Theiss Watkins (PNG) Ltd and Kumagai Gumi Company Ltd v Papua New Guinea Electricity Commission [1991] PGLawRp 492; [1991] PNGLR 316 (28 August 1991)

Papua New Guinea Law Reports - 1991

[1991] PNGLR 316 - Theiss Watkins (PNG) Ltd. and Umagai Gumi Company Ltd. v Papua New Guinea Electricity Commission

[1991] PNGLR 316

PAPUA NEW GUINEA

[SUPREME COURT OF JUSTICE]

THEISS WATKINS (PNG) LTD

AND UMAGAI GUMI COMPANY LTD

V

PAPUA NEW GUINEA ELECTRICITY COMMISSION

Waigani

Kapi DCJ Los Sheehan JJ

26 November 1990

28 August 1991

BUILDING AND ENGINEERING CONTRACTS - Construction and interpretation - Decisions on disputes - Arbitration clause - Pre-conditions to arbitration - To be exhausted before arbitration clause invoked.

A joint venture agreement in respect of a hydro-electric project provided for the appointment of an engineer and an engineer’s representative. The engineer’s functions were prescribed as including the issuing of decisions, certificates and orders under the contract. The engineer’s representative was responsible to the engineer and his duties included supervision of works.

Clause 2.2 (b) of the contract provided:

N2>“(b)    If the Contractor shall be dissatisfied by reason of any decision of the Engineer’s Representative he shall be entitled to refer the matter to the Engineer, who shall thereupon confirm, reverse or vary such decision.”

Clause 67 of the contract provided:

“If any dispute ... shall arise between the Employer and the Contractor ... it shall in the first place be referred to be settled by the Engineer who shall within a period of 60 days ... give notice of his decision to the Employer or Contractor ... If either the Employer or the Contractor be dissatisfied with any such decision, ... either may within 60 days after receiving such notice ... require that the matter be referred to arbitration ...”

Held

The procedures prescribed by cl 2.2(b) and cl 67 of the contract are distinct; once the procedure under cl 2 is invoked it must be allowed to be exhausted before the procedure under cl 67 is invoked. It is not until the engineer makes a decision on a referral under cl 2.2(b) which decision is disputed that the provisions of cl 67 can be invoked by either party.

Decision of Hinchliffe J in Theiss Watkins (PNG) Ltd v Papua New Guinea Electricity Commission [1988-89] PNGLR 454, reversed in part.

Cases Cited

Theiss Watkins (PNG) Ltd v Papua New Guinea Electricity Commission [1988-89] PNGLR 454.

Counsel

I Malloy, for the appellants.

F G Lever, for the respondent.

Cur adv vult

28 August 1991

KAPI DCJ: The appellants formed a joint venture and entered into a contract with the Papua New Guinea Electricity Commission dated 30 March 1984 for the construction of the Rouna 4 hydroelectric project. The contract provides for the appointment of an engineer and an engineer’s representative. According to the contract, Sir William Halcrow and Partners of Swindon, England was appointed engineer and RAH Brown of Sir William Halcrow & Partners, Port Moresby office, was appointed engineer’s representative. The functions of the engineer and engineer’s representative are set out in the provisions of the contract:

“ENGINEER AND ENGINEER’S REPRESENTATIVE

N2>2.1     The Engineer shall carry out such duties in issuing decisions, certificates and orders as are specified in the Contract. In the event of the Engineer being required in terms of his appointment by the Employer to obtain the specific approval of the Employer for the execution of any part of these duties, they shall be set out in Part II of these Conditions.

N2>2.2     The Engineer’s Representative shall be responsible to the Engineer and his duties are to watch and supervise the Works and to test and examine any materials to be used or workmanship employed in connection with the Works. He shall have no authority to relieve the Contractor of any of his duties or obligations under the Contract nor, except as expressly provided hereunder or elsewhere in the Contract, to order any work involving delay or any extra payment by the Employer, nor to make any variation of or in the Works.

The Engineer may from time to time in writing delegate to the Engineer’s Representative any of the powers and authorities vested in the Engineer and shall furnish to the Contractor and to the Employer a copy of all such written delegations of powers and authorities. Any written instruction or approval given by the Engineer’s Representative to the Contractor within the terms of such delegation, but not otherwise, shall bind the Contractor and the Employer as though it had been given by the Engineer. Provided always as follows:

(a)      Failure of the Engineer’s Representative to disapprove any work or materials shall not prejudice the power of the Engineer thereafter to disapprove such work or materials and to order the pulling down, removal or breaking up thereof.

