New South Wales Supreme Court CITATION : Seymour v Divome Properties P/L [2002] NSWSC 68 revised - 20/02/2002 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 4761/00 HEARING DATE(S) : 30/03/01, 29/05/01, 17/12/01, 08/02/02 JUDGMENT DATE : 8 February 2002 PARTIES : LESLIE SEYMOUR (Plaintiff) DIVOME PROPERTIES PTY LTD (ACN 003 801 394) (Defendant) JUDGMENT OF : Santow J COUNSEL : P Collins (Solicitor) (Plaintiff) R Harper/ W La Hood (Solicitor) (Defendant) SOLICITORS : Peter A Collins & Associates (Plaintiff) Toltz La Hood (Defendant) CATCHWORDS : CONTRACT - Arbitration re noise dispute concerning home unit common property - submission to arbitration governed by contract - also on facts implied agreement to submit to arbitration - s25 of Commercial Arbitration Act not applicable in circumstances. LEGISLATION CITED : Commercial Arbitration Act 1984 (NSW) s25 CASES CITED : Rebenta Pty Ltd v The Ocean View Apartments Pty Ltd (1997) 14 BCL 232 DECISION : Plaintiff entitled to have dispute determined by arbitrator. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION SANTOW J No. 4761/00 LESLIE SEYMOUR Plaintiff DIVOME PROPERTIES PTY LTD (ACN 003 801 394) Defendant JUDGMENT - ex tempore (revised 20 February 2002) 8 February 2002 INTRODUCTION 1 The Plaintiff contends that in the events that have happened, there is an arbitrator seized with jurisdiction to determine a dispute between Plaintiff and Defendant relating to noise within the Plaintiff's bedroom. That noise emanates from a common wall which forms part of the common property of a home unit dwelling with a strata title scheme. The Plaintiff bases that contention upon there being a referral to arbitration pursuant to the contract of sale of the relevant property or otherwise by reason of a subsequent agreement, express or implied, or by reason of estoppel precluding the denial of such an agreement. 2 The Defendant is the property developer vendor which sold to the purchaser Plaintiff the relevant home unit. It denies that the arbitrator is so seized with jurisdiction on any of the bases relied upon by the Plaintiff. It further relies upon s25 of the Commercial Arbitration Act 1984 (NSW) as rendering such agreement "a nullity". AGREED FACTS 3 What follows are agreed facts save where indicated in para 20A(5). " AGREED FACTS 1. By contract for sale of land dated 19th June 1997 the Plaintiff agreed to purchase strata title home unit premises to be known as 55/13 Ernest Street, Crows Nest from the Defendant. The Defendant's solicitor was the author of the contract. 2. At the date of the contract the home unit building had not been constructed. 3. Special condition 10 of the contract, relevantly, required completion 14 days from notification of registration of the Strata Plan (PAC1, p 20). 4. By Special Condition 3(a) the Defendant promised to " ….. complete the construction of (the building) substantially in accordance with the requirements of all relevant authorities and, subject as hereinafter provided, in accordance with the Plans and Finishes annexed ….." (PAC1, p 16). 5. By Special Condition 23.2 of the contract "the property", the subject of the contract "includes any interest in common property for the scheme associated with the lot" (PAC1, p 12). 6. Special condition 5 of the contract provided; " Defects and Disputes " 5.1 If there is any disagreement in connection with any finish or any item installed in the property; (a) the purchaser may not make any objection, requisition or claim, delay completion or rescind or terminate; and (b) either the vendor or the purchaser may within 3 months after completion refer the disagreement to arbitration as specified in Special Condition 5.3. 5.2 Any defects or faults due to faulty materials or workmanship (not including minor shrinkage and minor settlement cracks) which; (a) appear in the property whether before or after completion and (b) are notified in writing to the Vendor before the expiration of 6 months after the date of completion, must be amended and made good by the Vendor at the Vendors expense within a reasonable time after the expiration of that period of 6 months. The Vendor is not obliged to amend and make good such defects or faults prior to the expiration of the 6 month period unless the defect prevents occupation or materially restricts the reasonable enjoyment of the property, in which case the defect must be rectified as soon as reasonably practicable. 5.3 If any disagreement arises pursuant to Special Condition 5.1 either the vendor or the purchaser may refer the disagreement to a single arbitrator nominated by the President for the time being of the Royal Australian Institute of Architects NSW Chapter and the arbitrator's decision will be final and conclusive and binding on the parties and the cost of the arbitration must be borne by the party against whom the arbitrator's decision is made or if there is no such party then by the party or parties who the arbitrator determines is or are to bear the costs." (PAC1, p 18). 7. On registration of the Strata Plan in June 1999 the property being purchased by the Plaintiff became lot 55 in Strata Plan 60568 ("the Plaintiff's premises"). 