Samoa National Provident Fund v Apia Construction and Engineering Ltd [2008] WSSC 1 (30 January 2008)

IN THE SUPREME COURT OF SAMOA

HELD AT APIA

IN THE MATTER OF THE ARBITRATION ACT 1976 SECTION 1392

BETWEEN

SAMOA NATIONAL PROVIDENT FUND

A body corporate established pursuant to the National Provident Fund Act 1972 having its registered office at beach Road, Apia.
Applicant

AND

APIA CONSTRUCTION & ENGINEERING LIMITED

A duly incorporated company having its registered office at Ululoloa.
Respondent

 

DATES OF HEARING: 24 May 2007, 21 June 2007

DATE OF JUDGMENT: 30 January 2008

 

JUDGMENT OF SAPOLU CJ

 

Introduction

 

1. These proceedings arose out of work performed pursuant to a contract of service between the Samoa National Provident Fund as principal and owner of the premises and Apia Construction and Engineering Ltd as contractor and construction company. For the purpose of clarity and in order to avoid any possible confusion, I have decided to refer in this judgment to the Samoa National Provident Fund as “the applicant” and to the Apia Construction and Engineering Ltd as “the respondent”. The parties in their respective affidavits and counsel in their respective submissions have referred to the Samoa National Provident Fund as “the respondent” and the Apia Construction and Engineering Ltd as “the applicant” for reasons I need not set out here. In my view, as it is the Samoa National Provident Fund which has brought these proceedings to Court, it would be more appropriate to refer to it as “the applicant” and to the Apia Construction and Engineering Ltd as “the respondent” in order to avoid any possible confusion.

 

2. On 12 January 2004, the applicant and the respondent entered into a lump sum contract for the construction of the two rental units on the Convent Street side of the applicant’s Molesi Complex at Savalalo in Apia as well as the construction of an arcade and the redevelopment of the two existing rental units on the Beach Road side of the same Complex. The contract price was $429, 253.68. The completion date of the contract was to be 2 April 2004 but it was subject to any extensions of time granted by the contract supervisor. Clause 15 of the contract, which is the arbitration clause, provides that any dispute involving the contract will be referred to arbitration under the Arbitration Act 1976.

 

3. According to the affidavit of 28 September 2005 by Joseph Tevita Malolo, the applicant’s current manager legal, the work was not completed by the respondent by 2 April 2004 and the completion date of the contract was extended to 12 April 2004. By 12 April 2004, the work was still not completed and the completion date was further extended to 24 May 2004. By 24 May 2004 the work was still not completed and a meeting was held on 8 June 2004 to discuss why the work was still incomplete. Attending that meeting were the respondent’s managing director, the applicant’s chief executive officer, the applicant’s then manager legal, the project manager, and the contract supervisor. It appears from the affidavits filed by the parties that there is dispute as to the causes of the delay and who was responsible for the delay.

 

4. Following the meeting on 8 June 2004, the applicant served on the respondent a letter of termination of contract dated 9 June 2004. According to the aforesaid affidavit of 28 September 2005 by Mr Malolo, on 13 June 2004 the respondent submitted its final account for payment. The total amount claimed by the respondent in its final account was $131, 969.39. The applicant then engaged the services of a quantity surveyor from New Zealand to value that part of the work which was still incomplete at the time the contract was terminated. On the basis of the valuation report by the quantity surveyor, the applicant paid to the respondent’s solicitors the sum of $54,877.26 as the balance of the sum due to the respondent for work it had done up to the time of termination of the contract. This was followed by much correspondence between the respondent’s solicitors and the applicant as the respondent’s final account was for a much higher amount.

 

5. On 3 November 2004, the respondent’s solicitors advised the applicant’s then manager legal that there was a dispute under the contract and proposed arbitration pursuant to the arbitration clause of the contract. It is not entirely clear what issue or issues were in dispute at that stage. But presumably, the amount due to the respondent under its final account was an issue. It also appears from the subsequent correspondence dated 23 February 2005 from the respondent’s solicitors to the applicant’s then legal manager that the termination of the contract alleged to have been “unfair” was also an issue. It also appears from that same letter that by 23 February 2005, there had already been some discussion between the respondent’s solicitors and the applicant’s then manager legal about going to arbitration with the respondent’s solicitors being eager to set a hearing date for arbitration. By letter dated 9 March 2005, the respondent’s solicitors wrote to the applicant’s manager legal that the issues of the dispute relate only to the “unfair” termination of the contract. The respondent’s solicitors requested in the same letter that the arbitration hearing be set down for 27 April 2005. By letter dated 15 April 2005, Mr Malolo as the applicant’s new manager legal agreed to refer the dispute to arbitration and suggested the names of three persons as potential arbitrators. Of those three persons, two are civil engineers and one is an accountant. By letter of 28 April 2005, the respondent’s solicitors responded and suggested as arbitrator Mr William (Bill) Gordon a civil engineer with extensive experience in the construction field. The parties then agreed to appoint Mr Gordon as arbitrator of their dispute. Subsequently, the parties further agreed on 3 June 2005 for the preliminary hearing to take place on 17 June 2005 and the substantive arbitration hearing to take place on 30 June 2005. It is therefore clear that the only hearing dates that were set with the mutual agreement of the parties were 17 June 2005 for the preliminary arbitration hearing and 30 June 2005 for the substantive arbitration hearing. This was after the arbitrator was appointed.

 

6. The issues that were referred to arbitration were the alleged “unfair and illegal” termination of contract and non-payment of outstanding monies due on the contract”. This appears from the letter dated 15 June 2005 from the respondent’s solicitors to Mr Malolo and is annexed as an exhibit to Mr Malolo’s affidavit of 3 April 2007. The same letter of 15 June 2005 shows that Mr Stevenson, one of the respondent’s solicitors, had communicated by telephone on the same date with the arbitrator. It is not shown from the said letter what was said during that telephone communication. This is one of the matters highlighted by Mr Malolo in his affidavit of 28 September 2005.

 

Preliminary arbitration hearing

 

7. The preliminary arbitration hearing went ahead on 17 June 2005 as scheduled. There are differences in recollection between Mr Malolo for the applicant on one hand and the respondent’s managing director and the arbitrator on the other as to who were in attendance at the preliminary hearing. There are also differences in recollection as to what was said at the preliminary hearing.

 

8. According to Mr Malolo in his affidavit of 28 September 2005, the preliminary hearing was held between the arbitrator, Mr Stevenson and Ms Grace Stowers as solicitors for the respondent, and himself as the applicant’s manager legal to decide the issues to be arbitrated upon. Both parties explained to the arbitrator the factual background of the dispute and what they believed the issues were. He pointed out to the arbitrator that the applicant’s position was that the decision to terminate the contract for service with the respondent was lawful in terms of the contract. He also pointed out that the presence of the quantity surveyor was important. Mr Malolo further deposes that Mr Stevenson for the respondent then said that the quantity surveyor’s involvement was not relevant and that ultimately it would be for the arbitrator to decide whether the quantity surveyor’s involvement was relevant. It seems to me that this must mean that it would ultimately be for the arbitrator to determine, at the substantive hearing, the relevance of the quantity surveyor’s evidence.

 

9. Mr Malolo also states in his affidavit of 28 September 2005 that the arbitrator was aware from the correspondence sent to him by Ms Stowers for the respondent that the applicant wanted the quantity surveyor to appear as a witness at the arbitration hearing and the parties to share the costs of bringing him to Samoa. The only correspondence from Ms Stowers to the arbitrator which is annexed to the said affidavit of Mr Malolo is a letter dated 15 June 2005. There is no express reference in that letter to a quantity surveyor being required by the applicant to appear at the arbitration hearing to give evidence. However, I assume that what Mr Malolo is saying in his affidavit relies on the last sentence of Ms Stowers letter to the arbitrator which states: “We enclose copy of correspondence received from the National Provident Fund and our reply as we feel that the content of this correspondence is for you to determine at the arbitration.” In this connection I refer to the disagreement between Mr Malolo and Ms Stowers as to the relevance of the quantity surveyor’s evidence and who should be responsible for the quantity surveyor’s costs as shown in the respective letters of 13 June 2005 and 15 June 2005. I should also note that Ms Stowers in her letter of 15 June 2005 said that if the arbitrator is persuaded that the quantity surveyor’s evidence is relevant, then he may request the respondent to contribute to costs in his award.

 

10. A timetable was then established for the parties to produce relevant documentation for the arbitrator’s perusal and for written submissions to be handed in. No rules or procedures were set or agreed upon as to how to proceed at the substantive arbitration hearing other than for the parties to bring their witnesses to the hearing. Mr Malolo says that he handed in the applicant’s relevant documentation and his written submissions in accordance with the timeframe.

 

11. According to the respondent’s managing director in his affidavit of 01 September 2005, he, his wife and his solicitors attended the preliminary hearing on 17 June 2005 together with Mr Malolo for the applicant and the arbitrator. In his affidavit of 28 March 2007, the respondent’s managing director deposes that only Ms Stowers but not Mr Stevenson was present at the preliminary hearing. This is in conflict with what Mr Malolo deposes to in his affidavit of 25 September 2005 that Mr Stevenson was present at the preliminary meeting and when Mr Malolo pointed out that the presence of the quantity surveyor was important, Mr Stevenson responded that the quantity surveyor’s involvement was not relevant and ultimately that was a matter for the arbitrator to decide. The arbitrator in his affidavit of 21 March 2007 deposes that he recalls that the only persons present at the preliminary hearing were himself, Mr Malolo, Ms Stowers and the respondent’s managing director and his wife. Neither counsel in these proceedings sought to call any oral evidence on this conflict in the affidavit evidence. In the circumstances it has not been possible to resolve this conflict one way or the other.

 

12. It is clear that the presence of the quantity surveyor to give evidence at the substantive arbitration hearing was a matter in dispute between the parties. In a letter dated 13 June 2005, Mr Malolo advised the respondent’s solicitors that the presence of the quantity surveyor at the substantive arbitration hearing is imperative and that the applicant would not agree to arbitration unless the quantity surveyor is present at the hearing and his costs shared between the parties. By letter dated 15 June 2005, the respondent’s solicitor Ms Stowers replied to Mr Malolo’s letter saying that the presence of the quantity surveyor and his evidence is totally irrelevant and erroneous to the issue to be determined by the arbitrator and their client does not want to contribute to the quantity surveyor’s costs; but if the arbitrator is persuaded that the quantity surveyor’s evidence is relevant, he may request their client to contribute to his costs in the award.

 

13. The respondent’s managing director also says in his affidavit of 01 September 2005 that by letter of 16 June 2005, Mr Malolo advised the respondent’s solicitors that the applicant is not ready to proceed with the preliminary hearing scheduled for the following morning as the applicant’s chief executive officer was overseas and he is not able to confirm with him the issues to be discussed at the preliminary hearing. Mr Malolo nonetheless turned up the following morning at the preliminary hearing.

 

14. According to the affidavits of 01 September 2005, 22 May 2006 and 28 March 2007 by the respondent’s managing director, at the preliminary hearing on 17 June 2005, the arbitrator said that he required further information from both parties and then made the following directions:

 

(a) each counsel was to file written submissions by Thursday 23 June 2005,
(b) the arbitrator to request any further information required from the parties,
(c) the arbitration hearing to take place on Thursday, 30 June 2005,
(d) all witnesses to be present at the arbitration hearing.

15. Mr Malolo brought up at the preliminary hearing the issue of the applicant’s witnesses not being present and the arbitrator advised the parties that the arbitration hearing would proceed on 30 June 2005 regardless of whether witnesses were present or not. It is not mentioned in any of the affidavits by the respondent’s managing director whether the question of the quantity surveyor’s presence at the arbitration hearing being relevant and necessary was raised for the arbitrator’s consideration at the preliminary hearing.

 

16. Apparently, both counsel for the applicant and the respondent filed their written submissions within time.

 

17. In the affidavit of 21 march 2007 by the arbitrator, the arbitrator states that the only persons he recalls being present at the preliminary hearing which was held at the office of the solicitors for the respondent were himself, Mr Malolo, Ms Stowers for the respondent, and the respondent’s managing director and his wife.

 

18. The arbitrator further deposes in his affidavit that from the outset of the preliminary hearing, he advised both parties that in all disputes involving a building contract which includes drawings and specifications, such drawings and specifications were the core reference in any dispute. He also says that he advised the parties that he wanted each side to have the opportunity to give the background of the case as they saw it and also to discuss what issues were in dispute. Each party, through its legal representative, then gave a brief outline of its case.

 

19. The arbitrator further says in his affidavit that he asked questions of both Mr Malolo and the respondent’s managing director. In response to some of the questions he put to Mr Malolo, Mr Malolo replied that the contract supervisor would be the best person to answer those questions but he was not present. Mr Malolo was also able to confirm that there were no site meetings held that the applicant had records of. The arbitrator also recalls Mr Malolo saying that the contract supervisor would be present at the actual arbitration hearing.

 

20. The arbitrator also says that he recalls Mr Malolo saying that the applicant believed that its termination of the contract was lawful because of the delay by the respondent in completing the contract. He also recalls Mr Malolo giving a summary of the steps the applicant had taken to complete the project which included costs of another contractor completing the project and having a quantity surveyor inspect the unfinished work shortly after termination. The arbitrator then refers in his affidavit to the response from the respondent’s managing director.

 

21. The arbitrator then goes on to comment on what Mr Malolo says in his affidavit of 28 September 2005 that he had pointed out to the arbitrator at the preliminary hearing that the presence of the quantity surveyor was important. According to the arbitrator, he recalls Mr Malolo mentioning the quantity surveyor but that was in reply to his questioning Mr Malolo for confirmation of the quantity surveyor’s name; Mr Malolo never raised the presence of the quantity surveyor as being a specific issue that he needed to rule on. The arbitrator also states that at the time he did not have any information on the quantity surveyor or a written report. Neither counsel at the hearing of these proceedings sought leave to call oral evidence on this apparent conflict in the affidavit evidence.

 

22. The arbitrator also says that he mentioned to both parties at the preliminary hearing that the substantive arbitration hearing would proceed on 30 June 2005 regardless of whether their witnesses were present; so if the applicant believed that the quantity surveyor was relevant to its case, it should have ensured that he was present at the hearing on 30 June 2005. He also recalls that the parties were in agreement that there would be no further adjournment. The arbitrator then says that the following were the issues of dispute confirmed at the preliminary hearing:

 

(a) unfair termination,
(b) quantum/outstanding payments,
(c) breach of contract.

23. The arbitrator did not note any objection from either party to any of the issues of the dispute. Mr Malolo in his affidavit of 16 March 2007 deposes that right up to the arbitration proceeding he had consistently stated on behalf of the applicant that the only issue for arbitration was the amount due (if any) to the respondent on the contract. He also deposes in his affidavit of 28 September 2005 that the arbitrator did not issue any notice to the parties defining the issues to be dealt with at the arbitration. It would appear from here that there is another conflict between what the arbitrator is saying in his affidavit and what Mr Malolo is saying. Unfortunately, neither counsel sought to call oral evidence to clarify these matters.

 

24. After the preliminary hearing and prior to the substantive arbitration hearing, the arbitrator received from both parties written submissions and documentation which included a report by the quantity surveyor. Whilst the written submissions by the respondent’s solicitors have been produced in these proceedings, the submissions by the applicant’s legal manager are not.

 

Substantive arbitration hearing

 

25. In his affidavit of 28 September 2005, Mr Malolo deposes that when he arrived at about 9.30 am in the morning and was called into the room where the substantive arbitration hearing was to be held, he found the respondent’s solicitors Mr Stevenson and Ms Stowers as well as the arbitrator already seated inside the room. He says that he found this quite strange as he would have expected to be met outside by the respondent’s solicitors and then go into the room together. However, Mr Malolo did not, at that time, mention his concern to the arbitrator or the respondent’s solicitors.

 

26. Mr Malolo then deposes in his said affidavit that the arbitrator made some preliminary remarks about the issues at hand and said to him that in a construction contract certain clauses like a programme construction clause and a liquidated damages clause were needed to cover certain situations. The arbitrator also stated that if time were to be of the essence, that needed to be stated in the contract. Mr Malolo then states that it was obvious that the arbitrator had already made up his mind as those remarks were directed at the applicant whom he represented.

 

27. Mr Malolo also says that the arbitrator then asked the parties solicitors as to how they wanted to proceed and stated that he wanted to take a site tour of the work to gain a more clear understanding of the work. Mr Malolo did not say anything but it is not clear whether the respondent’s solicitors said anything. Mr Malolo says at that time he was conscious that the contract supervisor had not yet turned up in order to be present at the site tour of the work.

 

28. It appears from Mr Malolo’s supplementary affidavit of 3 April 2007 that on 19 May 2005 he had written to the contract supervisor notifying him of the arbitration hearing. He had also met with the supervisor and discussed the arbitration with him.

 

29. During the site tour, the arbitrator questioned those who were with him on what work was undertaken and where certain variations were completed. Mr Malolo says that most of the explanation to the arbitrator’s questions was given by the respondent’s managing director as the supervisor was not present. The arbitrator asked Mr Malolo and the project manager several times about the work and they replied that they needed to wait for the supervisor to turn up so that he could answer the arbitrator’s questions about the work.

 

30. Mr Malolo also says that when they returned to the venue of the arbitration hearing and conducted the examination of the witnesses, he again reminded the arbitrator that the supervisor had not turned up but the arbitrator did not seem concerned. Mr Malolo further says that following the evidence of the project manager, he again requested if the hearing could be adjourned part-heard so that the supervisor could be present and be examined. The arbitrator declined the request. The hearing then concluded with the arbitrator saying that his ruling would be delivered in two weeks.

 

31. In the affidavit of 28 September 2005 by the contract supervisor who was engaged by the applicant to prepare the building plans for the work to its Molesi Complex and to supervise the work, the contract supervisor states that he had received a letter from the applicant to attend the arbitration hearing on 30 June 2005. Unfortunately, on that day he had a bad attack of gout and had to use a wheelchair to see a doctor at the hospital. The supervisor in his affidavit also puts the blame for the delay in the completion of the contract on the respondent’s managing director.

 

32. In the affidavit of 22 May 2006 by the respondent’s managing director, he says that he, his wife and respondent’s solicitors attended the substantive arbitration hearing. The respondent’s solicitors went inside the room where the hearing was to be held first whilst he and his wife waited outside. As part of the substantive hearing that was held, all the solicitors, he and his wife, the project manager who was called as a witness by the applicant and the arbitrator visited the site of the work.

 

  1. At the site, the arbitrator asked the respondent’s managing director to explain the work and the variations that were completed. After the site tour everyone returned to the venue of the arbitration hearing. The respondent’s managing director and his wife were then called in. The managing director was asked a series of questions by the arbitrator, in particular, for clarification of part of the work that was completed and for further information regarding the site meetings and meetings between him and the contract supervisor.
  2. The respondent’s managing director also says in his affidavit of 22 May 2006 that he recalls the applicant’s solicitor, Mr Malolo, saying that he could not get hold of the supervisor and that “ he could not be bothered sending someone down to get him because he was never working all the way near the airport.” There is no mention of this in any of the affidavits by Mr Malolo. The respondent’s managing director then says that he believes that the arbitrator acted fairly at the arbitration hearing. It should also be noted here that the managing director seems to say that the supervisor was responsible for the delay in the timely completion of the contract.
  3. In the affidavit of 21 March 2007 by the arbitrator, he says that after the preliminary hearing and prior to the substantive hearing, he had the opportunity to study the contract documents provided by the parties in detail as well as the written submissions by the parties solicitors. The contract documents included the specifications, the drawings and the quantity surveyor’s report. The specifications and drawings must be “the building plans” prepared by the supervisor as mentioned in Mr Malolo’s affidavit of 28 September 2005. The quantity surveyor’s report must be the report by the quantity surveyor who assessed the value of the work still to be done after the contract was terminated.
  4. The arbitrator further says that when he arrived at the room where the arbitration hearing was to take place, there was no one present in the room. Shortly after, Mr Stevenson and Ms Stowers entered the room and proceeded to place their files and documents on the table. The arbitrator says the only communication between them was a “Good morning.” A few minutes later Mr Malolo also entered room.
  5. The arbitrator says he then opened the arbitration hearing with a short introduction. He then outlined the issues to be arbitrated and there appeared to be an agreement to proceed with the hearing as neither party asked for an adjournment.
  6. The arbitrator then comments in his affidavit on what Mr Malolo deposes to in his affidavit of 28 September 2005 about the arbitrator questioning him that in a construction contract certain clauses like a programme construction clause, a liquidated damages clause and a clause making time of the essence were needed in the contract to cover certain situations. The arbitrator says that there was no liquidated damages clause in the contract. He also says that his comments as to time being of the essence needing to be specifically stated in the contract was very important as the delay in completing the work was the applicant’s ground for terminating the contract. Specifically stating that “time is of the essence” is a normal standard clause together with a liquidated damages clause in a construction contract. The arbitrator then strongly denies that his remarks on those very important clauses show that he had already made up his mind about the case. The reason why his remarks were directed at the applicant was because it was the applicant that had drafted both the contract and the drawings.
  7. It is also stated by the arbitrator that he commented on the lack of basic details on the architectural drawings, lack of specifications for the work to be done, and the absence of site correspondence. When the arbitrator asked Mr Malolo whether there were any site minutes, file notes, correspondence between the applicant and the supervisor or from the supervisor to the respondent as contractor, Mr Malolo replied he did not know. It was, however, confirmed by Mr Malolo that it was the supervisor who drafted the drawings. The arbitrator then sets out the duties which in his opinion, based on many years of experience, the supervisor should have carried out.
  8. It is also deposed by the arbitrator in his affidavit that it became obvious to him at the arbitration hearing that there was no written material whatever to show, inter alia, that the supervisor was ever on site or to back up his alleged actions. The arbitrator also queried Mr Malolo on the contract specifications but he did not have an answer. When the project manager was questioned by the arbitrator, he stated that the supervisor was the best person the answer the questions regarding the scope of work and variations to the project.
  9. The arbitrator confirms the site tour which he says was necessary. He says that during the site tour he asked questions of Mr Malolo and the project manager. Mr Malolo mentioned that the supervisor should have been present to answer the questions. At that point, the arbitrator was under the impression that Mr Malolo was still expecting the supervisor to arrive. The arbitrator also says that he did not forewarn the applicant of the site tour and he does not believe this should have been problematic for the applicant if all of its witnesses had been present at the hearing.
  10. On returning from the site tour, the arbitrator revisited the drawings and Mr Malolo and the project manager were asked about the lack of details on the drawings, for example, windows, doors and beams which were not present on the drawings yet they were in the building. Mr Malolo and the project manager could not answer any of those questions.
  11. In relation to the report by the quantity surveyor engaged by the applicant, the arbitrator confirms that he advised both parties at the arbitration hearing that he had found the report confusing. The arbitrator then explains his reasons as to why he had found the report confusing. His reasons are technical reasons.
  12. At the closing of the arbitration hearing, Mr Malolo requested that the hearing be adjourned so that the supervisor could be present. The arbitrator advised Mr Malolo that he had already stated at the preliminary hearing that all witnesses had to be present at the substantive hearing and both parties had had two weeks to ensure that their witnesses were present. Mr Malolo could not give any explanation for the supervisor’s absence. The arbitrator also refers to s.11 of the Arbitration Act 1976 which empowers any party to a submission to arbitration to subpoena any person to testify at an arbitration hearing.
  13. The arbitrator then goes on in his affidavit to comment on certain points raised by Mr Malolo in his affidavits. In relation to the telephone communication between Mr Stevenson and the arbitrator as mentioned in the letter of 15 June 2005 from Ms Stowers to the arbitrator, the arbitrator says that the telephone discussion between Mr Stevenson and himself was an advice from Mr Stevenson that they had received a letter from the applicant’s solicitor and they would be forwarding a copy of that letter to him. He denies any collusion between himself and Mr Stevenson during the telephone discussion.
  14. The arbitrator then reiterates that Mr Malolo did not, at the preliminary hearing, raise as a specific issue which required a ruling that the presence of the quantity surveyor at the hearing was needed. He had also made it quite clear to the parties that their witnesses had to be present at the substantive hearing to take place on 30 June 2005.
  15. The parties had also agreed to the issues to be referred to arbitration. The arbitrator denies he misconducted himself or showed bias. He also denies he misconducted the proceedings.

Arbitration Award

 

  1. The award handed down by the arbitrator on 26 July 2005 sets out the arbitrator’s findings and his reasons for those findings. He found the termination of the contract to be wrongful and therefore the applicant to have been in breach of contract. This finding is based on the documentation deficiencies and contract supervision deficiencies by the supervisor which are set out and explained in the award. The award is also quite critical of the drawings and specifications prepared by the supervisor and which in the arbitrator’s opinion were defective in several material respects.
  2. The award includes an amount that should be paid to the respondent on the contract, legal fees and damages for breach of contract. These damages were for loss of profit, loss of opportunity and injury to business. The total amount of the award is $167, 748.80 which was to be paid in 14 days.

Motion to set aside award

 

50. Following the award, the respondent filed Court proceedings for its enforcement. The applicant then filed a motion to set aside the award. This is the motion which is the subject of the present proceedings and which was served on the respondent.

 

51. Mrs Drake, counsel for the applicant, says in her written submissions that the applicant relies on s.13 (2) of the Arbitration Act 1976 and the inherent jurisdiction of the Court. Section 13(2) provides:

 

” Where an arbitrator or umpire has misconducted himself or the proceedings or any arbitration or award has been improperly procured, the Court may set the award aside.”

 

Section 27 (1) provides that in all cases of reference to arbitration the Court may remit the matters referred, or any of them, to the reconsideration of the arbitrator or umpire. So ss. 13(2) and 27(1) give the Court power to set aside an award or remit any matter contained in a reference for reconsideration by an arbitrator.

 

52. The motion to set aside is based on five grounds. The first ground is that the arbitrator has misconducted the proceedings by:

 

(a) failing to state a case to the Court to determine the legal issue of whether the termination by the contract was unlawful;

 

(b) failing to allow the applicant the opportunity to call the contract supervisor whose evidence was crucial to the issue of delay in completing the work in accordance with the contract;

(c) failing to make a preliminary ruling on the issue of whether the presence and the evidence of the quantity surveyor was relevant at the arbitration hearing to the determination of the dispute between the parties;

(d) dismissing the valuation report by the quantity surveyor on the basis that the arbitrator could not understand the report;

(e) failing to issue clear guidelines as to the procedure to be followed at the arbitration hearing;

(f) basing his ruling on irrelevant considerations; and

(g) failing to ascertain/determine proper terms of reference and the issues to be addressed.

53. The second ground of the motion is that the arbitrator misconducted himself and showed bias against the applicant; the third ground is that the termination of the contract should not have been an issue for arbitration as the applicant had accepted the termination by correspondence and by conduct and was therefore estopped from raising the matter; the fourth ground is that there is a clear error of law and/or fact on the face of the award; and the fifth ground is that the award is obviously wrong.

 

The Law

 

54. The Arbitration Act 1976 is based on the Arbitration Act 1908 (NZ) which has been repealed. The current New Zealand legislation on arbitration is the Arbitration Act 1996 (NZ) which is strongly influenced by the UNCITRAL Model Law on International Commercial Arbitration. Caution is therefore required when reading or applying modern New Zealand case law to disputes or litigations which arise under our own Act.

 

(a) Approach to a motion to remit or set aside an award or remove an arbitrator.

55. The modern general approach of the Courts to a motion to remit or set aside an arbitration award or to remove an arbitrator is reflected in several cases. I need only refer to two English cases. In Mediterranean and Eastern Export Co Ltd v Fortress Fabrics (Manchester) Ltd [1948]2 A11 ER 186, Lord Goddard CJ said at p 188:

 

“The day has long gone by when the Courts looked with jealousy on the jurisdiction of arbitrators. The modern tendency is, in my opinion, more especially in commercial arbitrations, to endeavour to uphold awards of the skilled persons that the parties themselves have selected to decide the question at issue between them. If an arbitrator has acted within the terms of his submission and has not violated any rules of what is so often called natural justice the Courts should be slow indeed to set aside his award.”

 

56. In Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985]2 EGLR 14, Bingham J said at p.14:

 

“[It] is perhaps right to emphasise two things. The first is that, as a matter of general approach, the Courts strive to uphold arbitration awards. They do not approach them with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults in awards and with the objective of upsetting or frustrating the process of arbitration. Far from it. The approach is to read an arbitration award in a reasonable and commercial way, expecting, as is usually the case, that there will be no substantial fault that can be found with it. The second point is this. The jurisdiction of the Court under section 23 rests on what is, most unfortunately, called ‘misconduct.’ That gives the impression that some impropriety or breach of professional conduct or lack of integrity or incompetence is involved. In 99 cases out of 100 an application under section 23 involves nothing of the kind. It involves, usually, merely a procedural lapse of a kind that any arbitrator or magistrate or judge may be guilty of.”

 

57. In an extra-judicial address by Lord Cooke of Thorndon entitled Party Autonomy [1999] V U W L R 257, His Lordship said:

 

“[The] pressures of judicial workloads have led the Courts to entertain towards arbitrators a sense of gratitude rather than rivalry, respect rather than contempt.”

 

(b) Misconduct

58. There are a number of authorities which explain the concept of “misconduct” in the context of arbitration. Some of these authorities were cited by Ms Stowers for the respondent in her written submissions which have been very helpful on this aspect of the case. In London Export Corporation Ltd v Jubilee Coffee Roosting Co Ltd [1958]1 A11 ER 494, Diplock J (as he then was) said at pp. 497-498:

 

“[The] use of the expression ‘misconduct’ with its suggestion of moral values, to include the kind of alleged irregularity in procedure with which this case is concerned, tends to misunderstanding. I think it helpful…. to start by analysing what are the tasks of the Court when asked to set aside an award on the ground that the proper procedure has not been followed in the arbitration.

 

The first task of the Court is to construe the arbitration agreement that is, to ascertain to what procedure the parties have agreed. At this stage of its task the Court is not directly concerned with whether the agreement ‘violated any rules of what is so often called natural justice’…. Where the award has been made by the arbitrator in breach of the agreed procedure, the applicant is entitled to have it set aside, not because there has been necessarily any breach of the rules of natural justice, but simply because the parties have not agreed to be bound by an award made by the procedure in fact adopted….When the arbitration agreement has been construed and no breach of the agreed procedure found, there may be nevertheless arise a second and quite separate question; that is, whether, as a matter of public policy, a particular award, made pursuant to that agreed procedure, ought not to be enforced and ought, therefore, to be set aside; for an arbitrator’s award, unless set aside, entitles the beneficiary to call on the executive power of the state to enforce it, and it is the function of the Court to see that that executive power is not abused.

 

It is in relation to this second and separate question that the rules of what is so often called natural justice may arise directly. There may be a variety of grounds of public policy on which an award may be set aside. That it has sought to oust the statutory jurisdiction of the Court to direct a special case to be stated is one example…. That its effect is to enforce an illegal contract is perhaps another….and I apprehend that an award obtained in violation of the rules of natural justice where there was no breach of the agreed procedure would be set aside on the grounds of public policy; as for instance, where an arbitrator manifested obvious bias too late for an application for his removal to be effective before he made his award

 

Much of the confusion is caused by the fact that the expression ‘misconduct’ of the arbitrator is used to describe both these quite separate grounds for setting aside an award; and it is not wholly clear in some of the decided cases on which of these two grounds a particular award has been set aside.”

 

59. In the earlier case of Williams v Wallis and Cox [1914]2 K B 478, Lush J said at p.484:

 

“Misconduct is not necessarily personal misconduct. If an arbitrator for some reason which he thinks good declines to adjudicate upon the real issue before him, or rejects evidence which, if he had rightly appreciated it, would have been seen by him to be vital, that is, within the meaning of the expression, ‘misconduct’ in the hearing of the matter which he has to decide, and misconduct which entitles the person against whom the award is made to have it set aside.”

