STATE OF NEW SOUTH WALES v COYA (CONSTRUCTIONS) PTY LTD; COYA (CONSTRUCTIONS) PTY LTD v STATE OF NEW SOUTH WALES SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KirBY ACJ, PRIESTLEY and POWELL JJA 24-28 October 1994, 4 August 1995 [1995] NSWCA 446 ARBITRATION — commercial arbitration — application for leave to appeal to Court of Appeal — proper approach to Supreme Court Act 1970, s101(2)(i) — principle of restraint — held: Applicable to further application for leave to appeal to Court of Appeal from refusal of single judge — leave refused. JUDGES AND COURTS — arbitrator — bias — contact with one party — whether misconduct — approach to application for leave to appeal — held: Open to interpretation adopted by single judge — leave refused. WORDS AND PHRASES — "misconduct". ARBITRATION — commercial arbitration — leave to appeal — proper approach of Court of Appeal to — contract between the State and agencies and contractor for construction of large tunnel 10.5 kms long — overrun of costs when contractor strikes ground containing soft bedding requiring increased supports — claim by contractor for increased costs of constructing tunnel referred to arbitration arbitrator enters award in favour of contractor — State applies to Supreme Court alternatively for (a) leave to appeal and order remitting for further consideration defences raised in the arbitration proceedings, or (b) an order removing ie arbitrator for alleged misconduct involving bias — in Commercial Division, Rolfe J refuses removal of arbitrator, refuses leave on most points, but upholds two points reducing arbitrator's award accordingly — upon summons for leave to appeal further to the Court of Appeal pursuant to Supreme Court Act 1970, s101(2)(i) ARBITRATION — misconduct — alleged contact by arbitrator with one party and not another — interpretation of conduct — whether the conduct was such as might cause a reasonable observer to suspect bias on the part of the arbitrator — whether alternative interpretation available to the primary judge reviewing the complaint — whether leave to appeal should be granted by the Court of Appeal COURTS AND JUDGES — arbitrators — bias actual and imputed — misconduct by arbitrator alleged — contact with one party and not another — whether such misconduct as to require removal — substantial arbitration — primary Judge (Rolfe J) refused orders under s42, s43 and s44 of Commercial Arbitration Act 1984 WORDS AND PHRASES — "misconduct". Held: (Priestley JA; Kirby ACJ: and Powell JA concurring): (1) The Court of Appeal should approach a summons for leave to appeal from further decisions of a single Judge of the Supreme Court reviewing an arbitrator's award, bearing in mind as relevant but not conclusive the strict limitations imposed by the Commercial Arbitration Act 1984 upon interference by the Court in the conduct of arbitrations. Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 203 (CA); Natoli v Walker, Court of Appeal (NSW), unreported, 26 May 1994; [1994] NSWJB 42, applied - (2) The foregoing 2 UNREPORTED JUDGMENTS principle of restraint applied as much to an application for leave to appeal to the Court of Appeal challenging a conclusion refusing to remove an arbitrator for misconduct as it does to challenging a substantive provision of an arbitrator's award; (3) In the present case none of the challenges and counter-challenges of the State or the contractor were sufficient to attract leave to appeal to the Court of Appeal; and (4) Such leave should be refused. Held: (1) Having regard to well established principle, no basis was shown for the grant of leave to appeal to permit elaboration of the applicable principles governing apprehended or actual bias; (2) A fair reading of the primary judge's reasons did not show a misapprehension of the applicable principle; (3) The interpretation of events adopted by the primary judge was open to him; (4) No basis was shown sufficient to attract the grant of leave, having regard to the constraints imposed upon intervention by courts in commercial arbitration by the Commercial Arbitration Act 1984; (5) Leave refused. Held: (Refusing leave to appeal): No error of legal principle or relevant error of fact shown - finding by the primary judge was such as to require the grant of leave to appeal against the order refusing to remove the arbitrator for alleged misconduct - leave refused. Commercial Arbitration Act 1984, s38, s42, s43, and s44. Supreme Court Act 1970, s101(2)(i). ORDERS (1) Summons for leave to appeal by the State of New South Wales dismissed with costs. (2) Summons for leave to appeal by Coya (Constructions) Pty Ltd dismissed with costs. Kirby ACJ I agree with Priestley JA. Priestley JA INTRODUCTION. On 22 March 1994 Mr Cameron, Arbitrator, published an award that a Proprietor pay to a Contractor $17,228,141. This followed a hearing which had taken thirty-eight sitting days and cost the Contractor in the region of $2 m. The parties to the contract from which the arbitration arose were Coya (Constructions) Pty Ltd, which I will call either Coya or the Contractor, and the Minister for Public Works of the State of New South Wales on behalf of her Majesty, Queen Elizabeth II, whom I will call the Proprietor. The arbitration appears to have involved matters of some complexity, but from remarks made by the Arbitrator in his reasons, he seems to have thought that its hearing took longer than it should have done. Perhaps the amount of money involved was partly responsible for this. No doubt it was for the same reason that the Proprietor made application to a judge of the Supreme Court for leave to appeal in regard to what the Proprietor asserted were questions of law wrongly decided by the Arbitrator and also sought to have him removed on various grounds. Rolfe J heard the Proprietor's application which appears to have been conducted before him with great tenacity. He, however, refused all relief sought by the Proprietor, except as to two matters in regard to which he granted leave to appeal and then upheld the Proprietor's appeal, reducing the amount of the award by about $1.75m. The Proprietor then came to this court seeking leave to appeal against the refusal of Rolfe J to grant leave to appeal in respect of all matters where he had so refused and also seeking leave to appeal against the other orders he had made refusing the Proprietor's claims for relief. The applications for leave to this court were pursued with the same tenacity and attention to minute detail as in the earlier stages of the proceeding. What has happened to this point in this disputation between the parties provides a vivid illustration of the difference between what commercial people and the Commercial Arbitration Act 1984 (the Act) expect of arbitrations and RATE OF NEW SOUTH WALES v COYA (CONSTRUCTIONS) PTY LTD; COY& (CONSTRUCTIONS) PTY LTD v STATE OF NEW SOUTH WALES (Priestley JA) what, only too often, actually happens. Instead of a speedy end to the dispute what must appear to an outsider as almost unending wrangling between lawyers is what awaits the parties. In disputes of some complexity such as this one it is likely that in the nature of things lawyers will become involved, and the abundant legal learning available in regard to contractual disputes of the present kind examined and used. This leads to situations in which it is very difficult for courts to see where to draw the line between analysis and argument of a