8. By letter dated 29th June 1999 the Plaintiff informed the Defendant of certain defects relating to the Plaintiff's premises (PAC1, p 80/81). 9. The Plaintiff completed his purchase of the Plaintiff's premises on 13th July 1999. 10. By letter dated 14th July 1999 the Defendant was advised of further defects to the Plaintiff's premises. (PAC1, p 85). 11. By 21st September 1999 the Defendant had attended to some defects and by letter of that date the Defendant was advised of defects which remained unrectified. (PAC1, p 86). 12. By letter dated 27th September 1999 the Defendant was advised of a further defect in the Plaintiff's premises. (PAC1, p 90). 13. On 12th October 1999 Mr Marcel Weyland, architect, informed the parties that he was nominated to arbitrate the disputes between the parties. (PAC1, p 106). 14. A first meeting of the parties with the arbitrator was appointed for 1st December 1999, 15. By facsimile letter dated 30th November 1999 the Defendant's solicitor wrote to the Plaintiff's solicitor relevantly in the following terms; "I note that the arbitration meeting is now scheduled for 10.00 am on Wednesday, 1st December, 1999 and which the writer and a representative of Divome Properties Pty Limited will be in attendance. In this regard, should there be any further claim or other concerns of your client, please forward the same to our offices by 4.00 pm. today. I look forward to hearing from you." (PAC1, p 115). 16. By facsimile letter dated 30th November 1999 the Plaintiff's solicitor write to the Defendant's solicitor relevantly: "Thank you for your letter of today. In response to your invitation we raise the following additional matters: 1. ..……. 2. .…….. 3. ..……. 4. Our client has recently experienced unacceptable noise levels emanating from the plumbing of the unit with which he shares a wall. Our client's neighbour apparently performs shift work, and as such, showers or bathes in the early hours of the morning. The noise level is adequate to wake our client from sleep." (PAC1, p 116). 17. On 1st December 1999 the parties met with the arbitrator. The Defendant was provided with a bundle of documents. 18. The Defendant's solicitor inspected the bundle of documents. 19. The Defendant's solicitor informed the arbitrator that the Defendant agreed to the documents being provided to the arbitrator as a bundle of documents. 20. The parties and the arbitrator executed "Minutes of Preliminary Conference dated 1st December 1999 ("conference minutes"). (PAC1, pp 117-120). 20A (1) In clause 4.1 of the conference minutes the "list of defects" is comprised of the defects itemised in letters to the Defendant's solicitor Ev: Collins Affidavit, para 15(b) Docs at: (PAC 1, pp 80/81, 85, 86 and 116). (2) In clause 5.6 of the conference minutes the "agreed bundle of documents" is the bundle of documents referred to in points 17, 18 and 19 of the agreed facts. Ev: Collins Affidavit, para 15(a) (3) In clause 9.2 of the conference minutes the "Points of Particularised Claim" are the defects referred to in point (1) above. Ev: Collins Affidavit, para 15(c) (4) In clause 9.6 of the conference minutes the bundle of documents referred to is the agreed bundle of documents referred to in points 17, 18 and 19 of the agreed facts. Ev: Collins Affidavit, para 15(d) (5) The schedule of items referred for arbitration comprises disputes identified in letters referred to in points 8, 10, 11, 12 and 16 above but omits such matters in those letters as had been attended to, it being the Defendant's position that it had not consented to the defects in point 16 above being so referred for arbitration. 21. At the arbitrator's request the Plaintiff's solicitor prepared a schedule of items referred for arbitration. (PAC1, p 123). 22. Attachment A is a copy of the pages of Strata Plan 60568 referrable to the Plaintiff's premises but omitting car parking. 23. Attachment B is a copy plan of part of the "Attic" or 4th level of the building containing the upper level of the Plaintiff's premises. The wall between the Plaintiff's premises and lots 59 and 60 ("the wall") is highlighted yellow. 24. The Plaintiff has now and has never had any interest in either of lots 59 or 60 in Strata Plan 60568, they being juxtaposed to the upper level of the Plaintiff's premises on the "Attic" level of the building. 25. The wall is common property. 26. The room in the Plaintiff's premises of which the wall is a boundary is designated bedroom 1 in attachment B and is the Plaintiff's bedroom. 27. During the arbitration hearing on 1st December 1999 the arbitrator and the solicitors for the parties were in the Plaintiff's bedroom when a shower was activated in unit/lot 59 or 60. 28. Activation of the shower in unit/lot 59 or 60 resulted in audible noise which could be heard in the Plaintiff's bedroom. 29. After hearing the noise the arbitrator informed the parties solicitors that he needed to have an acoustics consultant undertake some tests. 