongful. The statement of the points marked for argument shows that the question of the responsibility of the defendant for the wrongful omission of the surveyor to certify was distinctly raised.

In Smith v. Howden Union Rural Sanitary Authority[13], decided in 1890, the plaintiff sued to recover the balance of the price alleged to be due and payment for extras on a contract by which the certificate of the engineer was made a condition precedent to his right to payment. No certificate had been given for the amount sued for. The official referee found that the plaintiff carried out the works to the satisfaction of the engineer but that after the completion thereof the engineer refused to certify any further sum to be due to the plaintiff beyond what had already been paid. He found, further, that the engineer in so refusing to certify did not act honestly but acted improperly and unfairly and refused to exercise his honest judgment on the question whether any further sum was due, but that his conduct was not improper or unfair to the knowledge of the defendant Union and was not procured by them, but the defendant Union, without knowledge of such unfairness, adopted the acts of the engineer and made use of them to resist the plaintiff's claim. He also found that the defendant Union had wrongfully taken possession of the plant relating to the works. He found for the plaintiff in the sum of £1,277 18s. 9d., representing balance of contract price and price of extra expenses incurred by the refusal of the engineer to certify and damages in respect of seizure of plant. In delivering the judgment of the Court, Vaughan Williams J. said that he could find no case either at law or in equity in which it had been held that where the contractor, as a condition precedent to the right to payment, had to obtain the engineer's certificate, the price could become payable as such without the production of the certificate. He added[14]:—"The case of refusal by the engineer in collusion with the building owner to grant certificates is spoken of as an exception. It is not, however, really an exception. In such a case, the building owner and engineer fraudulently prevent the contractor from doing that which is necessary to obtain the price, namely, from getting the certificates, and what is recoverable by the contractor in such a case is not really the price, but damages. That the performance of the condition precedent is necessary at law appears from the case of Clarke v. Watson1 [1865] EngR 159; (1865) 18 C.B.(N.S.) 278.. The cases in equity which were cited to us in the argument of this case, and which were cited in the arguments of Clarke v. Watson, may contain observations seeming to show that misconduct or fraud of the architect or engineer, without collusion of the employer, will entitle the contractor to recover the price without obtaining the certificate required by the contract. But when these cases are looked at, nothing of the sort seems at all events involved in the decision." The plaintiff was accordingly held to be entitled as against the defendant Union to recover only damages for the wrongful act of the Union in preventing the plaintiff from completing the contract by wrongfully taking possession of the works.

In Eaglesham v. McMaster the Lord Chief Justice said[16]:—"The plaintiff must fail in the action unless he can show that there was some wrong act done by the defendant entitling him, the plaintiff, to proceed notwithstanding that he has not obtained the architect's certificate. Such a wrong would be fraud or collusion between the defendant and the architect, or some moral turpitude amounting to improper conduct which would lead the Court to interfere. There must be something in the nature of improper conduct by the defendant before the Court can ignore the contract and say that the plaintiff may proceed notwithstanding the absence of the certificate. Clarke v. Watson1(1865) [1865] EngR 159; 18 C.B.(N.S.) 278. shows this quite clearly."

In Kellett v. New Mills Urban District Council[18] Phillimore J. said that, if the certifier had been guilty of misconduct in refusing to certify and the building owner has knowingly taken advantage of such misconduct, the contractor may recover notwithstanding the absence of a certificate, there being no difference between procuring the wrongful act of the certifier and knowingly taking advantage of it. With the exception of this case (the decision in which appears to me to be inconsistent with that in Clarke v. Watson[19]) and possibly Pawley v. Turnbull[20], the authority of which has been questioned, I can find no case in which the defendant in an action on a contract such as that in the present case, has been held to be precluded from setting up the absence of a certificate unless the plaintiff has alleged and proved not only that the certificate was wrongfully withheld but also that the defendant had in some way procured or been a party to the misconduct of the certifier. In every such case, except those last mentioned, in which the plaintiff has succeeded, some improper interference by the defendant with the certifier in the performance of his duties in that capacity has been established. Expressions may be found in several of the cases to the effect that where the conduct of the certifier is fraudulent or dishonest the absence of a certificate will not prevent the contractor from suing on the contract. On the other hand, there are expressions in other cases to the effect that nothing short of fraud and collusion between the certifier and the defendant is sufficient to invalidate the certificate or dispense with its production.

On the whole, my conclusion on the question of law is that in order to preclude the defendant in an action such as the present from relying on the absence of a certificate the plaintiff must at least allege and prove (a) that the certifier was guilty of misconduct in withholding the certificate, and (b) either that the defendant was a party to the misconduct of the certifier, or that he improperly interfered with the performance by the certifier of his duty with respect to the certificate or that the conduct of the certifier in withholding the certificate was fraudulent to the knowledge of the defendant.

In the present case it is unnecessary to decide whether proof of fraud on the part of the certifier and knowledge of that fraud on the part of the defendant relieves the plaintiff from establishing collusion or interference on the part of the defendant, for the Chief Justice has, in my opinion rightly, acquitted the Chief Engineer for Railways of any moral misconduct. He has also found that there was no collusion between the Chief Engineer for Railways and the defendant or his officers, and in my opinion there is no evidence which would justify a finding that the defendant or his officers improperly interfered in any way with the Chief Engineer for Railways in the performance of his duties under the contract.

In the view which I take of the law this would be sufficient to dispose of the appeal. But an alternative view of the law was suggested in the reasons given by Poole J. in the Supreme Court. It was that the absence of a certificate affords no defence to an action in any case in which it is established to the satisfaction of the Court that the conduct of the certifier renders him unfit to be any longer a judge between the parties. Assuming this to be the correct standard to apply, I am of opinion that the plaintiff has failed to establish the unfitness of the Chief Engineer for Railways in this case. In estimating the effect of the evidence, it is necessary to remember that the Chief Engineer for Railways had important administrative duties to perform as a departmental officer, which necessarily involved constant communications and consultations between him and the defendant and the officers of the Department, including the Assistant Engineer. The plaintiff, having been employed in the Department, must have been well aware of the dual position of the Chief Engineer for Railways in this respect when he entered into the contract. I do not propose to discuss the evidence in detail because I agree, in substance, with the observations made upon it by Poole J. in the Supreme Court and with his conclusion that the evidence failed to show that the Chief Engineer for Railways was wanting in impartiality or that he intended to act in the interest of one of the parties or by direction of that party. That the Chief Engineer for Railways made mistakes may be conceded; but there is no evidence to justify the conclusion that in anything he did he acted otherwise than honestly. Before making his final certificate—the really important document—he forwarded a draft of it to the plaintiff with a letter inviting the plaintiff to bring under his notice any fact or argument which the plaintiff might think he had overlooked or not given due weight to, and expressing his readiness to consider the propriety of deferring the final certificate until the questions raised by a notice to refer given by the plaintiff had been disposed of. The plaintiff replied refusing to correspond with the Chief Engineer for Railways and accusing him of adopting an "injudicial attitude." The Chief Engineer for Railways then, on 20th January, wrote to the plaintiff asserting his intention to do his best to administer the contract fairly to both parties and to give earnest consideration to anything which the plaintiff might bring before him, adding that he thought his duty was to enter upon and decide, subject to any appeal to arbitration under the contract, all questions then remaining open between the plaintiff and the Commissioner, and intimating that he would leave the matter in abeyance for a week in order to afford the plaintiff an opportunity for reconsideration. I see no reason to regard these letters as anything but an honest expression of the determination of the Chief Engineer for Railways to act fairly and impartially in the discharge of his duties as certifier and arbitrator under the contract; nor can I find anything in the evidence to justify the conclusion that he had lost the capacity or the will so to act.

