Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd

HIS HONOUR: This is a challenge by the plaintiff (Joss or the Main Contractor) to an arbitral award against it for $149,773.78 and a counterclaim by the defendant (Cube or the Subcontractor) for the enforcement of the award as a judgment of the Court.

Joss argues that the award is in conflict with the public policy of this State as provided in s 34(2)(b)(ii) of the Commercial Arbitration Act 2010 (NSW) (the Act).

Cube moves for an order for recognition and enforcement of the award pursuant to s 35(1) of the Act.

For the reasons which follow, Joss’ challenge wholly fails and Cube is entitled to the orders it seeks.

Joss is a builder. Cube specialises in joinery.

In 2011 Joss was appointed head contractor for the construction of a project at Charles Sturt University in Wagga Wagga, New South Wales, known as the National Life Sciences Hubproject, involving the construction of a phytotron building (Stage 2) (an enclosed research greenhouse used for studying interactions between plants and the environment) and a life sciences building (Stage 3).

By written agreement made on 23 June 2011 (the Subcontract), Joss retained Cube to supply and install joinery and furniture for a Subcontract price of $1.65 million plus GST.

Clause 42.1 of the Subcontract provides that if a difference or a dispute arises between the parties in connection with the subject matter of the Subcontract, either party shall give the other and the Subcontract Superintendent a notice of dispute. Clause 42.2 provides that the parties are thereafter to confer to resolve the dispute or to agree on methods of doing so. Under that clause, if the dispute has not been resolved within 28 days, the dispute is referred to arbitration. Under cl 42.3, read with item 35(b) of the Schedule to the Subcontract, the arbitration is to be conducted in accordance with rules 5-18 of the Rules of the Institute of Arbitrators & Mediators Australia for the Conduct of Commercial Arbitrations (Rules). Rule 17 provides relevantly that the arbitrator shall make such directions or rulings in respect of procedural and evidentiary matters as he or she sees fit.

In 2012 the relationship between the parties broke down and on 28 June 2012 Joss terminated the Subcontract. Joss then initiated arbitration.

On 17 October 2012 Mr Tony Makin, a chartered quantity surveyor and Arbitrator, accepted appointment as the Arbitrator.

On 2 October 2013 the Arbitrator heard an application by Joss for security for costs, which he dismissed on 16 October 2013.

The hearing of the arbitration commenced on 10 December 2013 and lasted for four days. Both parties were represented by counsel. On its conclusion, the Arbitrator directed the parties to provide written submissions. Extensive written submissions were provided.

The witnesses called by Joss included Mr Julian Kosmina (Kosmina), Joss’ contract administrator on the project, and Mr Anthony Byrt (Byrt), a project manager employed by Joss who was appointed the Subcontract Superintendent. Cube called Mr Christopher Devoy (Devoy), a director, and Mr Matthew Mikola (Mikola), a director and shareholder.

On 4 November 2014 the Arbitrator issued an Interim Award dated 27 August 2014 awarding Cube $149,773.78.

Costs were left over for further consideration. On 12 January 2015 the Arbitrator issued a Final Award determining that Joss was to pay Cube’s costs of the arbitration.

Joss initially challenged the Final Award as well as the Interim Award. It correctly abandoned its challenge to the Final Award. References below to the Award are, unless the context otherwise indicates, references to the Interim Award.

The Subcontract incorporated provisions requiring the Subcontractor to ensure that the work reached practical completion by specified dates, coupled with an obligation to pay liquidated damages of $1,000 per calendar day for delay in respect of Stage 2 and $2,000 per calendar day for delay in respect of Stage 3.

In its initial claim, Joss claimed liquidated damages totalling $494,000 for delays in respect of both Stages from the dates for practical completion (25 August 2011 and 27 March 2012, respectively) to the date of termination of the Subcontract (28 June 2012) amounting to 308 days in respect of Stage 2 and 93 days in respect of Stage 3.

