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TENNANT CREEK TOWN COUNCIL v TEILACT PTY LTD & ANOR

Supreme Court of the Northern Territory of Australia Martin J.
26, 27, 28 April, 3 July 1989

ARBITRATION - Arbitration agreement - Existence of - Commercial Arbitration Act 1985 s. 4

Cases referred to:

Bremer Vulkan v South India Shipping [1981] AC 909
Sabemo v North Sydney Municipal Council [1977] 2 NSW LR 880 Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

Counsel for Plaintiff Solicitor for Plaintiff

Counsel for First Defendant Solicitor for First Defendant

Counsel for Second Defendant Solicitor for Second Defendant

D W Smith Poveys

J Waters Waters, James & O'Neil

I Briggs Fletcher & Cross

mar890080

mar890080
IN THE SUPREME COURT
OF THE NORTHERN TERRITORY OF AUSTRALIA

No. 560 of 1988

BETWEEN:
TENNANT CREEK TOWN COUNCIL
Plaintiff

AND:
TEILACT PTY LTD

AND:

First Defendant

KEITH WILLIAM LANGE
Second Defendant

CORAM:	MARTIN J.

REASONS FOR JUDGMENT
(Delivered 3 July 1989)

The plaintiff seeks, primarily, a declaration that there is no enforceable agreement between it and the first defendant to refer a certain dispute between them to arbitration.

The Originating Motion also sought orders against the second defendant, but they were abandoned at the commencement of the hearing and counsel for that defendant was given leave to withdraw, the question of his costs being
reserved.

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Henceforth the plaintiff will be called "the Council" and the first defendant "the company".

The question as to whether there be an arbitration agreement arises in unusual circumstances.	The company made complaints concerning the Council to Ombudsman, Dr Rhodes.
Briefly, it was alleged that the Council had invited expressions of interest for the development of certain tourist facilities at Mary Ann Dam.	The company and many others responded and the company was requested by the Council to provide further detailed information which it prepared, it says, at considerable expense.	It was alleged that in the meantime another company, P.M.T. Partners Pty Ltd, put forward a proposal some time after the time fixed by the Council in its public advertisement for the close of expressions of interest.

The Council apparently commenced to treat with
P.M.T. Partners Pty Ltd.	I make no findings of fact in relation to those matters.	They only go to the general background which culminated in Ombudsman's report dated 16 December 1987.	Paragraph 7.3 reads:

"Without expressing any view as to the relative merits of either of the proposals advanced by Teilact Pty Ltd or P.M.T. Partners Pty Ltd I recommend as follows:
If the Tennant Creek Town Council is to persist with P.M.T. Partners Pty Ltd then Mr Cross is entitled to be compensated on

grounds that he has been treated badly and induced to incur expense other than for a fair business risk

compensation should be in respect of direct expenses incurred in developing his submission from 15 December 1986 but not expenses incurred prior to that date

: Mr Cross would need to prove his expenses

the level of compensation should be negotiated between the Tennant Creek Town Council and Mr Cross and in the event of disagreement the matter should be referred to an Arbitrator appointed by the Institute of Arbitrators acceptable to Tennant Creek Town Council and Mr Cross."

Mr Cross was a director of the company, and it is not disputed between the parties that the name of the company should be read for that of Mr Cross in those recommendations.

On 21 December 1987 the Council resolved "that the Tennant Creek Town Council resolve [sic] the report of the Ombudsman for the Northern Territory and implement and adopt such recommendations as contained in that report".	Further, "that the letters of reply as adopted by the Town Clerk and Mayor be drafted and the Town Clerk be authorised to forward on such replies."

The following day, the Town Clerk, Mr Anderson, forwarded two letters one to Mr Cross and the other to the Ombudsman.

To Mr Cross:

"I refer to your complaint filed with the Ombudsman against the Tennant Creek Town Council, concerning a matter relating to proposed developments at the Mary Ann Dam Recreation Reserve.

The Ombudsman has now finalised his report on the complaint and has informed Council of his recommendations in relation to the above matter.	I understand that you have received a copy of the final report.
I have therefore been directed to request from you detailed documentation of direct expenses incurred in developing your submission from 15 December, 1986.	Expenses incurred prior to that date will not be considered.
Trusting that this matter will receive you (sic) prompt attention."