reasonable length and their extension into the unacceptably protracted legal wrangling I have referred to. Any complex matter may be argued over, in a logical sense, to any length; any factual or legal analysis may be further refined; and as long as parties pay for further argument, trained and active minds will provide it. One thing is clear about this situation; the New South Wales Parliament has taken note of the excesses that can grow out of commercial arbitration and passed laws intended to keep it within acceptable bounds. These laws have been directed in particular at narrowing very sharply the ways in which arbitrator's decisions can be challenged in the courts. ARBITRATIONS AND APPEALS UNDER THE ACT. One object of the Act is to promote the private, prompt and speedy hearing of contractual disputes which the parties to the contract have agreed should be decided by arbitration. To help achieve this object an appeal against an Arbitrator's award is allowed to the Supreme Court only in restricted circumstances. If all parties to the arbitration consent an appeal is permitted limited to questions of law arising out of the award, (s38(2) and s38(4)(a)). In the absence of such consent, if the Supreme Court grants leave to a party to appeal, then that party may appeal on any question of law arising out of the award, (s38(2) and s38(4)(b)). S38(5) says that the Supreme Court shall not grant leave unless the court considers that one of two sets of two conditions is fulfilled. The first condition is the same in each of the two sets of conditions: that the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement. The second condition of the first set of two conditions is that there is a manifest error of law on the face of the award. The second condition of the second set of two conditions is that there is strong evidence that the Arbitrator made an error of law and that the determination of the question may add or may be likely to add substantially to the certainty of commercial law. S38(5) took its present form by an amendment to the Act made in 1990. Since then this court has indicated that the restrictions on appeals on questions of law arising out of awards of Arbitrators to the Supreme Court must be adhered to: Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 203; Natoli v Walker 26 May 1994, unreported, Kirby P and Mahoney and Meagher JJA. Separately from the limited appeal rights, s42 of the Act empowers the court to entertain an application by a party to an arbitration agreement to set an award aside if there has been misconduct by an Arbitrator or the Arbitrator or award has been improperly procured. Allied with the power given by s42 is a further power given by s44 to the court to entertain, and in proper cases to grant, an application by a party to an arbitration agreement for an order removing the Arbitrator on the ground of misconduct, incompetence or unsuitability. 4 UNREPORTED JUDGMENTS S43 empowers the court to remit any matter referred to arbitration by an arbitration agreement together with any directions it thinks proper to the Arbitrator for reconsideration. $43 is subject to s38(1) which says the court shall not have jurisdiction to set aside or remit an award on the ground of error of fact or law on the face of the award. Applications for leave to appeal under s38(4)(b) are made to a single judge of the Supreme Court and it is to a single judge that the appeal lies if leave is granted. From the single judge, an appeal does not lie to this court except by leave: s101(2)(i) of the Supreme Court Act 1970. I think it proper to assume that the legislature at the various times it was dealing with the Act was aware that this court's usual practice in dealing with leave applications is to do so quite shortly, and on no finally settled rules; the most usual criteria are the nature of the judgment sought to be appealed from, the prospects of success, and the requirements of the administration of justice. A very important matter to a court the increase of whose workload has outstripped that of its members is that it cannot permit leave applications to be treated in all respects as if they were appeals; this would both defeat the object of s101(2) itself, and it would result in the court's workload becoming unmanageable. It was into this appeals milieu that the proprietor brought its applications for leave to appeal. THE PRESENT PROCEEDINGS. When the hearing of the proceedings before this court began it seemed to the court it would possibly become expedient to treat the applications for leave as part of the hearing of any substantive appeals for which leave might be granted, because that would, in such event, in the end save overall time. One result was that the case was argued almost as an appeal. In light of the conclusions I have reached I am not sure this was a good idea. This is a hindsight comment about something often hard to judge in advance. At all events, because of the conclusions I have reached and also for reasons indicated in the previous section, and explained further below, it now seems to me I should keep these reasons brief. Even so, I must begin by indicating what lies behind the parties' dispute. In 1987 the parties entered into a schedule of rates contract (the contract) which was administered for the Proprietor by officers of the Department of Public Works (PWD). The contract required the contractor to construct a tunnel approximately 10.5 kilometres long and three metres in diameter through ground which was expected to be mainly sandstone strata, with lesser amounts of siltstone and claystone and in regard to which there was no evidence of significant structural or igneous disturbance. In terms of tunnel support, it was thought that only nominal support was likely to be required. What was actually met with in the course of the tunnelling was very different from what had been expected. Instead of the tunnel being essentially in competent sandstone, some 65% of its length went through ground containing siltstone, claystone, soft bedding planes and faults, all requiring some level of support. In the end 8 kilometres of the total tunnel length was supported by primary support systems, eventually approved by the contract Superintendent. It seems that it was the difference between the conditions actually encountered in the ground through which the tunnel was bored and the conditions expected at the time of the tender for the contract, which caused the tunnel to cost, in round terms, something like $17 m more than the approximately $25 m it would have cost if expectations at the time of making the contract were borne out. RATE OF NEW SOUTH WALES v COYA (CONSTRUCTIONS) PTY LTD; COYA (CONSTRUCTIONS) PTY LTD v STATE OF NEW SOUTH WALES (Priestley JA) Many of the issues in the arbitration related to the question whether the Proprietor should pay the contractor for the extra cost or whether the contractor itself was bound to bear it. Disputes between them went to arbitration, the substantive hearing of which began on 26 April 1993. After the Arbitrator made his award the Proprietor went to the Supreme Court asking for 1. leave to appeal under s38(4) of the Act in regard to a number of issues, 2. an order under s43 remitting to the Arbitrator for further consideration defences the Proprietor had raised in the arbitration proceedings and 3. an order under s42 and s44 that the award be set aside and the Arbitrator