Cube responded by claiming an entitlement to extensions of time (EOT) based on events which occurred on the site. With respect to Stage 2 it relied on delay in the installation of vinyl flooring which in turn caused delay in the installation of joinery. With respect to Stage 3 Cube claimed an entitlement to an EOT based on the fact that the main works were delayed which inhibited it from having access to the site. Joss’ position was that EOTs were not available unless the Superintendent had granted them based on formal notices of delay, which had not occurred.

Cube counterclaimed for unpaid amounts due under progress claims and for the value of variations.

In response, Joss made claims for “negative variations”, which included work omitted from the Subcontract and the costs to it of completing work originally included under the Subcontract, and for the costs of rectifying defective work done by Cube.

The Award is a substantial document running to 88 pages, excluding annexures, into which the Arbitrator undoubtedly put very substantial effort without the benefit of adequate assistance from the parties.

In a section entitled “General Comments on the Matters in Dispute” under the subheading “Delay and Liquidated Damages”, the Arbitrator remarks that Joss relied entirely on a lack of formal notice of delays and on its opinion that the Subcontract Superintendent (and the Arbitrator) had no power to issue extensions of time in the absence of formal notice under the Subcontract. He records that in response to a question from him at the hearing, he was informed that the periods claimed for liquidated damages had been calculated by the lawyers for Joss.

He states in pars 31 – 35:

Under the subheading “My Comments on Day 4 of the Hearing” he records, amongst others, that the parties failed to assist him to an adequate extent in determining their precise position with respect to the other’s claims, and that, on the final day of the four day hearing, he still did not have clarity on the positions taken by the parties with respect to either the delay or the counterclaim items. He records that he had received a great deal of evidence on the variations (both positive and negative) but no consolidated summary which would enable him to compare the opinions provided by the parties. He records that on day 4 of the hearing he provided informal comments on a number of issues and requested the parties to assist him in determining the matters in dispute and that in its final submission Joss criticised his comments and suggested that he was pre-judging the issues.

Joss’ challenge to the Award initially included an assertion of apprehended bias on the part of the Arbitrator which, in my view, was groundless, and which was properly abandoned in oral submissions.

In addition to abandoning its challenge to the Final Award (dealing with costs) and its contention of bias, Joss abandoned various other manifestly insupportable contentions in its Amended Commercial Arbitration List Statement and written submissions, including that the Arbitrator exceeded his authority, had not expressed a discernible methodology of reasoning, had given reasons which were illogical, incoherent, inadequate, inconsistent and ambiguous and had acted unreasonably and irrationally in the Wednesbury sense. As appears below, it limits its challenge to three matters.

The date for practical completion of Stage 2 was 25 August 2011. The Arbitrator determined that the date of completion was 8 November 2011. He extended the date for completion from 25 August 2011 to 22 October 2011 on the basis of the delay to the installation of vinyl flooring.

His central findings on the delay caused by the late installation of vinyl flooring are set out in pars 261 – 266 of the Award. They are as follows:

The Arbitrator determined that the date for completion of Stage 3 was 27 March 2012 and that the works were not complete until 22 June 2012, entitling Joss to liquidated damages to this date. He went on to determine that due to a revised main works program which extended to 1 May 2012 the activity of installing main furniture, the date for completion was to be extended to 1 May 2012. He awarded liquidated damages for the period 1 May 2012 – 22 June 2012.

In par 215(c) of the Award the Arbitrator said the following:

The Arbitrator’s central findings on Cube’s claim for an extension based on an EOT under the head contract are set out in pars 304 – 306 of the Award. They are as follows:

The Arbitrator’s central findings in respect of Joss’ costs to complete are set out in pars 515 – 534 of the Award. They are as follows:

The Arbitrator concluded that the contract sum of $1.65 million was to be reduced by the value of negative variations worth $567,597.28 to $1,082,402.72. He found that Cube was liable to Joss for liquidated damages of $17,000 in respect of Stage 2, and $104,000 in respect of Stage 3, resulting in an adjusted contract sum of $961,402.72. Joss had to date paid Cube $825,244.74, leaving a balance of $136,157.98 excluding GST, resulting in a balance of $149,773.78, including GST. He determined that no interest was payable.