Before the authoritative judicial expositions we now possess of this modern class of contracts with respect to the various phases of the methods ingeniously devised to bind contractors by a tribunal provided by the employer, there was room for considerable discussion as to how such questions should be determined. In the existing state of the authorities the uncontroverted facts of this case appear to me to permit of one conclusion only, namely, that the appeal should be allowed, and the judgment of Murray C.J. be restored. In the circumstances no useful purpose would be served by my entering into detail either as to the various propositions of law which are to be deduced from the decisions or as to the items of correspondence and oral testimony contained in the voluminous body of evidence before us. It will be sufficient if I indicate, by broad summarization, the main conclusions of law and fact at which I have arrived, with the minimum of reference to specific items of evidence.

As a matter of construction and legal effect, I entertain no personal doubt that the bargain between the parties impliedly connoted a condition upon which the contractor consented that the Commissioner's own servant, the Chief Engineer, should be empowered as arbitrator to finally determine the remuneration of the contractor for the work he performed. That condition was that the Chief Engineer should preserve his independence and impartiality towards both parties, subject only to whatever might be the necessary effect of honest and faithful performance of his proper duties as owner's agent within the true meaning of the contract, and that, when once a dispute arose, such independence and impartiality were to be preserved even though that involved depriving the owner of the Chief Engineer's assistance as his exclusive agent in connection with the matters in dispute. I further entertain no doubt that the effect of the decisions is that upon a failure of the Chief Engineer to maintain such independence and impartiality, whether or not with the participation of the Commissioner in such failure, the Courts are open to the contractor for a just and impartial settlement of his claim (see Cameron v. Cuddy[21]).

Another proposition is also clear to me. When the arbitration stipulation became operative by the raising of the dispute, the Chief Engineer's function quoad the subject matter of the dispute under the certificate provision became inoperative. His function as to that subject matter existed under the arbitration clause only (see Lloyd Brothers v. Milward[22]; Chambers v. Goldthorpe[23], and Hudson on Building Contracts, vol. i., 2nd supplement to 3rd ed. and 4th ed., particularly at pp. 401 et seqq. and p. 775). Those are the relevant legal principles established by the decisions after prolonged and careful consideration of the nature of such a contract as the present.

The rival contentions of the parties are these:—The Commissioner says that, the contractor having bargained to accept the decision of the Chief Engineer, then to the Chief Engineer, notwithstanding all that has happened, must the contractor go, or get nothing. The contractor says that the Chief Engineer, by the course he adopted, has failed to observe the requirements of his position once the dispute arose, and has also disqualified himself as arbitrator by sacrificing, whether designedly or not is immaterial, the impartiality and independence contemplated by the contract and implicitly undertaken by the Chief Engineer when he assumed the oversight of the contract. Therefore, says the contractor, he ought not to be bound by the final certificate already given, and ought not to be driven to a tribunal never contemplated in the circumstances, and should be allowed to seek the decision of an impartial Court as to his just remuneration. The issue on this appeal is simply whether he is to be allowed to establish the merits of his claim before the Court or not, since all issues and all evidence directed merely to establish those merits have been excluded. The facts upon which the present issue depends range over a vast field, from which, however, one highly important feature, the personal testimony of the Chief Engineer, is conspicuously absent. In accordance with what I have already indicated, I shall substantially do no more than state the broad conclusions I have formed of the segregated facts as they appear, unexplained at crucial points by the Chief Engineer, who on more than one occasion is the only or the chief repository of the true meaning and effect of the events that happened. I may at once say that I put aside as to everyone all notion of moral turpitude, for I entirely agree with Murray C.J. that no ground whatever for imputing that exists. But, giving full credit to all so far as moral rectitude is concerned, and considering only whether, in view of the contract as above expounded, it is just or right to compel the contractor to accept the final determination of the Chief Engineer, I am satisfied that there was such a clear, continued and protracted course of action in his quality of departmental officer as the Commissioner's exclusive servant and representative, as the defender of his own personal conduct persevered in after objection, and as the contractor's adversary after the dispute had arisen (and the circumstances called loudly for the offices of the "arbitrator" and not for the antagonistic representative of the employer), that the Chief Engineer eventually became far too deeply committed to "departmental" views and contentions to satisfy the condition of the contract as to his arbitrament. His letter of 20th January 1920 is fair enough on the surface, and, if read as an isolated incident, is beyond reproach. It was framed to bear that appearance. But, when considered by the light of the circumstances from 20th September previous, when the appellant gave his notice of action placing him at arm's length with the Department, and read with the statement at the Bar by learned counsel for the respondent that the gaps in the letter of 30th October from the Assistant Engineer to the Resident Engineer and the memorandum of 18th December signed by the Assistant Engineer were omissions of references to the Commissioner's solicitor's advice, and with the remarkable statement in the letter of 15th January, as to an alleged "notice with a view to arbitration"—remarkable, that is, in view of the evidence (see letter from the plaintiff to the defendant dated 21st August 1919)—a totally different aspect of the document is presented, and I have no hesitation, in the absence of the Chief Engineer from the witness-box, in pronouncing the letter of 20th January 1920 to be a letter written under the legal advice of the Commissioner's solicitor and for evidentiary reasons for the Commissioner's benefit. The hand is the hand of Moncrieff, but the voice is that of the Commissioner's legal adviser, and is a departure in tone and substance from the course Moncrieff had taken. When the contractor openly disputed the change of front disclosed by the Chief Engineer's letter of 15th September, the Chief Engineer could then very well have said: "Then come before me as arbitrator and state your case, and bring your proofs." Or even assuming he had until after the appellant's letter of 19th September to take that course, it is quite a different story for him to persist until 20th January, as he did, and deliberately alter, by so-called "rectification," the contractor's position for the worse, before making him such an offer. In the meantime, he had pledged himself to the Commissioner; he had obtained and adopted the contentions, the arguments, the interpretations, and the suggestions of his subordinates; he had been instrumental in framing departmental documents of a financial nature for public expenditure and audit based on the departmental views of the conflict, and the views he supported; he had in effect, after the dispute had arisen, annulled prior certificates on which the contractor relied, and without arbitration, and had substituted certificates less favourable to the contractor. He had manifestly conferred with and advised and counselled the Commissioner as to the answer to be made to the contractor on the subject of dispute; that is to say, the "Judge" had conferred with and advised one of the "litigants" as to the answer to be made to the other "litigant," the suggested answer being in effect an intimation of the Judge's own opinion in advance on the matter in contention. He had thereby secured the Commissioner's adoption—his own employer's adoption—of an uncompromising attitude towards the contractor, and he had also been in communication with the Commissioner's own legal adviser on the disputed matter. And when all this was complete, when the Commissioner's case was practically as complete as the Chief Engineer, aided by the whole departmental staff, could make it in preparation for the notified action at law, even to the substantial formulation of the final certificate, the Chief Engineer apparently under legal instruction—undenied by him—offered, in words which are opposed to previous conduct and are most carefully limited, besides being unsupported by testimony which could be probed by cross-examination, to bring an impartial consideration to such of the contractor's claims as still remain open.