 

  1. In the same case, Atkin J said at p.485:

“The term [‘misconduct’] does not really amount to much more than such mishandling of the arbitration as is likely to amount to some substantial miscarriage of justice, and one instance that may be given is where the arbitrator refuses to hear evidence upon a material issue.”

 

61. In 4 Halsbury’s Laws of England vol 2, para 622, the learned author in explaining what constitutes ‘misconduct’ and the confusion that has resulted from the use of the term ‘misconduct’ in the context of arbitration, points out that it is difficult to give an exhaustive definition of what may amount to misconduct. He then gives examples of what may be misconduct. They include where the arbitrator fails to decide all matters which were referred to him, where the arbitrator purports to decide matters which were not referred to him, where the arbitrator has failed to act fairly towards both parties, or where the arbitrator refuses to state a special case himself or allow an opportunity of applying to the Court for an order directing the statement of a special case. Examples of what is misconduct are also given in Commercial Arbitration (1989) 2nd ed by Mustill and Boyd at p.551.

 

62. Perhaps, I should note here that in some cases the phrase “technical misconduct” has been used. This is because the word “misconduct” came to be understood by arbitrators as implying impropriety on their part when nothing of the sort had occurred at the arbitration hearing and despite denials by the Courts that nothing of the sort had occurred. The phrase technical misconduct therefore appears on occasion in the case law. In Thomas Borthwick (Glasgour) Ltd v Faure Fairclough Ltd [1968] 1 Lloyds Rep 16, Donaldson J said at p.29:

 

“Lawyers are well aware that arbitrators take it ill if they are accused of misconduct, perhaps because the word misconduct has acquired a technical meaning in a quite different realm which occupies so much of the time of the Probate, Divorce and Admiralty Division of the High Court. It is therefore customary to add, in an apologetic parenthesis, that what is meant is technical misconduct. Whether or not ‘misconduct’ is an appropriate term, ‘technical’ is certainly inappropriate.”

 

Under the modern Arbitration Act 1996 (UK), the phrase “serious irregularity” is now used instead of the term “misconduct”.

 

(c) What is not misconduct

63. Ms Stowers for the respondent refers to several cases where the conduct of the arbitrator does not amount to misconduct which warrants the setting aside of an award. It would be helpful to refer to some of those cases in order to be clear about what amounts to misconduct as explained in the authorities and what does not. In Gillespie Bros & Co v Thompson Bros & Co (1922)13 Ll. L. Rep 519, Atkin LJ said at p.524:

 

“It is no ground for coming to a conclusion on an award that the facts are wrongly found. The facts have got to be treated as found…Nor is it even a ground for setting aside an award that there is no evidence on which the facts could be found, because that would be a mere error in law, and it is not misconduct to come to a wrong conclusion in law and would be no ground for ruling aside the award unless the error in law appeared on the face of it….”

 

64. In United Sharebrokers Ltd v Landsboraugh Estates Ltd (1990) (unreported judgment of the High Court of New Zealand delivered on 18 May 1990), Tipping J said:

 

“[In] my judgment it is entirely for an arbitrator or umpire as to what weight, if any, he gives to the evidence presented to him and indeed to the submissions which are tendered on each side….It is not misconduct to come to a decision considered by the Court to be wrong on the facts or indeed on the law.”

 

65. Tipping J then cites from Atkin LJ in Gillespie Bros & Co v Thompson Bros & Co (1922) 13 Lt. L. Rep. 519 at p.524 and went on to say:

 

The position is put this way in Russell on Arbitration 20th edition (1982) at p 422 where the learned authors say:

 

‘It is not misconduct on the part of an arbitrator to come to an erroneous decision, whether his error is one of fact or law and whether or not his findings of fact are supported by evidence.’

 

Reference can also be made to Commercial Arbitration by Mustill & Boyd 2nd edition (1985) at page 560 to the some effect and The Vasso [1983]2 Lloyds Rep346 at 350.

 

In New Zealand this line of authority is exemplified by the decision of the Court of Appeal in Manukau City Council v Fletcher Mainline Ltd [1982] 2 NZLR 142 where at page 146 Woodhouse P adopted the statement from Russell mentioned above. The unwillingness to characterise perceived errors of fact as amounting to misconduct goes back in New Zealand at least as far as the decision of Stout CJ in Mayor of Wellington v Aitken Wilson & Co (1914)33 NZLR 897.

 

Mr O’Brien was quite right when he suggested that if the plaintiff was to succeed at all it must on the ground of error of law on the face of the award.”

 

66. In Wilson v Glover [1969] NZLR 365, Moller J said at p. 372:

 

“It would certainly appear that, if what Mr White says is correct, the allowances made by the arbitrator may well be greater than they should have been. But that is a question of fact for decision by the arbitrator, and, in my view, I should not interfere with the award…merely on the ground that I might have come to a different decision from that at which the arbitrator arrived. I would at least have to find…that the difference was so great that it clearly, by itself, showed bias on the part of the arbitrator or that it was of such a nature and amount that, taken in conjunction with all other matters, bias was sufficiently evident to justify setting the award aside…I draw attention to Mayor of Wellington v Aitken, Wilson & Co (1914) 33 NZLR 897; 16 GLR 486 in which the headnote reads:

 

“Where parties have agreed to refer certain matters to arbitration, and have nominated their own tribunal the decision of which is not subject to the approval of the Court, the mere inadequacy of the amount awarded, even if such award be against the weight of evidence, is no proof of partiality or misconduct on the part of the arbitrators of such a nature as to enable the Court to aside the award.”

 

“I am prepared to hold, by analogy, that the same principle would apply in a case of over assessment.”

 

67. It is clear from what was said by Moller J in Wilson v Glover [1969] NZLR 365 at p.372 that mere over-statement or under-assessment of the amount awarded by the arbitrator is no proof of misconduct on the part of the arbitrator. Other examples of what does not amount to misconduct in the context of arbitration are noted in 4 Halsbury’s Laws of England vol 2, para 622, at footnote 8.

 

(d) Error of law

68. It is clear from the authorities that an arbitrator’s award may be set aside at common law for error of law that appears on the face of it. Consideration of a motion to set an award for error of law on its face will be limited to the award itself.

 

69. There are, however, two types of error of law, one of which if it appears on the face of the award would make the award liable to be set aside whilst the other would not. This was explained in F R Absalom Ltd v Great Western (London) Garden Village Society Ltd [1933] AC 592 where Lord Russell of Killowen said at p.607:

 

“[It] is, I think, essential to keep the case where disputes are referred to an arbitrator in the decision of which a question of law becomes material distinct from the case in which a specific question of law has been referred to him for decision. I am not sure the Court of Appeal has done so. The authorities make a clear distinction between these two cases, and, as they appear to me, they decide that in the former case the Court can interfere if and when an error of law appears on the face of the award, but that in the latter case no such interference is possible upon the ground that it so appears that the decision upon the question of law is an erroneous one.”

 

70. Lord Wright, the other member of the Court in Absalom, referred in his judgment at p.616 to In re King Duveen [1913]2 KB 32 where Channell J said at p.36:

 

“It is equally clear that if a specific question of law is submitted to an arbitrator for his decision, and he does decide it, the fact that the decision is erroneous does not make the award bad on its face so as to permit of its being set aside.”

 

  1. More recently in New Zealand in Smale and Brookbanks v Illingworth and Randerson (1994) (judgement of the Court of Appeal delivered on 12 May 1994), Richardson J said:

“If the parties have asked the arbitrators to decide a specific question of law then, save for matters of illegality not in point here, the proper inference is that the parties put the question of law to the arbitrators on the footing that their own decision would be binding on the parties. Further, if the parties have asked a series of questions one of which is a specific question of law, the exception from curial review of answers to questions of law will apply to the answer to that question.”

 

72. A matter referred to the arbitrator for decision which involves mixed questions of disputed fact and law would not be a reference of a specific question of law. But where the matter referred to the arbitrator for decision involves the application of the law or the interpretation of a contract on the basis of undisputed facts, then that would be a reference of a specific question of law: F R Absolum Ltd v Great Western (London) Garden Village Society Ltd [1933] AC 592Smale and Brookbanks v Illingworth and Randerson (supra).

 

(e) Error of fact

73. One of the grounds of the applicant’s motion to set aside the arbitration’s award is that “there is a clear error of law and/or fact on the face of the award.” From my own research, it has not been possible to find any authority which recognises the so-called “error of fact on the face of the award” as a ground for setting aside an award. In fact the authorities seem to point against the existence of error of fact as a separate or independent ground for setting aside an award. In this connexion I refer again to the passages already cited in this judgment from Gillespie Bros & Co v Thompson Bros & Co (1922) 13 Ll. L Rep 519 per Atkin LJ at p524; United Sharebrokers Ltd Landsborough Estates Ltd (1990) (supra) per Tipping J. The only grounds for impeaching an arbitration award are misconduct and error of law on the face of the award. Misconduct is a statutory ground and error of law on the face of the record is a common law ground.

 

(f) Use by the arbitrator of his knowledge, experience and expertise

74. The use by an expert arbitrator of his skill, knowledge and experience for the purpose of an arbitration is an issue addressed by both counsel in their written submissions. In Mediterranean and Eastern Export Co Ltd v Fortress Fabrics (Manchester) Ltd [1948]2 A11 ER 186 Lord Goddard CJ said at p.187:

 

“The more serious question that was argued was that neither side had tendered evidence with regard to damage and, therefore, the arbitrator had no material before him on which he could fix the amount which the sellers were entitled to receive. This would be a formidable, and, indeed, fatal, objection in some arbitrations. If, for instance, a lawyer was called on to act as arbitrator on a commercial contract he would not be entitled, unless the terms of the submission clearly gave him power so to do, to come to a conclusion as to the amount of damages that should be paid without having evidence before him as to the rise or fall of the market, as the case may be, or as to the other facts enabling him to apply the correct measure of damage, but in my opinion, the case is different where the parties select an arbitrator or agree to arbitrate under the rules of a chamber of commerce under which the arbitrator is appointed for them, and the arbitrator is chosen or appointed because of his knowledge and experience of the trade. There can be no doubt that with regard to questions of quality and matters of that description an arbitrator of this character can always act on his own knowledge.”

 

Lord Goddord CJ then went on at p.188 to say:

 

“It is well known in the experience of the Courts that many trades have their own tribunals of arbitration – the Corn Trade, the Produce Brokers’ Association, the Oil and Fat Traders Association are instances – and no one has doubted – certainly not in modern times – that it is open to an arbitrator skilled in the trade to use his own knowledge and experience on many matters, such as quality, without having witnesses called before him. One of the reasons why commercial men like to go to arbitration before arbitrators of this description is because it saves the expense of calling witnesses and having the conflicting views of experts thrashed out and decided on. The parties are content and intend to accept the judgement of a man in their trade on whose judgement they know they can rely.”

 

75. In Wilson v Glover (1969) NZLR 365, Moller J cited with approval the passages set out above from the judgment of Lord Goddard CJ in Mediterranean and Eastern Export Co Ltd v Fortress Fabrics (Manchester) Ltd (1948) 2 All ER 186. His Honour then said at p.369:

 

“In connection with this matter I record that in Russelll on Arbitration, 17th ed. 183, the following passage occurs:

 

‘An arbitrator must decide upon the evidence put before him by the parties, and not upon materials obtained otherwise. In particular, he must not make use of ‘knowledge acquired in a different capacity’ ….Where, however, the parties employ an arbitrator who has expert knowledge, and authorise him to make use of that knowledge, it is of course proper for him to do so, and it would seem that the Court will tend to presume such authority from the mere fact of employment of a specially qualified person as arbitrator.”

 

It is, I think, this element of implied consent, in the appointment of such a specially chosen arbitrator, that distinguishes this case, for instance, from the Re Hiorns and Power.

 

In the present case one party is a builder and the other is a customer with whom he contracted to build a house; they chose their own arbitrator, and they chose, in Mr Hulse, a building consultant. I take the view that this case comes within the principles enunciated by Lord Goddard. The arbitrator was chosen by the parties because of his knowledge and experience of the trade concerned, and they intended to accept his judgement because he was a man on whose judgement they felt they could rely. It must be taken, I think, that, in making the reductions and fixing the allowances that he did, Mr Hulse acted on his own knowledge and experience, and I hold that he was guilty of no violation of the rules of natural justice in doing so. It follows that, on this ground, I can see no reason for interfering with the award.”

 

  1. In 4 Halsbury’s Laws of England vol 2, para 583, the learned author relying on Mediterranean and Easter Export Co Ltd v Fortress Fabrics (Manchester) Ltd (1949) 2 All ER 186, where the arbitrator fixed the damages, and Wilson v Glover [1969] NZLR 365, said:

“An arbitrator may, however, use expert knowledge which he possesses in order to arrive at a conclusion of fact not proved by expert evidence, at least where, as often happens, his special knowledge of a particular subject has influenced his appointment.”

 

77. Mrs Drake for the applicant in her written submissions cited Thomas Borthwick (Glasgow) Ltd v Faure Fairclough Ltd [1968] Lloyds Rep 18. In that case a buyer and seller who were parties to a contract of sale of goods agreed to refer any dispute that might arise under their contract to a two-tier system of arbitration, namely, an arbitrator or umpire whose award could be subject to appeal to the Board of Appeal. A dispute arose under the contract of sale between the parties and it was referred to arbitration. It ended up in the Board of Appeal whose award suggested that the Board had taken into account a trade custom which had not been adverted to by the parties in their respective contentions. A special case was stated to the Court for the award to be remitted or set aside.

 

78. Donaldson J (as he then was) said at p.29:

 

“What is complained of here – I venture to think that the same can be said of all allegations of misconduct by arbitrators – is that the Board was in breach of its duty to act fairly and to be seen to act fairly. This is not to say that the Board intended to be unfair or was aware that it might appear to have acted unfairly. Such cases are happily very rare….

 

The complaint in the present case is simple. Both parties attended before the arbitrators and umpire and before the Board of Appeal. They put their rival contentions before these bodies and asked them to decide which was right. Neither party sought to contend that there was any custom or practice which had any bearing on the matter. Had they been told that the Board took a different view, either or both might have wanted to seek to persuade the Board that it was wrong or to have placed further evidence before the Board; the Board did not give them any opportunity of doing so and this was unfair.

 

A trade tribunal is fully entitled to use its own knowledge of the trade. Indeed the fact that it has this knowledge is one of the reasons why it exists and performs a most useful purpose. Experience, however, dictates that this knowledge shall never be used in such a way as to take a party by surprise. If therefore a tribunal considers that both parties have missed the point – this sometimes happens both in litigation and in arbitration – it should invite the parties to deal with this point and, if the point arises for the first time in the course of deliberations after the hearing, should offer the parties a further hearing if either wish to avail themselves of the opportunity. Equally, if the tribunal has knowledge of the facts which do not appear to be known to either party, it is only fair to reveal this knowledge to the parties, giving them an opportunity of putting those facts into different perspective or of persuading the tribunal that they irrelevant. Such a course is not only fairer to parties; it also enables the tribunal to have additional assistance from the parties in arriving at a just decision.”

 

79. Mrs Drake also cited the case of Donis Friedman (Earthmovers) Ltd v Rodney County Council (1987) (unreported decision of the High Court of New Zealand) where Smellie J said:

 

“Miss Kilvington argued that the arbitrator’s finding of fact could not be challenged and that in any event an arbitrator who is chosen for his experience and expertise can always reach conclusions on the basis of his own knowledge without reference to the parties and without the benefit of evidence. She cited Mustill and Boyd Commercial Arbitration (1982) p.321, in support of that proposition.

 

In this case, however, I am of the view that, as the matter upon which the arbitrator made his finding was not adverted to at the hearing so that the parties did not have an opportunity to address it, there was an element of unfairness which amounts to technical misconduct.”

 

80. I should also refer to The Vimeira No.1 [1984]2 Lloyds Rep 191 where Robert Goff LJ said:

 

“In truth, we are simply talking about fairness. It is not fair to decide a case against a party on an issue which has never been raised in the case, without drawing the point to his attention, so that he may have an opportunity of dealing with it, either by calling further evidence or by addressing argument on the facts or the law to the Tribunal.”

 

81. On the issue of “no evidence”, I should also refer to Gold and Resources Developments (NZ) Ltd v Doug Hood Ltd [2000] NZCA 131 where Blanchard J in delivering the judgment of the New Zealand Court of Appeal said at para [55]:

 

“While not expressing a final view, we see the force in the argument that whether there was any evidence to support a particular finding of fact made by the arbitrator is not a question of law in the context of the 1996 Act. In Edwards (Inspector of Taxes) v Bairstow [1956] Ac 14, 29 Viscount Simonds said that findings of fact made by a tribunal could be set aside by a Court if it appeared that the tribunal had acted without any evidence, or upon a view of the facts which could not reasonably be entertained. The authors of Mustill and Boyd, Commercial Arbitration 2nd ed. (1989) assert at 592-3 and 596 that this principle cannot be applied to the review of arbitral decisions. To do so, they say, would be to broaden the basis on which arbitral awards can be appealed on questions of law. This would be contrary to the general principle that the arbitrator is the master of the facts….and to the specific aims of the legislation which include the promotion of finality in arbitral awards and the limiting of judicial intervention. See also DAR Williams QC, Arbitration and Dispute Resolution [2000] NZ Law Review 61, 77-8 citing Russell on Arbitration 21st ed (1997), para8. 507.”

 

82. It was also pointed out in Gold and Resources Developments (NZ) Ltd v Dough Hood Ltd that even under the Arbitration Act 1908 (NZ), a bias towards finality in arbitration awards had already emerged in the case law before the enactment of the Arbitration Act 1996 (NZ). Blanchard J said at para [43]:

 

“Even under the Arbitration Act 1908 in this country….a bias towards finality had already emerged. It is enough to refer to Manukau City Council v Fencible Court Huwick Ltd [1991] 3 NZLR 410, 412 in which Cooke P said that where parties have agreed to arbitration rather than Court proceedings….the Court should not allow the finality of the award to be destroyed except for truly compelling reasons. In relation to an error of law, he said that the view should not be overlooked that a party who can show that there has been a truly significant error of law has a justifiable grievance for which the law should provide a remedy…”

 

As earlier mentioned, our Arbitration Act 1976 is based on the Arbitration Act 1908 (NZ).

 

Application of the law to grounds of the applicant’s motion

 

83. As it appears from the authorities, there are two grounds on which an arbitration award may be challenged. These are misconduct which is a statutory ground and error of law on the face of an award which is a common law ground. The applicant’s motion relies on five general grounds. These various grounds could have been brought under the two grounds of misconduct or error of law on the face of the award. If a ground does not fit under either of those two heads, then that is an indication that it is not a valid ground for impeaching an award. However, to ensure that I do not miss out any matter raised for the applicant, I will deal with the grounds relied upon by the applicant in the order they are set out in its motion to set aside the award. Perhaps, it should be noted here that there is nothing in the motion about removal of the arbitrator though it is touched upon very briefly in the written submissions of counsel.

 

(a) Misconduct

 

(i) Failing to state a case to Court to determine the legal issue of whether the termination by the applicant of the contract amounted to an unlawful termination.

 

84. Counsel for the applicant in her written submissions states that the question of whether the termination of the contract for service between the applicant and the respondent is lawful or not is a legal issue which the arbitrator should have referred to the Court for determination by way of a case stated pursuant to s.20 of the Arbitration Act 1976. The determination of this issue was crucial to the further question of the amount of any money that should be paid to the respondent after termination of the contract. Counsel for the applicant also states that the arbitrator is not trained in law. No authority is cited in counsel’s submissions to show that what is alleged here amounts to misconduct.

 

85. Ms Stowers for the respondent in her submissions states that the arbitrator was not obliged to state a case pursuant to s.20 of the Act. The use of the word “may” indicates that it was not obligatory on the arbitrator to state a case. Counsel for the respondent further states that one of the issues in the agreed terms of reference that was submitted to the arbitrator for determination was the alleged “unfair and illegal” termination of contract. The applicant had agreed, through its solicitor not only to the appointment of the arbitrator who is a qualified and experienced civil engineer but to the issues to be included in the reference to the arbitrator for determination. Furthermore, the applicant’s solicitor did not request the arbitrator during the preliminary and substantive arbitration hearing to state a case pursuant to s.20 of the Act for the decision of the Court. Counsel for the respondent then refers to Mustill and Boyd, Commercial Arbitration (1989) 2nd ed where the learned authors state at p.584:

 

“A party who wished the arbitrator to state a case was obliged to do so as soon as possible, and in any event before the award was made. After that it was too late. He was obliged to formulate with precision what question of law he considered appropriate for decision by the Court. If the arbitrator then decided to state a case, he could not at once proceed to a final award, but was obliged to give the party time to apply to the High Court for an order requiring the arbitrator to comply with the request.”

 

86. The issue concerning the alleged “unfair and illegal” termination of contract is not simply a legal issue as submitted by counsel for the applicant. The issue of whether the termination of the contract was “unfair and illegal” would necessarily involve both questions of fact and law or mixed questions of fact and law. The relevant facts would have to be ascertained first and then the relevant law would be applied to determine whether on the facts as found the termination was wrongful or not. If what was referred to the arbitrator for determination was a pure question of law or a specific question of law as the submissions by counsel for the applicant seem to suggest, then the Court will not interfere with the arbitrator’s decision, save for matters of illegality not relevant here: F R Absalom Ltd v Great Western (London) Garden Village Society Ltd [1933] AC 592Smale and Brookbanks v Illingworth and Randerson (supra). Also see the judgment of Menzies J in Gold Coast City Council v Centerbury Pipe Lines (Aust) Pty Ltd [1968] HCA 3 at para.9. If there had been an agreed statement of facts between the parties and the matter referred to the arbitrator for decision was the application of the law to the undisputed facts, then that would also have been a reference of a specific question of law to the arbitrator: Absalom; Smale and Brookbanks. But the Court will not then interfere with the award.

 

87. On the point about the arbitrator not being a lawyer, this was clear to the applicant at the time the arbitrator, who is a qualified civil engineer with extensive experience in the field, was appointed. The applicant also did not request the arbitrator to state a case for the opinion of the Court if it was so concerned about the fact that the arbitrator is not a lawyer. When the reference was made to the arbitrator, the applicant’s solicitor would also have been aware that the issue of “unfair and illegal” termination of contract would necessarily involve questions of law and fact. But the concern now raised by counsel for the applicant was never raised with the arbitrator or with the solicitors for the respondent at any stage until the present proceedings. In fact of the three potential arbitrators nominated by the applicant, two are civil engineers and one is an accountant. None is a lawyer.

 

88. In Gold and Reserve Developments (NZ) Ltd v Doug Hood Ltd [2000] NZCA 131, Blanchard J, in the context of the Arbitration Act 1996 NZ, said at para. [54] (2):

 

“The Court should consider whether the question of law arose incidentally, or whether it was the very point of the arbitration. Although it may be undesirable for an arbitrator who is not legally qualified to deal definitively with the law, to submit that dispute to arbitration other than asking a Court to determine the question, they should generally be held to their choice. The parties in that situation clearly took the risk that the lay arbitrator would not get the law completely right.”

 

89. Even though it would appear from the reference to the arbitrator and the discussions during the preliminary hearing as well as the written submissions by the parties solicitors that the arbitrator became aware at that stage that there was a dispute between the parties about the lawfulness or otherwise of the termination of the contract, that does not mean that the fact the arbitrator did not state a case for a decision by the Court is misconduct. In the absence of a request from the applicant, the arbitrator was not obliged in the circumstances to state a case.

 

90. On the basis of the submissions by the respondent’s counsel and the further reasons I have given, I conclude that there was no misconduct on the part of the arbitrator on this ground. I reject this ground as having no merit.

 

(ii) Failing to allow the applicant to call the supervisor whose evidence was crucial to the issue of delay in completing the work in accordance with the contract.

91. The award is quite critical of the drawings and specifications prepared by the supervisor and which in the arbitrator’s opinion contained deficiencies in several material respects. The award seems to suggest that these deficiencies made it difficult for the respondent to complete the work in accordance with the contract and contributed to the delay that occurred. Delay is an important issue here because it is the reason for which the applicant terminated the contract.

 

92. The award also finds the termination of the contract by the applicant to be wrongful so that the applicant was in breach of contract. This finding is based on deficiencies in the contract documents as found by the arbitrator and on deficiencies in the administration of the contract by the supervisor. Following on from this finding of breach of contract, the arbitrator awarded damages and legal costs totalling $167,748.80 to the respondent against the applicant.

 

93. It is clear that in arriving at his finding of breach of contract, the arbitrator referred critically to two matters pertaining to the supervisor. The first are the alleged deficiencies in the drawings and specifications prepared by the supervisor and the second are the deficiencies in the administration of the contract by the supervisor. It is therefore clear that the evidence of the supervisor was relevant and significant from the applicant’s perspective. It is not clear who drafted the contract documents which in the arbitration’s opinion, based on extensive experience in the construction field, also contained several deficiencies. But that would be more a task for a lawyer than the supervisor.

 

94. The issue for determination here is whether in terms of the Act the arbitrator misconducted the proceedings, that is to say, the substantive arbitration hearing that was held on 30 June 2005. In this connexion it may be necessary to see what occurred from the time the arbitrator was appointed up to and during the substantive hearing. What might have happened prior to the appointment of the arbitrator may be relevant to the concern and eagerness of the respondent for the applicant to proceed to arbitration in terms of the arbitration clause in the contract. But, in my opinion, that is not relevant to the question of whether the arbitrator misconducted the substantive hearing held on 30 June 2005.

 

95. From what has been said, the parties agreed on 28 April 2008 to appoint Mr Gordon as arbitrator. On 3 June 2005 they agreed for the preliminary hearing to take place on 17 June 2005 and the substantive hearing on 30 June 2005. The preliminary hearing went ahead on 17 June 2005. It appears to me that it was not necessary to have any witnesses at the preliminary hearing. The purpose of the preliminary hearing was to sort out any preliminary matters including a timetable.

 

96. At the preliminary hearing, the arbitrator asked questions of Mr Malolo and the respondent’s managing director. To some of those questions Mr Malolo replied that the supervisor would be the best person to answer those questions but he was not present. According to Mr Malolo he had written to the supervisor on 19 May 2005 about the arbitration hearing and he had also met and discussed the arbitration with him. It is clear from the supervisor’s affidavit that he was notified by Mr Malolo of the date of the substantive hearing.

 

97. At the preliminary hearing the arbitrator emphasised to the parties that the substantive hearing would proceed on 30 June 2005 regardless of whether their witnesses were present. The arbitrator seems to recall that the parties agreed that there would be no adjournment. This is not mentioned in any of Mr Malolo’s affidavits.

 

98. At the site tour that was carried out during the substantive hearing, the arbitrator asked questions of the respondent’s managing director, Mr Malolo and the project manager about the work. Most of the explanations to the arbitrator’s questions were given by the respondent’s managing director. On the other hand, Mr Malolo and the project manager in response to the questions put to them requested the arbitrator that they needed to wait for the supervisor to arrive and answer the arbitrator’s questions. The arbitrator says in his affidavit that he was under the impression that Mr Malolo was expecting the supervisor to arrive. The arbitrator also says in his affidavit that at the commencement of the substantive hearing he commented on the deficiencies in the drawings and the specifications as well as the absence of site correspondence. Mr Malolo advised the arbitrator that it was the supervisor who drafted the drawings.

 

99. It is also clear to me that the arbitrator must have been aware that it was also the supervisor who prepared the specifications and if there were any site correspondence, it was the supervisor who should have had copies of such correspondence. It must, therefore, have also been clear to the arbitrator that the evidence of the supervisor was very crucial to

 

the case for the applicant. Mr Malolo is a lawyer and I very much doubt whether the project manager is a civil engineer, architect or building contractor. So when they were asked by the arbitrator about the drawings and specifications neither of them could answer. When the evidence of the project manager was concluded, Mr Malolo requested that the hearing be adjourned part-heard so that the supervisor could appear to give evidence. The request was declined by the arbitrator.

 

  1. The supervisor, as it appears from his affidavit, had been informed by Mr Malolo of the substantive hearing and when it would take place. However, he had a bad attack of gout that day and had to use a wheelchair to see a doctor at the hospital. Unfortunately, the supervisor did not inform Mr Malolo that he was not able to attend the substantive hearing. So no one attending the substantive hearing was aware of the reason why the supervisor was not able to appear at the hearing.
  2. I must say I have every sympathy for the arbitrator who obviously wanted to get on with the arbitration. The dispute between the applicant and the respondent was nothing of his doing. Because of the arbitration clause in the contract, I agree with counsel for the respondent that the dispute had to be referred to arbitration. The technical construction aspects of the dispute would be better dealt with by a civil engineer than a lawyer. I am also impressed with the arbitrator’s knowledge of the type of clauses that would be expected to appear in a construction contract. The arbitrator also appears not to be a certified arbitrator who practises as such. He must have been drawn into this matter because of his knowledge, experience and expertise as a civil engineer. But, he must be a very busy person himself as a civil engineer.
  3. Unfortunately, in my opinion, the arbitrator misconducted the proceedings on a matter that is more familiar to a lawyer than a civil engineer. It is what lawyers refer to as natural justice. In saying this, I should add that the use of the word “misconduct” here is rather unfortunate. But it is the word used in the Act. So I would have to use it in this judgment. The phrase now used in the modern English legislation on arbitration is “serious irregularity”. But we do not have that phrase in our Act.
  4. It is clear that the evidence of the supervisor was crucial to the case for the applicant at the arbitration hearing. The arbitrator was aware of that. Without the supervisor, Mr Malolo and the project manager could not answer questions or respond to comments from the arbitrator concerning the drawings and specifications which the arbitrator was informed were prepared by the supervisor. Similarly, Mr Malolo and the project manager were not in a position to comment on the absence of site correspondence as it was for the supervisor to keep copies of such correspondence if there were any. It was also clear to the arbitrator that Mr Malolo wanted the supervisor to be present to answer the arbitrator’s questions and comments and was expecting the supervisor to arrive at the hearing. Mr Malolo even requested the arbitrator to adjourn the hearing part-heard so that the supervisor could appear to give evidence. Unfortunately, due to no fault of anyone, the supervisor did not appear and did not inform Mr Malolo that he was not able to appear at the hearing.
  5. The reason given by the arbitrator for not adjourning the substantive hearing part-heard is that he had advised the parties at the preliminary hearing that the substantive hearing set for 30 June 2005 would proceed on that day regardless of whether their witnesses were ready or not. The law, I have to say, is not so inflexible. Where a witness fails to appear at a hearing, the question of what is to be done depends on what is required by the interest of justice in the circumstances. So if in the circumstances it is in the interests of justice to grant an adjournment then it would be contrary to the interests of justice to refuse an adjournment.
  6. It is clear from the award that one of the two expressed reasons given by the arbitrator for finding the termination by the applicant of the contract to be wrongful and the applicant to be in breach of contract is the deficiencies in the administration of the contract by the supervisor. In view of this finding and the ensuing award of substantial damages and costs against the applicant, the interests of justice required that, in the circumstances, the hearing should have been adjourned to give the applicant the opportunity to call the supervisor notwithstanding the indication from the arbitrator that the substantive hearing would proceed on 30 June 2005 regardless of whether the witnesses were ready or not. This was more so given that the deficiencies in the drawings and specifications, as found by the arbitrator, appear to have influenced to a real extent the conclusion reached by the arbitrator.
  7. For those reasons, I conclude that the arbitrator acted contrary to natural justice when he declined to adjourn the hearing for the supervisor to be called to give evidence. On that basis the arbitrator misconducted the proceedings. This ground of the applicant’s motion therefore succeeds.

(iii) Failing to make a preliminary ruling on whether the presence and evidence of the quantity surveyor at the hearing was relevant to the dispute of the parties.