30. By letter dated 3rd December 1999 the Defendant's solicitor wrote to the Plaintiff's solicitor as follows: "I refer to our meeting on site for the purposes of arbitration on Wednesday 1 December, 1999. Mr Weyland (sic), the arbitrator, has informed me that he wishes to instruct Peter Nolan, sound expert, to perform appropriate tests and provide a report on the issues concerning bathroom noise form the adjoining unit. I understand that this issue is a matter for the owners corporation and our client, and I query whether the expense of instructing Mr Nolan ought to be incurred at this stage. P.S. : Please call to discuss". (PAC1, p 125). 31. By letter dated 6th December 1999 the arbitrator informed the parties, relevantly; "As conveyed to yourself and to Mr La Hood by telephone this morning, I too have reached the conclusion that (1) the noise issue does not introduce a third party into the arbitration, and (2) that it falls within the scope of matters which I am required to decide. In order to do so I propose to ask Mr Peter Knowland of Peter A. Knowland and Associates, Acoustic Consultants to inspect the wall, make any tests necessary, and advise me of his answers to the following questions; 1. Does the party wall have a Sound Transmission Class required under provisions of the BCA and AS1276? 2. Does the wall and any plumbing associated with it appear to have been constructed in accordance with the BCA, in particular clauses FP 5.2 and FP 5.3? 3. If either of the above questions is answered in the negative, what are the effective options to remedy the non-compliance? I believe that I am empowered to do the above by virtue of clause 6.11 of the Arbitration Agreement entered into at the preliminary conference. I confirm that the parties have advised me that Mr Knowland is acceptable to them. I shall, of course, give the parties copies of his report before making my award. As a result of the award in this issue the owners corporation may or may not be involved, but this would be a matter for Divome and not for this arbitration." (PAC1, p 126). 32. On 8th December 1999 the Defendant's solicitor wrote to the arbitrator. (PAC1, p 127/8). 33. In February 2000 Knowland conducted measurements of noise at the Plaintiff's premises (PAC1, p 140) and wrote a report (PAC1, p 137). 34. Activation of the shower in lot 59 resulted in "a significant and unacceptable intrusion of noise into" the Plaintiff's bedroom. (PAC1, p 140.9). 35. Activation of the shower in lot 59 resulted in an increase in noise in the Plaintiff's bedroom of 30 decibels above background noise, a noise level considered as severe (PAC1, p 141.1) and categorised by the Environmental Planning Authority as extreme (PAC1, p 145). 36. The noise transmitted to the Plaintiff's bedroom is structure borne. (PAC1, p 141.9). 37. The wall as constructed does not comply with the Building Code of Australia. (PAC1, p 142.5). 38. The wall is compromised by the incorporation of a pipe and it's associated shower mixing valve. (PAC1, p 142.7). 39. By letter dated 18th February 1999 the arbitrator provided the parties with a copy of Knowland's report. 40. By letter dated 15th March 2000 the Defendant's solicitor wrote to the arbitrator. (PAC1, p 147-149). 41. On 16th March 2000 the arbitrator published an interim award dealing with all matters referred for arbitration other than the noise dispute. (PAC1, p 150-158). 42. In his interim award of 16th March 2000 the arbitrator wrote, with reference to the noise dispute; "As agreed by the parties this issue will be the subject of a later interim award". (PAC1, p 157.8). 43. By letter dated 28th March 2000 the arbitrator declined to decide his jurisdictional position referable to the noise issue. (PAC1, p 163). 44. The arbitrator consents to these proceedings. (PAC1, p 2). ISSUES TO BE DETERMINED 4 The parties have heavily identified the issues to be determined as follows: " ISSUES TO BE DETERMINED A. Is the disagreement between the parties relating to noise in the Plaintiff's bedroom (see PAC1, page 123, item 17) a disagreement in connection with any finish or any item installed in the property? B. Does the Arbitrator have jurisdiction to determine a dispute between the parties relating to noise within the Plaintiff's bedroom by virtue of the parties having agreed for that issue to be arbitrated or by estoppel against the Defendant as would preclude the Defendant from denying that such an agreement existed? C. If issue B is determined in favour of the Plaintiff, is any such agreement a nullity by operation of Section 25 Commercial Arbitration Act, 1984?" RESOLUTION OF ISSUES 5 I have been assisted by comprehensive written submissions, supplemented orally from both Plaintiff, dated 24 May 2001 and Defendant dated 28 May 2001. When the matter came back to me for oral submissions that supplementation occurred. It also led to the Defendant fairly permitting the issues to be extended to encompass estoppel, though as emerges from my reasoning that extension does not affect the resolution of this case. 6 The starting point is special condition 5 of the contract quoted above, read with the definition of "the property" in special condition 23.2 also quoted above. 7 The Defendant contended that the noise emanating from the common wall between the Plaintiff's bedroom and two adjoining owners could not be the subject of an arbitration agreement when regard is had to clause 5.1 and in the events that have happened. 