(b)      If the Contractor shall be dissatisfied by reason of any decision of the Engineer’s Representative he shall be entitled to refer the matter to the Engineer, who shall thereupon confirm, reverse or vary such decision.”

The contract also provided for the settlement of disputes.

“Settlement of Disputes

N2>67.     If any dispute or difference of any kind whatsoever shall arise between the Employer and the Contractor or the Engineer and the Contractor in connection with, or arising out of the Contract, or the execution of the Works, whether during the progress of the Works or after the completion and whether before or after the termination, abandonment or breach of the Contract, it shall, in the first place, be referred to and settled by the Engineer who shall, within a period of sixty days after being requested by either party to do so, give written notice of his decision to the Employer and the Contractor. Subject to arbitration, as hereinafter provided, such decision in respect of every matter so referred shall be final and binding upon the Employer and the Contractor and shall forthwith be given effect to by the Employer and by the Contractor, who shall proceed with the execution of the Works with all due diligence whether he or the Employer requires arbitration, as hereinafter provided or not. If the Engineer has given written notice of his decision to the Employer and the Contractor and no claim to arbitration has been communicated to him by either the Employer or the Contractor within a period of sixty days from receipt of such notice, the said decision shall remain final and binding upon the Employer and Contractor. If the Engineer shall fail to give notice of his decision, as aforesaid, within a period of sixty days after being requested as aforesaid, or if either the Employer or the Contractor be dissatisfied with any such decision, then and in any such case either the Employer or the Contractor may within sixty days after receiving notice of such decision, or within sixty days after the expiration of the first-named period of sixty days, as the case may be, require that the matter or matters in dispute be referred to arbitration as herinafter provided. All disputes or differences in respect of which the decision, if any, of the Engineer has not become final and binding as aforesaid shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed under such Rules. The said arbitrator/s shall have full power to open up, revise and review any decision, opinion, direction, certificate or valuation of the Engineer ....”

The joint venture entered into a sub-contract dated 29 March 1984 with Hornibrook Constructions Pty Ltd for the construction of the penstock on the hydroelectric project. Certain claims were made by the sub-contractor arising out of the work done.

On 24 February 1987, the resident engineer had a joint meeting with the manager of the sub-contractor, Hornibrook and the manager of the employer, Electricity Commission. At this meeting six outstanding claims made by the sub-contractor against the contractor were discussed. As a result of those discussions, four claims by the sub-contractor renamed unresolved:

N2>(a)      Claim 47716 — penstock prolongation,

N2>(b)      Claim 4774 — wirestick defects,

N2>(c)      Claim 4778 — realignment AB5 2 biforcation, and

N2>(d)      Claim 47717 — closure weld at the power station.

On 27 February 1987, the resident engineer wrote to the contractor summarising the discussions that were held on 24 February 1987. I quote this letter:

“The Project Manager

Watkins Kumagai Joint Venture

P O Box 481

PORT MORESBY

For the attention of Mr Y Kimura

Dear Sir

ROUNA 4 HYDROELECTRIC PROJECT — CIVIL WORKS CONTRACT

NOMINATED SUB-CONTRACT FOR PENSTOCK

REFERRALS TO THE ENGINEER UNDER CLAUSE 2.2(b)

We held a joint meeting with the General Manager of Hornibrook on 24th February to discuss finalisation of their claims for additional costs. I confirm the decisions reached on the following claims.

N2>1.       47716  Penstock prolongation

I have no record of receipt of Hornibrook’s letter, CV66/129, dated 1 October 1986, in which they claim 23 weeks additional prolongation costs over and above the 7 weeks claimed in your letter, WK/R1/1069, of 16th July 1986. My decision on the latter remains as detailed in my letter HW/WRO47716/3682 of 6 August 1986.

The total award is K9030 plus 13.5% handling charge = K10,249.05.

N2>2.       4774   Wire stick defects

A difference of opinion exists about the acceptability of lack of fusion within the terms of the Specification.