 

  1. I have already set out the rather conflicting affidavit evidence relating to the question of whether the arbitrator was required to give a preliminary ruling on the relevance or otherwise of the quantity surveyor’s evidence. I have also indicated that given the conflicts in the affidavit evidence, oral testimony should have been called. I need not set out that evidence again.
  2. However, counsel for the applicant in her submissions states that the relevance of the quantity surveyor’s evidence depended on a finding by the arbitrator that the termination of the contract was lawful, that is, not wrongful. As the arbitrator has found the termination of the contract to be wrongful, I suppose the respondent could argue that the quantity surveyor’s evidence was therefore not relevant. But the applicant is in effect also challenging the correctness of the arbitrator’s finding that the termination was wrongful.
  3. In the circumstances I have decided not to come to any conclusion on this ground but the parties may call oral testimony on the relevant conflicts in the affidavit if it is necessary to further pursue this ground in view of the decision I have reached in these proceedings.
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    (iv) Dismissing the valuation report by the quantity surveyor on the basis that the arbitrator could not understand it.

  4. The submission by counsel for the applicant under this ground is that whilst the arbitrator was free to disregard the valuation report by the quantity surveyor on the ground that it was not relevant, he was not free to do so on the ground of his being unable to understand it. With respect, I have some difficulties in understanding this submission. Does it mean that even if the arbitrator could not understand the said report he should still have had regard to it? But how could the arbitrator have had regard to something that he could not understand? The arbitrator says in his affidavit that he found the report by the quantity surveyor to be confusing and explains why. In my opinion, the arbitrator was not obliged to have regard in making his award to a report which he found to be confusing and could not understand. The applicant which produced the report should have ensured that its evidence was capable of being understood by the arbitrator. That could have been achieved by calling the quantity surveyor, the author of the report. However, as pointed out, the affidavit evidence is conflicting as to whether the arbitrator was required to make a preliminary ruling on the relevance or otherwise of the quantity surveyor’s evidence. So this ground and ground (ii) are interconnected and depends on oral testimony being called to resolve the relevant conflicts in the affidavit evidence.
  5. I will therefore not come to any conclusion on this ground unless the parties call oral testimony if it is still necessary to further pursue this matter.

    (v) Failing to give clear guidelines as to the procedure to be followed in the arbitration hearing.

  6. The complaint under this ground is that the arbitrator should have produced clear written guidelines as to the procedure to be followed on the types of issues cited by counsel for the applicant from the legal text Arbitration Law (2000) by Merkin and Critchlow. Chapter 12 at 12.25. In this particular case, I am of the opinion that it would be expecting too much of the arbitrator who is a civil engineer and apparently not a certified or practising arbitrator to be aware of the legal text cited by counsel. I very much doubt he has a copy of the said text. Even the lawyers who appeared before the arbitrator did not refer to the said text. It is also obvious that the arbitrator was chosen by the parties for his engineering expertise in the construction field and not for any legal expertise.
  7. Samoa also does not have any arbitration rules to give guidance to arbitrators on matters of procedure.
  8. The lawyers, who attended the preliminary hearing, where the arbitrator laid down some guidelines, also did not raise the matter set out in the said text and now referred to by counsel for the applicant in the submissions. In my opinion the question should be whether there has been any unfairness or injustice because of a procedure the arbitrator adopted or failed to adopt.
  9. The concern of counsel for the applicant is that the arbitrator by not issuing clear written guidelines had prejudiced the preparation of the applicant’s case for the substantive arbitration hearing. In this connexion, I wish to make these comments. Firstly, Ms Stowers for the respondent had advised the arbitrator by letter dated 15 June 2005 that there were two issues to be arbitrated, namely, wrongful termination of contract and non-payment of outstanding monies. However, in the written submissions handed in by Ms Stowers on 23 June 2005 pursuant to the timetable laid down by the arbitrator at the preliminary hearing, breach of contract was included as a third issue. Even though Mr Malolo says in his affidavit of 16 March 2007 that he had consistently stated on the applicant’s behalf that the only issue for arbitration was the amount due (if any) to the respondent on the contract, the arbitrator on the other hand says in his affidavit that the issues of dispute confirmed at the preliminary hearing were “unfair and illegal” termination of contract, outstanding payments, and breach of contract. The applicant’s real concern is that breach of contract was never an issue to be arbitrated upon.
  10. Secondly termination pre-supposes that there has been an actual breach of contract. This is because an actual breach of an essential term of the contract by one party entitles the other party to terminate the contract. Termination and actual breach of an essential contractual term or condition often go together. I therefore cannot see how the issue of wrongful termination could have been arbitrated upon without necessarily having to examine whether or not there had been an actual breach of an essential term or condition of the contract. The arbitrator could not have considered whether there had been a wrongful termination or not without having to consider at the same time whether there had been an actual breach of contract. If there had been an actual breach of an essential term by the respondent, then perhaps the applicant was right in terminating the contract so that there was no wrongful termination. But if there was no breach of an essential term, by the respondent, then the termination of the contract was ‘wrongful’ and may constitute repudiation of the contract.
  11. The third point made by counsel for the applicant is that the arbitrator, by including breach of contract as a third issue, gave the opportunity to the respondent’s solicitor to claim for loss of opportunity costs, injury to business and loss of profit which resulted in award of $23,300 in the respondent’s favour. Counsel for the applicant submits that Mr Malolo did not have the opportunity to address those matters as breach of contract and damages were not one of the issues that the parties had agreed to refer to arbitration. If this is right then the arbitrator acted in breach of natural justice by taking into consideration an issue that the parties did not agree to refer to him for determination and making a decision on that issue which is adverse to one of the parties. However, the arbitrator says that the three issues confirmed for arbitration at the preliminary hearing included breach of contract. This is implicitly denied by Mr Malolo who says that he had consistently maintained right up to the arbitration hearing that the only issue for arbitration was the amount (if any) due to the respondent on the contract. I think it more correct to say that there had been two issues in dispute up to the time of the arbitration. But, according to the arbitrator, breach of contract was agreed upon by the parties at the preliminary hearing to be the third issue to be arbitrated upon. The first two issues were wrongful termination of contract and the non-payment of monies (if any) due to the respondent on the contract. But termination is inter-connected with breach of contract. Termination could not have taken place unless there was an actual breach of an essential term of the contract.
  12. Whatever is the true position between what the arbitrator says and what Mr Malolo says, it is clear that the issue of damages for breach of contract, if such breach was found, was never clearly spelled out as one of the issues for arbitration. Having perused the affidavits by the parties and various correspondences annexed thereto as exhibits, I cannot find that damages for breach of contract was ever an issue that the parties discussed prior to arbitration or agreed to refer to arbitration. As far as I can gather from the affidavit evidence, the first time that damages was raised in this dispute was in the written submissions presented by counsel for the respondent to the arbitrator after the preliminary hearing held on 17 June 2005. In consequence, Mr Malolo did not address the issue of damages for breach of contract at the substantive hearing as it appears clear from the submissions by the applicant’s counsel.
  13. I have therefore decided to accept the submission by the applicant’s counsel that the arbitrator misconducted the proceedings by taking into account an issue not previously raised prior to arbitration or mutually agreed between the parties to be referred to arbitration and making a decision thereon adverse to the applicant when the applicant’s solicitor attending the substantive arbitration hearing did not have the opportunity to address that issue.

    (vi) Basing his ruling on irrelevant considerations

  14. The complaint by the applicant under this ground of its motion is that the arbitrator’s finding that the applicant was in breach of contract and that its termination of contract was based on matters that were not included in the issues referred to arbitration. In consequence, the arbitration acted in breach of natural justice and thereby misconducted the proceedings. The issue of damages for breach of contract, as already discussed, should also have been raised under the present sub-heading.
  15. The matters referred to by the respondents counsel as the basis of the arbitrator’s finding are the deficiencies found by the arbitrator in the contract documents and the administration of the contract by the supervisor. The relevance of evidence is an issue for the arbitrator. The arbitrator was entitled to take into account the deficiencies in the contract documents and the administration of the contract by the supervisor as evidential matters relevant to the issue of whether the termination of the contract was wrongful.
  16. I do not agree that the arbitrator had to set out the said deficiencies as separate issues he had to determine. Apart from the issue of breach of contract which is in dispute, the parties had defined the issues of their dispute which they submitted to the arbitrator and the arbitrator does not have to tell the parties or their lawyers prior to the hearing what evidence is relevant to the issues of their dispute which the arbitrator has to decide. In my opinion, the said deficiencies are matters of evidence which the arbitrator did not have to spell out in advance to the parties even though he did refer to them at the start of the substantive hearing. The arbitrator was entitled to take into account the said deficiencies as evidential matters relevant to the issue of wrongful termination without having to explain them first as “separate issues.”
  17. I therefore conclude that the arbitrator did not misconduct the proceedings under this ground.

(vii) Failing to ascertain/ determine proper terms of reference and the issues to be addresses

  1. This ground is essentially the same as ground (v) which I have already dealt with. What I have said under ground (v) also applies here. But I wish to add this. Arbitration is a useful mechanism of alternative dispute resolution. There have been a number of contracts with arbitration clauses requiring disputes which arise in connexion with the contract to be referred by the parties to arbitration for settlement. However, I very much doubt whether at this stage Samoa has a certified arbitrator or someone who practises arbitration on a regular basis. Those who have accepted appointment as arbitrators have done so on invitation by the parties to a contractual dispute even though they may not be certified arbitrators or regular practitioners in arbitration. Some of them, like the arbitrator in this case, are not lawyers even though they are experts in their own fields. Arbitrators have a useful role to play in the overall administration of justice.
  2. Perhaps I should refer again at this junction to Zermalt Holding SA v Nu – Life Upholstery Repairs Ltd [1985] 2 EGLR14 where Bingham J said at p. 14:

“It is perhaps right to emphasise two things. The first is that, as a matter of general approach, the Courts strive to uphold arbitration awards. They do not approach them with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults in awards and with the objectives of upsetting or frustrating the process of arbitration. Far from it. The approach is to read an arbitration award in a reasonable and commercial way, expecting, as is usually the case, that there will be no substantial fault that can be found with it …”

 

(b) The arbitrator misconducted himself and showed bias against the applicant.

 

  1. In support of this ground of the applicants’ motion, counsel relies on several matters in her submissions. I will deal with each of those matters in turn.
  2. It is first submitted by counsel for the applicant that the arbitrator conducted the proceedings in a manner which favoured the applicant as set out in paragraphs 21, 22 and 23 of Mr Malolo’s affidavit of 28 September 2005. Referring to paragraph 22 of the said affidavit, that paragraph states that at the site tour which was conducted during the substantive hearing, the arbitration questioned Mr Malolo and the project manager about the work and certain variations and Mr Malolo and the project manager replied that they needed to wait for the supervisor to arrive to answer the arbitrator’s question. It is also said that the applicant was not fore-warned that a site tour would take place on the day of the substantive hearing.
  3. I say at once that the fact that the arbitrator did not wait for the supervisor to turn up cannot be bias. The arbitrator had informed the parties solicitors at the preliminary hearing on 17 June 2005 that the substantive hearing would proceed on 30 June 2005 regardless of whether the parties witnesses were ready. So the parties solicitors had been clearly forewarned. Mr Malolo had also informed the supervisor about the date of the substantive hearing. The fact that the supervisor was not able to attend because he was sick was no fault of the arbitrator. It is also clear that if the arbitrator had acceded to Mr Malolo’s request, he would have waited in vain for the supervisor did not turn up on that day at all. There is simply no evidence of bias on the part of the arbitrator.
  4. I am also of the opinion that the fact that the arbitrator did not forewarn the parties that there would be a site tour on the day of the substantive hearing cannot be evidence of bias. The problem that arose for the applicant was due to the fact that the supervisor was sick and did not inform Mr Malolo that he would not be able to attend the substantive hearing. The problem was not due to the absence of any forewarning about a site tour. Even if the arbitrator had forewarned the applicant about the site tour, the problem confronted by Mr Malolo and the project manager would still have arisen because the supervisor got sick unexpectedly on the day of the site tour and failed to attend the substantive hearing. It is plain that there cannot be bias on the part of the arbitrator in these circumstances.
  5. I return to paragraph 21 of the said affidavit of Mr Malolo. The applicant’s counsel submits that what is said by Mr Malolo that when he entered the room where the substantive hearing was to be held the arbitrator and the respondent’s solicitors were already seated and the remarks by the arbitrator that in a construction contract certain clauses like construction programme clause, liquated damages clause and a clause making time of the essence needed to be stated showed bias on the part of the arbitrator against the applicant.
  6. In his affidavit the arbitrator says that when he arrived at the room where the substantive hearing was to be held, there was no one present. Shortly after, the respondent’s solicitors entered the room. Except for a “Good morning” there was no other communication between himself and the respondent’s solicitors.
  7. The approach which the Samoan Courts have recently adopted to issues of bias is whether in the circumstances there was a real danger of bias. After careful consideration, I am not satisfied that in the circumstances there was a real danger of basis. However, it would have been prudent for the respondent’s solicitors to wait outside until the applicant’s solicitor arrived and then they go in together. What happened only gives rise to accusations of bias which could have been avoided if the respondent’s solicitors had been more prudent. In these circumstances, I am of the view that the arbitrator did not misconduct himself. If anyone “misconducted,” it certainly was not the arbitrator.
  8. As to the remarks by the arbitrator in relation to the issues at hand that in a construction contract certain clauses like a construction programme clause, liquidated damages clause and a clause making time of the essence needed to be stated, I do not accept that those remarks show bias on the part of the arbitrator by way of pre-determination. The arbitrator’s remarks were relevant to the issue of wrongful termination of contract and should have forewarned Mr Malolo so that he could make appropriate submissions if he had wanted to rather than the arbitrator keeping those remarks to himself when they were relevant. It is also not to be overlooked that the contract documents were supplied to the arbitrator prior to the substantive hearing for the purpose of the arbitrator reading through those documents before the start of the hearing. In my view there was no bias here.
  9. In respect of paragraph 23 of Mr Malolo’s affidavit, the complaint there is that the arbitrator did not grant Mr Malolo’s request to adjourn proceedings part-heard to give the supervisor the opportunity to give evidence. In the circumstances, this may amount to breach of procedural fairness on the ground that the procedure that was followed here was unfair to the applicant, but it cannot amount to a breach of natural justice on the ground of bias.
  10. The next ground which is based on paragraphs 22, 23 and 25 of Mr Malolo’s affidavit is that the arbitrator failed to adjourn proceedings part-heard to allow the supervisor the opportunity to give evidence. I have already dealt with this ground and paragraphs 22 and 23. However, there is something important raised in paragraph 25 that I should now consider. Mr Malolo in paragraph 25 of his affidavit refers to a letter dated 15 June 2005 from Ms Stowers to the arbitrator. In that letter Ms Stowers refers to a telephone conversation between Mr Stevenson and the arbitrator earlier the same day. I am of the clear view that this was very imprudent even if what was discussed was not prejudicial to the applicant. Mr Malolo’s concern was justified.
  11. In his affidavit, the arbitrator says that the telephone discussion was an advice from Mr Stevenson to himself that the respondent’s solicitors had received a letter from the applicant’s solicitor and they would be forwarding a copy to him as arbitrator. He then merely consented to a copy of the letter from the applicant’s solicitor being forwarded to him. This seems to suggest that it was Mr Stevenson who called the arbitrator rather than the arbitrator calling Mr Stevenson on the telephone. It would have avoided the present accusation of bias if Mr Stevenson had not communicated with the arbitrator on the telephone two days before the preliminary hearing. However, applying the real danger of bias test, I am not satisfied that there was bias on the part of the arbitrator. If anyone had “misconducted” himself, as submitted by counsel for the applicant, it does not appear to have been the arbitrator.
  12. If, however, there was bias on the part of the arbitrator as submitted by the applicant’s counsel, then, with respect, Mr Malolo must have become aware of the telephone communication between Mr Stevenson and the arbitrator on 15 June 2005 which is the date of Ms Stowers letter which was sent to the arbitrator and copied to Mr Malolo. There is no evidence that Mr Malolo made objection to the arbitrator continuing to act as arbitrator at the preliminary or substantive hearing. It is my opinion that it is too late for the applicant to complain now.
  13. In Judicial Review of Administrative Action (1995) 5th ed by de Smith, Woolf and Jowell, the learned authors state at para 12 – 036:

“A party may waive his objection to a decision – maker who would otherwise be disqualified on the ground of bias. Objection is generally deemed to have been waived if the party or his legal representative knew of the disqualification and acquiesced in the proceedings by failing to take objection at the earliest practicable opportunity.”

 

  1. The next complaint made by counsel for the applicant in her submission is that the arbitrator made an award which decides issues outside the reference by the parties. I am of the view that this is not bias even if this complaint is justified. I have also considered whether all of the circumstances complained of here, when taken together, would justify a finding of bias on the part of the arbitrator. I am not satisfied that it would.
  2. For the above reasons, the present ground alleging bias on the part of the arbitrator has not been made out. It is therefore struck out.

(c) Termination of the contract should not have been an issue for determination as the respondent had accepted the termination by correspondence and by conduct and is thus estoppel by raising the matter.

 

  1. I do not accept this ground. An award made by an arbitrator may be set aside on two grounds: misconduct which is a statutory ground and error of law which appears on the face of the award which is a common law ground. Misconduct may arise where the arbitrator has misconducted himself or where the arbitrator has misconducted the proceedings. The arbitrator had nothing to do with the circumstances upon which the claim of estoppel is based.
  2. The estoppel alleged under the present ground relates to correspondence between the applicant and the respondent in June 2004. That was well before the arbitration which took place between the parties in June 2005. The June 2004 correspondence had nothing to do with the arbitrator who was only appointed about May 2005 or the arbitration which took place in June 2005. So the alleged estoppel cannot be misconduct against the arbitrator in terms of s.13 of the Act which is the statutory ground for setting aside an award.
  3. In respect of the common law ground of error of law on the face of the award, the alleged estoppel does not appear as an error of law on the face of the award to justify setting aside the award. In fact there is no mention in the award of the word estoppel or the correspondence upon which the allegation of estoppel is based.
  4. It necessarily follows that the estoppel submitted for the applicant is not a ground for setting aside the award made by the arbitrator. The arbitrator after all was not a party to such an estoppel. I do not need to consider whether there was actually any estoppel between the applicant and the respondent on the basis of the June 2004 correspondence. And if there was such on estoppel how it might have been affected by subsequent events when the parties, including the applicant agreed to refer the question of wrongful termination of contract to arbitration and that the arbitration has been completed without estoppel ever being raised.
  5. This ground is also rejected.

(d) Error of law and/or fact on the face of an award

 

  1. An “error of law and fact” or an “error of fact” which appears on the face of an arbitrator’s award is not recognised as a ground for setting aside an award. Only an error of law which appears on the face of an award is.
  2. An error of law which appears on the face of an award is explained in Airwork Holdings Ltd v Auckland Regional Rescue Helicopter Trust [2006] NZHC 513 where Asher J states:

“[24] In Champsey Bhara & Co v Jivraz Baloo Spinning and Weaving Co Ltd [1923] AC 430, 487, it was stated:

 

‘An error in law on the face of the award means, in their Lordships’ view that you can find in the award or a document actually incorporated thereto … some legal proposition which is the basis of the award and which you can say is erroneous.’

 

“[25] It was put this way in Canada (Director of Investigation and Research) v Southam Inc (1997) 144 DLR (4th) at [35]:

 

‘Briefly stated, questions of law are questions about what the correct legal test is, questions of fact are questions about what actually took place between the parties; and question of mixed fact and law are questions about whether the facts satisfy the legal tests.’

 

“[26] The distinction between errors of law and errors of fact has a sound common sense purpose in the area of review of arbitrator awards; The general rationale for arbitration is the adoption of a speedy, confidential and efficient process of resolution. Often this is done by choosing as arbitrator a person who has particular skill and knowledge in the area of fact that is the subject of this dispute.

 

“[27] It is clear that the application of legal principles, the
interpretation of statutes and regulatory documents, can all involve errors of
law.”

 

  1. In United Sharebroker Ltd v Landsborough Estates Ltd (1990) (unreported judgment of the High Court of New Zealand), Tipping J said:

“For there to be an error of law on the face of the award there must be such an error by express exposition not merely by inference. The error must appear either in the award itself or in a document actually incorporated therein, for instance, a note appended by the arbitrator stating the reasons for his decision: see Chamsey Bhara & Co v Jivraj Baloo Spinning and Weaving Co Ltd [1923] AC 480, 480 P.C and Wellington City v National Bank of New Zealand Properties Ltd [1960] NZLR 660, 669 per North P.”

 

  1. It has been submitted by counsel for the applicant that on the basis of the reasons given by the arbitrator in support of his finding in favour of the respondent, the arbitrator was criticising the contents of the contract and its administration by the supervisor. In doing so, the arbitrator seems to be trying to rewrite the contract rather deal with it as it is. On this basis, the arbitrator committed an error of law by exceeding his jurisdiction.
  2. Assuming that what counsel is saying is factually right because I do not think that it is, it is not an error of law on the face of the award if the effect of the reasons given by the arbitrator is to criticise the contents of the contract. If the further affect of that is that it seems that the arbitrator was trying to rewrite the contract, as submitted by counsel for the applicant, then that, too, is not an error of law.
  3. I must also point out that the only thing mentioned by the applicant’s counsel which appears on the face of the award are the reasons given by he arbitrator for his ruling. It is the effects of these reasons as interpreted and inferred by counsel which she says constitute an error of law. But those “effects” do not appear on the face of the ward. They are inferences drawn by counsel from the reasons stated in the award. As it was stated by Tipping J in United Sharebrakers Ltd v Landsborough Estates Ltd (supra)

“For there to be an error of law on the face of the award there must be such an error by express exposition not merely by inference”.

 

  1. The arbitrator was also not trying to rewrite the contract. What he was saying is that given the absence of certain clauses from the contract and the administration of the contract by the supervisor, the respondent was not guilty of delay in completing the contract. Therefore, for the applicant to terminate the contract on the ground of delay is wrongful. The arbitrator was not trying to rewrite the contract.
  2. It is also submitted by counsel for the applicant that the arbitrator erred in law by basing his ruling on what he considered to be deficiencies in the contract documentation and the administration of the contract by the supervisor. What was required of the arbitrator was to determine whether the termination was in accordance with the contract as it is. With respect to counsel, this again is not an error of law which appears on the face of the award.
  3. In any event, I am of the opinion that the arbitrator was determining the question of termination on the basis of the contract as it is. On that basis, the arbitrator, given the absence of certain clauses which one would expect to find in a construction contract, including a clause which makes time of the essence, was of the view that the respondent was not guilty of delay which is the reason for the applicant terminating the contract.
  4. This ground of the applicant’s motion is also rejected.

    (e) The award is obviously wrong

  5. “Obviously wrong” is not a ground for impeaching an award made by an arbitrator. To say that an award is “obviously wrong” is not a ground for setting aside an award. It is an inappropriate use of the phrase “obviously wrong” in the context of an arbitration.
  6. The expression “obviously wrong” has been used in other jurisdictions for the purpose of determining whether leave be granted by the Court to review an award. But it has been abandoned in New Zealand. The expression acquired importance because it was used in the judgment of Lord Diplock in Pioneer Shipping Co v BTPTionxide (The Nema) [1982] AC 724. However, it is no longer favoured in New Zealand for the purpose of determining whether leave be granted to review an award under the Arbitration Act 1996 (NZ). In Gold and Resource Developments (NZ) Ltd v Dough Hood Ltd [2000] NZCA 131, Blanchard J in delivering the judgment of the New Zealand Court of Appeal said at para [54] (1):

“We have put the matter in this way not to indicate any basic departure from the Nema guidelines but because we are not comfortable with the conclusory way in which Lord Diplock expressed himself in stating when leave ought to be given in respect of an alleged one-off error of law. To say that the Judge must be persuaded that the award is “obviously wrong” seems to us, with respect, to be inappropriate. Plainly the House of Lords in The Nema considered that the granting of leave in respect of an alleged one-ff error should not be a common event, but, while that can be accepted, we think it is better to say that what must be shown, on a preliminary view, is that the applicant has a very strongly arguable case that the arbitral tribunal has erred in law.

” So instead of speaking of a ‘strong prima facie case that the arbitrator was wrong’ or ‘obviously wrong’ which are only labels intended to indicate that there is a high or very high threshold, we would, without intending any lowering of the barrier faced by an applicant for leave, substitute a test of a strongly or very strongly arguable case”.

 

  1. It should be clear from the above that the present ground of the applicant’s motion is misconceived in law. It is therefore dismissed.

Some general comments

 

  1. Given the nature of the contract and the dispute between the applicant and the respondent, this was a suitable case for arbitration as the parties had agreed to do pursuant to the arbitration clause in their contract. The technical matters involved in the dispute justified the appointment as arbitrator of a civil engineer with extensive experience in the construction field. I would suggest to counsel to take into account the remarks by the arbitrator on the absence from the contract of a construction programme clause, liquidated damages clause, and a clause making time of the essence and consider those clauses in the context of the law on construction to see what is the relevance of such clauses to the termination of the contract in this case.
  2. It would also appear that in the circumstances of this dispute, termination of the ct5gvbontract by the applicant pre-supposes that there had been an actual breach by the respondent of an essential term of the contract which justified termination. That actual breach of contract, as the applicant claims, was the delay involved in the completion of the contract by the respondent. So termination and breach of contract go hand in hand for, if one really thinks about it, the reason for the termination must have been the breach of contract due to the delay on the part of the respondent as claimed by the applicant. It would, therefore, be advisable to take into consideration the law on contractual termination, particularly as to how such law applies to a construction contract.
  3. It is in this connexion, that the arbitrator seems to have had in mind the absence from the contract of certain clauses that he mentioned, for instance, the absence of a clause which makes time of the essence. I suspect, but I am not certain, that the arbitrator might have thought that if, in law, termination pre-supposes an actual breach of an essential term of the contract, then how could the applicant have validly terminated the contract for delay when there was no clause or essential term in the contract making time of the essence. After all, the termination that occurred was within a contractual context and not in some other context. It is this type of question which makes it advisable, in my respectful opinion, not to reject outright the arbitrator’s remarks but to take them on board and consider them in a constructive way. The same applies to the remarks by the arbitrator concerning the administration of the contract by the supervisor.
  4. As with most cases, it is essential to sort out the facts correctly, then sort out the relevant law correctly, and then apply the law correctly to the facts. In a building construction dispute, an experienced civil engineer, as one chosen by the parties to be arbitrator of their dispute, would be an appropriate person to sort out the facts of the dispute, particularly when technical construction matters are involved. Such civil engineer may also have knowledge of the relevant law through many years of experience with construction contracts. If, however, there is doubt in that regard, the lawyers may always give assistance to the arbitrator on the relevant law or request a case to be stated on a question of law to the Court.

The Decision

 

  1. Given my ruling on ground (a) (ii) that the proceedings were misconducted when the arbitrator did not adjourn the substantive hearing part-heard to allow the applicant to have the supervisor give evidence as that evidence was crucial to the applicant’s case, and my ruling on ground (a) (v) that the proceedings were misconducted when the arbitrator decided on the issue of damages for breach of contract when that issue had never been spelled out as an issue to be arbitrated upon, the award is set aside and remitted back to the arbitrator for re-hearing and decision. The re-hearing is to be on these conditions:
    1. the applicant to make every possible effort (including a subpoena if necessary) to ensure that the supervisor will be present at the re-hearing to give evidence;
    2. the applicant to bring over the quantity surveyor from overseas to give evidence and to pay for his costs if it still wants to call the quantity surveyor as a witness; those costs may be sought against the respondent if the applicant is successful at the re-hearing; and
    1. the parties to state with clarity in the reference to arbitration the issues to be arbitrated upon.

164. Apart from the two grounds upon which I have set aside the award, all the other grounds of the applicant’s motion are dismissed.

 

165. Given the circumstances of these proceedings and the fact that this is really a test case, each party is to bear its own costs.

 

CHIEF JUSTICE

Apia Construction & Engineering Ltd v Samoa National Provident Fund [2017] WSCA 6

IN THE COURT OF APPEAL OF SAMOA

APIA CONSTRUCTION & ENGINEERING LTD V SAMOA NATIONAL PROVIDENT FUND [2017] WSCA 6

 

DATE OF HEARING: 11 September 2017

DECISION DATE: 15 September 2017

PARTIES: 

  • Apia Construction & Engineering Ltd – a duly incorporated company having its registered office at Stevensons Lawyers, First Floor, Samoa National Provident Fund, Apia (Appellant)
  • Samoa National Provident Fund – a body corporate established pursuant to the National Provident Fund 1972 having its registered office at Beach Road, Apia, Amoa (Respondent)

FILE NUMBER: CA02/17

JURISDICTION: Civil

JUDGES:

  • Honourable Justice Fisher
  • Honourable Justice Panckhurst
  • Honourable Justice Hansen

ON APPEAL FROM: Court of Appeal of Samoa, Mulinuu

ORDER:

  • The appeal is allowed. The order setting aside part of the award of 14 July 2014 is rescinded. The award of 14 July 2014 is reinstated in its entirety.
  • The respondent must pay the appellant costs of $150,970 representing the total awarded for costs incurred in both courts.

CATCHWORDS: Multiple arbitrations held – unlawful termination of contract – claim for damages – alleged bias – error of law – excess of jurisdiction

LEGISLATION CITED: Arbitration Act 1976 s 13(2)

CASES CITED:

  • A/B Legis v Berg & Sons Ltd [1964] 1 Lloyd’s Rep 203 (HC);
  • Agra-Export Enterprise D’Etat Pour Le Commerce Exterieur v NV Gordon Import Ci SA [1956] 1 Lloyd’s Rep 319;
  • Airwork Holdings Ltd v Auckland Regional Reserve Helicopter Trust [2006] NZHC 513;
  • Manukau City Council v Fencible Court Howick Ltd [1991] NZLR 410, (CA) 412;
  • Manukau City Council v Fletcher Mainline Ltd[1982] 2 NZLR 142 (CA);
  • Max Cooper & Sons Pty Ltd v University of New South Wales [1979] 2 NSWLR 257 (PC);
  • Mayor etc of Wellington v Aitken, Wilson & Co (1914) 33 NZLR 897; 16 GLR 486;
  • Muir v Commissioner of Inland Revenue [2007] 3 NZLR 496;
  • Mustill& Boyd:Commercial Arbitration (2 ed) Butterworths (1989);
  • Opotiki Packing &Coolstorage Ltd v OpotikiFruitgrowers Co-operative Ltd (In Receivership) [2003] 1 NZLR 205 (HC and CA);
  • Russell on the Law of Arbitration (19th ed, 1979);
  • Samoa National Provident Fund v Apia Construction and Engineering Ltd [2008] WSSC 1;
  • Sharebroker Ltd v Landsborough Estates Ltd (HC, Christchurch, CP 298-89, 18 May 1990;
  • United Sharebrokers Ltd v Landsborough Estates Ltd (HC, Christchurch, CP 298-89, 18 May 1990, page 8, Tipping J);
  • Wilson v Glover [1969] NZLR 365, 372 per Moller J

 

JUDGMENT OF THE COURT

Introduction

  1. When parties choose arbitration they are effectively saying that speed and finality are more important to them than having fine legal points analysed by judges.
  2. Of course when the decision is known, losing parties often have second thoughts. They will complain that the case has not been handled in the way that a court would have handled it. But by then it is generally too late. If they had wanted the substantive law and procedures of a court they should not have agreed to arbitration in the first place. Arbitration legislation may differ from one Western country to another but respect for party autonomy is now universal. Party autonomy means that the parties are free to choose their own method of dispute resolution. Once they have made that choice, modern courts will refuse to interfere unless the reasons for doing so are truly compelling.
  3. In 2004 the respondent property owner engaged the appellant construction company to help construct the Molesi Food Court. Later that year the respondent wrongfully terminated the contract. A long and unhappy series of arbitrations and Court proceedings followed. Ten years later the appellant appeared to have won when the third of three arbitrators awarded the appellant $2 million. Undeterred, the respondent again challenged the award in the Supreme Court. The Supreme Court set aside most of the $2 million awarded.
  4. In this Court the appellant contends that the Supreme Court should not have intervened. We agree, for the reasons that follow.