In my opinion, the strain on human nature would have been much too great upon Mr. Moncrieff to afford any probability that the contractor would have the chance he agreed to take. After all, that is what it amounts to—he agreed to take a well-understood chance of altering the Chief Engineer's mind. But the chance had so vitally altered that it was not at all what he had contracted for and what the Commissioner had agreed to give him. Even if the Commissioner had been utterly unconnected with the Chief Engineer's course of action, I should, in accordance with the legal principles above stated, have said that he could not hold the contractor to the altered circumstances. It would be too unjust. But the Commissioner, by his consultation with Moncrieff, the Chief Engineer, and his reception and adoption of Moncrieff's advice on the controversy, had participated in that course of action and had helped to change the situation.

I summarize the position:—(1) As to the Chief Engineer's certificate, it is not binding because it was made by him as "servant" of the Commissioner after the dispute arose, and when his power to so act in that capacity was gone, and his duty to act as "arbiter" arose but was not exercised. (2) As to future arbitration, the Chief Engineer is disqualified because he has prejudged the matters of dispute, he has not maintained his judicial position or the necessary impartiality throughout, he has committed himself to his employer's cause so far that retraction would be too severe a strain on human nature to be probable; and he has acted in connection and collaboration with the departmental officers and with the Railways Commissioner and his solicitor in relation to the subject while in dispute. In the circumstances, the appellant was well justified in declining the offer contained in the letter of 20th January. That letter proffered more than a velvet glove. The contractor was entitled to a fair trial, he was invited to what would probably have been in effect a summary execution.

In my opinion the circumstances are such as to attract the general jurisdiction of the Court, and therefore the appeal should be allowed.

The plaintiff entered into a contract with the State Railways Commissioner for the construction of a reinforced concrete railway bridge over a river, for the lump sum of £8,400. Progress payments, including extras, &c., were made to the amount of £9,447 2s. 5d.; but the plaintiff claims a further sum of £11,570 odd (including £2,000 damages). Under the contract no moneys were to be payable to the contractor except on the certificate of the Chief Engineer for Railways; and the plaintiff has no such certificate; but there is also a claim for a declaration that the defendant is not by reason of his conduct and the conduct of the Chief Engineer of Railways entitled to rely upon the absence of any certificate or upon any certificate given by the Chief Engineer. The claim for this unusual kind of declaration anticipating the defence, contains allegations (par. 13) that the Chief Engineer was to decide doubts, disputes and differences, and that at various times since 12th August 1919 he, having a judicial capacity, acted under the Commissioner's directions and influence and acted collusively with the Commissioner, and that the Commissioner interfered with the exercise by the Chief Engineer of his judicial functions as to giving any further certificate to the plaintiff and as to measuring the works or deciding the prices, and as to withholding certificates and giving improper certificates. The defendant, as evidently expected by the plaintiff, relied in his defence on words in cl. 27 of the contract: "No sum or sums of money shall be considered to be due or owing to the contractor, nor shall the contractor make any claim upon the Commissioner for or on account of any work executed or maintained by him, ... unless such certificate as aforesaid shall have been given by the Chief Engineer for Railways" (that is to say, a certificate "that the works have been finally and satisfactorily completed, and that such balance, together with the cash security, is due to the contractor"); and on clause 35 of the contract: "No ... action shall be brought ... by the contractor or the Commissioner against the other of them to recover any money for, or in respect of, or arising out of any breach of their contract ... or for or in respect of any matter or thing arising out of this contract, unless and until the contractor or the Commissioner shall have obtained a certificate, order or award from the Chief Engineer for Railways for the amount sued for."

The learned Chief Justice of South Australia made this declaration: "That the defendant is not entitled to rely upon the absence of any certificate of the said Chief Engineer for Railways or upon any certificate given by the said Chief Engineer for Railways in relation to the subject matter of the plaintiff's claim." Par. 21 of the statement of claim had asked for the insertion in the declaration of the reason—"by reason of his" (the Commissioner's) "conduct and the conduct of the Chief Engineer for Railways"; but the reason is not inserted in the declaration made. It is significant that in his reasons for judgment his Honor made no reflection on the conduct of the Commissioner, but only on the conduct of the Chief Engineer[24]:—"I hold that the defendant is debarred by reason of the conduct of the Chief Engineer for Railways from relying" &c. Again: "The ground of my decision is that Mr. Moncrieff failed to realize that he had a judicial duty to perform, and acted as if he had only the interests of the defendant to consider." Nothing could be clearer. The conduct of the Chief Engineer is treated as sufficient alone, and without any collusion with the defendant, or interference on the defendant's part, to prevent the defendant from raising the defence that the plaintiff suing has not the requisite certificate. The declaration is followed by an order that judgment be entered accordingly; but there was no order for payment, and no machinery provided for ascertaining the amount payable. Such a judgment is surely unusual. The defendant having appealed to the Full Supreme Court, the majority (Poole and Angas Parsons JJ.) ordered that the declaration be rescinded, that the plaintiff is not entitled to the declaration, and that the plaintiff do recover nothing against the defendant. The Chief Justice, as one of the Full Court on the appeal, adhered to his judgment at the trial.

The letters and other documents in evidence are very numerous, and scattered without regard to dates; but I have read them all with the aid of a valuable index to exhibits which the parties have prepared, showing the order of date; and I say at once that from first to last I cannot find any evidence that the Commissioner gave to the Chief Engineer any directions, or exerted on him any influence, or that there was any collusion of any kind between the Commissioner and the Chief Engineer. Without such interference or collusion on the part of the defendant, plaintiff has no valid reply to the defence of the Commissioner—in substance, "I promised to pay what the Engineer should certify to be due, that is my contract; and you have not his certificate for what you claim."

The essential law on the subject is well shown in the case of Smith v. Howden Union Rural Sanitary Authority[25]. There the learned Lords Justices (Vaughan Williams and Lawrance) explained that in the case of collusion between owner and engineer under such a contract what is recoverable is not strictly the price, but damages for fraudulently preventing the contractor from doing what is necessary to obtain the price. In that case, the engineer had, in bad faith, refused to certify, but the owner had not colluded with him, was not a party to the bad faith; and the Court said[26]: "I find no case in which it has ever been held ... that where a contract provides that the contractor as a condition precedent to the right to payment ... must obtain the engineer's ... certificate in writing, the price can become payable as such without the production of such certificate." I am, therefore, prepared to give my opinion as to par. 13 against the plaintiff on the ground of the facts—no such directions, no such influence, no such collusion, have been proved. Indeed, the learned Chief Justice of South Australia has expressly so found. As he says at the end of his reasons for judgment[27]: "I desire to state that of collusion or moral misconduct on the part of the Chief Engineer or Mr. Andrews" (the Assistant Engineer for Railway Construction) "or the defendant, I find no evidence whatever." Of any directions or interference from the Commissioner, or collusion with the Commissioner, there is no trace in this case; and the doctrine laid down in Hickman & Co. v. Roberts[28] is useless to the plaintiff. In that case, the building owners actively interfered with the architect, forbade him to issue certificates, instructed him to reduce the account as much as possible, sent him what Lord Loreburn called "unworthy communications" in their own interests, held out the prospects of further work if he complied with their instructions; and the architect allowed his conduct and judgment to be controlled by the building owners (see per Lord Shaw[29]).

Perhaps I should add that there is no evidence whatever to support the allegations—relevant or irrelevant—at the end of par. 15—that the defendant acted under the instructions of the Minister for Railways and the Government in Cabinet concerning claim 3.