To the Ombudsman:

"I refer to your letter accompanying the final report for Council's attention and action on the complaint against the Tennant Creek Town council filed with you by Mr E (Ted)_Cross of Teilact Pty
Ltd.
The final report was discussed at length at a special meeting held on Monday 21st December, 1987.

As a result of that meeting I am to advise that Council has written to Mr E. Cross of Teilact Pty Ltd, requesting detailed documentation of direct expenses incurred by him in developing his submission in relation to the proposed developments at the Mary Ann Dam Recreation Reserve.	I have attached a copy of Council's letter to Mr E. Cross for your information.
In relation to your recommendations on the administrative procedures of this Council, I am to advise that the Tennant Creek Town Council is appreciative of your advice which will not go unheeded.	It is Councils belief that the administrative procedures of this Council has

improved over the past 6 months, and will continue to do so under constant review.	I would welcome your clarification or comments on the above.

On behalf of Council I wish you and your staff a very Merry Christmas."

On the same day His Worship the then Mayor also wrote to Ombudsman:

"I refer to your letter dated 16th December, 1987 in relation to the complaint against Council filed with you by Mr E. Cross.

I wish to advise that your recommendations, as contained in your report as far as they relatee [sic] to the Tennant Creek Town Council have been accepted and Council is in the process of implementing such.

Council has written to Mr E. Cross requesting copies of his costs, together with established proof of those costs.

I thankyou for your offer of assistance, and I am in no doubt that Council will be in need of your advice during the proceedings of the above matter."

Between then and March 1988 the Council and the company unsuccessfully attempted to negotiate.	The evidence shows that the only issue between them was as to the amount claimed by the company.	By an undated letter, the company informed the Council that unless a satisfactory arrangement was made by 24 February 1988 no further negotiations would be entered into, "pending a civil law suit".

On 10 March 1988, the Secretary of the company wrote to Council:

"Re:	Claim for Compensation by Teilact Pty Ltd

Due to the poor response from Council to our accounts, professional and Teilact expenses, we feel our only course is to go to Arbitration.

We have contacted Dr Rhodes and would accept any arbitrator that he recommended.

We also feel that the cost of Arbitration should be born (sic) by the Council due to their lack of positive participation in resolving this matter in an acceptable time frame to both parties."

and sent a copy to the Ombudsman.

In its letter to the company of 15 March, which did not refer to the letter to it of 10 March, the Council first raised the question of its liability to the company.	It said its view was that it did not accept the company's claim, "there being no cause of action disclosed therein nor any reasonable basis for the amounts claimed.	Before Council could even give consideration to making payment, it would need to have established to it that there was a valid legal basis for the claim and secondly that the expenses sought to be recovered arise directly out of that cause of action and were reasonable and justified."	That letter was addressed to the company in care of its accountants at Alice Springs.	Mr Cross said in evidence that he had never seen it before it was put to him.

The negotiations to arrive at a monetary value of the company's claim for compensation from the Council continued, but to no avail.	In a letter of 27 April 1988, signed by the Mayor, an offer was made to the company.	That offer was not expressed to be conditional upon Council being satisfied as to its liability.	By its letter of 5 May the company rejected the offer and continued: "In the event that no further offers are forthcoming the company has no other option but to proceed with an Arbitrator and that we will request that the cost of this procedure be borne by Council."

By its response dated 16 May the Council informed the company:

"Council is prepared to proceed to Arbitration to determine the following issues:
What liability (if any) is to be imposed on Tennant Creek Town Council in favour of Teilact Pty Ltd, arising from the calling of expressions of interest in relation to the development of Mary Ann Dam;
The amount of damage (if any) for which Council may be liable if liability is proven in relation to the company."
Costs of the Arbitrator should be determined by the Arbitrator."