removed because of misconduct on his part involving bias, apprehended or real. The application for leave came before Rolfe J who refused it in respect of all but two of the issues the principal sought to raise, refused, except in regard to some comparatively minor matters, to make an order remitting any matter to the Arbitrator, and refused to order that the award be set aside or the Arbitrator removed because of misconduct. On the two issues in regard to which he granted leave, he upheld the Proprietor's appeal, so that, as previously mentioned, the amount of the award was reduced by about $1.75 m. The Proprietor then applied to this court for leave to appeal against Rolfe J's judgments and orders in regard to each of the matters on which the Proprietor had succeeded. Coya sought leave to appeal against the two decisions adverse to it. THE POINTS SOUGHT TO BE RAISED BY THE PROPRIETOR'S APPLICATIONS FOR LEAVE TO APPEAL. The section in the Proprietor's summons for leave to appeal headed "Reasons why leave should be granted" contained a succinct statement of each point the Proprietor was seeking to raise. I will deal with the Proprietor's points in the order in which they were argued, identifying them by their paragraph number in the Reasons etc section of the Proprietor's summons. 1(b) FAILURE TO TAKE INTO ACCOUNT THE REQUIREMENT OF SC-20. The Arbitrator awarded to Coya a sum in excess of $11m on a claim pursuant to special condition 20 (SC-20) of the contract. SC-20 is set out in full on pages 28 and 29 of Rolfe J's reasons of 4 July 1994. It dealt with latent conditions and provided that if during the execution of the work under the contract the contractor encountered unexpected conditions (to put it in that general way for the moment) he should go through a procedure as a result of which if certain conditions were fulfilled the Superintendent had to determine whether any variation of the work under the contract was necessary. If the Superintendent so determined he had to order a variation under general condition 40 (GC-40) of the contract. Before the contractor could get the procedure going under SC-20 which would, if the contractor were successful, end in a variation under GC-40, the contractor had to have encountered conditions on the site, using now the exact language of SC-20, "... which he considers: (a) differ materially from those which would have been ascertainable by the Contractor if he had done that which by CL12 of the General Conditions of Contract he is deemed to have done; and (b) could not reasonably have been anticipated at the date of the Contractor's Tender by a contractor experienced and competent in carrying out the work of the type with which the Contract is concerned;" 6 UNREPORTED JUDGMENTS The Proprietor submitted before Rolfe J that Coya had not fulfilled subpara(b) and that the Arbitrator in wrongly holding that it had, had made a manifest error of law on the face of the award. Rolfe J considered the Proprietor's arguments concerning the meaning of subpara(b) and the Proprietor's submissions that the way the Arbitrator expressed himself showed that he was not correctly understanding what was required of the contractor by subpara(b) (submissions which seem to me to have been highly semantic) and concluded: "Tn the end, whilst prima facie a question of construction of law, I think that the matter raised was a question of fact, or so dependent upon the answers to questions of fact that it cannot give rise to leave to appeal." (at 33 reasons of 4 July 1994) He continued that if he were wrong in his opinion that the Arbitrator had not made any mistake in saying that the requirements of SC-20 were met, the mistake would not be a manifest error on the face of the Award, but at best from the point of view of the principal's argument, something which would cause "consideration as to whether the facts found by the Arbitrator, which it was not in issue he was entitled to find and to rely upon, accommodated the conclusion to which he came which, in turn, met the contractual requirement." He then repeated that in any event in his opinion the Arbitrator was clearly correct. I agree with Rolfe J in all of his observations. At this point a question arises whether I should explain my reasons for my opinion in greater detail. From the point of view both of Coya and the Proprietor, a large amount of money is at stake and if the Proprietor's argument were correct the consequences could well be important for both parties. However, the question I am considering at the moment is not the correctness of either the Arbitrator's decision or Rolfe J's decision on the point sought to be raised, whether it be a question of law or fact, which I have very briefly dealt with. The question, as stated in the Proprietor's summons, is whether Rolfe J "erred in declining to grant leave to appeal in respect of" what was said to be the question of law involved in the Arbitrator's decision that Coya had shown before him that "The (a) and (b) limbs of SC-20 are therefore satisfied". Actually, to be more accurate, the question I am considering is whether this court should exercise its discretion to grant leave to appeal under s101 of the Supreme Court Act against the refusal of Rolfe J to grant leave to appeal under s38(4) of the Act to argue the point about the correctness of the Arbitrator's decision in question. It seems to me that the point of requiring a party to an arbitration to obtain leave under s38(4) within the deliberately rigid confines of s38(5) of the Act, as well as the point of making an appeal from the order of a single judge under the Act subject to the leave of this court, would be altogether lost if on an application for leave such as the present this court should be regarded as being under an obligation to give reasons as full as if it had been hearing an appeal as of right. Stated very briefly, what happened in regard to the point now in question is that the way in which the Arbitrator expressed his finding about subpara(b) did not precisely echo the language of the sub-paragraph; the Proprietor sought to turn the verbal differences into evidence of legal misunderstanding by the Arbitrator; Rolfe J considered the matter carefully and came to the conclusion that the Arbitrator was not misdirecting himself about the meaning of subpara(b); and for additional reasons thought the Arbitrator was in any event right in what he did. RATE OF NEW SOUTH WALES v COYA (CONSTRUCTIONS) PTY LTD; COYRK (CONSTRUCTIONS) PTY LTD v STATE OF NEW SOUTH WALES (Priestley JA) I do not think the matters relied on by the principal in regard to the point are of sufficient importance or weight to warrant the grant of leave; nor do I think that the amount of money involved in the point should change my reaction to the point itself. In the circumstances I think nothing more is required than to add to what I have already said the conclusion that in my opinion the court should not grant leave to appeal in respect of question 1(b). 