But I have to consider further the ground on which the learned Chief Justice decided in favour of the plaintiff. The ground is, as finally stated, that Mr. Moncrieff (the Chief Engineer) "failed to realize that he had a judicial duty to perform, and acted as if he had only the interests of the defendant to consider. His decisions may have been right, but, as they were not arrived at with that impartiality which is required, they cannot, in my judgment, be allowed to stand in the way of an independent investigation of the plaintiff's claim in this action." The ground is put so clearly that there can be no mistake about it. I shall refer to the facts bearing on the alleged impartiality presently; but even if we are to accept implicitly his Honor's view of the facts, I am of opinion that such a view is no valid ground for saying that the plaintiff is entitled to succeed in this action. Under the contract, no moneys are payable except in pursuance of a certificate of the Chief Engineer; and the certificate has not been given. The certificate is a condition precedent to the right of payment. Collusion between the defendant Commissioner and the certifier, and interference on the part of the Commissioner with the certifier, being negatived, the mere want of impartiality on the part of the certifier is no ground for what is sometimes loosely called "dispensing" with the condition precedent. If A promise to pay in the event of B certifying that he ought to pay, he cannot be ordered to pay unless B so certify: but if A prevent B from certifying, or from certifying fairly, according to his honest judgment, or collude with B so as to get an unfair certificate, he prevents the fulfilment of the condition; and it does not lie in his mouth to say that the condition has not been fulfilled. In such a case the contractor can effectively meet the defence of no certificate for what is claimed by alleging in his reply and proving collusion or other prevention on the part of the defendant.

Certain expressions, perhaps not sufficiently guarded, were used by Law Lords in Hickman & Co. v. Roberts[30], expressions which would be puzzling to explain if the facts with which their Lordships were dealing were not steadily borne in mind; but there is no case—unless, perhaps, Pawley v. Turnbull[31]—in which misconduct of the certifier has been held to be an effective reply to such a defence unless the defendant has been a party to the misconduct. The law on the subject is clearly stated to this effect in Clarke v. Watson[32]; Botterill v. Ware Board of Guardians[33]; Scott v. Liverpool Corporation[34]; Kellett v. New Mills Urban District Council[35]; per Coleridge C.J. in Clemence v. Clarke[36]. In Kellett v. New Mills Urban District Council the employer was found by the jury to have knowingly taken advantage of the engineer's wrongful refusal to certify, and Phillimore J. saw "no difference" between such conduct on the part of the employer and his conduct if he procured the misconduct of the engineers[37]. In effect, the doctrine of ratification was applied. It is true that in Pawley v. Turnbull[38] Stuart V.C. expressed himself in a manner that might lead to the opposite conclusion. But it is to be noted that in the contract in that case there does not appear to have been any provision that no sum shall be payable unless certified by the architect; and that Phillimore J. speaks of the case as being "open to some comment"[39]. It is true also that Mr. Hudson in his book on Building Contracts, 4th ed. (1914), vol. i., p. 402, speaks, apparently with surprise, of the doctrine of Pawley v. Turnbull as being now accepted; but since 1914 Reading C.J. has shown that the doctrine is not accepted. The plaintiff, to succeed, must show a "wrong act done by the defendant"; and in the case before Reading C.J. the plaintiff failed, because the defendant "did not do anything wrong"—whatever the architect had done (Eaglesham v. McMaster[40]). In my opinion, therefore, the fact, even if established, that the certifier failed to realize that he had a judicial duty to perform, and acted as if he had only the interests of the defendant to consider—as stated by the learned Chief Justice of the Supreme Court—does not meet the defence of non-fulfilment of the condition precedent.

There are, however, proceedings of other kinds in which misconduct of the engineer, without participation on the part of the owner, may become very material. For instance, it has been said that an action lies against the engineer himself for damages for fraudulently certifying or refusing to certify (Hudson on Building Contracts, 4th ed., vol. i., p. 69; per Esher M.R. in Re De Morgan, Snell & Co. and Rio de Janiero Flour Mills & Granaries Ltd.[41]; Padley v. Lincoln Waterworks Co.[42]; Young v. Ohlfsen-Bagge[43]). Moreover, if the engineer has refused to bring his mind to bear as arbitrator on the claims, the Court, in exercising its discretion as to staying proceedings in an action because of an arbitration clause in the contract, will, in appropriate cases, refuse to stay the plaintiff's action for the price. This is well illustrated by the case of Cross v. Leeds Corporation[44]. There the city engineer, who was to be the arbitrator under the contract, wrote to the contractor[45]:—"After a careful perusal I do not admit any of your explanations or excuses. ... Your claims seem to be simply outrageous. ... I shall only deal with you through the corporation's solicitor." No doubt the plaintiff, Mr. Dixon, would characterize these strong expressions as very unjudicial (or "injudicial"); and yet the Court of Appeal stayed proceedings in the action in order to let the dispute go before the engineer as arbitrator. As Collins M.R. said, the engineer was not incapacitated from becoming arbitrator because he had committed himself to a particular view; for the contract meant that although he had so committed himself he might nevertheless act as arbitrator. The parties contemplated by their contract a biased arbitrator, not an impartial arbitrator; and, to justify the Court in substituting itself, or an outsider, for the arbitrator agreed on, there must be something equivalent to a refusal on his part to consider the matter on its merits at all. The reasoning in this Leeds Case may well be carried forward to the part of my judgment which follows.

I should probably, however, be justified in closing my judgment here, saying that the plaintiff has no cause of action even if the facts were as the learned Chief Justice of South Australia has found them, that the Chief Engineer had "failed to realize that he had a judicial duty to perform, and acted as if he had only the interests of the defendant to consider"[46]. But, with unfeigned respect for the Chief Justice, I cannot take the same view of the facts; and, in mere fairness to the Chief Engineer, I think it my duty to say so. In my opinion, the Chief Engineer did nothing which should disqualify him from acting as arbitrator. The plaintiff had made seven claims, which were finally put into form on 20th December 1919. I take the position as stated by the Chief Justice[47]: "The claims were partially examined, and then their final determination was adjourned until after the completion of the works" (about 16th December 1919), "without objection on the part of the plaintiff. When the time for adjudication arrived, the decisions were given in the absence of the plaintiff, because in the meantime he had repudiated the authority of the Chief Engineer and refused to have any dealings with him. Under these circumstances, I think the Chief Engineer was clearly justified in proceeding as he did, unless the plaintiff's allegation that he had become disqualified is substantiated." Thus the issue is narrowed by the Chief Justice to disqualification of the Chief Engineer before 19th September 1919, when the plaintiff wrote to him: "As you are not prepared to act as certifier in the judicial manner required in accordance with the contract I cannot correspond with you further in the matter." This grave reflection on the Chief Engineer was evoked by a letter from him of 17th September, in which he said (so far as material): "I have now to inform you that there is only £218 10s. due under the contract and there can be nothing binding in the monthly certificate, seeing that it is a bulk sum contract, and that the amounts allowed from month to month are only estimated progress payments." It appears that the Resident Engineer, the superintending officer, had been in the habit of signing, with the plaintiff, monthly certificates based on the "estimated value of work done on" the 12th day of each month. But these estimates were based on prices scheduled for extras, as if the contract were not a bulk sum contract; and, in the opinion of the Assistant Engineer for Railway Construction and of the Chief Engineer, the Resident Engineer has overestimated the proportionate value of the work done to the whole work to be done under the contract. The Chief Engineer had accordingly written to the plaintiff saying that to "pay the amount which you claimed on last month's work would cause the payment to you to exceed the amount stated in the contract plus the extras which I have approved the payment of." This attitude seems prima facie to be right; for the monthly certificates were not, under the contract, made conclusive, and the Chief Engineer had power by any subsequent certificate to rectify prior certificates (condition 27). But, whether the Chief Engineer was right or wrong, there was no justification for the plaintiff's charge that the Chief Engineer would not act in a judicial manner before giving the final certificate. An engineer in such a position is entitled to form a strong opinion, and to express it, and the contractor cannot repudiate the arbitral function of the engineer unless he show that the engineer has in some way precluded himself from keeping his mind open to representations of the contractor— Jackson v. Barry Railway Co.[48]. In that case, the engineer, even after the dispute had been referred to him, wrote to the contractor a letter repeating his former view, that stone instead of gravel was not an extra; and yet the Court of Appeal refused to restrain the engineer from proceeding further with his arbitration. The contract was (as here) for a biased arbitrator, but there was no indication that the contractor would not be patiently listened to and receive at the last an honest decision as to the final certificate. The plaintiff's letter might rather be regarded as an attempt to get his claims before a tribunal such as it was the express object of the contract to exclude.