During that whole period Ombudsman was actively involved in monitoring the progress of negotiations, and there was correspondence between him and the Council and the

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company.	That correspondence is in evidence, but I do not consider that it is strictly admissible except as a background to what was happening as between the parties.
However, in his letter to the Mayor of 9 May Ombudsman called for a report, which he had previously requested.	The Town Clerk's reply of 17 May contained the following:

"l.	Council has requested that TELIACT [sic] Pty Ltd provide it with a statement of it's claim and the damage it alleges to have suffered.	Despite numerous requests of the company, no formulation of a claim has yet been received and only limited details of the loss allegedly suffered have been given.
Council has made a genuine bona fide offer to settle the claims of TEILACT and that offer has been rejected by the company.	The company has made no counter proposal.

The Council has now suggested in an endeavour to have the matter resolved that the issues be referred to an arbitrator to be appointed by the parties.	We are at present awaiting a response from TEILACT in relation to that proposal."

On 18 May Ombudsman wrote to each of the parties saying, "It is my understanding that the parties now wish to have the matter referred to an Arbitrator pursuant to para
7.3.1. third sub-paragraph [of my report dated 16 December 1987]".	I do not think Ombudsman's understanding has any bearing on the issue, but by the same letter he proposed that the second defendant would be a suitable person to be appointed as Arbitrator.

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On 19 May the company replied to the letter of
16 May from the Council saying:

"The company looks forward to the appointment of an Arbitrator to resolve this matter as according to the Ombudsman's Report.

We also point out that liability of Council is already determined in the Ombudsman's Report and that the Arbitration procedures are to determine the amount of compensation as negotiations between Teilact and Council have not reached a satisfactory amount of compensation	"

On 23 May it wrote to Ombudsman:

"Thank you for your letters dated the 18th and 19th of May 1988.

The company has not received another offer from Council and we have been notified by Council that Council has resolved that no further offers are to be made.
Teilact therefore wish to have the matter referred to an Arbitrator pursuant to Para. 7.3.1. third sub-paragraph of your report dated the 16th of December 1987.
The company also accepts Mr Keith Lange as an Arbitrator."

Four days later, 27 May, the Council, by the Town Clerk, replied to Ombudsman:

"I refer to the matter of Teilact Pty Ltd and the Tennant Creek Town Council and to your letter dated the 18th May 1988.
I am to advise that yes it is Council's desire that the matter between Teilact Pty Ltd and the Tennant Creek Town Council proceed to Arbitration.	Further that the matter be heard and decided by Mr Keith Lange of Pak Poy Lange Pty Ltd., of Darwin is

acceptable.	Whilst I not [sic) have had the opportunity to seek Councils direction in regards to Mr Langes suitability I have conferred with His Worship the Mayor, Mr Chittock and the Office of Local Government, on this matter.

I beleive [sic] that the Tennant Creek Town Council would not have any objection to Mr Lange as a acceptable Arbitrator."

Just what "the matter" was was left open, but the Council had previously written to Ombudsman on 17 May on that subject.

On the evidence, that is the end of any written communications, which could be said to have been between the parties.	There were occasions later when they met, twice in the presence of the second defendant, and once with Ombudsman, to which I will return.

It has not been suggested by either party that the resolution of the current issue is governed other than by the Commercial Arbitration Act.	That Act provides, ins. 4, that an arbitration agreement "means an agreement in writing to refer present or future disputes to arbitration".

Although the definition refers to an "agreement", it would be equally efficacious if the word "contract" was substituted, for to be valid, an agreement to arbitrate such disputes must comply with the legal requirements going to make up a contract (Bremer Vulkan v South India Shipping

[1981) AC 909, especially at pp. 951, 953, 991, 997 and 998).	The first thing to be decided, in that context, is whether Ombudsman was an agent of either party.		He had a statutory function which he thought enabled him to persue his recommendations to Council with a view to seeing whether the Council was conforming with his recommendations, (Ombudsman (Northern Territory) Acts. 26(4)).	He had no responsibility to the company, except to ensure, so far as his statutory powers extended, that the Council so conformed.	He was not acting on behalf of the company.	The fact that the parties reported to him occasionally as to their respective attitudes, and that he responded did not constitute him an agent for either of them.	He was a
"post-box", receiving such information as either of them may have considered fit to relay to him.	A voluntary facilitator he may have been, but in no way was he endowed with authority by either party to act on either of their behalves.	The letters from the company to Ombudsman, and its contemporaneous correspondence direct with the Council show that it did not consider Ombudsman to be its agent.