1(c) EXTENT OF PHYSICAL CONDITIONS. The opening words of SC-20 were: "Tf during the execution of the work under the Contract, the Contractor encounters on the site or its surroundings physical conditions..." About this the Arbitrator said that "physical conditions" must "refer to extent of condition as well as type of condition" so that both had to be considered by the Superintendent in deciding whether he was satisfied that the physical conditions the subject of Coya's claim were physical conditions of the kind the special condition was talking about. It was submitted before Rolfe J that this involved an error of law in that the concept of extent did not form part of the ordinary meaning of the term physical conditions but imported an additional concept. Rolfe J did not agree with the submission, saying that - "the words 'physical conditions' have the easily understood meaning of the conditions encountered. For them to 'differ materially', or be such as 'could not reasonably have been anticipated' imports a consideration of degree." Rolfe J thought this was an answer to the principal's submission, and so do I. For similar reasons as those given when dealing with the previous point, I do not think it is desirable for me to go into any lengthier reasons. I would not grant leave to appeal to this court against Rolfe J's refusal to grant leave to the Proprietor to appeal to the Supreme Court under s38(4) of the Act on this point. 1(d) DELAY AS A VARIATION. This submission by the Proprietor was based on a statement by the Arbitrator that delays in boring the tunnel caused by the conditions encountered being so different from those envisaged by the contract were "a variation in terms of GC-40. 1 which can be valued in terms of GC-40.2". SC-20 in substance allowed the contractor, upon encountering physical conditions considered different materially from those it was entitled to expect under the contract to set on foot a procedure under which the Superintendent would "determine whether any variation of the work under the Contract" was necessary. If the Superintendent made that determination he had thereupon to order a variation under GC-40. GC-40.2 provided a method by which variations were to be valued. The Proprietor's submission was that only the matter specifically mentioned in GC-40.1(b) and (c) could constitute a variation for the purposes of GC-40. This submission was said to be reinforced by the fact that the contract was a schedule of rates contract, although the submission did not depend on that. It was also submitted that GC-40 was indistinguishable for the purposes of the present argument from the building contract provisions ruled on by the High Court in Tuta Products Pty Ltd v Hutcherson (1972) 127 CLR 253, in which Stephen J said that delay could not be a variation for the purposes of the clause corresponding to GC40.2. 8 UNREPORTED JUDGMENTS Rolfe J did not accept this submission. He explained his reasons for doing so in detail which required him to set out at some lengths portions of the Arbitrator's reasons and provisions of the contract. When those materials were all considered together, he concluded the explanation of the Arbitrator's reasoning was different from that which the short passage upon which the principal fastened might lead a reader to believe. I agree with Rolfe J's explanation of the Arbitrator's line of thought and will outline what he said, without reproducing the materials from which he derived it, since they are readily available in his reasons. Stated shortly, Rolfe J's view was that the Arbitrator had reasoned that Coya had encountered "latent conditions" for which SC-20 provided; the Superintendent's failure to be satisfied to that effect was a breach of the contract for which the Proprietor was liable in damages; this would support a claim for extra costs by the contractor under GC-35.4, if appropriate; at the same time, and alternatively, the Arbitrator thought the same substance could be characterised as a delay which was a variation in terms of GC-40.1. I set out here a fuller excerpt than I did earlier from the passage upon which the Proprietor relies for this point. The Arbitrator said: "I accept that the requirement for such a large increase in primary support installed, over that which had been indicated as being necessary in the Geotechnical Reports provided to the Claimant, and over that, which had been scheduled, caused significant delays to the execution of the excavation of the tunnel and there is no element of 'double dipping' in the Claimant's claim for damages for such delays. I also accept that such delay is a variation in terms of GC-40.1 which can be valued in terms of GC-40.2." In addition to the interpretation put upon this by Rolfe J which I have already mentioned and which seems to me, when all the material is read, to be right, Rolfe J said that the Arbitrator had accepted that the Superintendent should have determined there was a latent condition and that he was required to value the effect of that in terms of GC-40. In saying this, Rolfe J was pointing out one matter which is partly destructive of the principal's submission, that SC-20 requires, in its concluding words, that when the Superintendent has determined that the materially different physical conditions encountered require a variation of the contract work, he shall order a variation under GC-40. Rolfe J thought that this view of the Arbitrator's course of reasoning was made quite clear by findings the Arbitrator subsequently made, set out at 37 and 38 of his reasons. One of these was that the Superintendent had failed to consider whether SC-20 applied to the changed conditions and failed to value at all the variations to the work under the contract made necessary by those changed conditions. The breach was of an implied term that obliged the principal to ensure that the Superintendent properly considered whether the changed conditions were covered by SC-20 and then to properly value the variations if his consideration was in favour of the contractor. The Arbitrator had also accepted that there had been an oral term of the contract which led to a similar result. However, in this part of his reasons he did not rely upon that oral term. Rolfe J put in a nutshell his understanding of what the Arbitrator had done, saying: "By referring to delay the Arbitrator has tended to focus attention upon that aspect, rather than focussing full attention on what I am satisfied he did, namely find a breach of the obligation imposed on the Principal [by the implied condition]." And a little later: RATE OF NEW SOUTH WALES v COYA (CONSTRUCTIONS) PTY LTD; COYA (CONSTRUCTIONS) PTY LTD v STATE OF NEW SOUTH WALES (Priestley JA) "Although the Arbitrator said that delay was a variation in terms of GC-40.1, which could be valued in terms of GC-40.2, I am not satisfied that this was the way in which he ultimately determined the amount of damages,... The process the Arbitrator undertook was to calculate what he described as the 'reduced efficiency of TBM excavation'.... The proper way to assess the damages flowing from the breach of contract was by reference to the additional time taken to carry out the work made necessary by the existence of the latent conditions. The Arbitrator decided to assess damages based on the number of additional shifts times shift costs.... In my view his findings as to the number of additional shifts and the shift costs were determinations on matters of fact.... Once the matter is viewed in that light I consider the finding is impervious of attack. It is only if one seeks to say that if the effect of what the Arbitrator was doing was to value 'delay', rather than the consequences of delay that it could be said there is an error of law... But that, in my opinion, is not what the Arbitrator did." In my opinion Rolfe J's explanation of what the