Hornibrook requested that this matter be referred to the Engineer for his decision.

N2>3.       4778   Realignment AB5 to Biforcation

Hornibrook requested that my decision in HW/WRO4778/3852, dated 10 September 1986, be referred to an Engineer’s decision because they disagree with my findings.

N2>4.       47717  Closure Weld at the Power Station

Hornibrook disagree with the Engineer’s Representative’s decision on this subject, given in my letter, HW/WRO47717/3692, and requested that it be referred to the Engineer for his decision.

N2>5.       4772   Local Purchase of Grade 250 Plate

Hornibrook withdrew this claim for additional costs against the Employer.

N2>6.       Customs Duties and Levies

Hornibrook asked for details of the amount included in Valuation No 30 for Customs Duty and Import Levy. According to the final measurement sheet for item 5.1221, the amount included was K7,983.77 as detailed in their submission.

Yours faithfully

(Signed) R A H Brown

Resident Engineer.”

After this point in time, certain steps were taken to refer the outstanding claims to the engineer in England. The engineer has reached certain conclusions on these outstanding claims. The dispute which has arisen in this case relates to the nature of the referral to the engineer. Counsel for the appellants submits that the referral to the engineer in England was made under cl 2.2(b) of the contract and therefore they are not precluded from invoking the procedures set out under cl 67 of the contract. On the other hand, counsel for the respondent submit that the referral to the engineer in England was made pursuant to cl 67 of the contract and that the decision by the engineer has been made and the appellants failed to invoke the procedure under cl 67 within the required time limitation.

It is apparent from the evidence that there is confusion by all the parties concerned as to the real nature of the referral to the engineer. In order to clear up this apparent confusion, it is necessary to determine the nature of the procedures set out under cl 2 and cl 67 of the contract without any reference to the understanding of the parties of the referral to the engineer. This will determine the true nature of what actually happened and the rights of the parties under the contract.

CLAUSE 2

This clause as pointed out before deals with the functions of the engineer and the engineer’s representative. Where a claim arises within the functions as set out, such a claim must initially be dealt with under cl 2. Where the claim is referred to the engineer, that is as far as the procedure under cl 2 can go. Where there is a further dispute arising from this decision, such a dispute would come within the ambit of cl 67 of the contract.

Where the claim is initially referred to the engineer’s representative, the decision of the engineer’s representative shall be as binding as the decision of the engineer. However, under cl 2.2(b), if the contractor is dissatisfied or disputes the decision of the engineer’s representative he is entitled to refer the matter to the engineer who shall thereupon confirm, reverse or vary such decision.

When the procedure under cl 2 is invoked it cannot be converted into a cl 67 reference. The two procedures are quite distinct. A reference to either the engineer or the engineer’s representative under cl 2 of the contract does not require the sixty days in which to give the decision as it applies under cl 67 of the contract. I have reached the conclusion that once the procedure under cl 2 is invoked it must be allowed to be exhausted before the procedure under cl 67 is invoked. It has been conceded by both counsel that a claim may be determined in accordance with cl 2 of the contract and if ultimately the engineer’s decision is disputed the procedure under cl 67 can be invoked to resolve that dispute. That brings me to consider cl 67 of the contract.

CLAUSE 67

This procedure is intended to resolve any dispute or difference between the employer and the contractor of the engineer and the contractor in connection with or arising out of the contract or the execution of the works, whether during the progress of the works or after their completion, and whether before or after the termination, abandonment or breach of the contract. Where a claim is made for decision by the engineer’s representative under cl 2 of the contract, and where the decision of the engineer’s representative is disputed by the contractor, such a dispute cannot be referred under cl 67 of the contract because under cl 2.2(b), as I have pointed out earlier, the contractor can refer such a decision to the engineer for final decision. But, in addition, the engineer’s representative has no power to deal with matters arising under cl 67 of the contract. Clause 67 only gives right to the employer or the contractor in the case of a dispute between them and the engineer or the contractor in the case of a dispute between them to request a decision.