Factual Background

  1. The parties entered into their construction contract on 12 January 2004. The respondent terminated it five months later on 8 June 2004. The appellant commenced the first of three arbitrations, contending that the termination was unlawful.
  2. The appellant was successful in the first arbitration but the Supreme Court set aside the award. There was a second arbitration before a new arbitrator. Although the Supreme Court acquitted the first arbitrator of bias, he resigned at the request of the respondent. Sadly, the second arbitrator died after hearing all the evidence.
  3. The first two arbitrations are no longer material except as background to the delay and losses that were accumulating. The appellant’s business collapsed. The bank sold its assets to repay debt. The bank called up the personal guarantees of the proprietors, a married couple. They lost their home.
  4. Eventually a third arbitration was held before a third arbitrator, Mr Vui Mariner (“the Arbitrator”). The Arbitrator issued his liability award on 24 March 2014. He found that the respondent’s termination had been unlawful. There is no longer any challenge to that finding.
  5. Having made his decision on liability, the Arbitrator called for submissions on the quantum of the damages due to the appellant. The appellant claimed $4.6 million. The Respondent contended that it should be $417,000. In an award of 14 July 2014, the Arbitrator awarded $2 million made up as follows:
    1. $118,501 directly due to the appellant under the Construction Contract (not now disputed).
    2. $299,420 representing financing costs incurred as a result of non-payment of the sum due under the Contract.
    1. $782,000 by way of damages for loss of reputation.
    1. $800,000 by way of damages and costs for legal fees incurred.
  6. On 28 August 2014 the respondent applied to the Supreme Court to have the quantum award set aside. The parties agreed to a judicial settlement conference to explore possible settlement. In anticipation of the conference the appellant wrote to the Arbitrator asking him to provide reasons for the quantum award. On 10 April 2015 the Arbitrator sent an explanatory note to the Registrar of the Court.
  7. No settlement was achieved. Accordingly, the respondent’s application to set aside was brought on for hearing in the Supreme Court.

Supreme Court Judgment

  1. The Supreme Court Judge set aside those parts of the award concerned with reputation losses and compensation for costs incurred.
  2. As already noted, the Arbitrator had awarded the appellant $782,000 for loss of reputation. On this subject the Judge considered that there were two deficiencies in the Arbitrator’s reasoning. One was that in the Judge’s view it was a speech given by the Deputy Prime Minister that caused the appellant’s reputational losses and not the wrongful termination. The other was the Judge’s view that reputational losses were special damages and that the parties had to have special knowledge of the potential for this kind of loss at the time of the contract. He could find no evidence of such knowledge. The Judge went on to invoke two legal sources of jurisdiction to intervene. One was that in his view the difference between what the Arbitrator had awarded and what he, the Judge, would have awarded was so great as to demonstrate bias and therefore “misconduct”. The Judge also regarded those deficiencies as errors of law on the face of the award. For those reasons he permanently set aside the award of $782,000 for reputational losses.
  3. In relation to the $800,000 awarded for legal fees incurred as a result of the wrongful termination. On that subject the Judge held that “The award shows that the following costs were awarded to ACEL by way of legal fees; $54,850 for the foreclosure proceedings by the MBS, $58,850 for the outstanding MPF contributions proceedings and $54,850 for the ACEL’s bankruptcy proceedings”. The Judge considered that there was no jurisdiction to award legal fees in respect of those three matters because there was no agreement to refer them to the Arbitrator for decision. He set aside the costs award of $800,000 but remitted it back to the Arbitrator for further consideration.

The appeal

  1. In this Court the fundamental ground of appeal was that the Judge failed to appreciate the limits of a Court’s jurisdiction to set aside an arbitration award. Notwithstanding the Judge’s accurate survey of the legal principles involved, his approach in practice had much in common with an appeal on the merits. The appellant goes on to contend that even had there been jurisdiction for the Court to examine the merits of the Arbitrator’s decision, the award was in fact fully justified on the evidence.

The Jurisdiction to set aside an Award

  1. The Arbitration Act 1976 governs arbitrations in Samoa. It is based on the former Arbitration Act 1908 (NZ) which in turn was based on the Arbitration Act 1889 (UK). In 1996 New Zealand and the United Kingdom introduced entirely new Arbitration Acts. The Arbitration Act 1996 (NZ) is based on the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration 1985 (the UNCITRAL Model). The new United Kingdom legislation is based on similar fundamental principles. At some point Samoa may elect to follow suit in order to attract more domestic and international arbitration. In the meantime, however, pre-1996 commentaries and decisions from New Zealand and England will have continued relevance in Samoa.
  2. Even before more modern legislation was introduced, there was strong overseas support for finality in arbitral awards. The courts would not overturn awards except where that was unavoidable.[1] Authoritative English commentators put it this way:

“Arbitration is not always the best way of deciding a dispute, and the judges have occasionally said so. Nevertheless, they recognize that the process is often more efficient than litigation; and they also recognize that, efficient or not, it is in very many cases the procedure which the commercial man prefers. The courts respect, and give effect to, this preference by abstaining from intervention even in the face of the widest deviation from the conventional procedural norms: always provided that the procedures actually followed conform with those which the parties have expressly or impliedly chosen to accept.”[2]

  1. The same policy has been endorsed in Samoa.[3]
  2. It is also important to note that a mistake of fact or law by an Arbitrator is not, without more, a ground for judicial intervention. As Russell, one of the two main English arbitration texts, puts it, “[i]t is not misconduct on the part of an arbitrator to come to an erroneous decision, whether his error is one of fact or law, and whether or not his findings of fact are supported by evidence”.[4] This excerpt was adopted with approval in New Zealand where it was held that “It is not misconduct to come to a decision considered by the Court to be wrong on the facts or indeed on the law.”[5] As Mr Goodall rightly pointed out, if the position were otherwise, courts would be free to set aside arbitral awards whenever there was a material disagreement with any aspect of an arbitrator’s decision, legal or factual.
  3. Error of law or fact is not, in itself, a ground for setting aside an award. We cannot emphasise this point too strongly because it underlies the problems in the Supreme Court. In the circumstances of this particular case the Court could set aside the award only if the respondent could bring it within one of two legal categories:
    1. Misconduct; or
    2. Error on the face of the award.
  4. The legal principles require explanation before they can be applied to this case.

Misconduct Principles

  1. Section 13(2) of the Arbitration Act 1976 provides:

If an Arbitrator or Umpire has misconducted himself or herself or the proceedings or an arbitration or award has been improperly procured, the Court may set the award aside.

  1. “Misconduct” for this purpose is a broad concept. It is generally thought to include failure to decide all matters submitted for decision, procedural unfairness, bias, and deciding matters not submitted for decision, otherwise known as excess of jurisdiction. In the present case only the last two are alleged – bias and excess of jurisdiction. Nothing turns on the question whether excess of jurisdiction is a form of misconduct or, as some commentators prefer, an independent reason for judicial intervention.

Bias Principles

  1. One of the grounds on which the Supreme Court set aside aspects of the award was that the arbitrator was biased. The bias was held to be a reasonable inference from the excessive nature of the award.
  2. It is undoubtedly a ground for setting aside an award that an arbitrator had been biased. Bias is a predisposition to decide for or against one party, without proper regard to the true merits of the dispute.[6] Actual or apparent bias is enough. It is sufficient if an objective and fully informed observer would have had a reasonable apprehension of bias.[7] But bias generally reflects on the integrity of an arbitrator and is not lightly to be inferred. Certainly, it cannot be used as a pretext for intervening on the basis that a Court disagrees with the arbitrator’s decision.
  3. In this case the respondent relies on the proposition that if there is sufficient disparity between the views of the arbitrator and those of the judge, that alone justifies the inference that the arbitrator must have been biased.
  4. In support of such a principle the respondent relied exclusively on the obiter dictum of a first instance New Zealand judge in 1969. In Wilson v Glover Moller J had said this:

“It would certainly appear that, if what Mr White says is correct, the allowances made by the Arbitrator may well be greater than they should have been. But that is a question of fact for decision by the Arbitrator, and, in my view, I should not interfere with the award, in this particular instance, merely on the ground that I might have come to a different decision from that at which the Arbitrator arrived. I would at least have to find, on the way this case was presented, that the difference was so great that it clearly, by itself, showed bias on the part of the Arbitrator or that it was of such a nature and amount that, taken in conjunction with all other matters, bias was sufficiently evident to justify setting the award aside. I do not think that the evidence of overcharging at present before me does, when taken by itself, justify me in finding bias as alleged by the Applicant.”[8]

  1. Several comments may be made about that passage. First, the reference to bias was a comment which the Judge did not apply in the case before him; he declined to interfere with the award. Secondly the reference to bias was introduced by the qualifier “I would at least have to find …”. So the Judge was not excluding the need to consider other evidence relevant to bias. Thirdly the Judge did not provide any authority or analysis to support the possibility that disparity of views alone might be sufficient to establish bias. Fourthly, and despite the vast array of textbooks and cases on arbitration over the past hundred years or so, counsel were unable to find any case in which such a principle has ever been recognised or applied.
  2. We are not surprised that no other authority for the proposition could be found. The principal obstacle it would face is that with the exception of errors of law on the face of the award, the law and facts are for the arbitrator alone. It would not be possible for a judge to compare his or her view with the result arrived at by the arbitrator without straying into matters left exclusively to the arbitrator. Thus in New Zealand it was held as long ago as 1914 that:

“Where parties have agreed to refer certain matters to arbitration, and have nominated their own tribunal the decision of which is not subject to the approval of the Court, the mere inadequacy of the amount awarded, even if such award be against the weight of evidence, is no proof of partiality or misconduct on the part of the arbitrators of such a nature as to enable the Court to set aside the award.”[9]

  1. There is the further difficulty that bias is a conclusion which could be reached only after considering the totality of the evidence. It is concerned with the arbitrator’s actual or apparent attitude to the parties or the dispute. The court would need to consider all the surrounding circumstances before it could decide whether the arbitrator displayed, or did not display, an improper tendency to prefer one party over the other.
  2. Neither authority nor principle supports the view that a mere disparity between the views of the arbitrator and those of the judge as to the proper resolution of the dispute could, without more, provide a ground for concluding that the arbitrator was, or appeared to be, biased. Such a disparity might well play a part in arriving at that overall conclusion from other sources, but it could never be more than one of the ingredients in a much larger exercise.

Bias in this case?

  1. It was not suggested that there was any evidence of bias in this case other than an alleged disparity between the result arrived at by the arbitrator and the result which would have been adopted by a court.
  2. Counsel for both parties traversed various aspects of the original dispute in their submissions. We are not convinced that there would have been a significant disparity between the conclusion reached by the arbitrator and the conclusion we might have reached had we been called upon to make that assessment. But the real point is that there is no basis for a Court to embark on that exercise in the first place. In Samoa there is no appeal from an arbitration award.
  3. There is also the point that either the Arbitrator was predisposed to find in favour of one of the parties or he was not. If he was so predisposed, or would have been so regarded by an objective observer, that conclusion would have logically vitiated the whole of the award, not merely selective aspects of it.
  4. Our conclusion is that bias was not available as a ground for striking out any part of this award. This ground of appeal is upheld.

Excess of Jurisdiction Principles

  1. In the Supreme Court the Judge considered that there was no jurisdiction to award legal fees in respect of three prior sets of court proceedings because there had been no agreement to refer them to the Arbitrator.
  2. An arbitrator’s jurisdiction is undoubtedly confined to the disputes that the parties had submitted for decision. An award is therefore open to challenge if relief had been given for a claim which had not been referred. As is said in Mustill & Boyd:

“The award will be partially void if the relief granted related to a matter which was not referred, or if for some other reason it was outside the jurisdiction of the Arbitrator. In all these situations, the primary active remedy is for the Court to declare that the award is void, in whole or in part. Alternatively the complaining party may wait until the time comes for enforcement of the award, and then rely on the want of jurisdiction as a defence.”[10]

Excess of Jurisdiction in this case?

  1. The Judge considered that there was no jurisdiction to award legal fees in respect of three court matters. We have not been provided with the details but the costs in question were described as “$54,850 for the foreclosure proceedings by the MBS, $58,850 for the outstanding MPF contributions proceedings and $54,850 for the ACEL’s bankruptcy proceedings”.
  2. It does not appear to be disputed that each of those court proceedings followed the wrongful termination, the collapse of the appellant’ business, and the declining fortunes of its proprietors. The Judge’s objection to their inclusion in the arbitration appears to have stemmed from his view that the costs involved were properly the province of the courts and not the Arbitrator. He said that:

… it would have been much more appropriate for the ACEL‟s lawyers to seek those costs from the Court in respect of those Court proceedings rather than to seek such costs several years later from the arbitrator who did not take part in any of those Court proceedings. In addition, the Court in the 2007/2008 case did not award costs but ordered each party to pay its own costs.”

  1. Mr Goodall mounted essentially two challenges to that reasoning. One was that resolution of those costs did fall within the scope of the dispute which the parties had submitted to the Arbitrator. In that regard clause 3 of the relevant arbitration agreement provided:

3. The Arbitrator’s jurisdiction shall include all disputes arising out of or in connection with the contract date 12th January 2004 between SNPF and ACEL, up to and including issues identified and disputed during pleadings.

“Arising out of or in connection with the contract” is a particularly broad phrase. In our view it embraces losses, including legal costs, suffered by a party as a result of a wrongful termination of the contract.

  1. Had there been any doubt on that score it would have been dispelled by the way in which the arbitration was subsequently conducted without objection from either side. The appellant included the relevant legal fees in evidence before the second arbitrator without jurisdictional objection from the respondent. All exhibits and the transcript were provided to this Arbitrator. He called for input from the parties on a number of issues including “Legal fees: accrued to date – timesheets.?”. The parties responded with detailed submissions on this among other issues. The respondent certainly opposed the appellant’s claim to costs on its merits but at no point did it suggest that some of the fees claimed fell outside the jurisdiction of the Arbitrator. The respondent could not have successfully done so given the broad scope of the original arbitration agreement. Nor can we see any incompatibility between a right to claim compensation for legal fees in an arbitration and the fact that at an earlier point the claimant might have claimed, but in the event did not claim, all or part of the same fees from the respondent by way of application to a court.
  2. Mr Goodall’s second point was that it has not been established that the Arbitrator included the fees in question in his award. The appellant had claimed $1,680.512.48 for legal fees of which only $168,550 is currently in question. The Arbitrator awarded $800,512.48. There is no reason for assuming that the $800,512.48 awarded included the $168,550 which is currently in question. Where it is unclear from an award whether or not the arbitrator was justified in the approach taken, the award is to be benignly interpreted. It has been put this way:

The Court will not go out of its way to find uncertainty or error in the award merely because the arbitrator has not expressed his conclusions in the correct legal language. Furthermore, not only will the Court not be astute to look for defects, but in case of uncertainty it will so far as possible construe the award in such a way as to make it valid rather than invalid. Thus, if it is alleged that an award is subject to error on the face, but the award contains insufficient facts to enable the Court to tell whether the arbitrator’s conclusion of law was justified or not, it will assume that any justifying facts which could exist did exist, even though the arbitrator has not found them.[11]

  1. There is substance in both Mr Goodall’s points. We conclude that no excess of jurisdiction has been made out. This ground of appeal succeeds.

Error of Law Principles

  1. The respondent advanced error of law as a ground for setting aside the award. The Supreme Court relied on that ground as a source of jurisdiction to intervene.
  2. An error of law on the face of the award represents an independent ground for setting it aside, whether in whole or in part. The principles are long-established and uncontroversial. Four conditions must be satisfied before a court can invoke that source of jurisdiction:
    1. The error must appear on the face of the award. To be on the face of the award it must be in the formal award itself or in a document contemporaneously incorporated therein, for example where separate reasons are issued with, but stapled to, the award when issued.[12] A document issued by the Arbitrator after the issue of the award by way of explanation to the parties does not form part of the award.[13]
    2. The error must be one of law and not of fact.
    1. The legal error must have been a matter of express exposition and not merely a matter of inference.[14]
    1. The error must have been material to the outcome. It must have been truly significant in the sense that the outcome before the Arbitrator would have been different but for the error.[15]
  3. The question is whether those four requirements were satisfied in the present case.

Error of law in this case?

  1. The first requirement is that the error appeared on the face of the award. In the present case the Supreme Court Judge did not rely on errors on the face of the award of 14 July 2014. Instead he focused on the explanatory note sent by the Arbitrator to the High Court nine months later. That was the explanatory document requested by one of the parties for the purpose of a judicial settlement conference.
  2. The principles discussed earlier preclude reliance on such a document. A document issued by an arbitrator after the issue of the award by way of explanation to the parties does not form part of the award.[16]
  3. In an ingenious argument Ms Toailoa submitted that the so-called explanatory note was in fact a subsequent award which amended the earlier one. She pointed out that in the explanatory note the Arbitrator purported to internally adjust the figures which went to make up the total sum awarded. The Arbitrator acknowledged a minor miscalculation at one stage of the calculations but introduced a compensating increase in damages for on-going losses. By that means he endorsed the original sum awarded as the one due to the appellant. Ms Toailoa submitted that this made the explanatory note another award.
  4. The flaw in that argument is that the award of 14 July 2014 purported to be final. On matters of quantum it left nothing further to be decided. Once an arbitrator has issued a decision on a particular topic an issue estoppel arises. Unless the parties agree otherwise the arbitrator is powerless to revisit that topic.[17] In technical terms, the arbitrator becomes “functus officio”, that is to say without any further function to perform. So even if the explanatory note had been intended to operate as another award, the Arbitrator would have been acting outside his jurisdiction by purporting to issue it as another award.
  5. The relevant award here is the document of 14 July 2014. The error of law had to appear on the face of that document.
  6. The remaining three requirements are that the error appearing on the face of that document had to be one of law and not of fact, be one of express exposition rather than inference, and be material to the outcome.
  7. The only criticism Ms Toailoa could advance based on the document of 14 July 2014 stemmed from the contrast between the quantum of the claim originally put forward by the appellant ($883,460.10) and the quantum as finally awarded by the Arbitrator ($2 million). Ms Toailoa suggested that this constituted an error of law as well as an indication that the award was excessive.
  8. The uplift in damages claimed is readily explainable on the basis that the appellant’s losses increased progressively over time. The appellant’s case was that following the first arbitration it continued to incur interest and legal costs to the point that its damages had reached $4,928,433.66 by the time the third Arbitrator came to consider quantum. The Arbitrator records the fact that distinct figures were claimed in 2011 and then in 2014. No error of law arises.

Conclusions

  1. The respondent relied on a number of grounds for setting aside the award of 14 July 2014. The only ones capable of legal recognition were bias, excess of jurisdiction, and error on the face of the award. None can be sustained in this case. Consequently, there was no basis for setting aside the award.

Costs

  1. The appellant seeks costs in the Supreme Court and in this Court. Its actual solicitor-client costs, including VAGST, amounted to $105,978 in the Supreme Court and $120,478 in this Court. It seeks two-thirds of the total.
  2. We accept that party and party scale costs in both Courts are well out of date. In appropriate cases costs of up to two-thirds of actual and reasonable costs may be possible. However, there is no rule to that effect and each case must be considered according to its own particular circumstances.
  3. In this case the relevant invoices were produced. Having read them we can see no cause for thinking them unnecessary or unreasonable. We accept that the proceedings in both courts were unusually complex and time-consuming. The respondent’s various challenges to the award were wide-ranging and diffuse. We have also had regard to the volume of the materials that had to be prepared and reviewed and the legal issues that had to be researched in Samoa and overseas jurisdictions. Engaging senior counsel from overseas was justified. The respondent itself incurred costs of $65,450 plus VAGST in the Supreme Court without overseas counsel and claimed two-thirds as a reasonable recovery rate.
  4. In all the circumstances we uphold the appellant’s claim to costs.

Result

  1. The appeal is allowed. The order setting aside part of the award of 14 July 2014 is rescinded. The award of 14 July 2014 is reinstated in its entirety.
  2. The respondent must pay the appellant costs of $150,970 representing the total awarded for costs incurred in both courts.

HONOURABLE JUSTICE FISHER
HONOURABLE JUSTICE PANCKHURST
HONOURABLE JUSTICE HANSEN


[1] See, for example, Manukau City Council v Fencible Court Howick Ltd [1991] NZLR 410, (CA) 412.
[2]Mustill& Boyd:Commercial Arbitration (2 ed) Butterworths (1989) at 5, 6.
[3]Samoa National Provident Fund v Apia Construction and Engineering Ltd [2008] WSSC 1 para 73.
[4]Russell on the Law of Arbitration (19thed, 1979), commenting on the arbitration Act 1950 (UK) at p 475.
[5]United Sharebrokers Ltd v Landsborough Estates Ltd (HC, Christchurch, CP 298-89, 18 May 1990, page 8, Tipping J).
[6]Mustill& Boyd, above, p 250.
[7]Muir v Commissioner of Inland Revenue [2007] 3 NZLR 495
[8]Wilson v Glover [1969] NZLR 365, 372 per Moller J.
[9]Mayor etc of Wellington v Aitken, Wilson & Co (1914) 33 NZLR 897; 16 GLR 486.
[10]Mustill& Boyd, above, at p 554
[11]Mustill& Boyd, above, at p 570; Agra-Export Enterprise D’Etat Pour Le Commerce Exterieur v NV Gordon Import Ci SA [1956] 1 Lloyd’s Rep 319.
[12]United Sharebroker, above, Manukau City Council v Fletcher Mainline Ltd [1982] 2 NZLR 142 (CA).
[13] See generally: Russell on the Law of Arbitration (19thed, 1979) pages 442-446; A/B Legis v Berg & Sons Ltd [1964] 1 Lloyd’s Rep 203 (HC) where a letter from the arbitrator setting out his reasons 14 days after the award was not considered part of the award; Manakau City Council vFletcher Mainline United Ltd [1982] 2 NZLR 142 (CA) at 155 – 158; Sharebroker Ltd v Landsborough Estates Ltd (HC, Christchurch, CP 298-89, 18 May 1990, Tipping J, pages 10-11); and Max Cooper & Sons Pty Ltd v University of New South Wales [1979] 2 NSWLR 257 (PC).
[14]United Sharebroker, above.
[15]Samoa National Provident Fund v Apia Construction and Engineering Ltd [2008] WSSC 1, paras 146-155; United Sharebroker Ltd v Landsborough Estates Ltd (1990) (Tipping J, NZ High Court); Airwork Holdings Ltd v Auckland Regional Reserve Helicopter Trust [2006] NZHC 513, [24] – [27]; Manukau City Council v Fencible Court Howick Ltd [1991] 3 NZLR 410 (CA).
[16] See RussellA/B Legis v Berg & Sons Ltd ;United Sharebroker Ltd: and Max Cooper discussed above.
[17]Opotiki Packing &Coolstorage Ltd v OpotikiFruitgrowers Co-operative Ltd (In Receivership) [2003] 1 NZLR 205 (HC and CA) at 214, [26].

CPB Contractors Pty Limited v Celsus Pty Limited (formerly known as SA Health Partnership Nominees Pty Ltd) [2017] FCA 1620

FEDERAL COURT OF AUSTRALIA

CPB CONTRACTORS PTY LIMITED V CELSUS PTY LIMITED (FORMERLY KNOWN AS SA HEALTH PARTNERSHIP NOMINEES PTY LTD) [2017] FCA 1620

 

FILE NUMBER: NSD 1312 of 2017

JUDGE: Lee J

DATE OF JUDGMENT: 12 December 2017

CATCHWORDS:

  • ARBITRATION – application by the first respondent for a mandatory stay pursuant to s 8 of the Commercial Arbitration Act 2010 (NSW) – whether the arbitration agreement is inoperative – where respondent to the stay application relies upon subsequent contractual arrangements between other parties to demonstrate inoperability – meaning of “inoperative” and determination of the proviso question – where the subsequent agreements relied upon do not have the effect of causing the arbitration agreement to cease having effect – mandatory stay pursuant to s 8 of the Commercial Arbitration Act 2010 (NSW) granted
  • ARBITRATION – application by the second and third respondents for a mandatory stay pursuant to s 8 of the Commercial Arbitration Act 2010 (NSW) – determination of the statutory precondition of whether the second and third respondents brought an application for a stay not later than when submitting their first statement on the substance of the dispute within the meaning of s 8 of the Commercial Arbitration Act 2010 (NSW) – where second and third respondents did not meet the statutory precondition of seeking a stay not later than when submitting their first statement on the substance of the dispute – application for a mandatory stay dismissed
  • PRACTICE AND PROCEDURE – applications for a discretionary stay pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth) – where certain non-arbitral matters are ancillary to matters the subject of the mandatory stay granted in favour of the first respondent – where there are closely overlapping facts and where the arbitral matters will be largely determinative of a number of aspects of the claims made by the applicants – where discretionary stay is consistent with the facilitation of the overarching purpose – discretionary stay granted to second, third and fourth respondents

LEGISLATION:

  • Federal Court of Australia Act 1976 (Cth), Pt VB, ss 23, 37M(1), 37N(1), 37N(4), 43
  • International Arbitration Act 1974 (Cth), s 7
  • Judiciary Act 1903 (Cth), s 7
  • Federal Court Rules 2011 (Cth), r 35.14
  • Commercial Arbitration Act 2010 (NSW), s 8(1), 16
  • Commercial Arbitration Act 2011 (SA)
  • UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006), art 8(1)

CASES CITED:

  • ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896
  • Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52

     

     

  • Carona Holdings Pte Ltd v Go Go Delicacy Pte Ltd [2008] SGCA 34; [2008] 4 SLR 460

     

  • Cars & Cars Pte Ltd v Volkswagen AG [2009] SGHC 233; [2010] 1 SLR 625

     

  • Casaceli v Natuzzi SPA [2012] FCA 691; (2012) 292 ALR 143

     

  • Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd [2016] SGHC 238; [2017] 3 SLR 267

     

  • Eton Properties Ltd [2010] 4 HKLRD J2

     

  • Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52

     

  • Gilgandra Marketing Co-Operative Ltd v Australian Commodity & Marketing Pty Ltd [2010] NSWSC 1209

     

  • Groves v Commissioner of Taxation [2011] FCA 222; (2011) 82 ATR 813

     

  • Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170

     

  • Heyman v Darwins, Limited [1942] AC 356

     

  • Jackson v Sterling Industries Ltd (1987) 162 CLR 612

     

  • Kadam v MiiResorts Group 1 Pty Ltd (No 4) [2017] FCA 1139

     

  • La Donna Pty Ltd v Wolford AG [2005] VSC 359; (2005) 194 FLR 26

     

  • Louis Dreyfus Trading Ltd v Bonarich International Group Ltd [1997] 3 HKC 597

     

  • Lucky-Goldstar International (H.K.) Limited v Ng Moo Kee Engineering Limited [1993] 2 HKLR 73

     

  • Northern Territory of Australia v GPAO [1999] HCA 8; (1999) 196 CLR 553

     

  • Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72

     

  • Pedersen v Young (1964) 110 CLR 162

     

  • Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10

     

  • Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547; (2000) 100 FCR 420

     

  • Rinehart v Rinehart (No 3) [2016] FCA 539; (2016) 337 ALR 174

     

  • UDP Holdings Pty Ltd v Ironshore Corporate Capital Ltd [2016] VSC 400

DATES OF HEARING: 11, 12 December 2017

REGISTRY: New South Wales

NATIONAL PRACTICE AREA: Commercial and Corporations

SUB-AREA: Commercial Contracts, Banking, Finance and Insurance

 

ORDERS

BETWEEN

CPB CONTRACTORS PTY LTD (First Applicant)

HANSEN YUNCKEN PTY LTD (Second Applicant)

AND

CELSUS PTY LTD (FORMERLY KNOW AS SA HEALTH PARTNERSHIP NOMINEES PTY LTD) AS A BODY CORPORATE AND AS TRUSTEE OF THE CELSUS TRUST (FORMERLY KNOWN AS THE SA HEALTH PARTNERSHIP TRUST) (First Respondent)

THE MINISTER FOR HEALTH OF SOUTH AUSTRALIA (Second Respondent)

STATE OF SOUTH AUSTRALIA (Third Respondent)

 

THE COURT ORDERS THAT:

 

1.           The claims against the first respondent detailed in the originating application and the applicant’s amended statement of case dated 12 September 2017 be referred to arbitration and the proceedings in this Court stayed pursuant to s 8(1) of the Commercial Arbitration Act 2010 (NSW), on the basis that the claims are the subject of a valid and binding arbitration agreement.

2.           The claims against the second, third and fourth respondents outlined in the originating application and the applicant’s amended statement of case dated 12 September 2017 be stayed on a temporary basis pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth) until the conclusion of the arbitrations currently being case managed by the Hon Kevin Lindgren QC (being ACICA Cases 2017-103, 2017-104 and 2017-110) and also ACICA Case 2017-111.

3.           The applicants pay the first respondent’s costs of the interlocutory application filed on 17 November 2017 and, to the extent required, leave be granted to the first respondent to seek taxation of its costs of its interlocutory application pursuant to Division 40.2 of the Federal Court Rules 2011 (Cth) (FCR).

4.           The applicants pay 60 per cent of the costs incurred by the second and third respondents in relation to the interlocutory application filed 13 November 2017 (other than any costs incurred in relation to the relief sought in prayer 3 of the second and third respondents’ interlocutory application).

5.           The applicants pay the costs of the interlocutory application of the fourth respondent filed on 15 November 2017 (other than any costs incurred in relation to prayer 2 of the fourth respondent’s interlocutory application).

6.           The costs in relation to prayer 3 of the second and third respondents’ interlocutory application and in relation to prayer 2 of the fourth respondent’s interlocutory application be reserved.

7.           The time for filing any application for leave to appeal from these orders be extended to a date 14 days after the date upon which the revised reasons for judgment are published to the parties and, to the extent necessary, the requirements of FCR 35.14 are dispensed with.

8.           Liberty be granted to the applicants and the second to fourth respondents to relist the proceedings by application to the Associate to Lee J upon expiry of the temporary stay referred in in order 2.