Arbitrator said, once the whole of what he said in his reasons relevant to this contention is taken into account, is persuasive. This understanding of the Arbitrator's reasoning also disposes of the Proprietor's argument based on Tuta Products. If GC-40 stood alone, it might be necessary to give more detailed consideration to that argument, but when the link between SC-20 and GC-40 is considered and the way in which the Arbitrator's reasoning truly ran understood, then it seems clear that what was said in Tuta Products has no bearing on the present case. There was a further argument which Rolfe J relied on in refusing leave on this point. The Arbitrator in deciding this point as he did, did not rely upon a breach of any of the oral terms he found. One of the later submissions in the appeal was that it was legally incompetent for him to find such oral terms. I do not agree with that submission for reasons I will later explain. Neither did Rolfe J. On the Arbitrator's factual findings there would have been breach of two of the oral terms he found which would have resulted in the additional work being deemed to be a variation needing to be valued so as to include additional costs (including delay costs) of carrying it out. Counsel for Coya therefore submitted to Rolfe J that if the Arbitrator were wrong (which was not conceded) in the method he actually followed, he would have reached the same conclusion by awarding damages for breach of the implied oral terms. Rolfe J thought this argument was correct, and so do I. It is obviously a sound ground for refusing to allow a point to be argued on appeal, if it seems clear that if leave were granted and the appeal point succeeded, it would nevertheless later be held that on the same materials the original answer would be given on a different and sound basis. I would not grant leave to the Proprietor to appeal against Rolfe J's decision on this point. 1(g) PROPRIETOR'S LIABILITY FOR THE SUPERINTENDENT. This ground principally raised the question whether first the Arbitrator and next Rolfe J had misunderstood the rule about the relation between, using the terms used in the present case, the Proprietor and its Superintendent, on which MacFarlan J acted in Perini Corporation v Commonwealth of Australia (1969) 2 NSWR 530. The first step in this argument was the contention that despite the Contractor's assertion that in paraS of its points of claim it was alleging the Proprietor was under an obligation of the kind discussed by MacFarlan J in Perini, the paragraph 10 UNREPORTED JUDGMENTS in fact went further and stated the Proprietor's obligation as being to ensure that the Superintendent came to the right decision. In other words the submission was that the Contractor never asserted the Perini obligation; a different issue was pleaded. I do not agree with this reading of para5. Nor do I think it matters very much. The Arbitrator's discussion of Perini to my mind makes it clear that he understood the gist of MacFarlan J's remarks in that case and came to his conclusions in the light of them, and after the parties had contested the substantial issue. The next step in the Proprietor's argument was to assert that a number of findings made by the Arbitrator, all supporting his conclusion that the Proprietor was in breach of the Perini type implied condition were not properly raised on the pleadings. This argument was allied with another argument that the Arbitrator should not have considered certain material upon which Coya relied in reply. Rolfe J in dealing with these arguments set out in detail why the course taken by the Arbitrator was in his opinion permissible. Rolfe J demonstrated, correctly in my opinion, that there was no material relied upon by the Arbitrator with which the Proprietor did not have a fair opportunity of dealing and that he came to his factual conclusions on the basis of material known to the Proprietor, on arguments known to the Proprietor and in regard to both of which the Proprietor had a fair opportunity to respond. Finally it was submitted that there was no evidence to support the Arbitrator's factual conclusions. A reading of the Arbitrator's reasons and parts of the transcript seems to me to show that there is nothing in this submission. What occurred before Rolfe J in regard to this point was typical of a number of the Proprietor's submissions both before Rolfe J and this court. A meticulous and legalistic analysis was conducted of the pleadings, there was an attempt to try and tie all findings of fact and conclusions of law to the exact meaning which the Proprietor contended the pleadings conveyed, all this being, in some circumstances, a legitimate approach. But not, in my opinion in the present circumstances. It is as desirable in arbitration as in litigation that the pleadings should reflect what the opposing sides are contending and also the issues actually fought. However, when another tribunal is looking at what happened in the tribunal of trial, it is neither sensible nor fair for the form alone of what happened at trial to be looked at and for the substance to be neglected. In the present instance, it seems to me that the Arbitrator came to his conclusions on what had actually been fought before him. To the extent that the fight and the conclusions were not, in the end, accurately reflected in the pleadings, no prejudice was caused to either party. Like Rolfe J, I see neither error of law nor unfairness in dealing with fact, in what the Arbitrator did in regard to this present point. I would not grant leave to the Proprietor to appeal in respect of this point. 1(e) PAC LINING AS A VARIATION. Pneumatically applied concrete was to be placed as lining along those parts of the tunnel length driven through weaker rock. Because the condition of the ground through which the tunnel was driven was so different from what both the Proprietor and the Contractor were basing themselves on at the time the contract was made, it became necessary, and the Superintendent directed, that the PAC be spread over a much greater length of the tunnel and in a different way from what would have been the case had the ground conditions been as expected. This caused extra cost which the Contractor claimed was over and above the extra payment for the increased volume of work paid for RATE OF NEW SOUTH WALES v COYA (CONSTRUCTIONS) PTY LTD; COYA (CONSTRUCTIONS) PTY LTD v STATE OF NEW SOUTH WALES (Priestley JA) by application of schedule rates. The Contractor asserted that the extra work involved was a variation and claimed the extra cost. A note on one of the contractual drawings, which the Contractor agreed had contractual force, referring to the inside lining of the tunnel, said "Extent of PAC lining along tunnel length and around its perimeter as directed by the Superintendent'. The Proprietor asserted that this note meant that the contract contemplated the possibility that the Superintendent might require any part of the tunnel to be lined as he directed so that no matter what the extent of his direction was, it could not be a variation. The Arbitrator said: "I accept that the Superintendent had the power to direct the extent of the PAC lining but the test of whether such a direction constitutes a variation depends on the extent and location which could be reasonably contemplated by the Claimant at the time of entering on the Contract. I accept that such reasonable contemplation was that