The function of the engineer under cl 67 is one of the matters not delegated to the engineer’s representative. Where an engineer makes a decision after a referral under cl 2.2(b) of the contract and there is a dispute or difference between the engineer and the contractor, then in my view, such a dispute comes within the ambit of cl 67 of the contract. At this point, either party may then invoke a reference to the engineer under cl 67 of the contract. This reference must not be confused with the reference made under cl 2.2(b) of the contract. The reference under cl 67 of the contract is different in that the engineer must give his decision within a period of sixty days after being requested by either party. Even though it appears that under both procedures, the engineer may consider the matter twice, nevertheless, the character and the consequences of each decision are different.

In this case, there is no doubt that the procedure under cl 2 of the contract was invoked for the settlement of the claims. It appears from the evidence that the engineer’s representative determined these claims on 24 February 1987. The summary of those decisions are set out in the letter written by the engineer’s representative dated 27 February 1987 addressed to the contractor. Proceedings taken after the decision by the engineer’s representative are characterised by misconceptions of the true nature of the procedures under cl 2 and cl 67 of the contract and confusion as to the different number of claims being referred to the engineer. After careful examination of all the materials, I have reached the conclusion that the resolution of the issue in this case will ultimately be determined, not by the mistaken belief or misconceptions of the parties as to the nature of the proceedings they were involved in, but by reference to the true nature of the procedures as set out in the contract. As I have pointed out in my judgment earlier, where the procedure under cl 2 is invoked, the rest of the procedure is to be exhausted before the matter reaches the stage which is intended to be covered by cl 67 of the contract. In this case, the claim was referred initially to the engineer’s representative, therefore the subsequent reference to the engineer was in accordance with cl 2.2(b) of the contract.

Ultimately, the outstanding claims in question have all reached the engineer who has now made a decision. However, it is apparent that there is dispute as to these determinations by the contractor. The proper position is as follows:

That the engineer had given his decision pursuant to cl 2.2(b) of the contract. Either party is entitled to refer the matter under cl 67 of the contract. In a letter dated 26 August 1987, the contractor referred the matter to the engineer for determination under cl 67 of the contract. On 1 October 1987, the engineer replied that he did not have the authority to re-assess the claims as he considered that his determination was in accordance with cl 67 of the contract. However, as I have held that the whole nature of the proceedings were misconceived by the parties as well as the engineer, he is now obliged to consider the matter in accordance with cl 67 of the contract.

For the reasons given, I would allow the appeal and quash the decision of the National Court and make the following orders:

(a)      That the period within which the claims of the sub-contractor may be referred to arbitration has not expired; and

(b)      that the defendant to direct and request the engineer to consider and settle the dispute or difference in accordance with cl 67 of the contract.

I allow the appeal with costs and I certify overseas counsel.

LOS J: This appeal is against a decision of the National Court delivered on 30 October 1989: see Theiss Watkins (PNG) Ltd v Electricity Commission [1988-89] PNGLR 454. The appellants were a joint venture known as Watkins-Kumagai Joint Venture. They were the contractor under a contract for civil works for Rouna No 4 Hydro Electricity Project while the respondent was the employer. They were responsible for the main contract. Hornibrook Constructions Pty Ltd (Hornibrooks) was the nominated sub-contractor under a sub-contract with the appellants for the construction of the penstock of the Rouna 4 Project.

The conditions of the main contract provided for appointment of an engineer to carry out such duties in issuing decisions, certificates and orders as specified in the contract. The engineer was Sir William Halcrow & Partners. The contract also provided for appointment of an engineer’s representative in Papua New Guinea who would be delegated various powers by the engineer. The engineer’s representative was R A W Brown. The contract provided that any instructions or approval given by the representative within the terms of his delegation must bind the contractor and the employer as though it had been given by the engineer. Added to this, was a review provision in cl 2.2(b):

“If the Contractor shall be dissatisfied by reason of any decision of the Engineer’s Representative he shall be entitled to refer the matter to the Engineer, who shall thereupon confirm, reverse or vary such decision.”

