CMC Cairns P/L v Isicob P/L [2001] QSC 488

SUPREME COURT OF QUEENSLAND CITATION: CMC Cairns v Isocob [2001] QSC 488 PARTIES: CMC CAIRNS PTY LTD (Applicant) ISICOB PTY LTD (Respondent) FILE NO/S: Application 63 of 2001 DIVISION: Trial PROCEEDING: Application ORIGINATING COURT: Supreme Court at Cairns DELIVERED ON: 9 November 2001 DELIVERED AT: Cairns HEARING DATE: JUDGE: Jones J ORDER: 1. That the arbitration proceedings commenced by the respondent on or about 24 July 2000 be terminated. 2. That the respondent, pay to the applicant its costs of and incidental to the arbitration proceedings and to this application to be assessed on the standard basis. CATCHWORDS: COUNSEL: TWD Lewis Solicitor for the applicant CGSL Jensen for the respondent SOLICITORS: Williams Graham & Carman for the applicant Thompson Royds for the respondent [1] The applicant CMC Cairns Pty Ltd (CMC) contracted with Isicob Pty Ltd (Isicob) for the provision of labour, formwork, materials, plant and equipment to complete concrete work at the development of accommodation units at Yorkeys Knob, Cairns. The terms of the contract were reduced to writing as a sub-contract agreement. The execution of the final document occurred after the work had been in progress for some time. [2] The first contractual document was prepared on 15 December 1993 but was not executed. It was essentially a schedule of rates with an estimated scope of works and quantities, all of which were stated to be “provisional”. See ex. WO2.1 Relevant working drawings (A3 size) were given to Isicob only on 8 January 1994. As a consequence of this, variations were made to the schedule of rates. These 1 Exhibit to affidavit of Wolf Odenthal, sworn 30 May 2001 -- 1 of 6 -- 2 variations were noted on the contractual document which is ex WO3.2 This document, which incorporated the variations to the printed terms, appears to have been executed by Isicob on 8 February 1994. It also appears to have been executed, or at least initialled, by a representative of CMC. There is an issue as to when this execution occurred and therefore, whether CMC have accepted the alterations to the printed terms. Isicob asserts that the variations to the printed terms were consistent with other contracts which had been entered into between these parties both before and after the subject contract. If the arbitration proceedings were permitted to continue this would be a proper matter for the consideration of the arbitrator but it does not affect the determination of this application. [3] The work commenced on 12 December 1993 with an agreed completion date of 13 May 1994. The work was in fact completed only on 9 June 1994. [4] Throughout the course of the works CMC made progress payments which the parties have agreed total $218.801.61. These payments appear to have been made on progressive estimations as to the work completed at different times. By facsimile transmission dated 20 May, 1994, CMC sent to Isicob a calculation of the subcontract value resulting from measurements of the Isicob work. The facsimile finished with the expression – “Please check it and let me know whether there are errors”. [5] On 25 July 1994 a further facsimile was sent by CMC to Isicob headed Final Contract Value. This communication indicated that a set of drawings were available for collection by Isicob and set out the fact that the CMC regarded the total subcontract value in the sum of $230,317.75. The facsimile concluded with the expression – “Once you have done quantities checks, let me know.” Mr. Reddicliffe, director of Isicob, collected a set of drawings on the next day. [6] According to CMC figures then a further amount was payable by it for the contract work. No monies were retained on account of retention, since this had been provided for by bank guarantee. CMC did not at this time make any complaint about Isicob’s performance of the contract nor raise any claim associated with the delay in completion. [7] By cheque dated 28 July 1994, CMC made the adjusted final payment of $12,046.61. The cheque was duly banked by Isicob. [8] The next communication was almost six years later when, on 9 June, 2000, Isicob sent a letter enclosing a priced bill of quantities which suggested that the price for the works undertaken ought to have been $267,905.35. On this basis, as Isicob contends, there remains owing on the contract the sum of $49,103,74. [9] On 21 July 2000, having received no response from CMC to that communication, Isicob assumed there was a dispute between the parties and invoked clause 14 of the subcontract document, referring the matter to arbitration. The issues 2 Ibid -- 2 of 6 -- 3 [10] CMC argues that Isicob has no right, after such a delay, to refer the