the PAC would be largely full circle lining mostly in the vicinity of the Western portal and as a result that the Superintendent's directions as to the type and location of PAC lining constituted a variation to the Contract." The Proprietor's submission before Rolfe J focussed on the words in the above opinion, "the test of whether such a direction constitutes a variation depends on the extent and location which could be reasonably contemplated by the Claimant at the time of entering on the Contract". It was argued that the contract simply could not be construed in such a way. The submission does not in my opinion take into account the full scope of what the Arbitrator was saying in dealing with this item. The Arbitrator had found that the requirements of both subpara(a) and subpara(b) of SC-20 had been established by the Contractor, that is that the Contractor had encountered conditions materially different from those (putting it shortly) on the basis of which the contract was made, and that the consequential extra work was to be paid for by reference to the variation provisions. The "reasonable contemplation" of which the Arbitrator was speaking in the criticised passage was a reference back to the basis on which the Contractor entered the contract and of the Contractor's subsequently encountering materially different conditions. The actual finding made by the Arbitrator on this item was, "I find that the contract was varied by the rearrangement of the PAC lining". It seems to me that in the light of the larger context than that chosen by the Proprietor for criticism lying behind the Arbitrator's finding, it was one that was open to him and one that justified Rolfe J in saying that he was not satisfied that the Arbitrator's construction of the note on the drawing was in error. It was also submitted for the Proprietor that the Arbitrator had not made any finding about the relationship between the work to which this item related and the general variation he had identified under SC-20. Rolfe J thought that the fact was that the Arbitrator had done so and by what I have said a little earlier, I have indicated I accepted the same position. In the circumstances I see no basis for interfering with Rolfe J's decision to refuse leave in regard to this point. 1(f) TIME FOR RESPONSE TO EXTENSION OF TIME CLAIMS. This point arose under a claim for damages for breach by the Proprietor of its alleged obligations to ensure the Superintendent determined claims for extension of time with reasonable despatch. Extensions of time were governed by GC-35.4. This sub-clause required the Contractor if wanting to claim an extension of time to give the Superintendent notice not later than twenty-eight days after the cause 12 UNREPORTED JUDGMENTS of delay arose upon which the application was based. The sub-clause then required the Superintendent to determine whether the cause of the delay justified an extension of time, but did not specify a time within which he was to make the determination. The Arbitrator held that the Superintendent must do so within a reasonable time, and that in light of the time requirement imposed on the Contractor, a reasonable time for the Superintendent would be one month. For the Proprietor it was contended that although the Arbitrator was right to the extent of his holding that the Superintendent must make his determination within a reasonable time, he was wrong in law in fixing that at one month and should have concluded a time should be fixed by reference to the particular facts applicable to each application by the Contractor. In some circumstances there might be some force in this contention, as a matter of logic, although I am doubtful whether it could be said to amount to a matter of law. However, in the circumstances where the Arbitrator was making the particular decision after all the applications for extension of time had been made, I think the general criticism of the proprietor loses any force it may have had. Once again, I see no reason for interfering with Rolfe J's refusal of leave on the point. REMISSION. Under this ground the Proprietor asked Rolfe J to remit to the Arbitrator for reconsideration under s43 of the Act certain claims made by the Proprietor in the arbitration. What was asked for was remission to the Arbitrator for reconsideration of time limitation defences which in the Proprietor's submission had been raised before the Arbitrator and ignored by him. The defences referred to were based on GC-48 and GC-42.6. The defences were raised in different combinations to different claims and parts of claims. The Arbitrator accepted in regard to claim H that the Proprietor could not succeed because of these defences. In dealing with the Proprietor's submission that the Arbitrator had simply ignored the defences in regard to other claims, in which he had found in favour of the Proprietor, Rolfe J said that were it not for the fact that the Arbitrator made specific reference to the defences in relation to claim H there might be some force in the submission. In Rolfe J's view however the references to the defences when dealing with claim H showed the Arbitrator was aware of them and that the proper inference from reading the whole of the award was that the Arbitrator was not satisfied that the defences were applicable to the other claims. Rolfe J did not think that the non-mention of the defences by the Arbitrator in those circumstances could be said to be an error of law. In taking this view, Rolfe J was reading the Arbitrator's reasons very broadly, almost more broadly that I would be prepared to agree with. If I were to disagree however it seems the disagreement would be on the interpretation of the Arbitrator's reasons, not itself a matter of particular importance or one which would necessarily incline this court to grant leave under s101 of the Supreme Court Act. A further consideration seems to me to be quite important in these particular circumstances. In the course of argument on this point counsel for the Proprietor were asked whether, in the event the question of the availability of these defences had to be reconsidered by the Arbitrator, there was any realistic chance of the Proprietor succeeding on them. There was no clear response to this question, as RATE OF NEW SOUTH WALES v COYA (CONSTRUCTIONS) PTY LTD; COY& (CONSTRUCTIONS) PTY LTD v STATE OF NEW SOUTH WALES (Priestley JA) I understood it, beyond the Proprietor's assertion that it was entitled to have reasons on the point and that it was an error of law for reasons not to have been given. After conclusion of the oral argument, further submissions in writing were filed by leave. These included a submission by Coya dated 3 November 1994 containing materials which show that Coya had put a wealth of evidentiary material before the Arbitrator upon which, on a number of grounds, it had been submitted that the defences could not succeed. The strength of this material is such that it seems unlikely to me that any good purpose would be served by making an order under s43. Putting together what I have said about the complained of lack of reasons by the Arbitrator and what I have mentioned in the preceding paragraph, my conclusion is that leave to appeal should not be granted on this point. 