The contract also contained an avenue for dispute settlement and arbitration. This was provided in cl 67 of the contract:

“If any dispute or difference of any kind whatsoever shall arise between the employer and the contractor or the engineer and the contractor in connection with, or arising out of the contract, or the execution of the works, it shall, in the first place, be referred to and settled by the engineer who shall, within a period of sixty days after being requested by either party to do so, give written notice of his decision to the employer and the contractor, subject to this arbitration as hereinafter provided such decision in respect of every matter so referred shall be final and binding upon the employer and the contractor and shall forthwith be given effect to by the employer and by the contractor, who shall proceed with the execution of the works with all due diligence whether he or the employer requires arbitration, as hereinafter provided or not. If the engineer has given written notice of his decision to the employer and the contractor and no claim to arbitration has been communicated to him by either the employer or the contractor within a period for sixty days from the receipt of such notice, the said decision shall remain final and binding upon the employer and the contractor if either the employer or the contractor be dissatisfied with any such decision then and in any such case either the employer or the contractor may within sixty days after receiving notice of such decision, or within sixty days after the expiration of the first named period of sixty days, as the case may be, require that the matter or matters in dispute be referred to arbitration as hereinafter provided....”

During the period of the contract several claims has been submitted for resolution by the resident engineer. On 24 February 1987, the resident engineer held a joint meeting with the managers from Hornibrooks and the respondent. Six outstanding claims by Hornibrooks against the joint venture were discussed. Four of these remained unsolved. On 27 February, the resident engineer wrote to the joint venture giving the summary of what transpired at the meeting. The headline of the letter read, among others, “Referrals to the Engineer under cl 2.2(b)”. The question which arose before the trial judge was whether the referral was pursuant to cl 2.2(b) of the contract or whether it was a referral pursuant to cl 67. His Honour for the reasons he had given in his judgment concluded that the referral was one pursuant to cl 67 of the contract. Consequently, as the appellants had failed to take any action within sixty days, they were time-barred from pursuing further with their claims.

The appellants have advanced some ten grounds of appeal:

N2>(1)      The finding of the learned judge that Hornibrook’s claims were referred to the engineer under cl 67 of the contract was wrong and against the weight of evidence by reason of the matters set for hereunder.

N2>(2)      The finding of the learned judge that Hornibrook’s claim had in the past been referred to the engineer under cl 2.2(b) of the contract was wrong and against the weight of evidence.

N2>(3)      The learned judge was wrong in holding that it was essential that the plaintiffs adduce evidence that they told the resident engineer to refer the particular matters to the engineer under cl 2.2(b) so as to establish a practice of such referrals.

N2>(4)      The learned judge was wrong in finding that the evidence of a referral by the resident engineer was in any way decisive of the issue.

N2>(5)      The learned judge was wrong in failing to find that the schedule of disputes was equivocal and inconclusive evidence on the basis of the referral.

N2>(6)      The learned judge was wrong in failing to take into account all the correspondence between the parties.

N2>(7)      The learned judge was wrong in concluding that if the resident engineer had no jurisdiction to refer anyone of the claims under cl 2.2(b) then there was no possible alternative to all of the claims being referrals under cl 67 of the contract.

N2>(8)      The finding by the learned judge that the defendant was not estopped from insisting upon the arbitration time limits was wrong and against the weight of evidence by reason of the matters set forth hereunder.

N2>(9)      The finding of the learned judge that the defendant did not induce the plaintiffs to assume that the time limits would not be enforced was wrong and against the weight of evidence.

N2>(10)    The learned judge erred in not finding that the plaintiffs reasonably believed that the defendant was not insisting upon the time limits for arbitration.

I consider that the ten grounds of appeal can properly be dealt with by considering them under three broad groups. So I consider the grounds of appeal numbered 1-6 together. Then I consider the ground of appeal, number 7. And lastly I deal with the grounds numbered 8-10.

GROUNDS 1-6

The respondent argues that the letter written by the resident engineer to the engineer on 2 March 1987 constituted referrals under cl 67. Various reasons have been advanced to support this argument.

It is argued that there was no evidence that Hornibrooks had asked the resident engineer to refer the claims to the engineer and refer them under cl 2.2(b). On this point it is further argued that there is no evidence that there was a practice that the resident engineer could make referrals under cl 2.2(b). In the meeting of 24 February, no representative of the joint venture was in attendance. And the content of the letter is that, the sub-contractor was not happy with the decisions of the resident engineer on four claims and asked him to refer them to the engineer. In relation to Claim 4778, the resident engineer wrote: “Hornibrooks requested that my decision ... be referred for an Engineer’s decision”. Similar requests are made in relation to the other claims. Mr O’Connell, general manager of Hornibrooks, gave evidence that there was in existence a practice that the resident engineer referred claims under cl 2.2(b) for the engineer’s decision.