The issue then, is, was there a contract in writing to refer present or future disputes to arbitration? It goes without saying that the contract must be between the Council and the company.

In order to determine whether a binding contract came into being, the common law requires that there be an agreement, as determined by the rules of offer and acceptance, supported by consideration.	As to consideration for an agreement for arbitration, it is provided by the mutual promises of the parties to forego their respective right to have the dispute between them resolved in the courts.

The letter of 22 December 1987 from the Council to the company contains no offer to arbitrate.	It was simply an invitation to the company to submit details of its expenses from 15 December 1986.

At a time prior to 24 February 1988, but inferentially after the company had made submissions to the Council, it was contemplating a "civil law suit".

The first indication of a desire to arbitrate came from the company it its letter to the Council of 10 March 1988.	In the circumstances it said, "[O]ur only course is to go to Arbitration".	Obviously, that was not the only course open to it.	It indicated it would accept an arbitrator recommended by Ombudsman, and felt the cost of arbitration should be borne by the Council.	I infer that the Council had not considered the company's letter when it wrote to it on 15 March, 5 days later.	Although it had not

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previously raised the question of its liability to the company, it put that matter squarely on the table, but then seems to have resiled from its position by making an offer. It could be said that by the Mayor's letter of 27 April, it had implicitly accepted that there was a "valid legal basis for the claim".	I do not decide that point.

The company again raised the question of arbitration in its letter of 5 May and notified that it would request that the cost be borne by the Council.	That may have amounted to an offer.	If it did, then it could only be implied that the matter to be the subject of the proposed arbitration was the "level of compensation".
Council's reply of 16 May was not an acceptance.	If it be regarded as a counter-offer, the company's response of 19 May was not an acceptance.	It was clearly not prepared to have the question of Council's liability put to an arbitrator, its view being that that had been determined by
Ombudsman.

Let it be assumed that Ombudsman was an agent for the company at some time.	It certainly could not have been when he formulated his recommendations.	It would be quite improper for him to have acted in such a capacity in the discharge of his statutory duties and I am quite sure he did not do so.	Accordingly, the Mayor's letter of 22 December 1987 could not be taken to be an acceptance of a company

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offer.	The Council's letter'of 17 May 1988 to Ombudsman raised two issues, the formulation of the company's claim (liability) and details of its al eged loss (quantum).	If that was an offer by Council to Ombudsman as agent for the company, it was not accepted by it.	He referred to an arbitration pursuant to para. 7.3.1. of his report.	But the parties were at odds as to what "the matter",there referred to, was.	If Ombudsman's letter of 18 May constituted an offer on behalf of the company, the Council's reply of 27 May could be said to be an acceptance that "the matter" be referred to arbitration.	However, that still leaves open the question as to just what "the matter" was, that is, what was to be referred for determination  in the arbitration.		It is not possible to find that Ombudsman, if he was the company's agent, and the Council were of the same mind in that regard.	Ombudsman's recommendations were directed to Council, apparently pursuant to s. 26(2) of the
Ombudsman (Northern Territory) Act, though no doubt it was envisaged by him that if implemented they might assist the parties in resolving their disputes.	But, with respect, I consider he misunderstood a fundamental of the arbitration process.	That is, that the dispute or differences which parties to an arbitration agreement agree to refer must consist of a justiciable issue triable civilly (Halsbury 4th Ed Vol 2 para. 503).	The most common cases relating to arbitration arise out of an agreement to arbitrate, forming part of a substantive contract, and it is a dispute or

difference arising out of that contract that is referred. Disputes or differences may arise as to the construction of the contract or the parties rights and liabilities thereunder, issues which, in the absence of arbitration provisions, could be determined in the Courts.	This is not such a case.	Ombudsman was of the view that the company had "been treated badly and induced to incur expense other than for a fair business risk".	It is by no means clear to me that that gives rise to legal rights and obligations, but I am not called upon to decide that question.		Reference was made to Sabemo v North Sydney Municipal Council [1977) 2 NSWLR 880, where it was held that "where two parties proceed upon the joint assumption that a contract will be entered into between them, and one does work beneficially for the project, and thus in the interests of the two parties, which work he would not be expected, in other circumstances, to do gratuitously, he will be entitled to compensation or restitution, if the other party unilaterally decides to abandon the project, not for any reason associated with bone fide disagreement concerning the term of the contract to be entered into, but for reasons which, however valid, pertain only to its own position and do not relate at all to that of the other party".	That proposition, if correct, may or not be supportive of the company in this matter, depending on the facts.	The company is only entitled to compensation (to use Ombudsman's terminology) if there is a legal, as opposed to moral, obligation in Council to pay it.	Ombudsman can