There is, indeed, one conversation to which the plaintiff deposes that seemed to me at first to show startling conduct on the part of the Chief Engineer. The plaintiff's version of the incident is as follows; and neither the Chief Engineer (Mr. Moncrieff) nor the Assistant Engineer (Mr. Andrews) was called to contradict it:—"Claim No. 3—Wages.—As to this, the Chief Engineer said when the time came for me to put in my claim as to this; Mr. Andrews, who was beside the Chief Engineer, explained to him that this dispute concerned the extra wages claimed and these are the papers in connection with it. Mr. Moncrieff then said:—I can tell you straight out—I can give you nothing. I cannot discuss this claim with you. If you wish to take the matter further you must go and see the Government. Nothing more was said on that claim." The plaintiff afterwards saw the Minister for Railways on the subject.

This conduct looked like a refusal to consider a definite subject of dispute. But the position should be more closely examined. This claim 3 was for loss, &c., suffered by the contractor "owing to the minimum wage of an adult able-bodied labourer being increased by law from ten shillings to twelve shillings per day." Under the contract (condition 20 (d)) it was provided that, where a wages board or other industrial tribunal fixed a rate of wages, the contractor was to pay not less than that rate; and there is not in the contract, from first to last, any language—none has been suggested—relieving the contractor of the burden of the rate. It was for the Government, not for the Chief Engineer, to consider whether any indulgence should be shown to the contractor; the Chief Engineer was to certify only what was "due and owing"—that is to say, legally due and owing. This "claim" seemed to lie wholly outside the functions of the certifier. The plaintiff said nothing in reply. He must have fully understood the position; for he had been in the Railway Department, under the Commissioner, for six years, as resident engineer and superintending officer in the construction of railway lines. As stated in Moncrieff's letter to the plaintiff, 14th July 1919, the claim was outside the contract, and was therefore one with which he was unable to deal.

On another subject, claim 5, Moncrieff wrote on 22nd July 1919 that the claim made was too late under the contract (as he says), and gave certain dates. The plaintiff saw Moncrieff and showed that the dates stated were wrong; and Moncrieff, on being asked to withdraw the letter and continue the proceedings as if it had not been written, said "No—I will let it stand as it is—I am here to protect the Commissioner." This might have been an improper attitude, if the mistake in the dates meant that the claim was not too late; but there is no indication that the precise dates made any difference. Moreover, to say that he (Moncrieff) was there "to protect the Commissioner" might have been seriously wrong for the purposes of this action, if he was then—21st July 1919—acting judicially in deciding as to his final certificate. But it was right if we regard Moncrieff in his capacity as Chief Engineer, acting in an administrative office under the Commissioner. In any aspect, however, there is no ground for the plaintiff's action in treating the Chief Engineer as so wanting in impartiality as to release the plaintiff from his agreement to let this departmental, biased, officer decide as to the final certificate. Further, on 15th January 1920 the Chief Engineer, having prepared his final certificate, sent a copy of the draft to the plaintiff, saying—"You are to understand that this draft is for the present merely tentative and that it is open to you to bring under my notice any fact or argument which you may think that I have overlooked or failed to give due weight to. Anything which you may thus see fit to bring before me will receive my full and earnest consideration." Mr. Moncrieff offered also to defer the final certificate if requested. The plaintiff repeated his letter of 19th September 1919, and said he did not solicit the certificate. On 20th January 1920 Moncrieff again repeated the promise to consider any representation that the plaintiff might make; said it was his duty to enter upon all questions remaining open between the plaintiff and the Railway Commissioner; and said he would leave the matter in abeyance till the 27th inst., and then consider and decide upon the final certificate. On 30th January 1920 Moncrieff wrote that he had considered and decided upon the final certificate and forwarded a copy, with his decisions on all the seven claims. Therefore, even if any fault can be shown in the conduct of the Chief Engineer before completion of the contract, faults due to his difficult double position as administrative officer of the Commissioner and as certifier, the Chief Engineer gave the plaintiff full opportunity at the end to support all his alleged grievances. The end cured all; and I cannot find the slightest ground that justifies the plaintiff in his repudiation of the Chief Engineer as arbitrator. Notwithstanding these letters, the plaintiff issued a writ on 2nd February 1920.

It is not necessary for the defendant Commissioner to show that all the steps which the Chief Engineer took in these long and complicated proceedings were absolutely the proper steps to be taken; but, in my opinion the Chief Engineer acted with perfect honesty towards the plaintiff, and with such impartiality as his double position allowed and as the contracting parties contemplated. The plaintiff had a full and fair opportunity of putting all his facts and arguments before the certifier named in his contract; and the order of the Full Court of South Australia dismissing the action should be affirmed.

This is an interesting case, and it has many aspects. I have carefully considered them all, and I feel no doubt that the appellant has both justice and law on his side. I think, therefore, that the appeal should be allowed and that the judgment originally given by Murray C.J. should stand. The reasons for my opinion are sufficiently stated in the judgment of my brother Isaacs, with which I agree.

The appellant (Dixon) entered into a contract with the South Australian Railways Commissioner, dated 24th September 1918, to build a reinforced concrete railway bridge over the River Broughton, on the Riverton to Spalding railway. It was a lump sum contract, for £8,400, as distinguished from a schedule of rates contract, but, in tendering, the contractor was required to attach a schedule of prices, filled up with the rates and amounts upon which the tender was calculated. There were also provisions in the specifications and general conditions of the contract for extras, additions, omissions, deviations, or alterations, which were to be either allowed and paid for, or deducted from the price, according to the terms of the contract. The moneys becoming due under the contract were to be paid in monthly instalments, equal to 90 per cent on the proportionate value which the work actually done during the preceding month bore to the whole of the work, and 75 per cent on the value of such materials, delivered on the works, as were approved by the Chief Engineer of Railways, and the balance, together with certain deposits, as cash security, and interest thereon, within fourteen days after the Chief Engineer had certified that the works had been finally and satisfactorily completed. It was, however, stipulated in the contract that no action should be brought against the Commissioner "unless and until the contractor shall have obtained a certificate or award from the Chief Engineer of the amount sued for" (cl. 35). And another clause (cl. 27) provided that no sum should be considered as due or owing to the contractor unless he had delivered in respect thereof a true and proper claim, and unless a certificate had been given by the Chief Engineer, and the amount fixed and determined by such certificate, without prejudice to the right of either party to appeal to arbitration, in accordance with the terms of the contract. But this condition (cl. 27), though stipulating that every certificate should be binding and conclusive upon the parties to the contract, provided also that the Chief Engineer might, in his discretion, make, in any subsequent certificate, any rectification he thought necessary of or in any of his prior certificates.