dispute to arbitration and has refused to participate in the arbitration process. Isicob has pursued its remedy and to that end has nominated as an arbitrator, Mr. Grant Reithmuller, Barrister-at-Law, who has accepted the nomination. [11] The arbitrator has sought to arrange a preliminary hearing but this did not proceed because of the institution of these proceedings. [12] By this application CMC seeks a declaration that Isicob has lost the right to refer the matter to arbitration because the delay in doing so is contrary to the implied term to exercise due diligence as required by s.46 of the Commercial Arbitration Act 1990 (“the Act”). In the alternative the application seeks that the arbitration proceedings be terminated. [13] Section 46 of the Act provides as follows:- 46.(1) Unless a contrary intention is expressed in the arbitration agreement, it is an implied term of the agreement that in the event of a dispute arising to which the agreement applies it is the duty of each party to the agreement to exercise due diligence in the taking of steps that are necessary to have the dispute referred to arbitration and dealt with in arbitration proceedings. (2) Where there has been undue delay by a party, the court may, on the application of any other party to the dispute or an arbitrator or umpire, make orders – (a) Terminating the arbitration proceedings; and (b) Removing the dispute into court; and (c) Dealing with any incidental matters. (3) The court shall not make an order under subsection (2) unless it is satisfied that the delay – (a) has been inordinate and inexcusable; and (b) will give rise to a substantial risk of it not being possible to have a fair trial of the issues in the arbitration proceedings or is such as is likely to cause or to have caused serious prejudice to the other parties to the arbitration proceedings.” In addition to the fact of delay of almost six years, between CMC’s final payment, and the date when Isicob identified the dispute, CMC also points to other factors which it argues impacts on the exercise of my discretion in this application. [14] The first contention raised on behalf of CMC is that the limitation period has now expired in respect of some, if not all, claims under the contract. If all claims are barred then that in itself is a basis for terminating the arbitration agreement. If only some claims or part of claims are barred, then there would be unfairness if the arbitration proceeded to deal with some claims only. [15] The principal contention, however, is that Isicob breached the term of the agreement to arbitrate implied by s.46(1) of the Act, namely, that Isicob failed to exercise “due diligence in taking steps” to refer to this dispute. [16] For Isicob it is argued that there was no dispute arising until 9 June 2000 when CMC failed to accept Isicob’s measurement of the works. Once that event is identified as giving rise to the dispute, Isicob has acted with due speed in its referral -- 3 of 6 -- 4 for arbitration and the appointment of the arbitrator. Delays occurring since that date are the result of CMC’s refusal to accept arbitration and in any event such delays have not been “inordinate or inexcusable”. [17] Isicob argues that issues concerning limitation periods are properly matters for the arbitrator to determine if the parties cannot reach agreement on them between themselves. Conclusions [18] The key point in deciding between these submissions is whether there has been a breach of the term identified in s.46 of the Act. The express obligation to refer to arbitration in clause 14 of the agreement reads:- “Any dispute that may arise between the subcontractor and the builder that cannot be resolved by negotiation shall be determined by arbitration… ” [19] The parties agree that that term formed part of the contract between them although there is a dispute as to whether the first sentence of the standard clause 14 is operative. That sentence requires a subcontractor, once any dispute or difference arises, to refer the matter in writing to the builder within 7 days. The subcontractor has not, in this instance, complied with any such condition if it existed. It is not possible on affidavit material to determine such a credit issue whether or not CMC accepted the deletion of the first sentence which was undoubtedly offered by Isicob. However, what the clause does do is give some indication of the industry standard which ought to apply when a dispute arises in the mind of the subcontractor. The existence of a dispute needs to be brought to the notice of the other party in a timely way. If this is done, negotiation between the builder and subcontractor may well resolve the dispute. If not, evidence of any