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not impose that obligation, hence in the absence of a clear and unequivocal admission of liability by the Council, the question of the amount of compensation is not justiciable and can not be properly a subject of arbitration.	The parties could have agreed to have the question of the Council's liability determined in arbitration, but that was not the case.	Absent an enforceable finding or admission of liability, an arbitrator would have no jurisdiction to make an award as to compensation and any purported award would not be enforceable.

Given that there was no arbitration agreement and that any person agreed between the parties to act as arbitrator may be bereft of jurisdiction, because of that, or because the issue of compensation alone was not justiciable, the attendance by Council in meetings with the second defendant did not invest him with jurisdiction.

The parties agreed to accept the second defendant ("Lange") to act as arbitrator, but that does not mean they had an arbitration agreement nor that they had entered upon the arbitration.	Ombudsman, no doubt thinking it was helpful to all concerned, sent a "brief" to Lange, in which he asserted that the only matter in dispute was the "quantum of compensation", and that Lange was to determine against which party the costs of the arbitration should be awarded. Copies of that document were sent to the parties.

The parties met with Lange in Darwin on 8 June.
The solicitor for the Council had written to Lange outlining the basis upon which the Council agreed to having the matter referred to arbitration, that is, that the arbitrator determine liability and quantum.	The company, by Mr Cross, informed Lange at the meeting that it did not agree to liability being referred.

The solicitors for the Council also submitted in that letter, that before the matter could properly proceed, an arbitration agreement "as defined in the Act" - whereby Lange be appointed as arbitrator, the issues be referred to him, the parties agree to abide his decision and provisions as to costs be incorporated - should be entered into by the parties.	In light of what is set out above, that was the correct approach.

Lange took the view, which he conveyed in writing to the Institute of Arbitrators, on 8 June that "the parties were unable to reach any Arbitration Agreement".	I agree.
There is then some evidence of telephone calls from the Ombudsman to Lange, consequent upon which Lange wrote to the Council expressing his understanding that both parties had agreed to have both issues put to arbitration, that he proposed a further meeting to enable them to enter into a "formal Arbitration Agreement", suggesting certain procedural steps and requesting each party to lodge a

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security deposit of $1,000.	There is no evidence that a similar letter was sent to the company.

On 10 June Ombudsman wrote to both parties outlining what he had been told by Lange, including that the company had agreed to liability being put in issue.	I do not accept as evidence the matters of fact set out in those letters, but refer to them only for the purpose of noting that the company did not respond in writing.

Similarly, the company made no written response to a letter from Lange of 14 June in which he purported to set out the history to that date, and proposed that a hearing take place on 22 June at which the matter of liability would be heard first.		The solicitors for the Council took exception to certain aspects of Lange's letter, whereupon Lange wrote to them and said he would take no further part in the matter.	A copy was sent to the company.	Four days later, 20 June, he withdrew what he had said in his earlier letter, and set a "Preliminary Conference" for 29 June in Darwin.	As it turned out the next time the parties met with the arbitrator was not until 5 July 1988, in Tennant Creek. By that time each party had paid the security deposit
requested.