1(a) ORAL TERMS. The Arbitrator found that the contract consisted of the printed standard form contract with typed additions and variations and oral terms The Arbitrator did not take the oral terms into account in his decision making, but Ihave earlier said that a factor in refusing leave in regard to ground 1(d) was the existence of the oral terms, the Arbitrator's finding of which was not, in my view, an error of law. In its oral submissions the Proprietor postponed the argument concerning the claimed error of law involved in the Arbitrator's finding of the oral terms because the Proprietor wished to link the subject matter of the oral terms with its claim of bias against the Arbitrator. It was alleged that the finding of the oral terms was not only perverse but an act of perversity forming part of the pattern of bias which the Proprietor claimed the Arbitrator had shown against it. The Proprietor's submission on the legal point was that as a matter of law the form of the written contract precluded the incorporation of the oral terms particularly as they differed from and were inconsistent in application with the written contract. I do not think this can be right. Before a tribunal can construe the terms of a contract, it must be decided what the terms of the contract are. There is no doubt that a contract can consist of terms partly in writing and partly oral. A court cannot sensibly decide on what the written and oral terms of a contract are by looking at one of the alleged written terms and concluding, that because one of the alleged oral terms is inconsistent with it, as a matter of law the contract could not include the oral term. In a dispute about the terms of a contract, the party that is able to point to an alleged written term plainly inconsistent with an alleged oral term will usually have a very considerable advantage in the contest as to what comprises the totality of the written and oral terms. The decision maker will frequently be heavily influenced by the existence of the writing and the conflict between it and the alleged oral term. Such issues are commonly resolved in favour of the party asserting the written term to the exclusion of the oral one; but there is no rule of law that says it must be so, and judges sometimes find the other way. It seems to me that the settlement of such issues is essentially factual. It certainly involves the decision of questions of fact. To grant leave on such a question under s38(5) would necessarily be to involve the court in reviewing questions of fact, an outcome which s38 is designed to prevent. There may of course be mixed questions of fact and law where the legal element involved is such that the court will be prepared to grant leave in an otherwise proper case. I do not think this is such a case. 14 UNREPORTED JUDGMENTS What I have said seems to me to be much the same as was said by Kirby P in Natoli v Walker (supra) at 17 of his reasons and Mahoney JA at 4 and 5 of his reasons. I would refuse leave to appeal on this ground. MISCONDUCT. In his reasons Rolfe J took sixty-nine pages to set out in full and examine in detail the issues and arguments raised under this heading. They raised serious matters, but they raised them in an area where the general rules concerning bias are well known. Although the Proprietor made submissions to this court that Rolfe J showed a misunderstanding of those well known rules, I do not think that submission was made out. At one point Rolfe J said that he did not consider that a reasonable person could come to the view that the Arbitrator would not bring to bear an impartial and unbiased mind to his determination, and it was submitted that the use of the word "would" instead of the word "might" in the phrase "the Arbitrator would not bring" showed a mistaken understanding by Rolfe J of the test he had to apply. Assuming for the moment in the Proprietor's favour that the word should have been "might" and not "would" it seems to me to be quite apparent from Rolfe J's lengthy discussion of the case law and the citation of many relevant authorities, including the leading cases in the High Court, that he was well aware of the various ways in which the test has been stated in recent years and of the substantially common thread that runs through them all. In the paragraph preceding the one in which the attacked statement occurs, Rolfe J stated the test in a way that, in my opinion, is not reasonably open to criticism. The full tenor of his Honour's discussion of questions of bias in light of the authorities indicates to me that he decided this aspect of the case in accordance with those authorities. There would therefore not be, in my opinion, any point in granting leave to appeal in order to examine or refine any statements by Rolfe J on the legal question of the proper test to apply in cases of alleged real or apprehended bias. Here it is necessary to bear in mind that the Proprietor is seeking leave to appeal, on its bias claims, pursuant to s101 of the Supreme Court Act. Counsel for the Proprietor relied upon the difference between an application for leave to a single judge under s38 of the Arbitration Act to appeal against an arbitrator's award, with the special barriers to appeal which were inserted in s38 in 1990, and an application for leave to appeal under s101 of the Supreme Court Act from the decision of a single judge to the Court of Appeal. He submitted that this court should approach an application for leave to appeal against the judgment and orders of Rolfe J in the proceedings which were before him under the Act, in the same way as it approached any other application for leave to appeal, without regard to the barriers to appeal in s38 of the Act. This submission is not relevant to those of the present applications for leave which are seeking leave to appeal against refusals by Rolfe J to grant leave to appeal under s38. In considering those matters the court cannot escape from the evident purpose and policy of s38, because it is considering amongst other things whether Rolfe J erred in his exercise of discretion under s38. The situation is different, certainly in form, in regard to the Proprietor's applications for leave to appeal against Rolfe J's refusal to make orders under 42, s43 and s44 of the Act. S42 and s44 are not explicitly linked to s38, although s43 is made subject to s38(1). I therefore do not think it can be said that an application for leave under s42 or s44 is governed by the policy apparent in s38. Nevertheless, it is the fact that the court in dealing with an application for leave RATE OF NEW SOUTH WALES v COYA (CONSTRUCTIONS) PTY LTD; COYA (CONSTRUCTIONS) PTY LTD v STATE OF NEW SOUTH WALES (Priestley JA) to appeal against a judge's orders on a s42 or s44 matter is dealing with a case where an arbitration under the Act either is proceeding or has got to the stage of an award being made, and that arbitration has been conducted against the background of the restriction of appeals to a single judge effected by s38. I do not think this court is bound to ignore the existence of s38 when dealing with an application for leave under s42 or s44; s38 is part of the legal mosaic in which arbitrations under the Act are embedded. I thus think it proper for the court to treat the policy evident in s38 as a relevant but not conclusive factor in considering applications for leave to appeal in matters involving arbitrations under the Act. With that in mind I come to the factual matters complained of by the Proprietor under the misconduct heading. On the facts concerning these, as found by Rolfe J, there