8 Essentially this argument turns upon whether the words "any disagreement in connection with any finish or any item installed in the property" are apt to include in this context a disagreement in connection with common property, namely the common wall. 9 There is no dispute but that the wall itself and what is within it are common property. Nor could there be any dispute that, being common property, it is embraced by the words "the property" in clause 5.1, more especially as the definition of "the property" in special condition 33.2 is not expressed to be subject to contrary intention. 10 The Defendant attempted to contend that because common property necessarily involved the Owners' Corporation and the builder that somehow this rendered the arbitration clause in its evident plain meaning ambiguous and such as to preclude the arbitration applying to this noise dispute. I refer here to paragraph 11 of the Defendant's written submissions which I quote below. "11. As the defendant stated from the start (3 December 1999) the noise issue may involve the Owners Corporation. It was likely to at least involve the party wall and thus common property, not to mention the owner of the neighbouring unit. The evidence shows that there is an ongoing dispute between the Owners Corporation and the builder concerning a number of defects, including the noise affecting Unit 55, the plaintiff's unit: see affidavit of Warwick La Hood sworn 26 March 2001." 11 That argument could not avail simply because of the contractual obligations entered into by a special condition 5. Whether or not the owner-developer Defendant may have recourse against the builder, is irrelevant to the Plaintiff's clear contractual position. That rectification work, if such be the result of the arbitration, requires the involvement of the Owners' Corporation is equally irrelevant. Indeed, it is unclear whether the rectification work need necessarily involve the Owners' Corporation if, as is suggested by the noise expert, Mr Knowland, the solution lies in providing a new wall disconnected from the existing wall and in front of it; see PAC1 at 142. Whether in addition there should be a further layering upon the existing wall or not, I am satisfied that the noise dispute involves a "disagreement in connection with any finish". This is so, even if the solution may involve both a separated additional wall and an additional finishing of a noise proofing nature upon the wall, assuming that this is ultimately what is determined by the arbitrator. 12 Alternatively, clause 5.1 would apply on the basis that the wall includes an "item installed in the property", being here the common property, consisting of the wall and the item, being the pipes from whence the noise apparently emanates. 13 Even were it the case that the Defendant had not agreed at the arbitration to the arbitrator dealing with the noise issue, that could not avail the Defendant given the clear words of clause 5.1 read with clause 5.3. But in any event, the Defendant as paragraph 12 of the affidavit of its witness Mr La Hood makes clear, did not assert any lack of jurisdiction on the arbitrator's part when attending the arbitration on 1 December 1999. All that happened was that a discussion ensued in which the following was said according to Mr La Hood. "12.2 During the conversation I stated the following:- "If there is a problem with noise transmission it should be fully investigated and be fixed." "Noise transmission is an issue that may have to be taken up by the Owners Corporation. I believe that the builder and architect may need to get involved." "We must remember that Divome did not build or design the building." 12.3 Mr Collins stated words to the effect "Can't we build a false wall on the inner side of this wall?" The Collins was referred to the wall within the plaintiff's bed room. 12.4 The Arbitrator replied words to the effect "That would mean pulling out some cornices and skirting." 12.5 I responded by words to the effect "I reiterate that this matter should involve the builder and architect. Divome would assist in providing plans to determine the causes of the noise transmission issues but I don't believe they should be liable to rectify the same." 14 That conversation is hardly an unequivocal assertion of lack of jurisdiction. Rather it suggests the desire to progress the matter but involving the builder and architect. Their involvement could hardly be said to be incompatible with the ongoing arbitration when it was simply a commonsense reaction to the circumstances. 15 Given my earlier conclusion that the existing arbitration clause in the contract of sale applies to the present circumstances in the events that happened, I do not need to deal with whether (a) there was a subsequent agreement, express or implied, to submit to arbitration, and if so, (b) whether notwithstanding, that agreement is nonetheless a nullity by reason of s25 of the Commercial Arbitration Act 1994 (NSW). 