 

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

 

REASONS FOR JUDGMENT
(Revised from the transcript)

LEE J:

A        INTRODUCTION

  1. The building of the new Royal Adelaide Hospital was an undertaking of such scale and scope that it was described in South Australia’s Health Care Plan as being “the most significant single investment in health care in South Australia’s history”.
  2. A complex and sometimes bewildering web of contractual documentation often governs large building projects.  The project the subject of this proceeding (a so-called “public-private partnership”) was no exception.  As will become evident, there will be a need to have regard to limited aspects of the Byzantine detail, but in very broad terms, the relevant project documentation provided a regime where the Government of South Australia owed no material obligations directly to the builder of the hospital, but rather contracted with a special purpose entity to provide for the financing, design and construction of the hospital.
  3. Viewed from the perspective of outsiders, another common feature of complex building projects is labyrinthine disputation between participants.  Again, this project is no outlier.  By early 2016, disputes had arisen over delays and defects, and by October 2016, the first of a number of arbitral proceedings were commenced.  Those proceedings are being conducted before the Hon Kevin Lindgren QC, and what have been described as the “Defects Arbitration” and the “Defects Compensation Arbitration” are set down for hearing in August 2018.  It will be necessary to describe these and later arbitral proceedings in more detail below.
  4. It was against this background of existing arbitral dispute as to defects that this proceeding was commenced by the applicants (Builder) in August 2017, seeking a range of relief against the first respondent, the special purpose corporation created for the project (Project Co), the second and third respondents, being the Minister for Health of South Australia and the State of South Australia (collectively, the State) and the fourth respondent, being the independent certifier for the project (IC).
  5. These reasons set out the basis for the determination of three interlocutory applications filed by each of Project Co, the State and the IC.  Those three applications, heard together, initially raised issues which can be placed into two broad categories.
  6. First, orders are sought that the totality of the claims made by the Builder (as articulated in an amended statement of case filed on 5 September 2017 (ASOC)) be stayed pursuant to s 8(1) of the Commercial Arbitration Act 2010 (NSW) or the Commercial Arbitration Act 2011 (SA) (nothing of any moment turns on any difference between these two cognate Acts and, until making orders, I will refer to the legislation without distinction as the CA Act) and/or s 23 of the Federal Court of Australia Act 1976 (Cth) (FCAA) (Stay Applications).
  7. Secondly, both the State and the IC seek to stay permanently, strike out (or, in the case of the IC, summarily dismiss), as an abuse of process, certain claims of intentional and wrongful conduct made by the Builder in the ASOC at [78], [79] and [83] (in the case of the State) and at [80]-[83] (in the case of the IC) (Further Applications).  It is now unnecessary to deal with the Further Applications as a pragmatic resolution to this aspect of the dispute emerged during the course of the hearing.
  8. At the most recent case management hearing, on 29 September 2017, I indicated to the Builder that, for reasons which included the serious nature of the allegations the subject of the Further Applications, a statement of claim should be filed pleading the impugned claims with specificity.  Irrespective of the view that I reach in relation to the Stay Applications, the claims made against the State and the IC are to be pleaded.  It would be inimical to the overarching purpose contained in s 37M(1) of the FCAA to proceed to determine the Further Applications given it is inevitable that the claims are to be pleaded.  Of course, in a sense, this is a form of re-pleading (although technically this is not the case as the proceeding was commenced by way of a concise statement).  In any event, the parties have agreed that the appropriate course is for a statement of claim to be filed in due course and for both the State and the IC to reserve their positions as to whether they seek summary determination or, alternatively, permanent stays.  In all the circumstances, it is also appropriate that any costs associated with the Further Applications be reserved.
  9. Turning to the Stay Applications, I will divide the balance of these reasons into the following headings:

    Section B        Background

    B.1      The Contracts and Arbitration Agreements

    B.2      The History of Disputation on the Arbitration

    Section C        Evidence

    C.1     The Evidence Generally

    C.2     Findings as to Factual and Legal Overlap

    Section D        The Stay Applications

    D.1     Relevant Principles

    D.1.1   Mandatory Stay

    D.1.2   Discretionary Stay

    D.2     Observations as to Disposition of the Applications and Agreed Issues

    D.3     The Project Co Application

    D.3.1   Mandatory Stay – Operability of Arbitration Agreement

    D.4     The State Application

    D.4.1   Mandatory Stay – A Procedural Issue

    D.4.2   The Substantive Issue as to the Existence of an Agreement

    D.4.3   The Discretionary Stay

    D.5     The IC Application

    Section E         Conclusion and Costs

    B        BACKGROUND

    B.1     The Contracts and Arbitration Agreements

  10. As a consequence of the contractual structure to which brief reference has already been made, there are no direct contractual obligations between the Builder and the State or the Builder and the IC to determine disputes between them by way of arbitration.
  11. In May 2011, a series of agreements was executed (Project Documents) which put in place the following contractual structure:

    (a)          the State engaged Project Co to finance, design and build the hospital and to provide certain services in connexion with its operation (Project Agreement);

    (b)          Project Co subcontracted to the Builder the design and construction of the hospital (Construction Contract);

    (c)          Project Co and the State engaged the IC as the independent certifier under the Project Agreement to, inter alia, adjudicate extension of time claims, assess progress and determine completion (IC Agreement);

    (d)          Project Co, the State and a syndicate of financiers (Financiers) entered into a number of financing agreements under which funds were advanced to Project Co and the State to fund the project; and

    (e)          Project Co contracted with Spotless P&F Pty Ltd to provide facilities management services.

  12. Additionally, the State directly entered into side deeds, one of which is of relevance to these applications, being an agreement entered into with Project Co and the Builder, so as to provide the State with identified rights under the Construction Contract (Builder Direct Deed).  As would by now be evident, the overall effect of this regime was that the State contracted with Project Co to provide its “most significant single investment”, leaving it to Project Co to arrange for the financing, design and construction, and the provision of services during the relevant operating term.
  13. Turning to the relevant arbitration agreements themselves (generally considered to be contracts independent of the underlying contract in which they are contained: see Heyman v Darwins, Limited [1942] AC 356 at 374 per Macmillan LJ; Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd [2014] WASC 10 at [42] per Martin CJ), reliance is placed upon:

    (a)          clauses 69-72 of the Project Agreement (Project Arbitration Agreement);

    (b)          clauses 69-72 of the Construction Contract (Construction Arbitration Agreement); and

    (c)          clause 16 of the IC Agreement (IC Arbitration Agreement),

    (collectively, Arbitration Agreements).

  14. It is plain from the Arbitration Agreements that they were all broadly drawn such as to evince an intention of the contracting parties to capture all potential disputes arising in relation to the project.  In this regard, the Project Arbitration Agreement and Construction Arbitration Agreement both relevantly provide:

    69.1     Disputes

    If any dispute arises between the parties in respect of any fact, matter or thing arising out of, or in any way in connection with the Project, the Works, the Facility…the Site or this Agreement (Dispute) then the Dispute will be resolved in accordance with Clauses 69 to 72.

    (Bolding in original, emphasis added)

  15. Additionally, consistently with this apparent intention to resolve all relevant disputes by way of arbitral proceedings, the arbitrator in each instance was granted broad powers to “grant all legal, equitable and statutory remedies”.

    B.2     The History of Disputation on the Arbitration

  16. It is unnecessary for the purposes of the Stay Applications to provide a detailed chronology of the various issues that arose in relation to the project.  In very broad summary, and relevantly to this proceeding, the following should be noted:

    (a)          by April 2016, an issue arose as to alleged significant delays;

    (b)          as a consequence of the delays, Project Co (together with the Builder) was required to put forward a “Cure Plan” directed towards remedying or curing the delay which, if accepted by the State, was required to be implemented;

    (c)          unsurprisingly in the context of delay, disputes arose in relation to extensions of time and extension of time claims were adjudicated by the IC; this adjudication resulted in a determination that Project Co and the Builder were not entitled to any extension;

    (d)          a Mediated Agreement was entered into by Project Co and the State (but not the Builder) in January 2017 (Mediated Agreement), which sought to establish, with the consent of the Builder, a single arbitration process before Mr Lindgren to deal with all project disputes;

    (e)          following a mediation, an agreement was reached between the State, Project Co and the Financiers by which those parties resolved to address the consequences of the ongoing delays to the project; this led to the execution of a “Completion Deed” and a “Consents and acknowledgements deed” (Consents and Acknowledgements Deed) (it will be necessary to return to the Mediated Agreement and these documents later in these reasons);

    (f)          eventually, Technical Completion was achieved in March 2017 and Commercial Acceptance occurred in June 2017.

  17. Additionally, and of particular importance for present purposes, arbitral proceedings arose.
  18. In July 2016, Project Co issued a notice of dispute in relation to defects, which was stated as being made pursuant to cl 40.3(b) of the Project Agreement, and which “mirrored” an earlier notice of dispute issued by the Builder pursuant to the Construction Contract (Defects Dispute).  The Defects Dispute was eventually referred for determination by an Independent Expert, pursuant to the procedures under the Project Documents.  A further adjectival dispute arose as to the contractual remit of the Independent Expert to address aspects of the Defects Dispute and as to the Independent Expert’s determination. This expert determination had been made in September 2016, a month after proceedings had been commenced by the State in the Supreme Court of South Australia, in which a declaration was sought as to the scope of the Independent Expert’s role under the Project Agreement.  A hearing was held which led to the delivery of judgment by Blue J (State of South Australia v Goldstein [2016] SASC 202) which identified his Honour’s reasons for determining that the Independent Expert had power to make determinations in relation to some matters, but did not have power in relation to others. The details are not presently material.
  1. In any event, following this, in October 2016:

    (a)          the State commenced arbitral proceedings against Project Co relying on the Project Arbitration Agreement, disputing various of the Independent Expert’s determinations and seeking to have them substituted by a determination of the tribunal;  and

    (b)          Project Co issued mirror arbitral proceedings against the Builder, pursuant to the Construction Arbitration Agreement (obviously enough, in respect of the same subject matter).

  2. In late 2016, Mr Lindgren was appointed arbitrator in relation to these arbitrations, and the following year he made directions that both arbitrations be heard in parallel with evidence in one being evidence in the other.  These combined arbitral proceedings will be described in these reasons as the Defects Arbitration.
  3. In early 2017:

    (a)          the State commenced further arbitral proceedings against Project Co pursuant to the Project Arbitration Agreement, seeking compensation in respect of various alleged defects;  and

    (b)          Project Co issued mirror arbitral proceedings against the Builder, pursuant to the Construction Arbitration Agreement.

  4. Again, Mr Lindgren was the arbitrator appointed and, with the consent of all relevant parties, made orders for these arbitrations to be conducted in parallel.  I will describe these combined arbitral proceedings as the Defects Compensation Arbitration.
  5. It will be recalled that the hearing of both the Defects Arbitration and the Defects Compensation Arbitration is listed to commence in August 2018.  Again, put very broadly, this hearing will resolve questions as to the existence and extent of various defects and the compensation payable, if any, in relation to such defects.
  6. There are yet further arbitral proceedings, and the circumstances in which these arbitral proceedings arose are of interest and potential significance.
  7. The relevant chronology commences on 10 November 2016, when Project Co wrote to the State enclosing a copy of a document provided to it by the Builder entitled “Notice of Claimed Entitlements” dated 8 November 2016 (Builder Document).  The letter from Project Co to the State adopted various allegations against the State set out in the Builder Document, for the purposes of the Project Agreement.
  8. It is unnecessary to dwell on the detail of the Builder Document other than to note that allegations were made by the Builder in relation to various matters, including: the State’s delivery of the State’s Enterprise Patient Administration System; the conduct of the IC; the State’s alleged interference with the IC’s determination of various extension of time claims; and an allegation that the State procured a breach by Project Co of the Construction Contract.
  9. The Builder, in the Builder Document, had asserted that (Exhibit B, p 3252):

    The Builder sets out below an outline of the basis on which it claims these entitlements. The value of the Builder’s claims is likely to exceed $800m. The Builder intends to issue a Notice of Dispute and to initiate the dispute resolution process under the Construction Contract.

  10. Despite this statement of intention, the Builder did not take the steps it had foreshadowed.  The evidence does not disclose why, and it is unnecessary for me to speculate.  What did occur, however, was that this proceeding was commenced in this Court in August 2017.  It suffices to note presently that there are similarities between the allegations made in the concise statement (and the ASOC) filed in this proceeding and the claims earlier identified in the Builder Document.  I will come to the extent of that similarity below.
  11. Returning to the background narrative, this proceeding was listed for a first case management hearing before me on 18 August 2017.  I will make further reference to this first case management hearing later, but its present chronological relevance is that shortly after the hearing occurred, and after having taken no formal step following the delivery of the contentions in the Builder Document (and during the 10 months following its receipt through Project Co), the State issued a notice of dispute for the purposes of the Project Arbitration Agreement in respect of the various allegations made in the Builder Document as adopted by Project Co.
  12. The next event was that on 5 October 2017, the State issued arbitral proceedings against Project Co pursuant to the Project Arbitration Agreement, challenging the allegations made in the Builder Document as adopted by Project Co, and seeking declaratory relief in relation to those allegations.  Less than a week later, Project Co issued arbitral proceedings against the Builder pursuant to the Construction Arbitration Agreement in respect of the same subject matter, seeking similar, but not identical, forms of declaratory relief.
  13. These steps were taken without any indication to the Court at the first case management hearing, held some weeks earlier, that the State and/or Project Co would adopt such a course.  Indeed, to the contrary, Mr Collins QC, who appeared on behalf of Project Co, although foreshadowing a possible stay application on the basis of an arbitration agreement, indicated that (Exhibit B, pp 23-4):

    We hope not to have to make that [stay] application…Our position is that we that we hope that all the parties agree that all of the claims arising out of the facts the subject the applicant’s (sic) claim can be dealt with in this proceeding.

  14. For whatever reason, this hope was not realised.  When the matter came before me for the second case management hearing, I was confronted with the development that both Project Co and the State had acted to put in place what I will describe as the Second Arbitration.  Of course, the Second Arbitration itself comprises two arbitrations: the first being between the State and Project Co (commenced on 5 October 2017) and the second being between Project Co and the Builder (commenced on 11 October 2017).  In relation to the former, Mr Lindgren was appointed as arbitrator and following a procedural hearing on 15 November 2017, the matter was adjourned to a further procedural hearing on 21 December 2017.  I was told that no arbitrator has yet been appointed to the latter arbitration.
  15. The respective positions in relation to the second of the arbitrations which comprise the Second Arbitration is that the Builder contends that it cannot be forced, as a matter of contract, to accept Mr Lindgren as arbitrator, nor could it be forced to consent to a regime where the two aspects of the Second Arbitration be heard together, as is the case with the Defects Arbitration and the Defects Compensation Arbitration.  The view expressed by the State during the course of oral submissions was that it is plain that efficiency and logic demands that Mr Lindgren be the arbitrator in respect of both arbitrations comprising the Second Arbitration.  It was also said that if the Builder did not recognise the common-sense of that position then disagreement is inevitable and the Australian Centre for International Commercial Arbitration (acting to resolve any “deadlock”) would likely appoint Mr Lindgren as the arbitrator in relation to the whole of the Second Arbitration (with the consequence that Mr Lindgren would very likely make orders to ensure that all aspects of the Second Arbitration be dealt with together).
  16. In this way, it seems to me, whether by agreement or otherwise, it is more likely than not that Mr Lindgren will be seized of the Defects Arbitration, the Defects Compensation Arbitration and both arbitral proceedings constituting the Second Arbitration.

    C        EVIDENCE

    C.1     The Evidence Generally

  17. Three business days prior to the hearing of the interlocutory applications, eight lever arch folders described as “Court Book for Hearing on 11 and 12 December 2017” were delivered to my chambers.  Included in this imposing, multi-volume court book was a series of affidavits often deposing to the same facts, and a range of other, non-essential material including, for example, extracts from the FCAA and the Federal Court Rules 2011 (Cth) (FCR).
  18. In order to ensure that the documentary material necessary to determine the Stay Applications was kept in manageable form, although affidavits were read, I did not allow annexures or exhibits to the affidavits to be adduced in evidence unless they were specifically referred to during the course of argument or in written submissions.  Commendably, and at short notice, the parties worked cooperatively in identifying those materials that truly needed to be in evidence (ultimately a small subset of the voluminous court book).  As a consequence, the documentary evidence comprises Exhibit A, being the Construction Contract, and Exhibit B, being a compendium of the documents which have been specifically referred to, either in writing or orally.  No witness was cross-examined, and there is not any significant factual contest between the parties.

    C.2     Findings as to Factual and Legal Overlap

  19. Prior to the hearing of the Stay Applications (the date for which I had set at the second case management hearing after having been informed of the extra-curial actions of the State and Project Co), orders were made for the exchange of written submissions.
  20. In the “State’s submissions on Stay Application” dated 8 December 2017 (State’s Submissions in Chief), it was asserted that the various claims made by the Builder in this proceeding overlap closely with those the subject of existing arbitral proceedings or the Arbitration Agreements.  Of course, this reference to “existing” arbitral proceedings in the State’s Submissions in Chief includes the Second Arbitration, which, as I have explained, was commenced after the commencement of this proceeding.
  21. A comprehensive summary of the factual overlap in respect of each of the Builder’s claims was provided as an annexure to the State’s Submissions in Chief.  During the course of the first day of the hearing of the Stay Applications, I requested that the Builder identify whether there was any contest as to the extent of the overlap.  Annexure A to these reasons sets out a summary of the factual overlap.  The first four columns set out the contentions initially made in the State’s Submissions in Chief, and the last column identifies the Builder’s comments in relation to those submissions as to the factual overlap.  The document speaks for itself, and the broad and substantial factual overlap identified by that document is not the subject of real dispute.  Although there are some differences in emphasis, and some qualifications made by the Builder, the fact is that the Stay Applications fall to be determined in circumstances where I find that there is a broad and substantial factual overlap between the allegations made by the Builder in this proceeding and the factual matters that need to be determined in the arbitrations.

    D        THE STAY APPLICATIONS

    D.1     Overarching Principles

  22. The appropriate starting point is that the Builder has licitly sought orders from this Court exercising the judicial power of the Commonwealth to quell an extant controversy that is appropriately within federal jurisdiction.  Although parties are free to agree to submit their differences or disputes as to their legal rights and liabilities for determination by an ascertained or ascertainable third party by way of contract, the jurisdiction of this Court cannot be ousted by a paction, and the only power of an arbitrator to determine the matters presently in dispute between these parties is founded in contract.  The Builder submits that an important aspect of this principle is that interparty contractual arrangements cannot take away from it seeking to invoke the jurisdiction of the Court, and that any restriction on the overarching principle that the Court is to determine a justiciable controversy through the exercise of judicial power can only be found in statute.

    D.1.1   Mandatory Stay

  23. The basis upon which Project Co and the State seek to have the overall controversy (or at least large parts of it) dealt with through an arbitral determination rather than by the exercise of judicial power is by reliance on s 8 of the CA Act.  Both parties also seek that the Court exercise its discretion to allow a non-statutory stay, but that can be put aside for present purposes.
  24. Section 8 of the CA Act provides:

    8 Arbitration Agreement and Substantive Claim before Court

    (cf Model Law Art 8)

    (1) A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

    (2) Where an action referred to in subsection (1) has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.

    (Bolding in original)

  25. As is well known, the provisions of the CA Act including s 8 are based on the UNCITRAL Model Law on International Commercial Arbitration. The CA Act is intended to operate, insofar as it is possible, in conformity with the Model Law. As can be seen from the terms of s 8, provided certain criteria are met, the court must refer the parties to arbitration. Taken as a whole, s 8 provides for four separate requirements:

    (a)          there is brought before a court an action;

    (b)          the action is in a ‘matter’ which is the subject of an arbitration agreement;

    (c)          no later than when submitting its first statement on the substance of a dispute, a party to the action requests that the parties be referred to arbitration;  and

    (d)          the arbitration agreement is not null and void, inoperative, or incapable of being performed.

  26. It is the last two of these requirements which are in dispute on the Stay Applications at various points of the argument, and I will return to these matters below.
  27. Very recently, in Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170, the Full Court (Allsop CJ, Besanko and O’Callaghan JJ) explained the principled approach to determining stay applications (including the appropriate standard of review by a court entertaining such an application) under s 8 of the CA Act.
  28. The Full Court’s discussion was in the context of a dispute that certain deeds, which contained arbitration agreements, were void or should be set aside because they were procured by impugned conduct.  The application for an order that the proceeding be stayed was resisted on the basis that the arbitration agreements were void.
  29. The primary judge held that prima facie there were arbitration agreements and that some of the disputes fell within their scope.  Orders were made facilitating a trial of the ‘proviso question’ as to whether the arbitration agreements contained within the deeds were “null and void, inoperative or incapable of being performed”: see Rinehart v Rinehart (No 3) [2016] FCA 539; (2016) 337 ALR 174. On appeal, the Full Court stayed the proceeding, observing that the attack on the validity of the arbitration agreements (that is, the proviso question) would be determined by the arbitrator (subject to review by a supervisory court pursuant to s 16 of the CA Act).
  30. In reaching her conclusion, the primary judge interpreted the arbitration agreements as providing that some matters to be agitated fell within the scope of apparently valid arbitration agreements, but that the attack on the deeds did not fall within that scope.  However, her Honour also found that the arguments as to validity were available on the proviso question.  Although, as the argument emerged, there was no dispute as to the existence and scope of the relevant arbitration agreements here, the decision in Hancock is also notable by reason of the Full Court’s observation at [145] that:

    We think that any rigid taxonomy of approach is unhelpful, as are the labels “prima facie” and “merits” approach. How a judge deals with an application under s 8 of the CA Act will depend significantly upon the issues and the context.  Broadly speaking, however, and with some qualification, aspects of the prima facie approach have much to commend them as an approach that gives support to the jurisdiction of the arbitrator and his or her competence, as recognised by the common law and by s 16 of the CA Act, whilst preserving the role of the Court as the ultimate arbiter on questions of jurisdiction conferred by ss 16(9) and (10), 34(2)(a)(iii) and 36(1)(a)(iii) of the CA Act. Broadly, the approach is consonant with the structure of the CA Act and the Model Law.

    (Italics in original)

  31. Particular note should be taken of the comment by the Full Court that how a judge deals with an application under s 8 of the CA Act will depend significantly upon the issues and the context.  One other aspect of Hancock that is relevant is that the Full Court held that a court hearing the stay application has discretion as to whether it should hear and determine a proviso question: see [367]. In exercising that discretion in favour of providing for the relevant proviso question in Hancock to be determined by the arbitrator, the Full Court considered a number of factors, including the fact that the attack on the arbitration agreements could become entangled with broader validity claims, and that it was unlikely that a judicial hearing on the proviso question would be of short duration.

    D.1.2   Discretionary Stay

  32. Originally, Project Co had put all of its eggs in the basket of a mandatory stay.  At the commencement of the hearing of the Stay Applications, leave was granted for Project Co to amend its interlocutory application to add a further prayer for relief, framed in the alternative, to the effect that the claims against Project Co outlined in the ASOC be stayed “pursuant to s 23 of the [FCAA] and/or the inherent jurisdiction of the Court”.   Almost identical alternative relief had been sought by the State in its interlocutory application.
  33. Section 23 of the FCAA “confers upon the Federal Court a broad power to make orders of such kinds, including interlocutory orders, as it ‘thinks appropriate’”: Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 622 per Deane J (Mason CJ, Wilson and Dawson JJ agreeing). Of course, the Court’s power to order a stay of proceedings is an incident of its general power to control its own proceedings and it is plain that an order for a stay as sought, if otherwise appropriate, can be made pursuant to s 23: Groves v Commissioner of Taxation [2011] FCA 222; (2011) 82 ATR 813 at 819[22] per Logan J.
  34. In their prayers for relief, both Project Co and the State rely upon what they describe as the “inherent” jurisdiction of the Court.  I pause to remark that this reliance does not seem to me to be soundly based.  It is well established that only superior courts of record with unlimited jurisdiction are said to possess inherent jurisdiction.  In Australia, the High Court, the Federal Court and the Family Court, all of which are superior courts of record, possess defined jurisdiction granted by either the Constitution or statute. As Wilson and Dawson JJ observed in Sterling Industries at 618:

    federal courts differ from the supreme courts of the States which, although of statutory origin, are truly designated superior courts because they are invested with general jurisdiction by reference to the jurisdiction of the courts at Westminster.

  35. Although federal courts possess similar powers, it is not, in this sense, inherent.  In the same judgment, their Honours held that a declaration by the Federal Court as a superior court of record was to be given effect as far as it could be and that the “vesting of judicial power in the specific matters permitted by the Constitution (see ss. 75, 76, 77) carries with it such implied power as is necessarily inherent in the nature of the judicial power itself” (at 619, emphasis added).  Accordingly, although it is less than accurate to say that the Court has an inherent power to grant the relief sought in the Stay Applications, the Court has ample power under s 23 of the FCAA, and by reason of its implied power to control its own proceedings, to grant the relief sought.
  1. The question is not as to power but whether such discretionary relief should be granted in the present circumstances.  Again, recently, in Hancock, the Full Court provided more authoritative guidance on the applicable principles. It did so by at [334] describing as “basal and correct” the observation of Merkel J in Recyclers of Australia Pty Ltd v Hettinga Equipment Inc[2000] FCA 547; (2000) 100 FCR 420 at 435 [66]. In that matter, Merkel J observed at 434-435 [65]-[66]:

    In the event that a proceeding includes matters that are not capable of being referred to arbitration, but the determination of which is dependent upon the determination of the matters required to be submitted to arbitration, a court may, in the exercise of its discretion, stay the whole proceeding: see Tanning Research [Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332] at 216 per Brennan and Dawson JJ. A court may also exercise a discretion to impose terms that the arbitration of the arbitrable claims not proceed prior to the determination of the non-arbitrable claims where the arbitrable claims are seen to be subsidiary to or significantly less substantial than, but overlapping with, the non-arbitrable claims: see Hi-Fert [Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1998) 90 FCR 1; 159 ALR 142 at ALR] 167-168, cf Dodwell & Co (Aust) Pty Ltd v Moss Security Ltd (unreported, Federal Court, Wilcox J, No 130 of 1990, 11 April 1990). The discretion may also be exercised to stay the proceeding where the non-arbitrable claims are the ancillary claims.

    The broad discretion arises as part of the exercise of a court’s general power to control its own proceedings. The basis for the discretion is that the spectre of two separate proceedings – one curial, one arbitral – proceeding in different places with the risk of inconsistent findings on largely overlapping facts, is undesirable: see Dodwell & Co per Wilcox J at [5] and [7], Hi-Fert at 167-168 and McConnell Dowell Smith East Asia Pty Ltd v State Electricity Commission (Vic) (unreported, Supreme Court, Vic, Beach J, No 5035 of 1996, 24 November 1998).

  2. Although the discretion is commonly exercised when a court has been required to stay part of a proceeding pursuant to s 8 of the CA Act where there are other non-arbitral claims (see Casaceli v Natuzzi SPA [2012] FCA 691; (2012) 292 ALR 143 at 158-159 [48]-[49] per Jagot J), the court may also exercise the discretion independently of a mandatory stay being granted: see UDP Holdings Pty Ltd v Ironshore Corporate Capital Ltd [2016] VSC 400 (Hargrave J).
  3. Indeed, in an important sense, it can be seen that the ability to grant a discretionary stay is not only an incident of the ability of the Court to control its proceedings in a general sense, but also now to control those proceedings in such a way as to fulfil the mandate set out in Part VB of the FCAA.  Of course, as was common ground, the Court is required by s 37M(3) of the FCAA to exercise its procedural powers in a way that best promotes the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible.

    D.2     Observations as to Disposition of Applications and Agreed Issues

  4. The submissions between the parties raised a number of different issues, some of which were no longer pressed in argument at the hearing of the Stay Applications.  In order to obtain some clarity in relation to the matters that the Court is required to determine, I prepared and provided to the parties at the outset of oral submissions an “issues document”.  Helpfully, the parties conferred in relation to that document and the issues requiring determination on the Stay Applications (leaving aside the issue that I determined in section C.2 above).  The agreed issues can be summarised as follows:

    The Project Co Application

    (1) As to the proviso question, should the Court exercise its discretion to determine the proviso question or allow the arbitral tribunal to resolve (in the first instance) the Builder’s challenge to “operability”?

    (2) Whether Project Co is entitled to a stay pursuant to s 8 of the CA Act notwithstanding the contentions of the Builder that the Construction Arbitration Agreement is “inoperative” by reason of the entry by the State and Project Co into the Mediated Agreement and the Completion Deed in breach of the Construction Contract (hence engaging the proviso question in s 8 of the CA Act).

    (3) In the event that Project Co is not entitled to a stay pursuant to s 8 of the CA Act, is Project Co entitled to a stay pursuant to s 23 of the [FCAA] and/or the inherent jurisdiction of the Court because the claims in the proceeding overlap or are ancillary to those in existing arbitral proceedings?

    The State Application

    (4) Has the State complied with the procedural condition for a s 8 stay, which required referral to arbitration to be sought no later than when the State submitted its first statement on the substance of the dispute?

    (5) If the procedural condition was satisfied, is a substantive condition of a s 8 stay, that the claims made by the Builder against the State be the subject of an arbitration agreement, satisfied because:

    (a) the making of the Builder’s claims against the State constitute a breach of warranties and undertakings in the Builder Direct Deed and whether or not that is so is to be resolved in accordance with what the State alleges is the “Builder Direct Deed Arbitration Agreement” which arbitration agreement exists because of the reference to the Project Agreement in the Builder Direct Deed;

    (b) the State is a party claiming “through and under” Project Co in respect of the releases relevant to some of the claims provided by the Builder in the Construction Contract?

    (6) If Project Co is entitled to either a s 8 stay or a discretionary stay, should the claims made against the State by the Builder be stayed pursuant to s 23 of the FCAA or the Court’s general power to control its own proceedings because:

    (a) the claims made by the Builder against the State are ancillary to matters the subject of Project Co’s stay; and/or

    (b) there is a risk of findings on overlapping facts; and/or

    (c) the arbitrator’s award will be determinative or largely determinative of the claims made in the proceeding against the State; and/or

    (d) the State is willing to undertake to submit to the arbitral proceedings; and/or

    (e) it is of potential savings in time and cost; and/or

    (f) it would be consistent with the policy aims of the CA Act and the intention manifest from the Project Documents (including cl 6 of the Builder Direct Deed) to require arbitration;

    (g) it may result in the claims not proceeding, or the issues in dispute being narrowed;

    (h) it will remove the burden of duplication for parties, witnesses, experts and legal advisers;

    (i) it is only a temporary stay of a monetary claim, and there is accordingly no real prejudice to the Builder;

    (j) it is consistent with the operation of ss 23 and 37M of the FCAA and facilitates the fair and efficient administration of justice; and/or

    (k) of the alleged weakness of the claims made by the Builder against the State.

    (7) If the State is entitled to a s 8 stay in respect of part but not all of the Builder’s claims against it, should the balance of the proceeding be stayed pursuant to s 23 of the FCAA?

    The IC Application

    (8) If Project Co and/or the State is entitled to either a s 8 stay or a discretionary stay, should the claims made against the IC by the Builder be temporarily stayed until the conclusion of the arbitrations or further order pursuant to s 23 of the FCAA and/or the Court’s general power to control its own proceedings because:

    (a) the claims made by the Builder against the IC are ancillary to the claims made by the Builder against the State and Project Co; and/or

    (b) there is an extensive overlap of facts and issues; and/or

    (c) to do so would minimize or reduce the risk of inconsistent findings in parallel proceedings; and/or

    (d) there will be savings in time and cost; and/or

    (e) it is an efficient use of judicial resources; and/or

    (f) it may result in claims not proceeding, or the issues in dispute being narrowed; and/or

    (g) it will remove the burden of duplication for parties, witnesses, experts and legal advisers; and/or

    (h) it is only a temporary stay of a monetary claim, and there is accordingly no real prejudice to the Builder; and/or

    (i) if the arbitral matters are mediated, it may be open for the IC to participate in such a mediation, even though it is not a party to the relevant contracts; and/or

    (j) it is consistent with the operation of ss 23 and 37M of the FCAA and facilitates the fair and efficient administration of justice.

    D.3     The Project Co Application

    D.3.1   Mandatory Stay – Operability of Arbitration Agreement

  5. I referred at [43] above to the four requirements that must exist before a mandatory stay is ordered.  Following the narrowing of issues during the course of oral argument, the only basis upon which the Builder contends that s 8 of the CA Act does not require a stay in the present circumstances is that the Construction Arbitration Agreement is inoperative.
  6. The Builder accepts that it bears the onus of establishing its argument as to inoperability.  For reasons I identify at [86] below, it is appropriate that I resolve this proviso question and to do so it is necessary to: first, identify what is said by the Builder to amount to inoperability; secondly, discuss briefly the authorities as to what is meant by the term ‘inoperative’; and thirdly, assess the Builder’s inoperability contention in the light of that discussion.