Section 5 of the Act provides:

Section 34 of the Act provides:

Sections 35(1) and (2) of the Act provide:

Section 36 of the Act provides:

First, Joss says that in determining Cube’s entitlement to an EOT with respect to Stage 2, the Arbitrator acted without any probative evidence and contrary to the “hearing rule”, because:

In support of its submission that there was a reversal of onus, Joss relies on par 231 of the Award in which the Arbitrator says:

Second, it says that in determining that the date for completion of Stage 3 should be extended by reason of a revised main works program, the Arbitrator breached the hearing rule, because:

Third, it says that in rejecting Joss’ claim for costs to complete, the Arbitrator acted contrary to the rules of natural justice because he failed to complete his contracted task by not deciding which of the costs were supported by clear evidence and which were uncertain, the result of which was that, as a “default position”, he awarded the full contract sum contrary to clear evidence or on no probative evidence.

Joss contends that the Award should be set aside because it is in conflict with the public policy of this State within the meaning of s 34(2)(b)(ii) of the Act.

The rules of natural justice apply in this State. An Award which is infected with a sufficiently material breach of them will be in conflict with the public policy of this State. Under s 34(2)(b)(ii), the Court has a discretion to set such an award aside.

For the Court to exercise that discretion in its favour, Joss must demonstrate real unfairness or real practical injustice in how the arbitration was conducted or resolved by reference to established principles of natural justice or procedural fairness. The rules of natural justice include the hearing rule, that is, that a person should be given a fair hearing. The making of a factual finding by a Tribunal without probative evidence may be a breach of the rules of natural justice if the fact was critical, was never the subject of attention by the parties to the dispute, and where the making of the finding occurred without the parties having an opportunity to deal with it. It does not follow that any wrong factual conclusion that may be seen to lack probative evidence (and so amount to legal error) should necessarily be, and without more, characterized as a breach of the rules of natural justice. A disguised attack on factual findings dressed up as a complaint about natural justice will not suffice; see TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387 at [54]-[55] and [83].

The public policy exception in ss 34(2)(b)(ii) and 36(1)(b)(ii) is not concerned with mere procedural imperfections but with a negation of rights which our legal system recognizes as being fundamental and therefore matters of public policy.

It is also to be remembered that arbitrators are frequently, as is the case here, non-lawyers. Their procedural behaviour and awards should not be scrutinised with an overcritical or pedantic eye and should be viewed with commonsense and without undue legality: JH Rayner (Mincing Lane) Ltd v Shaher Trading Co [1982] 1 Lloyd's Rep 632 at 636; Industriebeteiligungs & Handelsgesellschaft v Malaysian International Shipping Corporation Berhad (The "Bunga Melawis") [1991] 2 Lloyd's Rep 271 at 277; D Rhidian Thomas, The Law and Practice Relating to Appeals from Arbitration Awards (1994, Lloyd's of London Press Ltd); Barry Smith Grains Pty Ltd (in liq) v Riordan Group Pty Ltd [2010] NSWSC 1291 at [40]. Additionally, by reason of Rule 17, the Arbitrator was not bound to apply strict rules of evidence.

I will deal with each challenge in turn.

It is not clear what Joss intends to connote in its submission that there was no evidence and no argument as to the “criticality” of the delay to the vinyl flooring. I infer that use of the term “criticality” emanates from what was said in TCL Air Conditioner (Zhongshan) Co v Castel Electronics.