It is desirable, before dealing with the arbitration clause, to mention the provisions for the monthly return of work and materials by the contractor (cl. 14), and for measurements (cl. 26). The contractor was required to deliver monthly a return for the month previous, showing the quantity performed during such month, and showing also the amount of materials delivered upon the ground, and whether such work and materials were or were not claimed for as extras. The return was to further contain a statement of the value of the work and material claimed by the contractor. Measurements of all works were to be made as soon as possible after each work was completed, and in every month the officers of the contracting parties were to make an account of all works done and performed by the contractor in execution of the contract, and the quantities and amounts of all such works were to be entered in two books, of which one was to be kept in the custody of the Chief Engineer and the other in the custody of the contractor. And it was provided that the accuracy of every such monthly account or measurement should, once in every three months, be attested by the signatures of the contractor and the Chief Engineer, or other authorized person, and should, as between the parties, be for all purposes, admissible in evidence.

The arbitration clause (cl. 32) is very general in its terms, and embraces practically any doubt, dispute, or difference which may arise or happen touching or concerning the works or the contract, including any certificate or order or award made by the Chief Engineer. And it stipulated that every such doubt, dispute or difference should be referred to, and settled and decided by, the Chief Engineer for Railways, whose decision thereon should be final and conclusive. There is a proviso for a disinterested arbitrator in certain cases, but that is immaterial for the purposes of this case. Other clauses of the conditions of contract (namely, cl. 33 and cl. 34) stipulated that it should be competent for the Chief Engineer to enter upon all matters which were left to his decision or determination, or were to be governed by his certificate, without formal reference or notice to the parties, and that he should judge, decide, order and determine thereon, and that all certificates, orders, directions, &c., of the Chief Engineer should be binding upon the parties, and should not be set aside for technical or legal defects, or error or irregularity in proceedings, or want of jurisdiction, or otherwise howsoever, but any and all matters the subject of such decision should be taken to be properly adjudicated upon and finally determined, unless appealed from under the arbitration clause already mentioned.

Now, this contract is one of the type discussed in Jackson v. Barry Railway Co.[49] and in Cross v. Leeds Corporation[50]. The Chief Engineer fills an equivocal position under the contract. He is an officer of the Railways Commissioner, bound, as a matter of duty, to supervise the execution of the contract in the interests of the Commissioner. He is also, for many purposes of the contract, a certifier, or "preventer of disputes," as a person in such a position has been termed (Hudson on Building Contracts, 4th ed., vol. i., p. 365), and in this capacity he must judge impartially between the parties and act in a quasi-judicial manner. He is also an arbitrator under the contract, and in such capacity may be required to review and reconsider his own decisions, and must, of course, here too, act in a quasi-judicial manner, and impartially between the parties. As was said by Bowen L.J. in Jackson's Case[51], the essential feature of the contract is that disputes which arise between the parties under the contract are to be decided—with some immaterial exceptions, already noticed—"not by a stranger or a wholly unbiased person but by the ... engineer himself." "Virtually, the engineer, on such an occasion, must be the judge, so to speak, in his own quarrel." Both the parties contract on this basis, and rely on the engineer's "professional honour, his position, his intelligence." And, in the case now before the Court, they rely also upon the fact that he is a distinguished officer in the Public Service of the State of South Australia, and therefore by no means so dependent upon the Railways Commissioner for his position and pay as is the engineer usually employed by the ordinary building contractor. In this case, much turns, in my opinion, upon the fact, that (to use the words of Collins M.R. in Cross v. Leeds Corporation[52]) "the parties have not agreed—that is the plain English of it—for an impartial" certifier or "arbitrator, because the person whom they have agreed upon as" certifier or "arbitrator is one who it may be presupposed may have formed ... an adverse opinion." The case for the appellant is that the Chief Engineer rendered himself incapable of carrying out the duties of certifier and arbitrator confided to him under the contract, or, adopting the words of Bowen L.J. in Jackson's Case[53], that the Chief Engineer rendered himself unfit to act, or incapable of acting, "not as" a certifier or "arbitrator without previously formed or even strong views, but as an honest judge of this very special and exceptional kind." It is, therefore, necessary to traverse, so far as they are material to this case, the differences which from time to time arose in carrying out the contract.

[The facts were here narrated in detail:—It was stated that the contractor made seven claims arising out of or touching the contract or the works thereunder. The Chief Engineer dealt with these claims—allowing some small items, disallowing the greater number and holding over others for further consideration. The contractor required these claims to be referred to arbitration under the contract, and the Commissioner was willing, without prejudice to the contract, to confer with the contractor as to the appointment of an arbitrator. But in September 1919 the Chief Engineer informed the contractor that progress payments had been made to him in excess of what he was entitled to under the contract, and that further progress certificates could not be issued until these payments had been rectified. The contractor thereupon refused to deal with the Chief Engineer, whether as certifier or arbitrator under the contract, and demanded the appointment of another officer. The facts surrounding the refusal of a progress certificate for the month ending September 1919 were also examined. The conclusion reached was that progress certificates issued prior to September 1919 were based on the aggregate amount of work actually done moneyed out at the schedule rates on which the tender was calculated; and that the value of the extras had not been separated from the lump sum work. "The contractor is now," his Honor said, "falsely pretending that the returns of the value of the work done contain estimates of the proportion which the contract—the lump sum—work, done to the date of the return, bore to the whole contract price, i.e., the whole lump sum job, plus the extras; whereas it was an estimate of the value of the work actually done at the various dates, moneyed out at schedule rates. In other words, the contractor is attempting to turn his lump sum contract into a schedule of rates contract."]

So far as the seven claims are concerned, all that can be suggested is that the Assistant Engineer (Andrews) forwarded his views of those claims for the consideration of the Chief Engineer, just as the contractor had forwarded to the Chief Engineer various statements of his case. The contractor asserts that he did not see Andrews' statements until after the action had commenced. But some of the contractor's claims, notably one, in relation to giving possession of the site of the works, and three, in relation to an increase of wages by force of law, were untenable as a matter of law. The claims made before 4th September, namely six, were all discussed in conferences between the contractor, Andrews (the Assistant Engineer), Mann (the Resident Engineer) and the Chief Engineer, during May and July of 1919, and there are various letters which show that the contractor was fully seised of Andrews' views in relation to his claims. There is nothing in these informal proceedings to show that the Chief Engineer forgot his position as certifier under the contract, or lost that attitude of impartiality and independence requisite in one discharging his duties. In all essentials, the Chief Engineer conducted himself in a fair and legitimate manner. True, the contractor, if he appealed to arbitration under the arbitration clause, could not expect "the perfectly open judgment, the absence of all previously formed or pronounced views"; but that was inevitable from the nature of the contract into which he had entered. It was "part of the very bargain that the scales of justice in the case of a dispute need not be held in a neutral or wholly indifferent hand" (Jackson v. Barry Railway Co.[54]). The contractor apparently required the selection of some arbitrator, other than the Chief Engineer, for the determination of his claims, but the contract did not so provide, and, except in cases immaterial to this case, stipulated to the contrary. And as to the seventh claim, the contractor absolutely refused to discuss it with the Chief Engineer. The events following upon the Resident Engineer's intimation of 4th September, that further progress payments under the contract could not be made, because the payments already made were, "for the present," as much as he could allow, now require consideration.

