Viasat Inc v Hansen Yuncken Pty Ltd [2024] NSWSC 1581

Andrew Hales |   Laura-Rose Lynch  |  Cedric Barakat

Key takeouts

• NSW courts are reluctant to grant leave to appeal an arbitral award made under the Commercial Arbitration Act 2010 (NSW) (CAA). Parties to an arbitration agreement may only appeal a question of law if they agree an appeal may be made.
  
• They must also persuade the court to grant leave to appeal. Applicants must satisfy each of the strict requirements for the granting of leave in s 34A(3) of the CAA, which go beyond the commercial interests of the parties, extending to whether the decision of the tribunal on the question is obviously wrong or the question is of general public importance and the decision of the tribunal is at least open to serious doubt.
  
• The court must also be satisfied that it is just and proper in all the circumstances for the court to determine the question.
  

Facts

Viasat Inc (head contractor) and Hansen Yuncken Pty Ltd (subcontractor) entered into a subcontract for the construction of a satellite station near Wagga Wagga for the Department of Defence (principal). The subcontractor requested ‘Final Acceptance’ under the subcontract in May 2020 (Final Acceptance Request). The head contractor disputed whether the subcontractor met the Final Acceptance requirements and claimed $1.62 million from the subcontractor in liquidated damages, alleging the subcontractor failed to meet those requirements until December 2020. The subcontractor was successful at arbitration and the head contractor sought leave to appeal the arbitral award under section 34A of the CAA.

Contractual landscape

The subcontract was based on the Australian Standard for Defence Contracting Suite of Contracting Templates (ASDEFCON). Typically, the Department of Defence uses this template for material procurement rather than building work. For infrastructure and building work, the Defence Facilities Suite of Contract Templates (Facilities Contract) is usually used. In this case, which concerned building work, the parties used an ASDEFCON template amended to include two clauses from the Facilities Contract which were seen as necessary by the subcontractor to align the subcontract more with the Facilities Contract.

Clauses 6 and 7 were most relevant to the dispute.

• Clause 6 obliged the subcontractor to meet milestones dates which included ‘Entry and Exit criteria’ and the head contractor was entitled to liquidated damages if those criteria were not met.
• The Entry criteria required the subcontractor to submit draft Operation and Maintenance Manuals and As-Constructed Drawings (Criteria Documents) for assessment by the head contractor.
• The Exit criteria required the subcontractor to deliver reviewed Criteria Documents.
• The subcontractor was required to present a Final Acceptance Certificate certifying that it had fulfilled its obligations under the subcontract (clause 6.8.1) (Final Acceptance Request).
• Within 15 working days, the head contractor was required respond to the subcontractor, endorsing the request or notifying the subcontractor that it had failed to achieve the requirements of Final Acceptance and providing reasons (clause 6.8.2).
• Clause 7.11 provided for liquidated damages at $10,000 per day for a failure to achieve Final Acceptance within 30 days of the Milestone Date for Facilities Completion.

The Arbitration

The head contractor argued that the Final Acceptance Request was premature as not all of its comments on the Criteria Documents had been closed out and as such, it was not required to respond under clause 6.8.2.

The subcontractor argued:

• the head contractor’s request to make minor amendments to the Criteria Documents after the issuing of the Final Acceptance Request did not justify refusal of the Final Acceptance Request;
• the head contractor was required to respond to the Final Acceptance Certificate under clause 6.8.2 and should have notified any problems with the Criteria Documents in that response; and
• the head contractor’s failure to respond to the Final Acceptance Request denied the subcontractor of the benefit of its contractual right to propose a remedy, which was a breach of the prevention principle.

The arbitrator:

• concluded that even if the Final Acceptance Request was premature, the head contractor was not relieved of its obligations under clause 6.8.2 to respond within 15 working days. To remain silent was inconsistent with the duty to cooperate and the implied obligation of good faith; and
• accepted the subcontractor’s prevention principle argument.

Questions of law

The head contractor sought leave to appeal the arbitral award on the following questions of law:

1. Whether the arbitrator wrongly construed the Exit Criteria.
2. Whether, under cl 6.8.2(b) of the subcontract, the head contractor was required to notify the subcontractor of its failure to meet the Exit Criteria.
3. Whether the arbitrator failed to properly consider whether the subcontractor was prevented by the head contractor from achieving Final Acceptance.

Decision

The court refused the head contractor’s application for leave to appeal the arbitral award because the head contractor was unable to satisfy the strict conditions for the granting of leave under section 34A(3) of the CAA.

The court can only grant leave if all of the conditions prescribed by s34A(3) are satisfied, as follows:

• the determination of the question will substantially affect the rights of one or more of the parties

The court noted that the legislation requires that the determination ‘will’ substantially affect rights, and arguing that the determination ‘could’ substantially affect rights was not sufficient. The court found this requirement was satisfied because if the head contractor’s construction of the contract was accepted, then the determination of this question ‘will substantially’ affect the rights of the parties.

• the question is one which the arbitral tribunal was asked to determine

The parties agreed that the requirements of this section was satisfied.

• the decision is so obviously wrong or is one of general public importance and is at least open to serious doubt

The head contractor failed to satisfy this condition for all three questions of law.

The head contractor argued that the ASDEFCON and Facilities Contracts are widely used by the public in Australian defence contracting, and therefore the determination of the first and second questions of law would be in the public interest. The court, although recognising the wide use of the two contracts, rejected the argument on the basis that the bespoke amalgamation was unique to the project and as such would not give guidance on the construction of defence contracts more broadly.  

Further, the court did not find the arbitrator’s decision in relation to the first two questions of law was open to serious doubt as the arbitrator had applied well-established principles of contract interpretation in reaching his determination.

The third question of law related to the prevention principle, being a general legal principle. It was not clear to the court how the arbitrator’s treatment of this issue was said to give rise to a question of general public importance and as such, the requirement was not satisfied. Nor was the court satisfied that the arbitrator’s decision was open to serious doubt. The head contractor had argued that the subcontractor’s claim was for a ‘loss of opportunity’ and the subcontractor was required to establish a counterfactual, being that it would have completed its obligations under the subcontract earlier if the head contractor had responded to the Final Acceptance Certificate. The court noted that while this may have been arguable, no authority was cited in support of this proposition.

• despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the court to determine the question.

Due to the head contractor’s failure to satisfy the preceding requirements, the court did not consider it was necessary to consider this condition.