On 24 June some aldermen and Mr Cross met in Tennant Creek under the auspices of the local member of

Parliament.	Shortly prior to that time there had been a municipal election and as a result the composition of the Council had altered, including a new Mayor.	Nothing much seems to have come of that meeting except that it was arranged that Mr Cross would have the opportunity to address a meeting of the Mayor and Aldermen.	Ombudsman made himself available to attend.	Over the course of 27 and 28 June,
Mr Cross, Ombudsman and representatives of the Council conferred.	Further unsuccessful negotiations were conducted, Ombudsman acting as a "go-between", and, I find, that during the course of those proceedings the Mayor and Aldermen indicated to Mr Cross in the presence of Ombudsman, that the Council would not insist on the question of liability going to arbitration.	Ombudsman's evidence satisfies me of that.	Lange received information from Mr Cross and the Town Clerk, and he wrote to the company and Council on 29 June expressing his understanding that, "It is the wish of both parties to go to arbitration to determine the level of compensation ....".		Solicitors for the Council responded on 1 July stating that their instructions were that their client was only prepared to consider entering into the arbitration agreement, and attending a preliminary conference in relation to arbitration, "on the basis that both liability and quantum are in issue".	It seems a copy was sent to the solicitors for the company.

The	state of affairs when Lange, the representatives of the Council and the company met in Tennant Creek at 2pm on 5 July was that the company, through Cross, had been led to believe as a result of the meetings of 27 and 28 June, that quantum only was to be referred.
Lange had understood that to be the case, prior to his receipt of the letter of 1 July from the solicitors for the Council, and the Council had put its final position formally on its own record just one hour beforehand.	At a meeting of the Policy and Resources Committee of the Council held on 30 June it was resolved to recommend to the Council that the Council proceed with the preliminary hearing set down for 5 July and that liability and quantum "be the Agenda items for Arbitration", and that the Council request the company to present its claim "within 7 days of the signing of any agreement to proceed with Arbitration".	The minutes also noted that aldermen requested that Council's solicitors be directed to prepare a draft letter to P.M.T. Partners with their intention to cease any proceedings on the Mary Ann Development, and that should the company not agree with the Council's proposals as to the arbitration, Council should not proceed with it.	Council adopted the committee's recommendations at a special meeting held at 1pm on 5 July. At that meeting, attended by its solicitor, Council further resolved to clarify its resolution of 21 December 1987 "to the extent that such resolution may be seen to or does accept liability for the Council to pay to Teilact Pty Ltd the amount of its claim or any part thereof".

The happening at the meeting at 2pm on 5 July are, I think, best recorded by Lange in his notes:

"After a formal welcome from the Mayor, KWL advised that he would like to address all present to outline the manner in which an Arbitration was conducted, the rights of the various parties, the usual procedures, and the matter of awards, costs etc.	The parties agreed and KWL spent some 20 minutes in describing these procedures and matters; after which he invited questions before proceeding with the agenda that had been previously issued.
At this time, the Mayor, after a short consultation with Mr Giles requested a brief recess.

Some 15 minutes later, he returned and sought another 10 minutes.

During these recesses, I	requested that I	not be left alone in the meeting room with the claimant, and the Mayor asked a Councillor (Mr Ken Purves) to remain with us.
After the second recess, Council returned and
Mr Giles explained that they had a problem as they had, during these proceedings, received a fax from the Council's insurance underwriters advising Council not to proceed with any Arbitration as it would or could admit liability and may prejudice insurance cover.
Council sought a further recess and finally returned at about 4.00pm to deliver the statement by the Mayor.	I then proposed that the conference be adjourned for 7 days to enable the Council to determine its position with their underwriters.
Mr Cross objected to the frustrating delays and advised that continued prolongation of the matter was causing him serious financial difficulties and could force him into Bankruptcy.
I further advised the parties that the conference could be resumed and completed by telephone with fax or written confirmations to avoid the costs of getting all parties together again for what would be presumably a short meeting to finalise arrangements.
The conference was then adjourned at approx 4.lSpm."

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Lange later attempted to reconvene the meeting, but desisted when he was informed that these proceedings were to be taken.

I have included this latter history since it was put by the company, that the Council's conduct had in some way denied to it the right to the declaration it seeks.	Matters such as its acquiescence in the appointment of Lange, its meetings with him, the payment of the security deposit and so forth were said to amount to an adoption of an agreement to arbitrate, whatever may be the formal deficiencies in it. I have found that there was no agreement within the statutory requirement; there was no contract.		The Council's conduct does not avail the company and, for the same reason, nor do arguments going to variation, waiver or estoppel assist it.	As to estoppel, the facts in this case do not put Teilact in the position of the successful respondent in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.

There will be a declaration that there has never been any arbitration agreement between the plaintiff and the first defendant.