The respondent, in order to discredit the evidence of Mr O’Connell, relies on the exchange of letters and facsimile between the contractor and Hornibrooks, and says O’Connell’s evidence could not be relied upon because Hornibrooks was left totally in the dark. In my view the exchange of correspondence does not help the respondent. At best, the exchange of letters and facsimiles reveal a mystery as to who might have referred the four claims to the engineer, or, whether any referrals were made at all before the meeting of 24 February 1987.

In summary, from the end of 1985 to the beginning of 1987, Hornibrooks wanted to know when the claims would be resolved. Hornibrook’s inquiries continued and just a month before the meeting of 24 February 1987 in its letter of 27 January 1987, the sub-contractor wrote, “Please note there are several outstanding matters to be settled ....”

If the resident engineer had referred the claims earlier, what would be the point in meeting with the general managers of Hornibrooks and the respondent on 24 February? Further, if indeed the contractor had referred the claims to the engineer, the resident engineer should have been aware because he had power under cl 2.2 to deal with three of the claims. The resident engineer’s letter of 27 February indicates clearly that he became officially aware that there were disagreements in his decisions.

N1>(1)      47716 — Penstock Prolongation

The resident engineer had no idea about the twenty-three weeks additional claim for prolongation costs. If he did not know about it before, how could it be a past referral?

N1>(2)      4774 — Wirestick Defects

The resident engineer said: “Hornibrook requested that this matter be referred to the Engineer for his decision.”

N1>(3)      4778 — Realignment AB5 to Biforcation

The resident engineer said: “Hornibrook requested that my decision ... be referred for an Engineer’s decision ....” Note that it was the decision of the engineer’s representative that was disliked. The reference in this situation could only be made under cl 2.2(b).

N1>(4)      47717 — Closure held at the power station

“Hornibrook disagree with ... decision ... and requested that it be referred to the engineer for his decision.”

Then in his letter to the engineer on 2 March 1987, the resident engineer referred to his letter of 27 February (HW/WRO477/5133). He enclosed his file records and summary of each claim to assist the engineer in reaching his decision. So that if it is true as claimed by the respondent that the resident engineer himself did not refer those claims to the engineer under cl 2.2(b), then he was asking the joint venture to do the right thing under cl 2.2(b) to refer the claims to the engineer.

The respondent also relies on the spreadsheet dated 26 February 1987 to say the claims had been determined earlier by the engineer under cl 2.2(b) so that no question could be raised any more. Given what had transpired up to 24 February, it is not clear how the sheet could indicate certain decisions had been made by the engineer. The enclosing letter is undated. If it is true that the trial was run on an understanding that no referrals were made prior to the meeting of 24 February, it is not fair to rely on the spreadsheet now.

Even after the engineer’s representative had written to the joint venture, there is no evidence the joint venture made any referrals. The only letter sent by the joint venture soon after the meeting was dated 27 February in a very general term. On 2 March, they also wrote to the respondent again in general terms. So much so that the respondent had to seek clarification from them.

The joint venture responded in their letter of 20 March and explained what the claims were. The first part of the letter was headed: “Claims referred back to the Engineer under cl 67.” The claims under that part did not include any of the four claims by the sub-contractor. The second part of the letter was headed: “Status of further Claims”. Listed under this heading were the four claims of the sub-contractor. The letter said the status of the sub-contractor’s claims remained unclear. The last part of the letter was headed: “Date of last claim referral”. Under this part the joint venture said: “All of the matters referred to in Section 1 were referred to the engineer under cover of a letter dated 27 February 1987.” Section 1 is the first part of the letter which did not include any of the claims by the sub-contractor. So this letter does not help the respondent’s claim that the engineer had already reviewed the decision of the resident engineer’s decision on the sub-contractor’s claims because the contractor did not refer the sub-contractor’s claims in the letter of 27 February to the engineer for his decision under cl 67.