16 But were it necessary to do so, I would incline to the view that in the circumstances and where there was no assertion of lack of jurisdiction until well after the expert had reported, that there was an implied agreement to submit the relevant dispute to arbitration. Apt in relation to the present case is the passage in Mustill and Boyd "The Law and Practice of Commercial Arbitration in England" (second edition) at 133 to 134 quoted below cited in the decision in Rebenta Pty Ltd v The Ocean View Apartments Pty Ltd (1997) 14 BCL 232. "Most agreements to refer existing disputes to arbitration are made expressly, and usually in writing rather than orally. But an agreement to arbitrate a dispute and to be bound by the arbitrator's award may be inferred from the conduct of the parties without any express agreement. The most usual case of such an agreement is where an arbitration is already in progress under an existing express agreement and a fresh claim is brought before the arbitrator, which is outside the scope of the original agreement. If no objection is made to the arbitrator's lack of jurisdiction to deal with the fresh claim, both parties will be bound by an award on the merits of the claim. The arbitrator's authority to make such an award derives from an agreement to be inferred from the conduct of the parties. ….. An implied agreement to arbitrate which is inferred from the conduct of the parties is not a 'written agreement' for the purposes of the Acts. In order to avoid the inconvenience to which this gives rise, it would be better if such agreements were put into writing. Unfortunately it is sometimes not realised until later by one or even both of the parties that the fresh claim was not within the scope of the original agreement: one or both parties may have acted in the mistaken belief that the arbitrator had jurisdiction to deal with the claim. If the belief arises from a fundamental mistake of fact which is shared by both parties, or if it has been brought about by a misrepresentation, it vitiates any implied agreement which might otherwise have arisen. But generally the mistake will be merely a grounds for impeaching an award made under an implied agreement founded on the conduct of the parties." 17 Finally I need to deal with the Defendant's argument, based on s25 of the Commercial Arbitration Act, quoted below: " 25. (1) Where: (a) pursuant to an arbitration agreement a dispute between the parties to the agreement is referred to arbitration; and (b) there is some other dispute between those same parties (whenever the dispute arose), being a dispute to which the same agreement applies. then, unless the arbitration agreement otherwise provides, the arbitrator or umpire may, upon application being made to the arbitrator or umpire by the parties to the arbitration agreement at any time before a final award is made in relation to the first-mentioned dispute, make an order directing that the arbitration be extended so as to include that other dispute." 18 I do not need to decide the question whether s25 would preclude any subsequent consensus being operative to submit a further dispute to arbitration. I would, in effect, confess and avoid the Defendant's argument by concluding that the parties' application is not made under that section and in no way depends on it, but derives from either express or implied agreement. In other words, s25 does not apply in the present circumstances simply because one is here dealing with a separate contractual agreement, express or implied, that constitutes "an arbitration agreement" already expanding the scope of the arbitration. It is in no way dependant upon s25 for its efficacy because (a) the dispute is not one "to which the same agreement applies", and (b) section 25 does not cover the field, in authorising an expanded arbitration. Compare Jacobs, Commercial Arbitration, Vol 1A Para [24.65] who suggests s25 is "entirely unnecessary". The argument may be still that an implied agreement (or estoppel) depends upon s25 and if outside its terms cannot expand the arbitration; that is an argument I would reject. In short, if the noise issue is covered by the original agreement, it satisfies s25. If it is covered by a subsequent implied agreement, it does not come within s25, but nor does it need s25 for support, in that case, as s25 does not cover the field. 19 Nor could it be said that the existing arbitration agreement contained in the contract of sale, even construed as the Defendant would have it construed, precludes an extension of the scope of the arbitration by subsequent agreement whether or not an "entire agreement" clause governs the contract of sale. There is, for example, nothing in the clause which says that there can be no other agreement to arbitrate than that which is delineated by clause 5.1. And most certainly clause 5.1 does not "otherwise provide" within the meaning of s25(1). ORDERS AND COSTS 20 The costs should follow the event in which the Plaintiff succeeds in obtaining the relief he sought. 21 Accordingly, I make the following orders and declarations: 1. A declaration in terms of paragraph 1 of the Plaintiff's summons dated 27 November 2000. 2. Costs of the Plaintiff to be paid by the Defendant. ********** Last Modified: 02/20/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.