Whether Cube was entitled to an EOT because of the vinyl flooring delay was an issue clearly and squarely in play in the arbitration. In par 261 of the Award, the Arbitrator refers to pars 76 – 81 of Cube’s final submissions in the arbitration. In pars 68 – 75 of those submissions under the heading “The vinyl flooring” Cube referred to evidence given by Kosmina that the rooms which required vinyl were “Soil Grind Rooms” and his acceptance that Cube had to perform works in those rooms sequentially and after vinyl was laid. Cube submitted that the evidence was unclear as to when the vinyl was properly laid. Cube referred to minutes of a site meeting on 19 October 2011 which indicated that as at that date PHY (meaning Phytotron) Joinery was in progress, and to minutes dated 23 November 2011 which listed PHY Joinery under Completed Works. It also referred to a construction program prepared by Joss dated 18 November 2011 and a Certificate of Occupancy had been issued at this time. Cube further referred to evidence by Devoy that the works in the Phytotron were completed on 8 November 2011 and submitted that this should be accepted as the date of practical completion of Stage 2 works to be done by Cube especially in the absence of any alternative completion date put forward by Joss.

Joss’ response is instructive. In pars 39 – 41 of its written submissions in reply in the arbitration under the heading “Vinyl not Laid”, Joss said:

The questions before the Arbitrator whether vinyl flooring was required and whether its installation delayed Cube were, and were treated by Joss as ones of fact, and so dealt with by the Arbitrator in an unexceptional and entirely acceptable way. He had documents before him which enabled him, in the absence of direct evidence from Joss (in whose power it was to bring) properly to infer that the vinyl flooring had been delayed and to find that that delay had in turn caused Cube delay until 8 November 2011.

In addition, the Arbitrator had the benefit of his own observations during a view that the rooms concerned had vinyl flooring, that joinery work could not be completed until the flooring had been installed, and that benches had been installed in at least some of these rooms on top of the vinyl. These observations enabled him to reject Joss’ submission that relevant drawings showed a sealed concrete floor in the areas where Cube claimed that the vinyl installation was delaying it.

There was no reversal of onus, let alone one which was unfair to Joss. The facts found by the Arbitrator positively established Cube’s entitlement to the EOT which it claimed. Joss made its own forensic decisions as to what evidence to bring and what submissions to make.

There was no, let alone real, unfairness or practical injustice in how the Arbitrator approached the matter.

This challenge is a disguised attack on factual findings dressed up as a complaint about natural justice, and it fails.

Joss complains, firstly, that in breach of the hearing rule the Arbitrator gave Cube an EOT based on Special Condition 7 although Cube had not submitted to the Arbitrator (and Joss had no opportunity to respond to a submission) that Cube was entitled to an EOT under the Subcontract because there was an amendment to the main contract; and secondly that the Arbitrator engaged in speculation (presumably meaning that he found without any probative evidence) that there must have been an EOT under the main contract because there was a change in the programming under it which extended time.

Neither of these complaints has substance.

The general thrust of Cube’s argument, as articulated in par 49 of its written submissions in the arbitration, was that the site was not ready for it to perform its works under the Subcontract, which in turn gave it an entitlement to an EOT. It put that its claim that there was delay was substantiated by various things including contemporaneous photographs of the site condition, oral testimony (including admissions obtained in cross-examination), original records such as the minutes of monthly site meetings, correspondence and “iterations of construction programs”.

As components of its overall claim for additional time, Cube relied both on the fact of the change in construction programs on the main contract (as evidencing delay) and, as a factor entitling it to a corresponding EOT, on the operation of Special Condition 7, which provides:

Express reliance was placed on Special Condition 7. It was set out in par 82 of Cube’s written submissions in the arbitration.

Cube went on in the following 19 paragraphs of its submisisons to motivate its claim for an EOT on the basis that it was delayed in preparing joinery shop drawings because the state of the site did not enable it timeously to take site measurements. The original construction program required Cube to finish its shop drawings by 20 June 2011, but at 6 October 2011 it could not have completed them, and this was apparently conceded by Byrt. In further support of its contention that the site was not ready it relied on a construction program dated 4 October 2011 circulated by Kosmina which contemplated commencement of the joinery shop drawings on 5 October 2011, which Cube put was effectively an acknowledgement that an EOT should have been granted because of the problems with site readiness.