When the contractor appealed to the Chief Engineer, as he did on 12th September, to give the matter early attention, and to issue a certificate for payment of work done since 12th August, and forwarded to him the Resident Engineer's statement of the position, then clearly it was the duty of the Chief Engineer to consider the matter as the certifier under the contract. He performed that duty, and informed the contractor that he had examined it, and found "that to pay the amount" which the contractor claimed on last month's work "would cause the payment" to him "to exceed the amount stated in the contract, plus the extras, which I have approved the payment of." Perhaps I should add that, on the same day as the Chief Engineer wrote his letter, the Assistant Engineer prepared a memorandum for him, referring to the Resident Engineer's letter, which the contractor had already sent to the Chief Engineer, and to cl. 27 of the conditions enabling the Chief Engineer to rectify, if he thought proper, prior certificates I assume that the Chief Engineer received this memorandum before he replied to the contractor, but there is nothing objectionable in it. It states the case from the point of view of the officers of the Railway Department, as the contractor had stated his case. The Engineer was, no doubt, bound to act impartially between the parties, his duty was to give or receive "a certificate ... according to what he conceives to be the right and truth as to the work done" (McDonald v. Workington Corporation[55]). At this stage he was not bound to sit and hear evidence in a formal way, though he ought, of course, to hear what the parties had to say if either expressed a desire to be heard (see Hudson on Building Contracts, 4th ed., vol. i., p. 728). And his determination at this point as a certifier was, as I read the contract, subject to appeal under the arbitration clause. Each of the parties to the contract put his case in his own way to the Chief Engineer, and was seised of the substance of the other's contention. And, indeed, the contract (cl. 33) empowered the Chief Engineer to enter upon the matter without formal reference or notice to the parties. I have been at some pains, in an earlier part of this judgment, to show that the Chief Engineer had solid foundation for his determination, and that it was not an arbitrary, capricious or unreasonable decision, but was, as we now know the facts, a true and right one. If the Chief Engineer could never again approach this question with "the perfectly open judgment, the absence of all previously formed or pronounced views,"—and I take leave to doubt whether this was impossible in the case of a skilled and honest man—then, as I have before pointed out, that was inevitable from the nature of the contract. When, again, the contractor wrote on 12th September giving particulars of his claim for a progress certificate for the month ending on that date, surely the Chief Engineer was bound, as a matter of courtesy and business, if not of obligation under the contract, to give some reply; and when, on the 17th, he replied that only £218 10s. was due under the contract, and that amounts allowed from time to time were only estimated progress payments, there was, to my mind, nothing in that act which showed that he was unfit to perform his functions under the contract, or that he had failed to exercise that independence and impartiality which were required of him under the contract. The interest of the public and of the Commissioner demanded, one must not forget, as much consideration as that of the contractor. The subsequent events arose, in truth, from the acts of the contractor, and his refusal to further correspond with the Chief Engineer. He appealed, as has been seen, to the Railways Commissioner, and demanded a new certifier "who would carry out his duties in a judicial manner." And, because the Commissioner investigated this and other complaints, and called upon the Chief Engineer, as his officer, for reports on his conduct as the certifier under the contract, the contractor now relies upon these acts as proof that the Commissioner and the Chief Engineer acted collusively, that the Chief Engineer committed himself irrevocably to his employer's cause, and so abandoned his position of independence under the contract, and became unfit to act further as a certifier or as an arbitrator pursuant to the contract. But the circumstances in which the communications between the Commissioner and the Chief Engineer arose completely destroy the sinister allegations of the contractor, and there is nothing in the correspondence itself which betrays any abandonment on the part of the Chief Engineer of an independent and impartial attitude, such as was required of him under the contract. The Commissioner was right in requiring the reports, and the reports were fairly given, and indicate no bias against nor annoyance with the contractor. Indeed, the Chief Engineer reported in a restrained manner, markedly different in tone from that adopted by the contractor and his solicitor in their communications to the Commissioner.

Next must be considered another class of acts on the part of the Chief Engineer, namely, the progress reports and certificates, and the final certificate prepared after 4th September 1919. Under the contract it was provided that the Commissioner should pay to the contractor monthly instalments upon the certificate of the Chief Engineer (cl. 27 and cl. 38). The contractor made claims for payment of £736 for September work, £645 for October work, £880 for November work and £378 for December work. And he drew up a final statement of accounts in December, claiming a balance due to him of £3,285. But the Railway Engineers were no less entitled to put forward their view of the true state of accounts. They accordingly did so, and prepared various reports and statements showing an overpayment of £1,479 to the month of September, £1,014 to the month of October, £815 to the month of October, £815 to the month of November, and in December a statement showing that the final balance due under the contract was £238 18s. 9d. All these documents were forwarded to the Chief Engineer, whose duty it was to give his certificate under the contract. He minuted the September account in October 1919, as follows:—"I find that by prior certificates the value of the work actually executed up to the date of those certificates respectively has been overstated to the extent of £1,778 14s. 1d., and that, as a result, there have been overpayments to the contractor up to 12th August 1919 of £1,600 16s. 8d., and I therefore think it necessary to make rectification of such prior certificates accordingly. The overpayment has, by reason of work actually executed since 12th August 1919 and up to 12th September, been reduced to £1,479 0s. 4d."

Now, this was but an expansion of his intimation to the contractor in September that to pay the amount which the contractor claimed for the month ending 12th September would cause the payment to exceed the amount stated in the contract plus the extras which he had approved. Both the intimation of September and the minute of 6th October rested upon the same basis, namely, that the August report and certificate had not apportioned the value of the work done to that date between the lump sum work and the extras. The Chief Engineer had not, in October, departed from the view taken in September that the extras amounted to a sum of £1,021. The so-called rectification was notional rather than real. Documents were not altered, and the substance of the minute is that progress payments had been made to the contractor in excess of what he was entitled to under the contract, to the extent of £1,479, and consequently that further progress payments could not be made until this excess had been reduced by the completion of further works under the contract. The contractor, by his conduct, had created a real difficulty. He was clamouring for progress payments; he would not correspond or deal with the Chief Engineer. But these progress payments were to be made, according to the contract, on the certificate of the Chief Engineer. Unless the Railways Commissioner were satisfied of some misconduct on the part of the Chief Engineer, there was no reason why he should not require those certificates. And it was the duty of the Chief Engineer under the contract to give these certificates, according to what he conceived to be the right and truth, undeterred by the contractor's charges and undeterred also by the views of the Railways Commissioner or of his own subordinate officers. If the Chief Engineer had not rendered himself unfit to perform his functions under the contract by reason of his determination in September that the contractor had obtained progress payments in excess of what he was entitled to, then the fact that he gave formal effect to that determination in the September, October, and November certificates does not weaken his position, or disqualify him from the performance of his duties under the contract. To say that the Chief Engineer was bound, in the circumstances of this case, to desist from performance of his duties as the certifier under the contract because the contractor challenged his decision, disputed his impartiality, and demanded a new certifier, is opposed to common sense, and is, in point of law, unwarranted by any decision. The contractor could have had the benefit of the appeal to arbitration provided by the arbitration clause, if he had desired it, but he did not desire it; and the correspondence shows, clearly enough, that he refused the decision of the Chief Engineer, whether as certifier or as the arbitrator, under the contract. The proceedings surrounding the issue of the final certificate by the Chief Engineer strengthen my view that he did nothing to disqualify himself from acting under the contract. Progress certificates are all more or less tentative. But when the draft of the final certificate was prepared, the Chief Engineer sent it to the contractor, informing him that it was tentative only, and offering to hear him upon the whole matter. It is said—but I know of no evidence to support the statement—that this letter is the result of the advice of the Commissioner's solicitor. Even so, it was very proper advice, and it does not detract from the honour or the impartiality of the Commissioner or the Chief Engineer that they deigned to accept it. I see no reason to doubt that the latter was a sincere and honest attempt to do what was right and just between the Commissioner and the contractor, and it is to be regretted that the contractor repulsed the Chief Engineer and again charged him with misconduct. The reply of the Chief Engineer to the accusation stamps him, at all events, as a man of calm and dignified bearing, and ready to do his duty according to his capacity. And, when the contractor refused the opportunity that was offered to him, there was nothing left to the Chief Engineer but to perform his duty as the certifier under the contract, and to issue his final certificate.