    The Builder’s Argument

  7. The Builder accepts that if the only way a party could render an arbitration agreement inoperative was for the whole contract to be terminated by acceptance of a repudiation, then the Builder necessarily fails as, obviously enough, there was no such termination.  The argument developed by Mr Walker SC, who appears with Mr Hyde for the Builder, was that the term ‘inoperative’ is “neither a term of art in contract law, at common law, nor is it a particularly specific provision” and identifying whether inoperability was established called for assessment by reference to a “case-by-case circumstantial understanding” or inquiry (T 25, 27).  In this case, it was said that the entry into inconsistent arrangements by Project Co was sufficient, being arrangements to resolve outstanding disputes in a streamlined and consolidated fashion which “do not contemplate the Builder’s participation in the consolidated or streamlined dispute process that has now been agreed between Project Co and the State in breach by Project Co of the clear terms of clause 1.8 of the Construction Contract” (see Builder’s Written Submissions dated 5 December 2017 at [136]-[137]).  Put more generally, the Construction Arbitration Agreement was inoperative because one could point to (T 25):

    an extant obligation to seek to have a different regime obtain from the one to which [the Builder was] entitled under the construction contract [and this] is enough to show that, for the purposes of something as drastic as the court refraining from exercising its undoubted jurisdiction itself to resolve the dispute by judicial power, the arbitration agreement has become, between these parties, inoperative.

  8. This issue was first raised on 17 August 2017 when an assertion was made by the Builder that the Construction Arbitration Agreement was relevantly inoperative “by reason of the State and [Project Co] entering into alternative agreements in breach of the Construction Contract” (Exhibit B, p 4894).

    Inoperability – the Authorities

  9. Of course, as has already been explained, the proviso in s 8 of the CA Act is a proviso adopted from art 8(1) of the Model Law.  The widespread adoption of the Model Law has meant that consideration of what might broadly be described as ‘proviso issues’ has occurred in a number of jurisdictions, including the leading centres for arbitrations in the Asia Pacific area, Singapore and Hong Kong.  Indeed, a convenient starting point is the relatively recent and detailed decision of Vinodh Coomaraswamy J of the High Court of Singapore in Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd [2016] SGHC 238; [2017] 3 SLR 267.
  10. In his extended discussion of inoperability, his Honour referred to the work of Professor Albert Jan van den Berg, entitled “The New York Convention of 1958: An Overview” in Gaillard E and Di Petro D (eds), Enforcement of Arbitration Agreements and International Arbitral Awards: The New York Convention in Practice (Cameron May, 2008).  In the Professor’s opinion, inoperative agreements are arbitration agreements “which have ceased to have effect”, noting that (at 52):

    The word “inoperative” can be said to cover those cases where the arbitration agreement has ceased to have effect, such as revocation by the parties.

  11. Vinodh Coomaraswamy J also accepted the Professor’s point that the terms contained in the proviso should be construed narrowly.  In this respect, at [162], his Honour noted that:

    An arbitration agreement is inoperative, at the very least, when it ceases to have contractual effect under the general law of contract. That can occur as a result of a number of doctrines of the law of contract such as discharge by breach, by agreement or by reason of waiver, estoppel, election or abandonment.

  12. At [163]-[166], his Honour then went on to observe as follows:

    [163] David St John Sutton, Judith Gill, and Matthew Gearing, Russell on Arbitration (Sweet & Maxwell, 23rd Ed, 2007) (cited in Sembawang [Sembawang Engineers and Constructors Pte Ltd v Covec (Singapore) Pte Ltd [2008] SGHC 229] at [39]) accept at §7-046 on page 370 that an arbitration agreement will be inoperative “where [it] has been repudiated or abandoned or contains such an inherent contradiction that it cannot be given effect”. Mustill and Boyd [Commercial Arbitration (Butterworths, 2nd Edition, 1989] at page 464 notes that the term “inoperative” has “no accepted meaning in English law”, but proposes that it “would seem apt to describe an agreement which, although not void ab initio, has for some reason ceased to have effect for the future”. They include in this category situations where an arbitration agreement ceases to have effect by virtue of a declaration to that effect by a court of competent jurisdiction or by virtue of common law doctrines such as termination by acceptance of repudiatory breach or frustration, or by agreement of the parties.

    [164] Prof Born in International Commercial Arbitration (at §5.06(d) on pages 842 to 843) defines an “inoperative” arbitration agreement as one which has ceased to have effect:

    It … appears reasonably clear that Article II(3) [of the New York Convention], which permits non-enforcement of “inoperative” agreements, refers to agreements that were at one time valid, but which thereafter ceased to have effect (or ceased to be “operative”) In one commentator’s words, “the word ‘inoperative’ refers to an arbitration agreement which has ceased to have effect.” That would include cases of waiver, revocation, repudiation, or termination of the arbitration agreement, or failure to comply with jurisdictional time limits prescribed by the arbitration agreement.

    Thus, an arbitration agreement would be “inoperative” where the parties actively pursued litigation, rather than arbitration, resulting in a waiver of the right to arbitrate under applicable law. An arbitration agreement would also be “inoperative” if the parties mutually agree to litigate their dispute (or submit it to a different form of dispute resolution), or where a party repudiated the agreement.

    [165] Similarly, David Joseph QC in Jurisdiction and Arbitration Agreements and their Enforcement (Sweet & Maxwell, 2010) (“Jurisdiction and Arbitration Agreements”) observes (at §11.49 on page 353) that an arbitration agreement will be inoperative when it is discharged and comes to an end:

    An arbitration agreement therefore can come to an end by repudiation, frustration, waiver or election but it is necessary to distinguish between repudiation of the substantive contract and repudiation of the arbitration agreement.

    [166] The following are examples of circumstances in which an arbitration agreement would be inoperative:

    (a)     Where a party has waived a contractual right to arbitrate or finds itself estopped from relying on that right: Tjong [Tjong Very Sumito v Antig Investments Pte Ltd [2009] SGCA 41; [2009] 4 SLR(R) 732] at [53]; Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 238 ALR 457 at [65]; Ramasamy Athappan [Athappan v Secretariat of Court, International Chamber of Commerce (A.No 2670/2008, A.No 1236/2008, O.A.No 277/2008 and A.No 2671/2008 in C.S.No 257/2008] cited in the UNCITRAL Guide at [106], [109], and [112].

    (b)     Where a party has abandoned its right to seek a stay under a particular jurisdiction’s equivalent of s 6 of the IAA: Eisenwerk Hensel Bayreuth Dipl-ing Burkhardt GmbH v Australian Granites Ltd [2001] 1 Qd R 461 at [15]; ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896 at [53]; La Donna Pty Ltd v Wolford AG [2005] VSC 359 at [21] to [22]; and

    (c)     Where a party has committed a repudiatory breach of the arbitration agreement and that repudiation has been accepted by the innocent counterparty: Downing[Downing v Al Tameer Establishment [2002] EWCA Civ 721; [2002] BLR 323] at [34] to [35].

  13. As might be expected, given the nature of the Builder’s submission, the Builder places some emphasis on the words at [162], where Vinodh Coomaraswamy J noted that “at the very least” an arbitration agreement would be inoperative when it ceased to have effect under the general law.  Of course, as the examples collected by his Honour make clear, there may be circumstances where an arbitration agreement would be inoperative other than in circumstances where an arbitration agreement is brought to an end (in the sense of ceasing to have contractual effect under the law of contract).  Obvious, non-exclusive examples would be where a party has waived a contractual right to arbitrate or where equity, for some reason, prevented reliance on strict legal rights.
  14. Given they are not terms of art, there is obviously some potential overlap between the word “inoperative” and the phrase “incapable of being performed”, which are both contained within the proviso in s 8 of the CA Act.  This can be seen, for example, by the fact that circumstances where an arbitration agreement may be inoperative include where it contains such an inherent contradiction that it cannot be given effect (see Russell on Arbitration at §7-046, p 370, referred to at [65] above).  It is difficult to understand why such a circumstance would not also be an example where the agreement could be regarded as being “incapable of being performed”.  Be that as it may, for present purposes, given the way the Builder put its argument (relying exclusively on the concept of inoperability), it is unnecessary to explore the precise interrelationship between these different expressions used in s 8 of the CA Act.
  15. For my part, as to what renders an arbitration agreement inoperative, I would adopt not only what was noted by Vinodh Coomaraswamy J in Dyna-Jet extracted above, but also what was said by Kaplan J in Lucky-Goldstar International (H.K.) Limited v Ng Moo Kee Engineering Limited [1993] 2 HKLR 73, where his Honour, at 76, also quoted from Professor van den Berg’s work (The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation (Kluwer Law and Taxation Publishers, 1981) at 158), as follows:

    The word ‘inoperative’ can be deemed to cover those cases where the arbitration agreement has ceased to have effect.  The ceasing of effect to the arbitration agreement may occur for a variety of reasons.  One reason may be the parties have implicitly or explicitly revoked the agreement to arbitrate.  Another may be that the same dispute between the same parties has already been decided in arbitration or court proceedings (principles of res judicata…).

    (See also Eton Properties Ltd [2010] 4 HKLRD J2 at [127] per Joseph Fok J)

    Consideration of the Builder’s Inoperability Contention

Segment #3
  1. Clause 4(b) of the Mediated Agreement thereby contemplates the Builder’s participation in this process if the Builder agreed to become involved.  New claims by the Builder, in this circumstance, would be streamlined with a new dispute process, and it was not possible for other disputes to be consolidated with the then extant Defects Arbitration and Defects Compensation Arbitration unless the Builder agreed to do so.
  2. As would already be clear, the regime agreed between the State and Project Co could only be fully executed with the Builder’s cooperation and, if that cooperation was not available, the proposal was limited to those steps that could be taken using the best endeavours of the contracting parties.  It should also be noted that, to the extent that the State and Project Co agreed to establish a single arbitration process for all extant claims between them, no schedule for the purpose of cl 4(b) was delivered and, accordingly, absent the delivery of such a schedule, there was nothing that could have affected any extant “pass-through” claims involving the Builder, such as to impact on its rights under cl 79.16 of the Construction Contract.
  3. The agreement between Project Co and the State in the Mediated Agreement did not interfere with the previously agreed Construction Arbitration Agreement as between Project Co and the Builder such as to alter the Builder’s legal rights (as might be thought obvious given it was not a party to the Mediated Agreement).  If one was to assume, however, that cll 4(a) and/or 4(b) did somehow interfere with the Builder’s rights and entitlements under the Construction Arbitration Agreement, the anticipated, or actual, breach of cl 1.8 of the Construction Contract may well have given rise to a claim which could be agitated by the Builder, for example, by seeking to enjoin Project Co from acting inconsistently with the Construction Arbitration Agreement or instituting a claim for damages; but this is beside the point.  I cannot see how such a breach by Project Co would have the consequence that the Construction Arbitration Agreement ceased to have effect in any relevant respect (it is notable, in this regard, that the Builder was unable to identify any authority which stood for the proposition that inoperability has been established in circumstances similar to those existing here).  It cannot be the subjective intentions or wishes of Project Co that are determinative; rather, there must be an objective assessment of whether the Construction Arbitration Agreement continued to have legal force as between the Builder and Project Co.  In short, if it remained legally enforceable (which seems to me to be the case), I do not understand how it ceased to have effect with the consequence that it became inoperative.

    Completion Deed

  4. The same can be said of the Completion Deed (again, an agreement to which the Builder was not a contracting party).  Clause 4 contains a detailed process to implement the proposal described in cl 4 of the Mediated Agreement, albeit with some differences.  Clause 4(a) requires the State to give its consent to the consolidation of the Defects Arbitration and the Defects Compensation Arbitration, and cll 4(b) and 4(c) address similar points.
  5. Clause 4(d) addresses the establishment of a further consolidated arbitration process to resolve the outstanding disputes between Project Co and the State then extant before Mr Lindgren.  This clause expressly states that the disputes will be governed by cl 72 of the Project Agreement, but will be subject to the points agreed in cll 4(d)(3)-4(d)(10) of the Completion Deed.  Clauses 4(d)(8) and 4(d)(9) require the contracting parties, where possible, to consolidate new claims and disputes going forward, with the exception of “Third Party Disputes”, into the single consolidated arbitration, but acknowledged that this may not be practicable.  In accordance with cl 1.1 of the Completion Deed, “Third Party Disputes” are defined to include “pass-through” claims in the case of claims against the State, within the meaning of cl 79.16 of the Construction Contract.  In this way, the process deliberately excludes pass-through claims within the meaning of the Construction Contract, meaning that any claims by Project Co against the State which would be pass-through claims by the Builder are not captured by the process.  Third Party Disputes are instead addressed in cl 4(e) which provides that if the relevant third party does not consent to consolidate the dispute into the single consolidated arbitration, the State and Project Co agree to take all necessary steps to keep the parallel dispute processes, both upstream and downstream, streamlined and running in parallel, similarly to cl 4(b) of the Mediated Agreement.
  6. Again, cl 4(e) of the Completion Deed is not inconsistent with the continued operation of the Construction Arbitration Agreement.  Further textual support for this conclusion is to be found in cl 12.3(d)(3) of the Completion Deed and contextual support is found in cl 2(b) of the contemporaneous Consents and Acknowledgement Deed.  Subclause 12.3(d)(3) of the Completion Deed provides as follows:

    12.3 Inconsistency

    (d) For the avoidance of doubt, nothing in this deed:

    (3) affects the State’s, Project Co’s or the Builder’s rights and entitlements under the Project Agreement or the Construction Contract, as applicable.

  7. Moreover, subclause 2(b) of the Consents and Acknowledgement Deed provides:

    2 Consents and acknowledgement

    (b) Notwithstanding any provision of the [Completion Deed] (including clause 13.8 of the [Completion Deed]), the parties acknowledge and agree that, to the extent that any consents from third parties pursuant to the Project Documents in respect of the entry into and performance of the [Completion Deed] are required (if at all), the relevant provisions of the [Completion Deed] in respect of which those consents are required will not come into full force and effect unless and until each party has received in form and of substance satisfactory to it evidence that all necessary consents pursuant to the Project Documents in respect of the entry into and performance of the [Completion Deed] have been obtained.

    Conclusion as to Inoperability

  8. Having determined that the proposal to enter into (or entry into) these subsequent dispute resolution arrangements between Project Co and the State did not have the effect of causing the Construction Arbitration Agreement to cease to have effect, I reject the Builder’s contentions as to inoperability of the Construction Arbitration Agreement. This being the only basis upon which the Builder continued in final submissions to resist the stay sought by Project Co under s 8 of the CA Act, it follows that Project Co is entitled to a s 8 stay.
  9. In proceeding to determine and then reject the Builder’s argument as to operability, I am conscious of what the Full Court said in Hancock about whether a judge hearing a stay application should proceed to determine a proviso question or leave that issue to an arbitrator. Unlike Hancock, this was not a case where an attack on the arbitration agreement could become entangled with broader validity claims, and argument on the proviso issues was relatively narrow and of short duration. With differing degrees of enthusiasm, each party on the Stay Applications urged upon me the determination of this issue, and I considered it appropriate that I exercise my discretion to proceed to do so.
  10. Given that Project Co is entitled to a stay pursuant to s 8 of the CA Act, it is unnecessary to deal with issue 3 (identified at [57(3)] above), which was Project Co’s alternative contention that it was entitled to a discretionary stay because the claims in the proceeding overlap or are ancillary to those in existing arbitral proceedings.

    D.4     The State Application

  11. As I have already indicated, an application for a mandatory stay is made under s 8 of the CA Act by the State, by way of an interlocutory application filed on 13 November 2017.  Insofar as the State’s stay application is concerned, three of the four requirements for a mandatory stay, which I have identified at [43] above, are in dispute.  I need not say anything further as to the issue of operability.  It is obvious from what I have already said that this argument is rejected insofar as it is advanced against the State.  As can be seen from the issues document, the substance of which has been extracted at [57] above, this leaves both a procedural and substantive issue for me to determine.
  12. It is common ground that, in the event that the State fails to surmount the procedural hurdle, it is unnecessary for me to form a concluded view in relation to the issue that has been raised as to whether or not the claims made by the Builder against the State are the subject of an arbitration agreement.  For reasons that will emerge, it is unnecessary to go into the detail, but as the terms of issue 5 (see [57(5)] above) try to make clear, the substantive issue revolves around a contention by the State that the Builder’s claims against it constitute a breach of warranties and undertakings in the Builder Direct Deed, and whether such a dispute is to be resolved in accordance with what the State alleges is the “Builder Direct Arbitration Agreement”, which arbitration agreement is said to exist (somewhat indirectly) because of the reference to the Project Agreement in the Builder Direct Deed.  This is advanced together with a contention that the State is claiming “through and under” Project Co in respect of the releases relevant to some of the claims provided by the Builder in the Construction Contract.

    D.4.1   Mandatory Stay – A Procedural Issue

  13. As can be seen by the terms of s 8 of the CA Act, a stay application under the CA Act must be made not later than when a party makes its first statement on the substance of the dispute. This requirement is consistent with the Model Law and, in this regard, the position is somewhat different than that under s 7 of the International Arbitration Act 1974 (Cth) (IA Act). Under the IA Act, similar but different considerations as to timing often have arisen as it is well established that the right to apply for a stay is a private right and, as such, that it may be waived. A number of cases have considered the issue of whether a waiver occurred by virtue of a party’s conduct in litigation: see, for example, ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896(Austin J) and La Donna Pty Ltd v Wolford AG [2005] VSC 359; (2005) 194 FLR 26 (Whelan J).
  14. Under s 8 of the CA Act, however, the issue is not whether a party seeking a stay may have abandoned its right to seek a stay by a failure to reserve its position or by its conduct in contesting or acquiescing to the conduct of proceedings, but rather whether the statutory precondition has been satisfied of bringing an application not later than when submitting the party’s first statement on the substance of the dispute.  The issue of what content should be given to these statutory words was the subject of examination by Slattery J in Gilgandra Marketing Co-Operative Ltd v Australian Commodity & Marketing Pty Ltd [2010] NSWSC 1209, and later by Mitchell J in Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52. In the latter case, Mitchell J observed that (at [92]-[93]):

    The only Australian authority to which I have been referred dealing with the relevant language of Art 8 of the Model Law is the decision of Slattery J Gilgandra Market Cooperative Ltd v Australian Commodities and Marketing Pty Ltd ([2010] NSWSC 1209). In that case the defendant’s opposition to an application for an interim injunction, during which it stated its position on the substantive questions in dispute, was found to constitute the defendant’s ‘first statement on the substance of the dispute’. The subsequent stay application was held to have been made out of time. In so holding, Slattery J reviewed a number of New Zealand cases dealing with the provision, including Pathak v Tourism Transport Ltd ([2002] 3 NZLR 681).

    I accept the defendant’s submission that there is a common feature of the examples of a ‘first statement on the substance of the dispute’ found in Gilgandra and cases referred to therein. The common feature is that the statements contained what the party in question said about how the substantive dispute in the primary proceedings should be determined. That accords with the natural meaning of the language used in s 8 of the Act.

    (Bolding in original)

  15. The extract above refers to a number of decisions in New Zealand which were examined by Slattery J in Gilgandra at [49]-[53]. His Honour considered that those authorities supported the principle that a respondent which opposes interim relief and fails to seek a stay or protest jurisdiction in respect of a substantive dispute at an early time would be prevented from seeking a stay. The consideration in Gilgandra should also be supplemented by reference to the approach of other courts dealing with cognate provisions of the Model Law.
  16. In Carona Holdings Pte Ltd v Go Go Delicacy Pte Ltd [2008] SGCA 34; [2008] 4 SLR 460, the Court of Appeal of Singapore summarised the approach in the United Kingdom and then observed (at [55]):

    It now seems to be fairly settled that a “step” is deemed to have been taken if the applicant employs court procedures to enable him to defeat or defend those proceedings on their meritsand/or the applicant proceeds, from a procedural point of view, beyond a mere acknowledgment of service of process by evincing an unequivocal intention to participate in the court proceedings in preference to arbitration.

    (Emphasis in original)

  17. Similarly, in Louis Dreyfus Trading Ltd v Bonarich International Group Ltd [1997] 3 HKC 597 at 606, Waung J held that the reference in the Model Law to a statement submitted to a court is a reference to some form of document which is “specially submitted by a party to the court which contains what that party says on the substance of the dispute”.
  18. Here, of course, it is beyond doubt that the State provided a statement on the substance of the dispute (being its response to the ASOC, filed on 25 September 2017) at a time prior to filing its stay application on 13 November 2017. In contending that the procedural bar had been surmounted, Dr Bell SC, who appears on behalf of the State, made reference to several matters, all of which were of the same nature. They went to a contention that the position of the State in respect of its s 8 stay application had been reserved. It is unnecessary for me to comment on whether this would have been sufficient, given the express and plain terms of s 8 of the CA Act (which require an application for referral for arbitration to be made not later than the filing of a formal document, such as a response, containing the party’s first statement on the substance of the dispute), because, for reasons I will explain, I do not consider that the position of the State was reserved.
  19. In any event, the first matter relied upon by Dr Bell was a letter dated 16 August 2017, sent by the solicitors for the State, Lipman Karas.  In that letter, the State’s solicitors were responding to a proposed timetable for the progress of the proceeding in this Court.  It was contended by the State’s solicitors that it was not an efficient use of the time of the Court or the parties for the respondents to put on a response to the then current concise statement before the Builder:

    properly articulated [its] claims in a formal pleading, and any summary dismissal, strike-out and stay applications have been resolved.

  20. This letter was sent in the context of Project Co making it plain that any steps taken in relation to the proceeding the following day were expressly without prejudice to Project Co’s right to bring an application for a stay.  Against that background, the letter went on to say that:

    We also consider that it is premature to timetable the matter beyond the determination of the foreshadowed summary dismissal, strike-out and stay applications in circumstances where, until those applications are resolved, it is uncertain whether the proceedings will continue in the Federal Court or at all.

  21. I infer that the reference to whether the “proceedings will continue in the Federal Court or at all” was to the already flagged possibility that Project Co would be making an application for a stay pursuant to s 8 of the CA Act.  Certainly, at this time, the State’s position had been made plain as a pikestaff: it was asserting that the concise statement was materially deficient and did not provide adequate procedural fairness, particularly in the context of serious allegations being made of intentional wrongdoing.  The following day, on 17 August 2017, the solicitor for the State, Mr Foreman, swore an affidavit, which was before the Court at the first case management hearing on 18 August 2017.  At [86] of this affidavit (Exhibit B, p 1264), Mr Foreman deposed that:

    As is clear from paragraphs 69 to 83 above [which refer to the then existing Defects Arbitration and Defects Compensation Arbitration], to the extent that the Builder’s claims are not amenable to summary dismissal or strike out, they are inextricably linked with matters which are the subject of pending arbitrations, or arbitration agreements.

  22. Previously, at [10] of the same affidavit (Exhibit B, p 1243), Mr Foreman deposed to the fact that the claims made by the Builder in this proceeding were “inextricably tied to disputes which are the subject of the contractual dispute resolution clauses”.  It was further said in evidence that those disputes were already the subject of arbitrations between the State and Project Co, and between Project Co and the Builder.
  23. Dr Bell referred to the arbitrations, including the Defects Arbitration and the Defects Compensation Arbitration, at the first case management hearing.  He also referred to the evidence of Mr Foreman and his apprehension of overlap between the allegations in the concise statement and the underlying matters which are to be the subject of determination by Mr Lindgren in the arbitrations.  This was said to be a factor which made it highly desirable for the Builder’s claims to be pleaded with some precision.  Dr Bell then went on to say (Exhibit B, p 36):

    But it’s quite important for the court – and all the parties – actually, they have a much more precise appreciation about the degree and extent of any overlap than we currently do because that may affect all sorts of matters, including the case management of this proceeding going forward and it might be affected by Mr Lindgren’s timetable and when he expects to make determinations and the like.

  24. Again, in this context, reference was made to the perceived need for a more orthodox articulation of the claim made in the proceeding at the outset (see Exhibit B, pp 36-7).  Dr Bell then returned to the nature of the claims made against the State later in his submissions; he made reference to State’s view that “there’s a real issue about a duty of care for the negligent misstatements”.  The following was then said (Exhibit B, p 39):

    Now, you see why we’re interested in – whether a duty of care would be there. But – so we do anticipate strongly bringing an interlocutory, but we don’t want a situation where we’re doing it without fully appreciating the case which is sought to be – that wouldn’t be efficient for the parties or for the court.

  25. Earlier, Mr Hyde, who appeared for the Builder, referred to [86] of Mr Foreman’s affidavit (extracted at [98] above), and noted that the claims made by the Builder were linked to various arbitral issues.  After making reference to that paragraph, Mr Hyde said (Exhibit B, p 21):

    And it, in effect, should be some sort of stay or prevention of my client running those claims in this jurisdiction. A similar argument has been foreshadowed by [the IC] that they assert that the claims made by my client against the so-called independent certifier are somehow caught by some arbitral relief.

  1. Certainly, my clear impression during the course of the first case management hearing was that complaint was being made by the State as to its inability to understand the precise claims made by the Builder against it and that the remedial response to this alleged deficiency should be to require the Builder to plead out either all or part of the claim made against the State.  I was acutely aware from what Mr Collins had said of the position of Project Co being expressly reserved (notwithstanding that at that time the position of Project Co was to indicate that it wished, with the consent of all parties, not to bring an application for a stay even though it had by that stage already filed an interlocutory application seeking such a stay).  To be frank, I did not turn my mind to the position of the IC one way or the other, but I certainly saw a distinction being made between the position taken by Project Co and the position taken by the State.
  2. Irrespective of whether or not there was an asymmetry of understanding between the bench and the bar in relation to this issue, the fact remains that I was not persuaded to make an order that the Builder file a statement of claim.  I did, however, put in place case management orders which required further specification of the Builder’s claims (which was provided by the ASOC) and ordered for a response to that document to be filed which set out an outline of the substance of the case to be advanced in response to the Builder’s claims.  As we know from the chronology, the document setting out the State’s position was filed on 25 September 2017, prior to its filing of an application for a stay.
  3. The second matter called in aid by the State is a reservation contained in [1] of its response to the ASOC.  That reservation was in the following terms:

    1. This response is made by [the State] without prejudice to their contention that:

    1.1 the [ASOC] is inadequate to identify and articulate the elements necessary to make out the causes of action purportedly sought to be relied upon and inadequate to give fair notice of the case to be advanced, especially in relation to a claim of the supposed financial magnitude as the present claim; and

    1.2 the underlying claims foreshadowed by the ASOC should be struck out, summarily dismissed or otherwise stayed.

  4. My impression when I read that paragraph prior to the second case management hearing was that it related to another matter that had been raised at the first case management hearing, namely that there was an allegation of unlawful means or deliberate infliction of economic harm by the State, which was described as “extremely serious allegations to make against the Crown” (Exhibit B, p 41).  Indeed, when the interlocutory application was ultimately filed, the contention that a stay was required was maintained on the basis that an inadequately articulated claim of that type was being made, that this constituted an abuse of process and that, as a consequence, that aspect of the claim “ought be permanently stayed to put that abuse to an end” (see State’s Submissions in Chief at [193]).
  5. Although it may be that the State always intended to file an application for a discretionary stay in the event that a successful s 8 stay application was made by Project Co, I did not understand, prior to the filing of the State’s response, that the position of the State was being reserved to seek its own mandatory stay. The first time I understood that a mandatory stay was possibly being sought by the State was when its stay application was filed.
  6. In these circumstances, I am not satisfied that the State has requested a referral to arbitration “not later than when submitting [its] first statement on the substance of the dispute” within the meaning of s 8 of the CA Act.  The fact is that the State did not make an application prior to filing its first response on the substance of the dispute.  Moreover, to the extent relevant (see [95] above), in contradistinction to the position taken by Project Co, there was no reservation of the position of the State in relation to a mandatory stay.  I note for completeness that no procedural point was raised by the Builder against Project Co, as Project Co had actually filed its interlocutory application on 17 August 2017 and its response to the ASOC on 25 September 2017 (and had previously expressly reserved its position unequivocally – see Exhibit B, pp 23-4).
  7. It follows that the procedural condition has not been fulfilled, and on that basis I reject the State’s application for a stay pursuant to s 8 of the CA Act.

    D.4.2   The Substantive Issue as to the Existence of an Agreement

  8. As contemplated by the issues document, given the finding I have made concerning the procedural issue, it is not necessary for me to form a view as to whether or not an arbitration agreement as contended for by the State exists.

    D.4.3   The Discretionary Stay

    The Arguments

  9. There are a number of considerations that the State and the Builder urge upon me in the exercise of my discretion as to whether or not a discretionary stay should be ordered.  The State submits that the logical starting point for the Court’s consideration is the determination of Project Co’s application for a stay pursuant to s 8 of the CA Act and to consider the consequences that should flow from the success of that application.  As can be seen from the way in which the issue is framed, there are a number of matters upon which the State relies.  These are set out in the subheadings to issue 6 (see [57(6)] above) and include the following, which received the most emphasis during the course of oral submissions:

    (a)          the claims made by the Builder against the State are ancillary to matters the subject of Project Co’s stay;

    (b)          the arbitrator’s award will be determinative or largely determinative of the claims made in the proceeding against the State;

    (c)          there would inevitably be potential savings in time or cost should a stay be ordered, removing duplication for parties, experts and legal advisers;

    (d)          it is only a temporary stay of a monetary claim and accordingly there is no real prejudice to the Builder.

  10. I will return to an assessment of these matters below, but I have deliberately left out of this list two matters which I do not think weigh heavily in the discretionary balance, and one matter which I consider must be kept firmly in mind.
  11. The first matter that I regard as not having great significance, at least insofar as the Defects Arbitration and the Defects Compensation Arbitration are concerned, is that there is a risk of inconsistent findings on overlapping facts.  There is no realistic prospect whatever of me making any findings on any facts relating to defects, prior to them being the subject of an arbitrator’s award.  Indeed, if the Defects Arbitration and the Defects Compensation Arbitration had been the only extant arbitrations, then I would have regarded the determination of applications for a discretionary stay to be a relatively straightforward decision.  That is because the usual case management orders made by the Court to progress this proceeding (starting with the filing of a statement of claim) would have taken effect in such a manner as to mean that any arbitrator’s award in relation to these arbitrations would not have interfered with the interlocutory progress of this proceeding in any material sense, there thus being no risk of inconsistent findings on overlapping facts.  It is the existence of the Second Arbitration and the uncertainty regarding when it will be concluded that creates real complications.
  12. The second matter which I do not believe is of great significance is the undertaking that the State is willing to undertake to submit to the arbitral proceedings.  Although this may be an important consideration in other cases, if the State is correct, and the Second Arbitration occurs as is proposed, it seems to be accepted, absent the undertaking, that all relevant parties will be bound by the findings made in the Second Arbitration, with the exception of the IC.
  13. The one factor not given a special prominence in the written submissions by the parties, which does seem to me to be of some real significance, is the requirement of the Court to have regard to the overarching purpose mandated by s 37M(1) of the FCAA when exercising its power, including its discretionary power, to grant a stay.  I have elsewhere written about the case management “revolution” that was supposed to be ushered in by the insertion of Part VB of the FCAA, and the imperfect recognition of the significance of that change: see Kadam v MiiResorts Group 1 Pty Ltd (No 4) [2017] FCA 1139 at [1]-[4] and [48]-[50].
  14. In exercising the discretion it is also necessary to take account of the matters called in aid by the Builder.
  15. The matter that received particular emphasis in the course of oral submissions related to the unusual circumstances in which the Second Arbitration came into being following the first case management hearing.  Mr Hyde referred, with some force, to the fact that there was a certain irony about the State seeking the Court intervene to prevent a problem caused by duplication of proceedings when the State had made a decision to create the duplication by asserting, after the first case management hearing, a contractual right which it had previously not asserted.  This was compounded, so the argument went, by tardiness, given the fact that the Builder Document had been served some 10 months earlier.
  16. Mr Hyde referred to the fact that the Builder could not be forced into falling in with the Second Arbitration in the way in which it had been designed by the State with the subsequent participation of Project Co.  In this regard, Mr Hyde argued that his client could not be forced to agree to the two arbitrations which comprise the Second Arbitration being heard together, nor could it be forced to agree to the appointment of Mr Lindgren as the arbitrator.  Mr Hyde also pointed to the fact that there was a difference between the relief sought in both the arbitrations, such that they could not be properly characterised as being perfectly mirrored arbitrations.  He additionally pointed to the fact that the IC was not a party.
  17. The assertion was made by the Builder in written submissions that a risk of multiplicity of proceedings is never a wholly decisive ground for the granting of a stay and that this fact alone cannot automatically mean that a stay must be granted or denied, especially where the parties have, by contractual agreement, deliberately arranged their dispute resolution procedures in such a fashion that such risks would almost inevitably materialise (see Cars & Cars Pte Ltd v Volkswagen AG [2009] SGHC 233; [2010] 1 SLR 625 at [48]-[49] per Andrew Ang J). Allied to this was the fact that the State had deliberately arranged its contractual relationship with the Builder in such a fashion as to not enter into a direct arbitration agreement inter se.
  18. Further, the Builder pointed to:

    (a)          the fact that when one comes to a discretionary stay, the relevant starting point is that the jurisdiction of the Court has been properly invoked and that a party is  entitled to have its disputes with another quelled by the exercise of judicial power;  and

    (b)          in any event, the absence of cogent evidence to establish that there would be any significant savings of time or cost of any significance in the event that the stay was granted.