During cross-examination of Byrt, Cube tendered the main contract construction program prepared by Joss dated 16 January 2012 (which became exhibit RS-4) referred to by the Arbitrator in par 304 of the Award. Byrt accepted that under it Cube had until 1 May 2012 to install remaining furniture and that if the program was correct an extension would have been reasonable for the furniture. Byrt, however, pointed out that the program was not a sub-contractor program but a head contract program. Thereafter the following exchange took place:

In final oral submissions, counsel for Cube put the following:

Joss dealt with the shop drawings and the construction program relied on by Cube in pars 51 – 75 of its written submissions in reply in the arbitration. It made no reference to Special Condition 7 or to the 16 January 2012 program. It referred to the 4 October 2011 program, approaching the matter on the basis that it was brought about, relevantly, because Cube had not, although it could have, commenced the shop drawings on time and that this was the cause of the delay.

In par 305 of the award, after referring to Byrt’s cross-examination, counsel’s submission, and the terms of Special Condition 7, the Arbitrator determined that Joss had amended the main contract program and could not escape the “knock on effect” on the Subcontract.

As reflected by par 215(c) of the Award, this conclusion was not based on the existence of any formal EOTs granted under the main contract and the Arbitrator did not approach it on that basis.

The argument was fairly and clearly before the Arbitrator and was hardly his own invention. Joss did not engage with it.

Anyway, viewed in a common sense way and without undue legality these findings are open to be viewed as ones of fact that there had been delay in the main contract works evidenced by the 16 January 2012 program, with a consequential “knock on effect” which, by reason of Special Condition 7, Joss could not escape.

There was no, let alone real, unfairness or practical injustice in how the Arbitrator approached the matter.

Joss’ complaint is that the Arbitrator could and should have separated out and dealt with proved (as opposed to unproved) items of costs incurred by Joss in completing Cube’s work, and that his failure to do so and decide on this basis was a breach of the rules of natural justice.

It points out that Joss relied on the evidence of Kosmina and that Cube did not provide an alternative calculation and did not critically analyse the figures presented by Kosmina. It refers to a concession by Devoy in his Statement of Evidence in the arbitration that four sets of identified items of work, having a total contract amount of $62,817, had not been delivered or installed by Cube. I observe that in par 147 of Joss’ written submissions in reply to Cube’s defence and cross-claim in the arbitration, Joss put “The Devoy statement at paragraph 10 asserts that only four items required by the original Subcontract were not supplied and installed yet no credit is allowed”.

Cube, in its written submissions in the arbitration, took the position that the Scott Schedule relied on by Joss was not itself evidence and that Joss had the obligation to prove its claim which it had not done. It pointed to Kosmina’s inability to explain the discrepancy between amounts which were outstanding in mid June 2012 and the works set out in Kosmina’s schedule of alleged costs to complete. It referred to Kosmina as being of doubtful credibility.

Joss’ challenge fails. The Arbitrator did not decline to perform his duty. He found against Joss.

The Arbitrator determined that on all of the evidence before him Joss had failed to prove all of the facts necessary to sustain its claim. He was not satisfied that Joss had established the right to payment of a particular sum of money even though there was evidence that some costs had been incurred by Joss completing Cube’s work.

The Arbitrator was not persuaded that all the items claimed by Joss were realistic and he expressly rejected some of them as inappropriate. He was not satisfied that Joss had established the extent to which its costs could fairly be attributed to completion of the Cube Subcontract work. He was not obliged to accept particular evidence even if unchallenged or in the nature of a concession.

Since the Arbitrator was faced with the position that:

There was no, let alone real, unfairness or practical injustice in how the Arbitrator approached the matter.

This challenge is a disguised attack on factual findings dressed up as a complaint about natural justice.

None of Joss’ challenges have been made out. It has not established any basis upon which the statutory discretion given to the Court under s 34(2)(b)(ii) should be exercised in its favour.

There is no basis upon which the Court should refuse to enforce both the Interim Award and the Final Award.

If follows that Joss’ Summons is to be dismissed and Cube is entitled to an order that the Interim Award and the Final Award be enforced as a judgment of this Court.

The parties are to bring in short minutes of order.

I will hear them on costs.

The exhibits may be returned.