The result is that the Chief Engineer was not, in my opinion, disqualified from discharging his duties as certifier or arbitrator under the contract.

The question whether the contractor could have recovered in this action, in the face of the Chief Engineer's certificates, if the Chief Engineer had been guilty of misconduct, in the legal sense, is one of some nicety. The Court is not agreed upon the point, but I have given it some consideration, and think that I may properly state the opinion I have formed upon the subject. These certificates are, according to the contract, conditions precedent to the contractor's right to recover under it. It is settled in point of law that a party to a contract cannot rely upon a certificate fraudulently obtained, particularly in case of collusion with the certifier, or upon a certificate obtained by means of the party's interference or undue influence. Nor can a party insist upon a certificate if he has prevented it being given. But is it necessary that there should be a participation of the party in the misconduct of the certifier? Now, the true answer to this question must depend, in my opinion, upon the implication of the contract. If parties to a contract place a person in a position in which he must, by force of the agreement, exercise his functions in a quasi-judicial manner, in which he must be independent and impartial, then the implication is that he shall be disqualified if he is not in a position to bring to the questions to be decided by him the judicial and impartial mind for which the parties stipulated and which they have a right to expect (see Hudson on Building Contracts, 4th ed., vol. i., p. 407). It is true, as the Chief Justice and my brother Higgins have pointed out, that some of the cases seem to conflict with this view, and it goes somewhat far to say that "these cases must, it would seem, be in effect overruled" (Hudson on Building Contracts, 4th ed., vol. i., p. 418). There are expressions used by the noble and learned Lords in Hickman & Co. v. Roberts[56] that support this statement, but the case itself is rather an illustration of interference and unfair influence on the part of a party to the contract. Clarke v. Watson[57] and Eaglesham v. McMaster[58] depend, in my opinion, upon the particular allegations made in the pleadings in those cases. Neither case deals, or could deal, with the position in which the certifier had lost that attribute of impartiality and independence requisite in one discharging his duties and stipulated for by the agreement of the parties. This Court is, therefore, free, I think, to deal with the matter upon principle. At all events I prefer to rest my opinion upon the principle above indicated rather than upon phrases to be found in any decided case.

Solicitor for the respondent, F. W. Richards K.C., Crown Solicitor for South Australia.

[1] (1923) S.A.S.R., at pp. 5-6.

[2] (1921) S.A.S.R., at p. 44.

[3] (1901) 2 Huds. B.C. (4th ed.) 316.

[4] (1913) A.C. 229; 2 Huds. B.C. (4th ed.) 426.

[5] (1901) 2 Huds. B.C. (4th ed.) 316.

[6] (1913) A.C. 229; 2 Huds. B.C. (4th ed.), at pp. 449 et seqq.

[7] [1865] EngR 159; (1865) 18 C.B.(N.S.) 278.

[8] (1890) 2 Huds. B.C. (4th ed.) 156.

[9] (1920) 2 K.B. 169.

[10] (1913) A.C. 229.

[11] [1865] EngR 159; (1865) 18 C.B.(N.S.) 278.

[12] [1858] EngR 564; (1857-58) 1 Giff. 216.

[13] (1890) 2 Huds. B.C. (4th ed.) 156.

[14] (1890) 2 Huds. B.C. (4th ed.), at p. 163

[15] [1865] EngR 159; (1865) 18 C.B.(N.S.) 278.

[16] (1920) 2 K.B., at p. 177.

[17] [1865] EngR 159; (1865) 18 C.B.(N.S.) 278.

[18] (1900) 2 Huds. B.C. (4th ed.) 298.

[19] [1865] EngR 159; (1865) 18 C.B.(N.S.) 278.

[20] [1861] EngR 520; (1861) 3 Giff. 70.

[21] (1914) A.C. 651, at p. 656.

[22] (1895) 2 Huds. B.C. (4th ed.) 262.

[23] (1901) 1 K.B. 624, at p. 638.

[24] (1921) S.A.S.R., at p. 44.

[25] (1890) 2 Huds. B.C. (4th ed.) 156.

[26] (1890) 2 Huds. B.C. (4th ed.), at pp. 162-163.

[27] (1921) S.A.S.R., at p. 44.

[28] 2 (1909) 2 Huds. B.C. (4th ed.) 426; (1913) A.C. 229; 82 L.J. K.B. 678.

[29] (1913) A.C., at p. 240.

[30] (1913) A.C. 229.

[31] [1861] EngR 520; (1861) 3 Giff. 70.

[32] [1865] EngR 159; (1865) 18 C.B.(N.S.) 278.

[33] (1886) 2 T.L.R. 621.

[34] [1858] EngR 1262; (1858) 3 DeG. & J. 334.

[35] (1900) 2 Huds. B.C. (4th ed.) 298.

[36] (1879-80) 2 Huds. B.C. (4th ed.) 54, at p. 69.

[37] (1900) 2 Huds. B.C. (4th ed.), at p. 300.

[38] [1861] EngR 520; (1861) 3 Giff. 70.

[39] (1900) 2 Huds. B.C. (4th ed.), at p. 300.

[40] (1920) 2 K.B. 169.

[41] (1892) 2 Huds. B.C. (4th ed.) 185, at p. 201.

[42] [1850] EngR 145; (1850) 2 Mac. & G. 68.

[43] (1878) 4 V.L.R. (L.) 516.

[44] (1902) 2 Huds. B.C. (4th ed.) 339.

[45] (1902) 2 Huds. B.C. (4th ed.), at p. 340.

[46] (1921) S.A.S.R., at p. 44.

[47] (1921) S.A.S.R., at p. 39.

[48] (1893) 1 Ch. 238.

[49] (1893) 1 Ch. 238.

[50] (1902) 2 Huds. B.C. (4th ed.) 339.

[51] (1893) 1 Ch., at pp. 246-247.

[52] (1902) 2 Huds. B.C. (4th ed.), at p. 341.

[53] (1893) 1 Ch., at p. 247.

[54] (1893) 1 Ch., at p. 249.

[55] (1893) 2 Huds. B.C. (4th ed.) 228, at p. 231.

[56] (1913) A.C. 229.

[57] [1865] EngR 159; (1865) 18 C.B.(N.S.) 278.

[58] (1920) 2 K.B. 169.

High Court of Australia

Dixon v South Australian Railways Commissioner [1923] HCA 45; (1923) 34 CLR 71 (1 October 1923)

HIGH COURT OF AUSTRALIA