    Assessment

  19. Returning to the matters particularly relied upon by the State (see [111] above), they reflect the matters which the authorities indicate the Court should consider in determining whether or not to stay a proceeding, including:

    (a)          whether the non-arbitral matters are ancillary to the matters the subject of the mandatory stay (see Recyclers at 434-435 [65]-[66] and Hancock at [333]-[335]); and

    (b)          whether the arbitral matters will be determinative of the matters before the Court (Recyclers at 434 [65]).

  20. In this regard, I accept that: (a) the claims made by the Builder against the State are ancillary to matters the subject of Project Co’s stay; (b) the arbitrator’s award will be largely determinative of, at least, the factual assertions made in the proceeding against the State; (c) there would, it seems to me clear, likely be savings in time or cost, at least in the short term, should a stay be ordered, removing duplication for experts and legal advisers; and (d), if granted, a temporary stay of a monetary claim is unlikely to visit any significant prejudice upon the Builder.
  21. Having said this, I confess that I have considerable sympathy for the proposition that there is a certain irony in the State deciding to commence further arbitral proceedings only after the commencement this proceeding, particularly after the first case management hearing, and then relying on the commencement of those arbitral proceedings (together with the other proceedings commenced by Project Co) to suggest that the duplication should cause the Court to put in place a remedial response.  Although Dr Bell made the point in reply that it cannot be the case that some sort of ‘first in time’ policy mandates whether or not a stay should be granted (because the CA Act and the Model Law expressly recognise the fact that proceedings could already be on foot), for some reason there has been an apparent change of position by the State, and the chronology has caused me some disquiet.
  22. However, the fact is that whatever the contractual background and the procedural history, the arbitrations (including the Second Arbitration) exist and I have granted a mandatory stay in favour of Project Co.  Given the matters referred to in [122] above and, in particular, the close factual overlap between the issues in this proceeding and the arbitrations (with the consequence that the arbitral matters will be largely determinative of a number of aspects of the claims made by the Builder), I consider that the proper exercise of discretion is to grant a discretionary stay as sought by the State.  This is notwithstanding that I accept the force of the general proposition that the starting point of the analysis is that a party, properly invoking the jurisdiction of the Court against another, is generally entitled to have its claims determined by the exercise of judicial power.
  23. Such a result also tends to facilitate the overarching purpose as it will, at the very least, have the effect of resolving the issues with promptitude and very substantially narrowing the matters in issue in this proceeding.  Although, of course, the Builder is correct to point to the fact that it cannot be forced to agree to an arbitrator proposed by the State or Project Co, nor can it be forced to consent to procedural directions that would facilitate the Second Arbitration occurring in the manner contemplated by the State, this does not seem to me to be a point of much significance.  If I thought there was a likelihood of the highly undesirable course of the Second Arbitration proceeding in such a way as to give rise to a risk of conflicting arbitral awards, then, as I pointed out to Mr Hyde, I would certainly consider the possibility of protecting against that outcome (perhaps by making orders, in accordance with s 54A of the FCAA, for inquiry and report by Mr Lindgren on the facts the subject of the arbitration to which he has been appointed).  In any event, I am confident that such an eventuality will not occur, although I understand the context in which the Builder’s submission was made.

    D.5     The IC Application

  24. The matters relied upon by the IC in order to seek a discretionary stay are identified in issue 8 (see [57(8)] above).  There was no real attempt to distinguish between the positions of the State, insofar as it related to a discretionary stay, and of the IC.  Essentially the same issues arise in relation to the claim made by the Builder against the IC being ancillary to the claims made by the Builder against the State and Project Co, and there is the fact that there is an extensive overlap of issues.  Moreover, unlike the State, it cannot be argued that the IC is responsible for any duplication.  Accordingly, for the reasons I have already explained in the context of the State’s application, I would also order a discretionary stay in favour of the IC.

    E         CONCLUSION AND COSTS

  25. An issue arises as to whether the proposed order in relation to the application made by Project Co should be made under the Commercial Arbitration Act 2010 (NSW) or the Commercial Arbitration Act 2011 (SA), ‘picked up’ and applied as surrogate federal law pursuant to s 79 of the Judiciary Act 1903 (Cth). The Builder and Project Co had different views. The Builder is correct and the order should be made under the New South Wales legislation, given the relevant order will be made by the Court exercising federal jurisdiction in New South Wales: see Pedersen v Young (1964) 110 CLR 162 at 165 per Kitto J; 166 per Taylor J; 167 per Menzies J; Northern Territory of Australia v GPAO [1999] HCA 8; (1999) 196 CLR 553 at 588 [80] per Gleeson CJ and Gummow J.
  26. Project Co seeks a special costs order in relation to the proceeding brought against it up until the date of the determination of its stay application.  It relies principally on the fact that the proceeding was brought in the face of the bargain struck between the parties to agree to arbitrate, and that, as a consequence of the proceeding being commenced it was caused to incur costs that it would otherwise not have been required to incur.  Additionally (and I assume that this is suggested to amount to behaviour which could be described as ‘unreasonable’ within the meaning of that term when used in the context of a special costs order), there is a suggestion that the way in which the case has been articulated in both the concise statement and the ASOC has been deficient and has caused Project Co to be vexed as to the nature of the case brought against it.
  27. The position of both the State and the IC is less ambitious.  Both seek that costs be paid on the ordinary basis in respect of their interlocutory applications insofar as they sought a stay (that is, other than the costs incurred in relation to the Further Applications, which will be the subject of separate costs orders).
  28. It is trite that the Court has broad power to award costs, including making special costs orders under s 43 of the FCAA.  It has often been said that the discretion as to costs is unfettered but, since the introduction of Part VB of the FCAA, in exercising the discretion as to costs, s 37N(4) of the FCAA requires the Court, “in exercising the discretion to award costs in a civil proceeding” to take account of any failure by the parties to comply with the duty imposed by s 37N(1) to “conduct the proceeding…in a way that is consistent with the overarching purpose”.
  29. I do not consider that I should make an award of costs in favour of Project Co in relation to the proceeding generally, nor do I consider that I should make any order for costs in favour of Project Co otherwise than on a party/party basis.  Although it is correct that the position of Project Co on the Stay Applications has been vindicated (in the sense that it is entitled to a mandatory stay), this is a case where, as I previously indicated, the initial position adopted by Project Co was to acquiesce (in the informal sense of indicating that it wished) to have this matter litigated in this Court.  This later changed for reasons that are unnecessary to explore.  This seems to me to be a pointer that it was not unreasonable for the Builder to consider that there was a very real possibility that a stay would not be sought relying on the Construction Arbitration Agreement.
  30. Moreover, relevant to the consideration of the overarching purpose, I do not think that there is any substance in the suggestion that there has been a failure by the Builder to conduct the proceeding in a way that has denied procedural fairness to Project Co.  Although I formed the view, immediately prior to the second case management hearing, that it was appropriate that the Builder proceed to file a statement of claim, this did not mean that the course of adopting the expedient of a concise statement was in any way inappropriate.  The Court, in seeking to give effect to the policy objectives of Part VB of the FCAA, encourages the use of concise statements.  Although, at an appropriate time during the course of the proceeding, it may be that all or parts of the claim should be the subject of a pleading, the fact that at the second case management hearing such an order would have been made (absent the suggestion of a stay) demonstrates no failure on behalf of the Builder.  Accordingly, in my view, Project Co is entitled to an order in its favour for the costs of the interlocutory application (but not for the balance of the proceeding).
  1. The orders sought by both the State and the IC can, essentially, be boiled down to the proposition that costs should follow the event.
  2. The presently relevant approach is as was explained by Gleeson CJ, Gummow, Hayne and Crennan JJ in Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at 62-63, that although there is “no absolute rule”, one of the “general propositions” regarding an award of costs is that “the award is discretionary but generally that discretion is exercised in favour of a successful party” (see also Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 88-89 [40]-[41] per Gaudron and Gummow JJ).
  3. In relation to the IC, the decision is straightforward as there is no reason why the IC should not have the discretion exercised in its favour, being a successful party.
  4. The position in relation to the State is more nuanced.  The State failed, for reasons I have explained, in its contention that it was entitled to a mandatory stay pursuant to s 8 of the CA Act, and a significant part of the submissions made by the State was directed to the contention that it was entitled to such a stay.  These matters call for a broad-brush exercise of discretion and in all the circumstances I consider that the State should be entitled to 60 per cent of its costs of its interlocutory application.
  5. No application has been made for a lump sum costs order or for an order that the costs be paid otherwise than in the usual course, namely at the conclusion of the proceeding.  In relation to the costs of the Further Applications, I propose to reserve those costs, consistent with the intention that following the lifting of the temporary stay and the pleading of the Builder’s claims, and in the event that either the State or the IC wish to seek summary disposal of those claims and in the event that they succeed on the same arguments that they have already articulated, they will be free to seek their costs and that will be reflected in an appropriate costs order.
  6. Given the time of year and the desirability, given the pending directions before the arbitrator, to determine the question of whether or not the stays should be granted with alacrity, these reasons were delivered ex tempore. Even so, they are lengthy. In the circumstances, it seemed to me appropriate that I should make an order extending the time for the filing of any application for leave to appeal until 14 days after these revised reasons had been published. To the extent necessary, I dispensed with the need for there to have been compliance with the requirements of FCR 35.14 prior to the time for leave to appeal being extended. I did so because if any application for leave to appeal is made, it is better that a draft notice of appeal be prepared with the benefit of my reasons, in writing, revised from the transcript.
  7. Accordingly, I make the following orders:

    (1)          The claims against the first respondent detailed in the originating application and the applicant’s amended statement of case dated 12 September 2017 be referred to arbitration and the proceedings in this Court stayed pursuant to s 8(1) of the Commercial Arbitration Act 2010 (NSW), on the basis that the claims are the subject of a valid and binding arbitration agreement.

    (2)          The claims against the second, third and fourth respondents outlined in the originating application and the applicant’s amended statement of case dated 12 September 2017 be stayed on a temporary basis pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth) until the conclusion of the arbitrations currently being case managed by the Hon Kevin Lindgren QC (being ACICA Cases 2017-103, 2017-104 and 2017-110) and also ACICA Case 2017-111.

    (3)          The applicants pay the first respondent’s costs of the interlocutory application filed on 17 November 2017 and, to the extent required, leave be granted to the first respondent to seek taxation of its costs of its interlocutory application pursuant to Division 40.2 of the Federal Court Rules 2011 (Cth) (FCR).

    (4)          The applicants pay 60 per cent of the costs incurred by the second and third respondents in relation to the interlocutory application filed 13 November 2017 (other than any costs incurred in relation to the relief sought in prayer 3 of the second and third respondents’ interlocutory application).

    (5)          The applicants pay the costs of the interlocutory application of the fourth respondent filed on 15 November 2017 (other than any costs incurred in relation to prayer 2 of the fourth respondent’s interlocutory application).

    (6)          The costs in relation to prayer 3 of the second and third respondents’ interlocutory application and in relation to prayer 2 of the fourth respondent’s interlocutory application be reserved.

    (7)          The time for filing any application for leave to appeal from these orders be extended to a date 14 days after the date upon which the revised reasons for judgment are published to the parties and, to the extent necessary, the requirements of FCR 35.14 are dispensed with.

    (8)          Liberty be granted to the applicants and the second to fourth respondents to relist the proceedings by application to the Associate to Lee J upon expiry of the temporary stay referred in in order 2.

Downer EDI Rail Pty Ltd v John Holland Pty Ltd; John Holland Pty Ltd v QBE Insurance (Australia) Ltd (No 6); Kellogg Brown & Root Pty Ltd v John Holland Pty Ltd (No 5); John Holland Pty Limited v Kellogg Brown & Root Pty Ltd; Kellogg Brown & Root Pty Ltd v QBE Insurance (Australia) Ltd [2018] NSWSC 581 (2 May 2018)

SUPREME COURT

NEW SOUTH WALES

 

MEDIUM NEUTRAL CITATION: [2018] NSWSC 581

BEFORE: Stevenson J

DATE OF DECISION: 2 May 2018

JURISDICTION: Equity – Technology and Construction List

DECISION: Costs and final orders as set out at [24], [48] and [54]

CATCHWORDS: COSTS — Party/Party — General rule that costs follow the event — where costs follow the event in main proceedings — whether third and fourth defendant should not have costs incurred preparing evidence of witness not called — whether plaintiffs should have their costs of responding to that evidence — where related proceedings referred to arbitration — where arbitration subsequently remitted to court to be heard concurrently with main proceedings — whether plaintiff should pay costs of that arbitration

PARTIES:

  • In proceedings 2015/120806:
    Downer EDI Rail Pty Ltd (First Plaintiff)
    EDI Rail PPP Maintenance Pty Ltd (Second Plaintiff)
    John Holland Pty Ltd (First Defendant/Cross-Claimant)
    Kellogg Brown & Root Pty Ltd (Second Defendant)
    Atlantis Corporation Pty Ltd (Third Defendant)
    QBE Insurance (Australia) Limited (Fourth Defendant/Cross-Defendant)
  • In proceedings 2017/69950:
    Kellogg Brown & Root Pty Ltd (Plaintiff)
    John Holland Pty Ltd (Defendant)
  • In proceedings 2017/288097:
    John Holland Pty Ltd (Plaintiff)
    Kellogg Brown & Root Pty Ltd (Defendant/Cross-Claimant)
    QBE Insurance Australia Ltd (Cross-Defendant)

FILE NUMBERS: SC 2015/120806; SC 2017/69950; SC 2017/288097

LEGISLATION: 

  • Civil Procedure Act 2005 (NSW)
  • Civil Procedure Regulation 2017 (NSW)
  • Commercial Arbitration Act 2010 (NSW)

CASES CITED:

  • Downer EDI Rail Pty Ltd v John Holland Pty Ltd; John Holland Pty Ltd v QBE Insurance (Australia) Ltd (No 5); Kellogg
  • Brown & Root Pty Ltd v John Holland Pty Ltd (No 4) [2018] NSWSC 326
  • Downer EDI Rail Pty Ltd v John Holland Pty Ltd; Kellogg Brown & Root Pty Ltd v John Holland Pty Ltd[2017] NSWSC 529
  • John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd[2015] NSWSC 451
  • Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8
  • Management Services Australia Pty Ltd v PM Works Pty Ltd (No 2) [2018] NSWSC 336
  • Siemens Ltd v Vaughan Constructions Pty Ltd [2006] VSC 452

 

JUDGMENT

  1. I delivered judgment in this matter on 20 March 2018: Downer EDI Rail Pty Ltd v John Holland Pty Ltd; John Holland Pty Ltd v QBE Insurance (Australia) Ltd (No 5); Kellogg Brown & Root Pty Ltd v John Holland Pty Ltd (No 4)[2018] NSWSC 326.
  2. These reasons concern the final orders to be made, including as to costs.
  3. I shall use the same abbreviations as in the principal judgment.
  4. There were three proceedings before me.
  5. I shall deal with each in turn.

Proceedings 2015/120806 – “the Main Proceedings”

  1. As a result of my findings of 20 March 2018, these proceedings must be dismissed.
  2. Subject to the costs incurred by KBR and Downer arising from the preparation and service by KBR of the affidavits of Mr Gaffney, and the costs incurred by QBE and Downer arising the preparation and service of an affidavit of Mr Humberto Urriola, Downer does not dispute that the proceedings must be dismissed with costs (including the costs of the cross-claims), that there should be interest on costs and that Downer pay the hearing fees in respect of the proceedings.
  3. However Downer submits, and I accept, that it should not have to pay the costs incurred by KBR in relation to the preparation and service of Mr Gaffney’s affidavits, nor the costs incurred by QBE in relation to the preparation and service of the affidavit of Mr Urriola; and that Downer should have its costs of responding to those affidavits, and an order that such costs be set off against the costs Downer must otherwise pay.
  4. KBR served affidavits sworn by Mr Gaffney on 23 March 2017, 5 October 2017 and 20 October 2017. Those affidavits (especially that of 23 March 2017) were substantial and contained extensive exhibits. That is not surprising. Mr Gaffney was the Senior Civil Engineer at KBR and the principal author of the design of the Detention System (the shortcomings of which I dealt with in the principal judgment).
  5. On day nine of the hearing, KBR’s senior counsel informed me and the parties that Mr Gaffney would not be called as a witness. The proposed witness program prepared at the commencement of the hearing anticipated that Mr Gaffney’s cross-examination would take two to three days.
  6. KBR’s decision not to call Mr Gaffney may well have been reasonable from KBR’s point of view. It had, and has, no obligation to explain its decision. It may be that a judgment was made that the risk of calling Mr Gaffney outweighed the potential dangers of a Jones v Dunkel(1959) 101 CLR 298; [1959] HCA 8 inference being drawn. I do not know.
  7. The decision not to call Mr Gaffney was certainly a forensic decision open to KBR. I see no basis to criticise the timing of the revelation that Mr Gaffney would not be called. KBR had not, expressly or impliedly (by service of the affidavits) undertaken to call Mr Gaffney.
  8. However, the fact is that KBR has incurred significant costs, in the preparation of Mr Gaffney’s evidence that, ultimately, it chose not to deploy in its defence of Downer’s claim. Conversely, Downer has incurred costs in responding to evidence that, ultimately was not called.
  9. Recently, McDougall J said in Management Services Australia Pty Ltd v PM Works Pty Ltd (No 2)[2018] NSWSC 336 that “in the ordinary way it would be unwise to penalise a party for making such decisions by depriving it of the costs of preparing evidence that, ultimately, was not put before the court” at [34].
  10. So much may be accepted. But every case must turn on its own facts.
  11. In this case a central question was the adequacy of the design of the Detention System. Mr Gaffney was the author of that design.
  12. KBR served extensive evidence from Mr Gaffney. Downer had to respond to that evidence, whether or not KBR decided to call Mr Gaffney.
  13. KBR has been successful in the proceedings. But not because of the merit of Mr Gaffney’s design.
  14. In those circumstances my opinion is that the justice of the case requires that a special costs order be made.
  15. The same must apply in relation to Mr Urriola’s affidavit. It was also lengthy and contained numerous attachments. Mr Urriola was to be the principal lay witness for QBE. He was the Managing Director of Atlantis, the supplier of the cells used in the Detention System. His evidence was the subject of extensive responsive reports.
  16. On day seven of the hearing, senior counsel for QBE stated that Mr Urriola would not be called (although that potential had been foreshadowed earlier).
  17. Whilst I found that the QBE policy did not respond to the relevant claims, I also found that Atlantis misrepresented the strength of the cells (at [555]).
  18. For those reasons, I accept Downer’s submissions that a special costs order should also be made in relation to Mr Urriola’s affidavit.
  19. For those reasons, in the Main Proceedings (2015/120806), I make these orders:
    • (1) The proceedings are dismissed.
    • (2) Subject to orders 3 and 4, the plaintiffs pay the defendants’ costs of proceedings 2015/120806 on the ordinary basis including the costs incurred by the defendants in the cross-claims made by the defendants against each other.
    • (3) The plaintiffs pay interest on those costs pursuant to s 101(5) of the Civil Procedure Act 2005(NSW) on and from the date of payment of the relevant costs until the date that the plaintiffs pay all costs due under these orders.
    • (4) Pursuant to reg 10(2) of the Civil Procedure Regulation 2017 (NSW) the plaintiffs are to pay the entirety of the hearing fees in the proceedings.
    • (5) The costs so payable not include any costs referable to the preparation of the affidavits of Adam Gaffney sworn 23 March 2017, 5 October 2017 and 20 October 2017 (the “Gaffney Affidavits”).
    • (6) The costs so payable not include any costs referable to the preparation of the affidavit of Humberto Urriola sworn 31 March 2017 (the “Urriola Affidavit”).
    • (7) KBR to pay the plaintiffs’ costs of considering and preparing replies to the Gaffney Affidavits and of preparing cross-examination on them.
    • (8) QBE to pay the plaintiffs’ costs of considering and preparing replies to the Urriolla Affidavit and of preparing cross-examination on it.
    • (9) Costs referred to in orders 2 to 8 above be set off between the relevant parties.

Proceedings 2017/288097 – “the John Holland Pass Through Proceedings”

  1. In August 2014, some eight months before Downer commenced the Main Proceedings, John Holland commenced proceedings 2014/253176 against KBR and Atlantis. I will call these the “Anticipatory Proceedings”. Those proceedings are not before me.
  2. John Holland submitted, and Downer did not dispute, that at the time John Holland commenced the Anticipatory Proceedings it was on notice that Downer would bring a claim against it to the effect of that made in the Main Proceedings and that it commenced the Anticipatory Proceedings in anticipation of that claim and to avoid limitation issues.
  3. The claim made by John Holland against KBR and Atlantis in the Anticipatory Proceedings is essentially the same as the claim it made against those parties in its cross-claims in the Main Proceedings.
  4. There is an arbitration clause in the John Holland/KBR Contract.
  5. For that reason, KBR sought an order under s 8(1) of the Commercial Arbitration Act 2010 (NSW) that the Anticipatory Proceedings be referred to arbitration.
  6. That application was heard by Hammerschlag J who, on 22 April 2015 referred the Anticipatory Proceedings to arbitration and stayed John Holland’s claim against Atlantis: John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd[2015] NSWSC 451.
  7. John Holland and KBR appointed Gyles QC as arbitrator on 15 September 2015. The arbitration proceeded.
  8. In September 2017, shortly before the commencement of the hearing before me, John Holland and KBR entered an agreement, the effect of which was that the arbitration proceedings before Gyles QC be transferred to the Court to be heard concurrently with, and in effect abide the outcome of, the Main Proceedings.
  9. Accordingly, on 27 September 2017 John Holland commenced these proceedings, which KBR has characterised as “the John Holland Pass Through Proceedings,” seeking orders to that effect.
  10. The result was that the issues formerly to be arbitrated before Gyles QC have been determined by me in the course of the Main Proceedings.
  11. In those circumstances both John Holland and KBR seek an order that Downer pay the costs that they incurred in the arbitration together with the costs of the John Holland Pass Through Proceedings themselves.
  12. John Holland and Downer rely on s 98 of the Civil Procedure Act which provides that costs are at the discretion of the court and that “costs” includes “in the case of proceedings transferred or removed into the court, the costs of the proceedings before they were transferred or removed” (s 98(6)(c)).
  13. There is a debate between the parties as to whether the arbitration before Gyles QC can be characterised as “proceedings” for the purposes of s 98(6)(c).
  14. In my opinion, the better view is that the word “proceedings” is apt to capture an arbitration which was in respect of a dispute originally before the court, but referred to arbitration under s 8 of the Commercial Arbitration Act.
  15. The word “proceedings” is not defined in the Civil Procedure Act,although that Act does deal with “arbitration of proceedings” (in ss 35 to 55) and refers, in s 54(3) to the court’s power to “make orders under section 98 with respect to the costs of referred proceedings”.
  16. In Siemens Ltd v Vaughan Constructions Pty Ltd [2006] VSC 452, Kaye J considered the meaning of “proceedings” and concluded at [23] that:

“…whatever process is adopted, that process [to be a ‘proceeding’] must involve the determination or adjudication of a dispute by an independent person or persons adhering to the fundamental tenets of procedural fairness. In other words, there must be a process the purpose of which is that some person or persons, independent to the parties to the dispute, decides that dispute by an impartial consideration of the competing merits of both sides of the dispute.”

  1. That reasoning appears to me to be consistent with a conclusion that, for the purpose of the Civil Procedure Act the word “proceedings” includes an arbitration which has been “transferred or removed into the court” (as was the arbitration before Gyles QC).
  2. In any event, the point is moot as I have power to make an order as to the costs of the arbitration under s 33D of the Commercial Arbitration Act. That section provides that the Court may make “such orders in relation to the costs of [an] arbitration as it thinks just” in circumstances where “an arbitration is commenced but for any reason fails”.
  3. Section 33D(2)(a) provides that an arbitration “is taken to have failed if…a final award is not made by the arbitral tribunal before the arbitration terminates”.
  4. That is the circumstance before me.
  5. Downer submits that, as commendable as was the decision finally made by John Holland and KBR (in September 2017) to agree that the dispute referred to arbitration should be heard by the Court concurrently with the Main Proceedings, that decision could well have been made earlier and that it is likely that there has been duplication, within the arbitration, of costs incurred in the Main Proceedings.
  6. That may be so. But the fact remains that the issues agitated in the arbitration arose by reason of a claim that John Holland, correctly, anticipated Downer would make.
  7. If there has been unnecessary duplication of time and costs, the matter can be dealt with during the assessment process.
  8. In those circumstances, in the John Holland Pass Through Proceedings (2017/288097) I make the following orders:
    • (1) The proceedings are dismissed.
    • (2) Downer is to pay the costs of John Holland and KBR of those proceedings, including the cross-claim made in those proceedings and the costs of the arbitration before Gyles QC.
    • (3) The plaintiffs pay interest on those costs pursuant to s 101(5) of the Civil Procedure Act 2005 (NSW) on and from the date of payment of the relevant costs until the date that the plaintiffs pay all costs due under these orders.
    • (4) Pursuant to reg 10(2) of the Civil Procedure Regulation 2017 (NSW) the plaintiffs are to pay the entirety of the hearing fees in the proceedings.

Proceedings 2017/69950 – “the Separate Question Proceedings”

  1. KBR commenced proceedings 2017/69950 on 6 March 2017 seeking leave to have certain separate questions arising in the arbitration before Gyles QC determined by the Court as preliminary questions pursuant to s 27J of the Commercial Arbitration Act.
  2. By notice of motion filed in the Main Proceedings, John Holland sought an order that those questions be determined separately from and before any other issues in the proceedings.
  3. For the reasons I gave on 3 May 2017 (Downer EDI Rail Pty Ltd v John Holland Pty Ltd; Kellogg Brown & Root Pty Ltd v John Holland Pty Ltd[2017] NSWSC 529) I dismissed John Holland’s motion but granted KBR leave to have those questions determined at the final hearing.
  4. Because of other conclusions to which I came, the answers to the separate questions became moot. Nonetheless I decided them on the basis which was favourable to Downer’s interests (see [331] to [352]).
  5. In those circumstances, my opinion is that there should be no order for the costs of the proceedings.
  6. Accordingly, in the Separate Question Proceedings (2017/69950), I order that:
    • (1) The proceedings be dismissed with no order as to costs.

Conclusion

  1. I propose now to make orders set out at [24], [48] and [54] above.
  2. Against the possibility that I have overlooked any matter, I grant the parties liberty to apply on short notice in relation to the form of those orders.
  3. Such liberty should be exercised prior to 12pm on 4 May 2018.

Consolidated Contractors Group S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939

COURT OF APPEAL FOR ONTARIO

Strathy C.J.O., van Rensburg and Trotter JJ.A.

 

CITATION: Consolidated Contractors Group S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939

DATE: 20171204

HEARD: 6 September 2017

DOCKET: C63134

BETWEEN:

Consolidated Contractors Group S.A.L. (Offshore)

Applicant
(Appellant)

and

Ambatovy Minerals S.A.

Respondent
(Respondent)

On appeal from the judgment of Justice Michael A. Penny of the Superior Court of Justice, dated November 28, 2016.

 

Strathy C.J.O.:

[1]      The appellant challenged an international commercial arbitral award, arguing that portions of the award were made without jurisdiction, were made in breach of procedural fairness and violated public policy. The application judge dismissed the claim.

[2]      For the reasons that follow, I would dismiss the appeal. My reasons are structured as follows: first, I will describe the arbitration process and will summarize the parties’ claims; second, I will explain the grounds for judicial intervention in international arbitral awards under the United Nations Commission on International Trade Law (UNCITRAL) Model Law (the “Model Law”); and third, I will examine the appellant’s grounds of appeal, including, in each case, the nature of the claim, the standard of review, the Tribunal’s reasons, the application judge’s reasons for dismissing the claim, and my analysis and disposition of the ground.

A.           THE ARBITRATION

[3]      The arbitration arose out of a US$258 million project for the construction of a slurry pipeline from a nickel mine in the mountains of Madagascar to the coast. The appellant, (“CCG”), was the contractor and the respondent, (“AMSA”), tendered the project.

[4]      The contract for the project contained a three stage dispute resolution process. The first stage required disputes to be determined by the respondent’s supervising engineer. If the dispute was not resolved, it would be referred to adjudication by a sole adjudicator. A party who did not accept the adjudication could refer the dispute to arbitration pursuant to the International Commercial Arbitration Act, R.S.O. 1990, c. I.9, which incorporates the Model Law. In that event, the arbitration was to take place in Ontario, in accordance with Ontario law.

[5]      The contract provided that the arbitration procedure was to be governed by the International Chamber of Commerce (“ICC”) Rules of Arbitration. Article 23(1) of those Rules provides that the arbitration tribunal is required to draw up terms of reference setting out, among other things, the parties’ respective claims, the relief sought, the issues to be determined and the applicable procedure. The terms of reference must be signed by the tribunal and by the parties.

[6]      Terms of reference were duly prepared and signed. They described the procedural history of the dispute, summarized the claims, counterclaims and defences of the parties, and set out the issues.

[7]      The terms of reference also delineated the issues to be determined by the Tribunal. Section 89 provided:

The issues to be determined by the Arbitral Tribunal shall be those arising from the submissions, statements, pleadings, and applications of the Parties, provided that these are made in accordance with the directions of the Arbitral Tribunal, and include any questions of fact or law that the Arbitral Tribunal may deem necessary to decide, in its own discretion, in order to determine such issues and rule on the Parties’ respective requests for relief.

[8]      The appellant claimed that the respondent had breached the contract, causing delays and additional costs. It claimed an extension of the time for performance by at least 294 days, compensation for its costs arising from delay, and compensation for additional work it claimed to have performed.

[9]      In accordance with the arbitration clause in the contract, the appellant had submitted its claims to the respondent’s engineer for determination. It disputed the engineer’s decision and proposed to refer the dispute to adjudication. The respondent suggested that the dispute go directly to arbitration, by-passing adjudication, and the appellant agreed.

[10]   The respondent defended the appellant’s claims and asserted a counterclaim for liquidated damages due to the appellant’s failure to complete the project on time. It also counterclaimed for additional costs caused by the appellant’s failure to properly complete its work. The appellant agreed that the respondent’s claim for liquidated damages could proceed directly to arbitration, because a determination of the appellant’s claim for an extension of time would necessarily determine the respondent’s liquidated damages claim.