His Honour the trial judge said the letter of 27 March from the engineer to the joint venture clearly showed the referral was one pursuant to cl 67. The only reference was in the letter of 27 February and the joint venture clarified their position that only claims by the contractor were referred under cl 67 and not the sub-contractor’s claims. There is therefore no evidence that the engineer was asked by the contractor to review the sub-contractor’s claims. The only referrals that reached the engineer at that stage were referrals by the engineer’s representative under cl 2.2(b). His Honour also relied upon the appellants’ letter of 2 April 1987 to the respondent to hold that the engineer’s decision was under cl 67. If one follows the sequence of letters between the contractor and the engineer from the date of the meeting of 24 February to the letter of 2 March, one can see clearly that only one letter of referral was sent and that was on 27 February. The joint venture made it clear that items under part one of the letter (they called is section one) did not include any of the sub-contractor’s claims. So their letter of 2 April could only refer to those claims. If the engineer acted under any misapprehension, the appellant, or respondent for that matter, could not and should not capitalise on it. The original position of the contractor was indeed confirmed subsequently in a letter to the respondent on 13 July 1987. I do not accept as claimed by the respondent that the joint venture had done an about face in this letter.

It seems to me the engineer eventually realised what had happened and wrote to the respondent on 15 September 1987 expressing regret:

“Meetings were held with representative of Watkins-Kumagai during February 1987 to resolve or refer to the Engineer those matters still in dispute. At the last of those meetings on the 24 February, Hornibrook’s General Manager was present but did not provide any additional information although there were some question about receipt of a letter from Hornibrooks to Watkins-Kumagai. Hornibrooks did however request that some of the disputed matters be referred to the Engineer for his decision. It is possible that Hornibrooks did not appreciate that it was being taken, by WKJV and the Engineer, that a clause 78 ruling was to be provided and Hornibrooks did not produce any further information before the Engineer made his Final Determinations in March. It thus seems that it would be equitable for the Engineer to reconsider the above four claims. ... We would thus recommend that ELCOM agree to our considering this additional claim, with a proviso that no other matters are re-opened.”

The letter clearly reflects the engineer’s misunderstanding. The letter says Hornibrooks did not appreciate that both the joint venture and the engineer were taking action under cl 67. However, the only referrals by the joint venture under cl 67 were the contractor’s claim in the letter of 27 February to the engineer and explained in the letter of 20 March to the respondent.

GROUND 7

One other reason why the respondent argued that referrals were made under cl 67 was that claim 47716 was for an extension of time. The resident engineer had no power to make any decision on an extension; only the engineer had the power. It is argued that as the other claims were referred together with this claim, they all must have been referred under cl 67. I do not think any question of cl 67 had arisen by then. Under cl 44 of the contract only the engineer had the power to grant an extension of time. He had not delegated this power to the resident engineer. So that it was misleading even to suggest it was a cl 2.2(b) referral. It was just an initial request to the engineer for his decision under his general power in cl 2.1: “The Engineer shall carry out such duties in issuing decisions, certificates and orders as are specified in the contract.”

The trial judge had placed heavy reliance on the strict meaning of cl 2.2(b) to say that there could not exist any practice outside those provisions. He said (at 456):

“The referral of the four claims was done by the Resident Engineer. It is not in dispute. But a cl 2(2b) referral must be done by the contractor. That is quite clear when on reads the clause. The Resident Engineer is not permitted to make a referral under the clause.

On the other hand it is proper for the Resident Engineer to make a referral under cl 67.”

With respect, I agree with the appellants’ submissions that cl 2.2(b) is not in any emphatic terms. It is my view that the importance of this clause is that it provides for an entitlement to refer a claim for review by the engineer. If in practice a party adopts a different and convenient channel of communication, there could not be an infringement. In this case the resident engineer was in a suitable position to refer any claim. The fact that he had done so did not automatically mean with respect the referrals were cl 67 referrals. The referrals were headed: “Referrals to the Engineer under cl 2.2(b)”. These are in black and white; how could anyone read them in any other way?

GROUNDS OF APPEAL 8-10

As I consider that the referrals were under cl 2.2(b), the question of estoppel is irrelevant.

For the reasons I have given, I would allow the appeal with costs and quash the decision of the National Court. I certify overseas counsel.

SHEEHAN J: I have read the judgments of my brothers Kapi Dep CJ and Los J and I agree with them that the appeal should be upheld.

Appeal allowed

Lawyer for the appellants: Blake Dawson Waldron.

Lawyer for the respondent: Steeles Lawyers.