factual differences can be preserved. The fact that one party does not, for example, accept the measurements of the other, can easily be made known in a timely way. I infer that this is what CMC would have expected when making its communication of 25 July 1994 setting out the details of its final measurement. [20] It is not clear on the material exactly when Isicob formed an intention to check the measurements. Mr. Reddicliffe, director of Isicob, obtained a copy of the plans on 26 July 1994, i.e. prior to the receipt and banking of the cheque for last payment. [21] Mr. Reddicliffe, in his affidavit acknowledges his receipt of the CMC communication of 25 July 1994 and the fact that he obtained a copy of the plans on 26 July 1994. His affidavit then goes on:- “6. It later became apparent to me that his take-off had measured many of the extra items added to the original schedule of rates for the lower floors of the building, but not measured those same additional areas on the upper floors of the building. 7. I had intended to check the quantities myself, however as a result of my work commitments I was unable to complete this job. Therefore, in 1995 I engaged George Tipping, Chartered Quantity Surveyor, to prepare a bill of quantities for Isicob Pty Ltd so that I could check the correct price payable on the Golden Sands building project.” -- 4 of 6 -- 5 [22] Although there is no specific date given by Mr. Reddicliffe as to when he became aware that the CMC measurements had not included additional areas on the upper floor, I infer that that was obvious to him a short time after he had obtained the plans on 26 July 1994. It seems to me that the dispute had arisen in the minds of those controlling Isicob at this time. However, as indicated, notification of that dispute was not made known to CMC until almost six years later. [23] The diligence term implied by s.46(1) of the Act required a timely notification of the dispute once Mr. Reddicliffe became aware that some areas had not been measured. That was not done in this instance. Generally, the factors which need to be considered in the exercise of a court’s discretion for the purpose of s.46 of the Act are those relevant to applications to discuss for the want of prosecution. See Re John Holland Construction and Engineering Pty Ltd3. A comprehensive, though not exhaustive, list of these factors is set out in Tyler v Custom Credit4. Given the nature of the relationship between builder and subcontractor and the necessity for speedy settling of accounts for building projects, the length of delay in this instance is quite “inordinate”. [24] The excuse given for this delay relates initially to Mr. Radicliffe’s “work commitments”. I note, however, in other parts of the material, that there was ongoing contractual relationships between CMC and Isicob during the remainder of 1994. It would hardly be burdensome to give notice that the CMC measure did not include the additional areas on the upper floors of the building. Had such a notice been given, it may well have been something that CMC would have agreed upon without the necessity for Isicob to engage quantity surveyors with all the subsequent delays. These later delays are the result of Isicob failing to manage the task of obtaining accurate measurements. [25] Therefore, I am satisfied that the delay is also inexcusable. [26] I am satisfied, also, that there is a substantial risk of it not being possible to have a fair trial of the issues which would potentially arise in the arbitration proceedings. There are uncertainties about arguments that might be raised about the applicability of limitation provisions. There is the prospect of a counterclaim for liquidated damages and there are the general disadvantages inherent in delays of this magnitude arising before proceedings are notified. [27] For these reasons I am satisfied that there has been undue delay on the part of Isicob which dictates that the arbitration proceedings be terminated. This order can be made without any necessity of removing the dispute into Court.5 I see no purpose in making declarations of the kind sought. All that is necessary is that I be satisfied that there has been a breach of the implied terms resulting in inordinate and inexcusable delay. Orders [28] I order that the arbitration proceedings commenced by the respondent on or about 24 July 2000 be terminated. 3 (1999) QSC 16 4 (2000) QCA 178; see also Cooper v Hopgood & Ganim (1999) 2 QdR 113 5 See John Holland (supra) at [24] -- 5 of 6 -- 6 [29] I further order that the respondent pay to the applicant its costs of and incidental to the arbitration proceedings and to this application to be assessed on the standard basis. -- 6 of 6 --