Sabemo (Sa) Pty Ltd V. AIW Engineering Pty Ltd File No. SCGRG 92/36 Judgment No. 3630 Number of pages - 15 Arbitration (1992) 9 BCL 280; [1992] SASC 3630 (24 September 1992), Supreme Court of South Australia

Valuation of variation - arbitrator finding that there was additional work/a variation in that wall frames had to be erected to stricter than specified tolerances - "on the evidence there was a great deal of rework required, including the application of 'massive' amounts of heat, to get the frames into their correct position." (11) - arbitrator making assessment/valuation of ($50k) applying Chaplin v Hicks/best estimate rule - ambiguous award in that arbitrator also stating that the respondent had "failed to prove its costs" ($70k approx) - appellant contending that as a matter of law there was no factual basis and/or evidential basis (8 and 10) for the arbitrator’s assessment/valuation - respondent contending (11) that " it had been established that there was a sound basis [ie some change = some additional entitlement = liability/duty to assess/value - best estimate rule applies] for the variation, there was sufficient evidence upon which the Arbitrator could make his assessment of the claim. His [the Arbitrator’s] conclusion that the respondent ‘had to do a great deal more to prove its costs’ should be interpreted as meaning to prove all of its costs" - wording of contractual requirement as to proof of costs also considered (9) - Held [incorrect decision]: (11) there was no "basis to interpret the findings and conclusions of the Arbitrator or his approach to the assessment in [the way contended for by the respondent]" - since the costs had not been proved there was no evidential basis for the assessment/award [Note: this statement was incorrect as a matter of law - the arbitrator was under a duty to assess the change in question] - Chaplin v Hicks distinguished/does not apply where the issue is one of lack of proof (13) - case decided on the basis that there was no evidence as to the amount of loss [The estimated costs submitted by the claimant amounted to evidence of the amount of loss: eg Penvidic Contracting case] and that the arbitrator had used his own (expert) knowledge in making the assessment [see article/Missing Evidence] - continue at para 13 - "It seems clear that what the Arbitrator did was to conclude that some cost must have been incurred by the variation, but the evidence did not permit him to find what that cost was or its value." - Arbitrator should not have entered into speculation where no proof of costs, should have followed approach in Tate and Lyle [Tate and Lyle was overruled by the Court of Appeal in Alger, Brownless (article/Missing Evidence)]
Relevant extracts from Judgment
Evidence of some change having some cost implication (= duty to assess/value)

". ....on the evidence there was a great deal of rework required, including the application of 'massive' amounts of heat, to get the frames into their correct position."

Quantum Evidence
"3. ....The Arbitrator rejected the claims of the respondent except that he decided that the respondent was entitled to the tolerances variation. The respondent claimed $72,023.66 which was particularized as follows:-
Labour 2 men 9 hours $33.93 $ 610.74
Scissor Lift Agreed Rate 9 hours $60.00 $ 540.00
Consumables Agreed Amount $ 60.00
Claim per Bay $ 1,220.74
Claim for 59 Bays $72,023.66"
Arbitrator's (ambiguous) reasoning
"4. ..."My view is that the quantum aspects of the claim were not properly pursued by the Sub-contractor, and that the Sub-contractor had to do a great deal more to prove its costs in the arbitration. First, the Sub-contractor had to establish what was allowed, or what should have been allowed for the work which was specified, and, on Mr. Furler’s evidence, this information was available, although the amount of detail contained in his tender estimate was not made known in the hearing. Mr. Cawkwell said that in the estimate ‘only minor work’ was allowed to get the frames straight, but, without quantification, this statement was of little assistance. Secondly, having established what was allowed for the work which was specified, the Sub-contractor then had to show that the amounts which were allowed were reasonable; Finally, the Sub-contractor, to prove the actual cost of the variation work, had to establish the cost of erecting and plumbing the wall frames, bay by bay, around both buildings, by reference to site records. Further, taking into account the actual work methods on the site the Sub-contractor would have to identify the costs which were the subject of the Cleats Variation, and costs of inefficient and remedial work which were properly to the Sub-contractor’s account. If all of this had happened, then there would have been the basis for a measurement of the actual cost of the variation, which is the requirement of Clause 10.19. [Note: This conclusion was based on a narrow and incorrect construction of the relevant clause. Estimated costs are relevant and admissible evidence of the cost of the work: Penvidic] Instead, the Sub-contractor relied on the proposition [estimated costs] that the work to achieve the more stringent tolerances required 2 extra welders and 1 extra lift, on each bay for 1 day, and, that this was part of the extra resources that Mr. Furler put on to the project. This, according to Mr. Cawkwell was the average requirement, for each bay over the whole project, and Mr. Holliday said that it was a ‘consensus’ emerging from the relevant discussions. However, there was little to back up this assertion, and, measured in relation to an obligation to prove [actual] costs it was a poor effort, as was the use of hire rates and charge and rates which were suspect - a matter that I dealt with earlier in discussing the Cleats Variation. In the arbitration, the Builder said that there was no agreement as to the value of the Tolerances Variation, and in my view the Sub-contractor failed to prove its costs.""
Arbitrator nevertheless (correctly) applying the Chaplin v Hicks/best estimate rule

"6. "...However, as I have said the work was a variation, and the Sub-contractor has an entitlement, and I am left with no alternative but to make my own assessment; my assessment must be arbitrary, to some extent, but following Chief Justice Bray [ie, the Taylor Woodrow case, in which the Chaplin v Hicks/best estimate rule was applied] I take into account ‘all the contingencies, probabilities, and chances involved’. My assessment is that the Sub-contractor should be compensated for the Tolerances Variation in the sum of $50,000.00 and that is my determination. The assessment does not arise out of a particular arithmetic exercise; rather, it is based on an assessment of the extent to which the Sub-contractor’s estimate of the value of the work [Note: that evidence was admissible and correctly taken into account: Penvidic] may be tainted by a need to recover from what was clearly a project with emerging financial problems, and by the inclusion of work which was actually involved with the welding of end verticals, as well as work necessary to overcome the Sub-contractor’s own deficiencies, both in relation to the frames, and the fascias, in the early period. [As to credibility of evidence/weight to be given thereto, see Quantum of Damages] The Builder warned me against ‘guessing’; I say that this is not a guess but a best assessment that I can make in the circumstances.""

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