620 Collins Street v Abigroup (No 2) [2006] VSC 491
In the Supreme Court of Victoria, Osborn J refused the plaintiffs leave to appeal from an arbitrator's award, holding that the arbitrator was correct to follow Peninsula Balmain in treating the superintendent's reserve power to extend time as exercisable in the contractor's favour, and that the contractor was entitled to interest on an uncertified progress claim although part of it was disallowed [26], [34], [83], [92], [93].
What the court decided
The plaintiffs sought leave under section 38 of the Commercial Arbitration Act 1984 to appeal an arbitrator's award and alleged misconduct in a related proceeding [1]. Under section 38(4)(b) and (5), leave requires that the question could substantially affect a party's rights [4]. It also requires either a manifest error of law on the face of the award or strong evidence of error on a question that may add, or be likely to add, substantially to the certainty of commercial law [4]. The first and second grounds failed for the reasons his Honour gave in the misconduct proceeding [13], [15]. Leave on the third ground was unnecessary because his Honour had held that the procedural unfairness complained of was misconduct [17], [18].
The fourth ground concerned the penultimate paragraph of clause 35.5, which allowed the superintendent to extend time "for any reason" even where the contractor was not entitled to or had not claimed an extension [20]. The arbitrator followed Peninsula Balmain, in which the New South Wales Court of Appeal held that a similar power could be exercised in the interests of both owner and builder [21], [25]. The arbitrator observed that this contract added words covering a contractor that had not claimed, which strengthened that decision's application [22]. Osborn J held the arbitrator correct because the reserve power arose on a basis separate from the primary extension mechanism and was expressed in the broadest terms [26]. Prejudice to the principal from the contractor's failure to comply with the notice provisions went to the exercise of the discretion [26]. There was no basis in the contract's objective language to read the words down by reference to one party alone [27]. The power remained subject to the superintendent's obligation to act "honestly and fairly" [28]. The parties could have limited the power in simple language but instead used words emphasising its independence [29], [30]. A limiting term could not be implied, because it could produce unreasonable results, was neither necessary nor obvious and contradicted the words "for any reason" [32]. Warren CJ had applied Peninsula Balmain in Kane Constructions Pty Ltd v Sopov [33].
The arbitrator's exercise of the discretion for five extensions of time was reasonably open on the facts [35]. The discretion was not conditional on proof that Abigroup had used a contractual baseline program [36]. The reasons on the facts disclosed no error of law, so the ground failed [37], [38].
The fifth ground challenged the arbitrator's treatment of pre-agreed delay cost rates after new separable portions were created [39], [42]. His construction of the contract was reasonably open and disclosed no manifest error of law [55], [61]. His rejection of the penalty argument rested essentially on findings of fact and was also reasonably open [60], [61].
The sixth ground concerned the award of interest on progress claim 29 for $711,761 until a later event supplanted the entitlement [67]. It was common ground that the superintendent had not certified that claim [73]. The claim included $408,000 for a crane base variation which was disallowed by the arbitrator [79]. The principal argued that interest should not run on the part ultimately disallowed [81]. His Honour held that Abigroup was entitled to payment and use of the money claimed, though its entitlement was provisional [83]. Interest compensated Abigroup for being deprived of that money rather than punishing the principal [84]. His Honour was fortified by Byrne J's earlier views on what was conceded to be substantially the same point [86]. He agreed with the statement of the Queensland Court of Appeal in Daysea v Watpac Australia on the entitlement to interest [88], [92]. The point was so plain that leave was refused under both limbs, and the application failed [92], [93].
Why it matters
The decision, given on a leave application, adds to Victorian support for the view that a superintendent's reserve power to extend time may be exercised for a contractor that has not claimed in time, particularly where the clause expressly extends to a contractor that has not claimed. Principals who want that power confined to their own benefit should say so expressly in the contract. It also indicates that, under such terms, a principal which lets a progress claim go uncertified risks interest on the whole claim until the entitlement is supplanted, even if part of it fails [67], [83], [84], [92].
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.