was no misconduct. Nor do I think it could be said that the facts as he found them could create any undesirable impressions in the minds of arbitrators or those who deal with them about the way arbitrators should behave. The application for leave therefore becomes one, to my mind, in which the court is being asked to review and reverse findings of fact by a single judge which involve no error of principle. There may well be cases of sufficient seriousness for the court to grant such leave. However, I do not think this is one of them. Further, in my opinion the chances of the Proprietor succeeding in having the Arbitrator removed and his award set aside are not sufficiently strong to warrant the court in granting leave in the matter. To succeed, the Proprietor would not only need to disturb Rolfe J's basic findings of fact but also to overcome the waiver arguments available to Coya, which seem to me to be powerful. A critical point in both the general bias argument and the waiver arguments is whether the Arbitrator on 23 December 1993 gave important information to the legal representative of Coya which he did not give to the legal representative of the Proprietor. If the Proprietor's view of what happened on that occasion were correct, I might be in favour of granting leave. However the version of the facts relied on by the Proprietor is capable of a far less sinister interpretation than the Proprietor puts upon it, and it seems to me unlikely that if leave to appeal were granted, the court on appeal would take a different view from Rolfe J of the meaning to be ascribed to the evidence. In these circumstances I do not feel obliged to go any further into the matter of misconduct in this leave application, in contrast to what would be necessary if I thought leave should be granted. Having considered all the matters urged by the Proprietor, this part of the Proprietor's case does not seem to me to be one in regard to which it is appropriate for the court to grant leave to appeal. CONCLUSION ON PROPRIETOR'S APPLICATIONS. In my opinion the Proprietor's applications for leave should be dismissed with costs. COYA'S APPLICATIONS FOR LEAVE. RD FACTOR. The Proprietor's tender documents stated that the Schedule of Rates had been prepared on the basis of the Proprietor's design shown on the drawings. These showed the diameter of the tunnel as the Proprietor designed it. There was provision in the contract enabling the Contractor to bore the tunnel to a greater diameter than the Proprietor's design showed. This was to suit the tunneller's convenience since tunnel boring machines come in different sizes and are no doubt extremely expensive. At the same time as contracting to permit the Contractor to construct a tunnel with a larger than design diameter, the contract 16 UNREPORTED JUDGMENTS also set out to make it clear that extra quantities involved in the Contractor's taking up the option to bore a larger tunnel would not have to be paid for by the Proprietor. A clause introducing a method of calculation which became known as the RD factor provided a mechanism for working out how much actual cost to the contractor had to be reduced in order to avoid payment by the Proprietor of any of the extra cost caused by the Contractor's decision to build the larger tunnel. In the case of pneumatically applied concrete, the Arbitrator as a matter of interpretation concluded that the RD factor applied only when it was used as a primary support and not when used for final lining. His interpretation was based on the way he thought a number of related provisions in the contract should be read together. The answer to the question whether the RD factor should have been applied to final PAC lining as well as when PAC was used for primary support depended on the reading of these provisions. No-one argued otherwise. Rolfe J was of opinion that a reading of the relevant provisions and the Arbitrator's reasons showed that he had clearly misconstrued the provisions in this respect. I did not understand the Contractor's complaint that Rolfe J was wrong in his construction of the provisions to be any more than formal. If I am wrong in that, I agree in any event with Rolfe J. Consistently with what I have been saying throughout this opinion, I do not think it necessary or expedient to elaborate my reasons on the construction argument any further. The Contractor's principal submission in support of this application for leave was that Rolfe J should not have exercised his discretion to grant leave to appeal in regard to this matter. First it was submitted that the necessary requirements of s38(5) had not been made out and second, if they were, in any event, Rolfe J should have exercised his discretion against granting leave, conformably with the basic policy of s38. The amount disallowed by Rolfe J as a result of his decision was $1,002,874. The error of construction was plain to see in the Arbitrator's reasons. It was not argued that such an error was not an error of law. In these circumstances I think the requirements for the granting of leave imposed by s38 were fulfilled, and it remained only for Rolfe J to exercise discretion as to whether he would grant leave to appeal. In my opinion he made no error of principle and displayed no misunderstanding of any relevant factor or fact in the exercise of his discretion. In my opinion leave should not be granted to the Contractor on this ground. TWO ADDITIONAL CREW. This ground arose from a claim for $743,186 based on the employment of two additional crew. The Proprietor's liability for the payment in question depended on a claim for an extension of time having been made before their employment. The fact was that they were not employed until after the first claim for extension of time was made so that there could be no causal connection between their being employed and any breach of contract because of the failure of the Superintendent to make a determination within the period of one month fixed by the Arbitrator. Rolfe J seems to me to have been plainly right on this and I do not think that Coya's brief submissions before this court to the contrary were of any weight. The main point upon which Coya relied to support this application was that even if Rolfe J were right, no question of law was involved. RATE OF NEW SOUTH WALES v COYA (CONSTRUCTIONS) PTY LTD; COYK (CONSTRUCTIONS) PTY LTD v STATE OF NEW SOUTH WALES (Powell JA) I think there was. In order to succeed in the particular claim the Contractor had to establish a number of facts. One of the facts could not be established. There was therefore no basis in law for the Arbitrator's conclusion. In my opinion this means his conclusion involved an error of law which was manifest on the face of the award. CONCLUSION ON COYA'S APPLICATIONS FOR LEAVE. In my opinion Coya's application for leave to appeal should be dismissed with costs. Powell JA I agree with Priestley JA. (1) Summons for leave to appeal by the State of New South Wales dismissed with costs. (2) Summons for leave to appeal by Coya (Constructions) Pty Ltd dismissed with costs. Counsel for the Claimant/Opponent: RV Gyles QC/JM Stowe QC/DD Feller (State of New South Wales) Counsel for the Opponent/Claimant: BW Walker SC/G Robinson (Coya Constructions) Solicitors for the Claimant/Opponent: Baker and McKenzie (State of New South Wales) Solicitors for the Opponent/Claimant: Minter Ellison, Morris Fletcher (Coya Constructions)