[11]   Although at various times the appellant proposed that the respondent’s other counterclaims should proceed directly to arbitration, the respondent equivocated. Ultimately, the respondent proposed to do so, but at this point the appellant balked. As is discussed below, this required the Tribunal to decide whether it could properly hear these counterclaims.

[12]   There were three arbitrators. Each party nominated one and the chair was appointed by the Chairman of the International Court of Arbitration of the ICC. The arbitrators were a blue chip international panel, with expertise in both commercial arbitrationand mega-project construction disputes.

[13]   The arbitrators held a case management conference and issued several procedural orders. Pleadings were filed and witness statements and expert reports were delivered. An evidentiary hearing was held in Toronto between June 3 and 20, 2014. Post-hearing memoranda were filed by the parties.

[14]   The Tribunal issued its final award on September 30, 2015. Its reasons were over 200 pages long and contained a detailed analysis of the appellant’s claims and the respondent’s counterclaims. It rejected most of the appellant’s claim for an extension of time and its claim for costs relating to the delay. It heard and adjudicated the respondent’s counterclaims. At the end of the day, the appellant lost more than it won. It was awarded only $7 million of its $91 million claim. In contrast, the respondent was awarded nearly $25 million for its counterclaims.

[15]   In the court below, the appellant challenged the Tribunal’s award in four broad respects:

(a) the Tribunal had no jurisdiction to deal with some of the respondent’s counterclaims;

(b) the Tribunal failed to exercise its jurisdiction in not compensating the appellant for costs due to delays caused by the respondent;

(c) the Tribunal denied the appellant procedural fairness in its disposition of two claims and its award of costs; and

(d) part of the Award was made in breach of Ontario public policy.

[16]   The application judge dismissed these attacks and upheld the award in its entirety.

[17]   I turn to the relevant provisions of the Model Law and the grounds on which an international arbitral award may be set aside.

B.           JUDICIAL INTERVENTION UNDER THE MODEL LAW

[18]   The Model Law provides a standard process for the conduct of international commercial arbitrations. It covers all stages of the arbitral process, including the arbitration agreement, the composition and jurisdiction of the arbitral tribunal, the conduct ofarbitral proceedings, the extent of court intervention in arbitral awards and the recognition and enforcement of awards. It has received broad international acceptance. In Ontario, it has been given the force of law by the International Commercial ArbitrationAct, 2017, S.O. 2017, c. 2. Sched. 5, and by predecessor legislation. Federally, it has been enacted by the CommercialArbitration Act, R.S.C. 1985, c. 17 (2nd Supp.).

[19]   Article 5 of the Model Law limits the scope of judicial oversight of international arbitral awards. It states:

In matters governed by this Law, no court shall intervene except where so provided in this Law.

[20]   Article 34 identifies the circumstances under which an international commercial arbitral award can be set aside by a domestic court. These grounds are narrow. They are: (a) incapacity of a party or legal invalidity of the agreement; (b) absence of notice or an opportunity to present the party’s case (i.e. procedural unfairness); (c) absence of jurisdiction; (d) non-compliance with the arbitration agreement concerning the tribunal’s composition or procedure; (e) non-arbitrability of the dispute; and (f) a conflict between the award and domestic public policy.

[21]   The relevant provisions of Article 34 are as follows:

(2) An arbitral award may be set aside by the court specified in article 6 only if:

(a) the party making the application furnishes proof that:

(i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this State, or

(ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case, or

(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside, or

(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; or

(b) the court finds that:

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State, or

(ii) the award is in conflict with the public policy of this State.

[22]   The main focus of this appeal is the application of the grounds for intervention under Article 34.

[23]   The appellant concedes that, as a matter of principle, a reviewing court cannot set aside an international arbitral award simply because it believes that the arbitral tribunal wrongly decided a point of fact or law: see Quintette Coal Ltd. v. Nippon Steel Corp. (1990), 1990 CanLII 304 (BC SC), 47 B.C.L.R. (2d) 201 (S.C.), aff’d 1991 CanLII 5708 (BC CA), [1991] 1 W.W.R. 219 (B.C.C.A.), leave to appeal refused, [1990] S.C.C.A. No. 431; Corporacion Transnacional de Inversiones S.A. de C.V. v. STET International S.p.A. (1999), 1999 CanLII 14819 (ON SC), 45 O.R. (3d) 183 (S.C.), aff’d (2000), 2000 CanLII 16840 (ON CA), 49 O.R. (3d) 414 (C.A.), leave to appeal to refused, [2000] S.C.C.A. No. 581.

[24]   Moreover, this court has repeatedly held that reviewing courts should accord a high degree of deference to the awards of international arbitral tribunals under the Model Law: see United Mexican States v. Cargill Inc., 2011 ONCA 622 (CanLII), 107 O.R. (3d) 528, at para. 33; United Mexican States v. Karpa (2005), 2005 CanLII 249 (ON CA), 74 O.R. (3d) 180 (C.A.), at paras. 34-37.

[25]   The standard to be applied by a reviewing court depends on the specific Model Law grounds on which the appeal is based. In this case, the appellant alleges that the application judge applied the wrong legal test under Article 34(2)(a)(iii) (jurisdiction), Article 34(2)(a)(ii) (procedural fairness), and Article 34(2)(b)(ii) (public policy). The appellant also argues that the application judge erred in his interpretation of the discretion available to the court to refuse to set aside an award under Article 34.

[26]   Each of these three grounds is discussed below.

C.           ANALYSIS OF THE APPELLANT’S CLAIMS

[27]   The appellant’s claims can be grouped according to the provisions of Article 34(2) that they invoke.

(1)   Claims under Article 34(2)(a)(iii): Jurisdiction

[28]   Under Article 34(2)(a)(iii), the court may set aside an arbitral award, or part thereof, where the tribunal acts without jurisdiction by dealing with a dispute not contemplated by or not falling within the terms of the submission to arbitration.

[29]   The standard of review on questions related to a tribunal’s jurisdiction under Article 34(2)(a)(iii) is one of correctness: Cargill, at para. 42. However, while endorsing a correctness standard in Cargill, Feldman J.A. was careful to limit the application of this standard to what she described as a “true question of jurisdiction”, at para. 44:

It is important, however, to remember that the fact that the standard of review on jurisdictional questions is correctness does not give the courts a broad scope for intervention in the decisions of international arbitral tribunals. To the contrary, courts are expected to intervene only in rare circumstances where there is a true question of jurisdiction.

[30]   After noting that in the domestic context courts are required to take a narrow view of what constitutes a question of jurisdiction (see Dunsmuir v. New Brunswick, 2008 SCC 9 (CanLII), [2008] 1 S.C.R. 190, at para. 59; Quebec (Attorney General) v. Guerin, 2017 SCC 42 (CanLII), 412 D.L.R. (4th) 103, at para. 32), she continued, at paras. 46-7:

This latter approach is magnified in the international arbitration context. Courts are warned to limit themselves in the strictest terms to intervene only rarely in decisions made by consensual, expert, international arbitration tribunals, including on issues of jurisdiction. In my view, the principle underlying the concept of a “powerful presumption” is that courts will intervene rarely because their intervention is limited to true jurisdictional errors…

Therefore, courts are to be circumspect in their approach to determining whether an error alleged under Article 34(2)(a)(iii) properly falls within that provision and is a true question of jurisdiction. They are obliged to take a narrow view of the extent of any such question. And when they do identify such an issue, they are to carefully limit the issue they address to ensure that they do not, advertently or inadvertently, stray into the merits of the question that was decided by the tribunal.

[31]   Feldman J.A. then explained the proper approach for a reviewing court to take in hearing a case invoking Article 34(2)(a)(iii), at para. 53:

The role of the reviewing court is to identify and narrowly define any true question of jurisdiction. The onus is on the party that challenges the award. Where the court is satisfied that there is an identified true question of jurisdiction, the tribunal had to be correct in its assumption of jurisdiction to decide the particular question it accepted and it is up to the court to determine whether it was. In assessing whether the tribunal exceeded the scope of the terms of jurisdiction, the court is to avoid a review of the merits.

[32]   She suggested, by way of example, that an award would be subject to attack under Article 34(2)(a)(iii) as a “true” error of jurisdiction where the tribunal decides a matter outside of its geographic or temporal jurisdiction: see Cargill, at para. 49.

[33]   I turn now to the two jurisdictional claims raised on appeal.

(a) Jurisdiction over Counterclaims

[34]   The appellant initiated the arbitration with the respondent’s agreement that the appellant’s claims need not go through the pre-arbitration adjudication process. The respondent in turn advanced counterclaims. Ultimately, after twice suggesting that the respondent’s counterclaims should be addressed in the arbitration, the appellant objected to the counterclaims (other than the liquidated damages claim) proceeding to arbitration because they had not gone through the dispute resolution process outlined in the project contract.

[35]   The respondent’s counterclaims were fully pleaded and defended in the arbitration. Evidence was adduced by both parties on the substance of the claims. There was full argument on the counterclaims. It was left to the Tribunal to determine whether it had jurisdiction to address them.

[36]   The Tribunal ultimately concluded that it had jurisdiction to address the counterclaims.

[37]   As a prelude to its discussion, the Tribunal noted the respondent claimed an entitlement to set off the amounts of its counterclaims against any amounts found owing to the appellant. The Tribunal considered this proposition “seemingly uncontroversial”, although it was not accepted by the appellant.

[38]   The Tribunal found that “the parties to a complex construction contract may be presumed, when making it, to agree that any disputes that may arise will be resolved in an efficient manner.” This intention was reflected, it said, in the parties’ agreement that the appellant’s claims could go directly to arbitration, by-passing adjudication if they could not be determined by the respondent’s engineer or by negotiation.

[39]   It concluded that the parties’ agreement reflected a common intention that disputes would be dealt with at the same time by the same tribunal when there was “sufficient connection” between the disputes to enable them to be dealt with efficiently. The parties were in agreement, it found, “that it would not be necessary for one party to submit to prior adjudication of a claim that was so connected to a claim of the other party that the two claims should be determined at the same time.” This applied to the respondent’s counterclaims.

[40]   The application judge rejected the appellant’s submission that the Tribunal exceeded its jurisdiction in considering the counterclaims. In so doing, he noted that the appellant had full knowledge of the substance of those claims, had exercised a right to make a full and comprehensive defence to those claims and there was no evidence to suggest that the result would have been different had the claims gone through the pre-arbitration process.

[41]   He found, at para. 28, that the terms of reference signed by the parties and the arbitrators expressly gave the Tribunal jurisdiction to determine “any questions of fact or law that [it] may deem necessary to decide, in its own discretion, in order to determine such issues and rule on the Parties’ respective requests for relief” (emphasis added).

[42]   He noted the Tribunal’s conclusion that two arbitrations, one on the appellant’s claims and some of the respondent’s counterclaims and the other on the respondent’s remaining counterclaims, would have made no sense and could not reasonably have been in the contemplation of the parties. The Tribunal’s mandate included everything closely connected to the matters subject to arbitration: Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17 (CanLII), [2003] 1 S.C.R. 178, at para. 35. There was ample evidence on which the Tribunal could reach the decision it did.

[43]   The application judge also found, at para. 33, that the pre-arbitration dispute resolution steps were not true conditions precedent to the Tribunal’s jurisdiction, noting that “[i]t [was] accepted that the [counterclaims] were always going to be arbitratedunder the Agreement; the only issue was when.” He concluded, at para. 35, that “[p]rocedural issues relating to the conduct of the arbitration are preeminently matters for the arbitrators to decide and the court must view the determination with deference” (citations omitted).

[44]   On this appeal, the appellant submits that the Tribunal’s jurisdiction was purely consensual and that the parties never consented to the counterclaims being arbitrated. They had not gone through the contractual dispute resolution procedure that was a pre-condition to arbitration. The Tribunal recognized that its jurisdiction rested solely on consent, but erred in finding consent. There was never a meeting of minds on the issue.

[45]   The appellant says that it is irrelevant that the issues were fully pleaded before the Tribunal, that a complete evidentiary record was developed and full argument was made. There was simply no consent to jurisdiction, and that portion of the award should be set aside pursuant to Article 34(a)(iii) of the Model Law.

[46]   I would reject this submission. Article 34(2)(a)(iii) requires the court to consider whether the award deals with a “dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration”. To answer this question, I must have regard to the contractual provisions with respect to arbitration, the submission to arbitration, the agreed terms of reference of the arbitrators and the arbitral award.

[47]   I have summarized the relevant contractual terms. The terms of reference set out at length the claims, defences and positions of the parties. The respondent asserted its counterclaims and the appellant advanced its argument that the respondent had failed to comply with the “mandatory pre-arbitration dispute resolutions steps specified in the Contract for each of its counterclaims and/or claims of set-off.” It said that “[s]uch compliance is a condition of admissibility.” In addition to taking this position, the appellant set out its defences to the counterclaims and to the claims for set-off.

[48]   The terms of reference conferred jurisdiction on the Tribunal to decide questions of fact and law necessary to determine the issues and to rule on the parties’ requests for relief.

[49]   The Tribunal had intimate familiarity with the conduct and communications between the parties leading up to and after the commencement of the arbitration. It was also immersed in their claims and counterclaims. It found that “a claim that was so connected to a claim of the other party that it should be decided at the same time” could proceed to arbitration without passing through the contractual dispute resolution process.

[50]   It came to this conclusion based on a review of the contract, the communications between the parties and their conduct, both before and after the initiation of the arbitration. The parties’ conduct reflected a common intention that disputes would be resolved in an efficient manner.

[51]   As the application judge said, at para. 31:

CCG argues that failure to follow the pre-arbitration steps with respect to the counterclaims deprived it of the opportunity to settle those claims or, perhaps, to conduct a separate arbitration. That issue was addressed squarely by the Tribunal. It decided that two arbitrations, one on CCG’s claims and some of AMSA’s counterclaims, and another on AMSA’s remaining counterclaims, would have made no sense and could not reasonably have been in the contemplation of the parties.

[52]   The issue before the Tribunal was not a “true question of jurisdiction” in the sense used by Feldman J.A. in Cargill. The respondent’s counterclaims were clearly the proper subject of arbitration under the contract. The only question, as noted by the application judge, was when they would be arbitrated. It was open to the Tribunal to find that the pre-arbitration dispute resolution process did not apply to claims of one party that were closely connected to the claims already submitted to arbitration by the other party.

[53]   This is not to say that every dispute submitted to arbitration will necessarily draw in counterclaims. It will depend, as in this case, on the contractual intention of the parties as determined by all the surrounding circumstances. Nor will it permit a party initiating an arbitration to completely ignore pre-arbitration dispute resolution requirements: Emirates Trading Agency LLC v. Prime Mineral Exports Pte. Limited[2014] EWHC 2104 (Comm.), [2015] 1 W.L.R. 1145.

[54]   The Tribunal’s decision to determine this issue was not a true question of jurisdiction. Consequently, it is not reviewable under Article 34 and I would decline to set aside the award on this basis.

[55]   I would also reject the appellant’s submission, advanced in the court below and in its factum, that it was denied procedural fairness under Article 34(2)(a)(ii) because the Tribunal developed its own “novel theory” of an implied agreement without notice to the parties. The Tribunal did not develop a “novel theory”. It simply made findings of fact concerning the parties’ intentions, having regard to all the surrounding circumstances, all of which were raised by the parties in their submissions.

(b)  Prolongation Costs

[56]   I turn to the appellant’s second claim under Article 34(2)(a)(iii).

[57]   The appellant sought a 36-day extension of time and US$482,480 for costs allegedly due to delays caused by the respondent’s failure to deliver materials and failure to complete work required to enable the appellant to complete its own work on the pipeline. The respondent argued that the appellant had not proven that it had incurred any additional costs as a result of the delay.

[58]   The Tribunal granted an 18-day extension, resulting in a corresponding reduction of the respondent’s claim for liquidated damages. But it did not specifically address the appellant’s claim for damages caused by the delay, other than in its summary of its award. There, the Tribunal awarded “nil” for the appellant’s claim for costs incurred as a result of this and other alleged delays. It gave no reasons for dismissing the appellant’s claim under this head.

[59]   The appellant submits that in so doing, the Tribunal committed a jurisdictional error and denied it procedural fairness by failing to address an issue put before it.

[60]   The application judge dismissed this claim. He found that, although the Tribunal’s reasoning was not explicit, it could reasonably be inferred that the Tribunal found that the appellant had not proven that it had incurred additional costs due to the delay. He noted, at para. 49, that in proceedings under the Model Law, “the failure to give reasons, although less helpful to the parties, is not on its own a ground for refusing to enforce an award”, citing Schreter v. Gasmac Inc. (1992), 1992 CanLII 7671 (ON SC), 7 O.R. (3d) 608, at p. 621 (Gen. Div.).

[61]   He also referred to cases in other jurisdictions where it has been held that the failure to give reasons, as opposed to a failure to deal with an issue, does not invalidate the award, specifically Margulead Ltd. v. Exide Technologies, [2004] EWHC 1019 (Comm.), and a decision of the Federal Supreme Court of Switzerland, Swiss Fed. Court, 26 May 2010, 4A-433/2009. He found that in this case, “there was evidence, and argument joined” before the Tribunal to support its decision.

[62]   I need not address the question of whether the failure to deal with a claim justifies setting aside an award under Article 34(2)(a)(iii), because I agree with the application judge that the Tribunal dealt with the prolongation costs claim. There is nothing in the Model Law that requires the Tribunal to give reasons, although it is unquestionably desirable that it do so. The reasonable conclusion from the award, in the context of the submissions at the hearing, is that the Tribunal accepted the respondent’s argument that the appellant had failed to meet its burden of proof by identifying additional costs actually incurred as a result of the delay as opposed to per diem costs that would have been incurred in any event. I would therefore dismiss this ground of appeal.

(2)         Claims under Article 34(2)(a)(ii): Procedural Fairness

[63]   As noted above, Article 34(2)(a)(ii) permits a challenge to an arbitral award based on procedural unfairness – where a party has not received proper notice of the proceedings “or was otherwise unable to present his case.”

[64]   In responding to the appellant’s submissions under this provision, the respondent cites Michael J. Mustill & Stewart C. Boyd, The Law and Practice of Commercial Arbitration in England, 2nd ed. (London: Butterworth’s, 1989), at p. 550, cited in J. Casey, Arbitration Law of Canada: Practice and Procedure, 2nd ed. (New York: Juris, 2011), at p. 420, for the proposition that before a court can set aside an award under Article 34(2)(a)(ii), there must be “such a mishandling of the arbitration as to likely amount to some substantial miscarriage of justice.”

[65]   There are few cases in Canada addressing the standard of review under Article 34(2)(a)(ii). However, in Corporacion Transnacional de Inversiones S.A. de C.V. v. STET International S.p.A., Lax J. interpreted Article 34(2)(a)(ii) as including procedural as well as substantive fairness. She held, at p. 194, that to justify setting aside an award for reasons of fairness or natural justice, the conduct of the Tribunal “must be sufficiently serious to offend our most basic notions of morality and justice.” Thus, she concluded, at p. 194, that “judicial intervention for alleged violations of the due process requirements of the Model Law will be warranted only when the Tribunal’s conduct is so serious that it cannot be condoned under the law of the enforcing State.”

[66]   The appellant had proper notice of the proceedings and participated in the arbitration from the outset. It submits, however, that it was denied procedural fairness in relation to three claims, to which I now turn.

(a) Retention Monies

[67]   Under the project contract, the respondent made regular progress payments to the appellant as construction proceeded. The respondent was contractually entitled to retain 5% of the amount of each of these interim progress payments (the money retained being referred to as “retention monies”). In total, the respondent retained $10,882,774.

[68]   The first half of the retention monies was to be paid out by the respondent’s engineer when a “Taking-Over Certificate” was issued for the works. The remaining half was to be released on the expiry of the “Defects Notification Period.”

[69]   The appellant argued that the respondent was required to release the retention monies on the dates in question. The respondent disagreed. It said that the contract permitted it to withhold certification of the estimated cost of correcting the appellant’s defective work until the defect had been cured, and that it was entitled to withhold the retention monies until that occurred.

[70]   With respect to the first half of the retention monies, the Tribunal found that the Engineer had acted reasonably in not releasing those monies, given the extent of the appellant’s defective work.

[71]   Additionally, the Tribunal found that the expiry of the Defects Notification Period (which triggered the payment of the second half of the retention monies) should be extended, because the appellant had failed to properly perform the contract. In fact, the period was continuing. Thus, the respondent was not yet liable to the appellant for the second half of the retention monies. However, once the appellant met its liability to the respondent for the costs of putting right its defective work, the respondent would be required to pay the retention monies to the appellant.

[72]   Before the application judge, the appellant argued that it had been denied procedural fairness and had been unable to present its case because the Tribunal had developed its own theory to deny the appellant payment of the retention monies. It argued that the Tribunal also relied on a new argument raised by the respondent for the first time in reply, contrary to the Tribunal’s own procedural order.

[73]   The application judge rejected this argument. He noted that the provisions requiring repayment of the retention monies were subject to a proviso that if anything remained to be done by the appellant under its obligation to repair or pay for the repair of defective work, the Engineer was entitled to withhold certification of payment of the retention monies until the remedial work was done.

[74]   The respondent’s counterclaims formed the basis of the Tribunal’s conclusion that the appellant had legal and financial responsibility for its defective work, and the contract permitted the withholding of the retention monies until the defects were remedied. The application judge found that the appellant’s arguments were in substance less concerned with procedural fairness and more about the fact that the appellant disagreed with the outcome.

[75]   On appeal, the appellant again asserts that the Tribunal breached its own procedural order and denied the appellant procedural fairness by disposing of its claims based solely on the respondent’s reply submissions, to which it had no opportunity to reply. It says that instead of considering the procedural fairness issue, the application judge became unduly absorbed in the merits.

[76]   I disagree. The application judge was fully attuned to the procedural fairness issue. But he made a perfectly valid observation, at para. 81, concerning, “the difficulty of isolating a single alleged procedural defect in the treatment of one out of many issues in a complex and lengthy arbitration.” He found that the retention monies issue was bound up in the appellant’s liability for the respondent’s counterclaims and the ability of the respondent’s engineer to refuse payment of the retention monies when there were unsatisfied defect claims. These issues were thoroughly aired in the course of argument before the Tribunal and, as the application judge noted, the Tribunal was not required to ignore its other findings, or the evidence on the other issues, in addressing the issue of retention monies. It was also entitled to consider all the terms of the parties’ contract, which were plainly put on the table by the parties.

[77]   I agree with the application judge that the appellant’s arguments on this issue are an attempt to re-argue the merits of the case. The Tribunal relied on a contractual term that permitted the respondent to withhold the retention monies until the appellant cured the defects in its work. The appellant was aware of this provision and addressed it in its submissions to the Tribunal. The appellant was therefore not prevented from presenting its case on this issue. Nor could the appellant have been surprised by the Tribunal relying on a contractual provision that it had addressed in its own submission.

(b) Hydro Seeding

[78]   This was a claim by the respondent for US$7.64 million for the cost of “re-doing” defective restoration work (topsoil and seeding) over the completed pipeline. The contract required the respondent to give notice of its complaint to the appellant and give it an opportunity to remedy the defective work.

[79]   The appellant argued before the Tribunal that the respondent was not entitled to assert this claim because it had gone ahead and performed the work without giving the appellant proper notice and an opportunity to correct the problem.

[80]   The Tribunal found otherwise. In a passage referred to by the application judge, the Tribunal found that although the respondent had not observed the “contractual niceties”, the evidence established that the appellant had accepted and almost acquiesced in the respondent’s use of another contractor to redo the appellant’s work. The Tribunal went on to say that “[a]lthough neither party followed contractual procedures to the letter”, it was satisfied that the respondent was entitled to recover its costs. The documents established that the appellant had been warned about its work, had been requested to do better and had not done so.

[81]   Before the application judge and in this court, the appellant claimed that in resolving this issue against it, the Tribunal developed its own “novel theory” of constructive notice and denied procedural fairness by failing to give notice of that theory and an opportunity to respond to it.

[82]   I agree with the respondent’s submission that this argument is essentially a complaint about arbitral fact-finding, under the guise of a procedural fairness argument. The application judge said as much, at paras. 99 to 100 of his reasons:

CCG’s argument seems to me to be an undiluted attempt to re-argue this issue on the merits. The parties filed extensive evidence on the relevant meetings and documents. CCG’s selective quoting from the Award ignores the depth, detail and nuance of the analysis undertaken by the Tribunal…

Once again, CCG’s own submission emphasizes the fact that CCG’s position throughout the arbitrationwas that AMSA retained Hydromulch to seed over CCG’s work without providing notice to CCG as required under the Agreement. Issue was joined; CCG presented its evidence and arguments. There was no failure to afford CCG the opportunity to put its case before the Tribunal. Indeed, CCG admits that it did so. CCG’s argument boils down to the assertion that the Tribunal got it wrong on the facts. That is not an argument falling within the purview of Article 34 of the Model Law. [Emphasis in original.]

[83]   In my view, the application judge was correct to reject the appellant’s submission, for the reasons he gave.

(c) Costs

[84]   Although success was somewhat divided, the Tribunal concluded that the respondent should be regarded as the successful party and was entitled to recover the costs of the arbitration. It awarded the respondent costs of approximately $9.8 million plus $590,000 for its share of ICC administrative expenses and of the arbitrators’ fees and expenses.

[85]   Before the application judge, the appellant argued that the costs award was the result of a denial of natural justice, deprived the appellant of a fair opportunity to present its case, and also violated public policy contrary to Article 34(2)(b)(ii). It pointed out that before the Tribunal, both parties had argued that the costs of the arbitration should be in proportion to each party’s degree of success. The resulting award, it said, was inconsistent with the parties’ submissions, failed to give it any credit for its success and failed to give it a fair opportunity to present its case.

[86]   The application judge rejected these arguments. He found that the Tribunal’s disposition of costs did not deprive the appellant of an opportunity to present its case. The Tribunal found that the overwhelming expenditure on both sides had been incurred in relation to the appellant’s main claims, in which it was largely unsuccessful, and the respondent’s counterclaims, in which the respondent was largely successful. The Tribunal’s finding that the respondent was to be regarded as the winning party did not result in the respondent getting more than it asked for.

[87]   I agree with the application judge’s conclusion on this issue. The ICC Rules of Arbitration give the Tribunal discretion with respect to costs. Article 37(5) of those Rules (now Article 38(5)) states that “[i]n making decisions as to costs, the arbitral tribunal may take into account such circumstances as it considers relevant, including the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner.” The Tribunal also referred to J. Fry, S. Greenberg & F. Mazza, The Secretariat’s Guide to ICC Arbitration (ICC Publication 729E) (Paris: International Chamber of Commerce, 2012). That publication suggests some factors that arbitral tribunals may wish to consider in allocating costs, including (a) the outcome of the case; (b) that some tribunals may adopt a proportional approach allocating the costs in accordance with the parties’ degree of success; (c) the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner; and (d) conduct of a party which might abuse the procedure, cause delay or increase expense.

[88]   While it is true that the Tribunal initially noted the parties’ proposal that costs should be proportionate, it concluded that the appellant had succeeded on only four claims, only two of which required evidence. The respondent, on the other hand, had succeeded in defeating all the appellant’s main claims and also succeeded on its counterclaims.

[89]   The costs were within the discretion of the Tribunal. It was entitled to consider which party was substantially the “winner” and to award costs to that party alone. The appellant has not demonstrated that it was prevented from presenting its case with respect to costs or that this decision was the result of any error in principle.

(3)         Claim under Article 34(2)(b)(ii): Public Policy

[90]   The appellant claimed that a portion of the Tribunal’s award offended public policy because it was a penalty. The following are the circumstances.

[91]   The contract was for a lump sum price of $258 million, divided into a base lump sum of $249 million and two “tranche payments”: (a) one for $5 million, payable to the appellant on achieving construction completion by December 31, 2009; (b) the other for $4 million, payable to the appellant on achieving mechanical completion by March 31, 2010. The payment was to be forfeited if the relevant completion date was not met.

[92]   Neither of the tranche payment dates were met. The Tribunal found that the appellant forfeited both tranche payments.

[93]   The contract also provided that if mechanical completion was not achieved prior to March 31, 2010, the respondent was entitled to liquidated damages. The Tribunal found that the respondent was entitled to 276 days of liquidated damages (after subtracting the 18-day extension awarded to the appellant). It found that the tranche payments were unearned bonus or incentive payments and, therefore, had no bearing on the liquidated damages.

[94]   The Tribunal rejected the appellant’s arguments that the respondent was unjustly enriched by the forfeiture of the tranche payments and the recovery of liquidated damages. The forfeiture of the tranche payment bonuses was pursuant to a contractual right that the respondent was entitled to exercise and there was nothing unconscionable about the result.

[95]   The Tribunal also found that the tranche payments were not penalties for breach of contract; they were payments for compliance with the contract. The law of penalties was therefore inapplicable.

[96]   Before the application judge, the appellant argued that the award resulted in double recovery. The respondent was compensated twice for the delay – once by the forfeiture of the tranche payments and again by the award of liquidated damages. This, it said, offended Ontario public policy.

[97]   The application judge rejected this submission. He noted the high threshold to set aside an arbitral award as contrary to public policy. He held, at para. 146, that to be set aside, an award “must fundamentally offend the most basic and explicit principles of justice and fairness in Ontario or evidence intolerable ignorance or corruption on the part of the arbitral tribunal.”

[98]   The application judge agreed with the Tribunal’s analysis. The liquidated damages and the forfeiture of the tranche payments performed different functions and achieved separate ends. The fact that both were triggered by the same or similar events did not mean there was double recovery.

[99]   The court may set aside an arbitral award under Article 34(2)(b)(ii) if it is in conflict with the public policy of the state. The leading statement of Ontario law under this provision is found in Schreter v. Gasmac Inc., at p. 623:

The concept of imposing our public policy on foreign awards is to guard against enforcement of an award which offends our local principles of justice and fairness in a fundamental way, and in a way which the parties could attribute to the fact that the award was made in another jurisdiction where the procedural or substantive rules diverge markedly from our own, or where there was ignorance or corruption on the part of the tribunal which could not be seen to be tolerated or condoned by our courts. [Emphasis added.]

[100]   This statement was cited with approval by this court in Corporacion Transnacional de Inversiones S.A. de C.V. v. STET International S.p.A. (2000), 2000 CanLII 16840 (ON CA), 49 O.R. (3d) 414 (C.A.), at para. 2, and in United Mexican States v. Karpa, at para. 66.

[101]   Suffice to say that I respectfully agree with the application judge for the reason he gave. The Tribunal’s award does not come close to meeting the test.

(4)         Discretion under Article 34

[102]   Although the application judge dismissed the application in all respects, he went on to consider whether, had he found grounds to set aside the award, he would have exercised the discretion, conferred by Article 34(2), not to do so. He correctly identified this court’s decision in Popack v. Lipszyc, 2016 ONCA 135 (CanLII), 129 O.R. (3d) 321, as the governing authority.

[103]   The application judge’s reasons on this issue are obiter and, in my view, it is unnecessary to address the issue.

D.           DISPOSITION

[104]   For the foregoing reasons, I would dismiss the appeal, with costs fixed at $100,000, inclusive of disbursements and all applicable taxes.

Hyundai Engineering & Steel Industries Co Ltd v Two Ways Constructions Pty Ltd [2018] FCA 1427

FEDERAL COURT OF AUSTRALIA

Hyundai Engineering & Steel Industries Co Ltd v Two Ways Constructions Pty Ltd [2018] FCA 1427

 

FILE NUMBER: NSD 976 of 2018

JUDGE: O’Callaghan J

DATE OF JUDGMENT: 13 September 2018

CATCHWORDS: ARBITRATION – international arbitration – where award creditor brought proceedings to enforce award obtained in Singapore – where award debtor sought to set aside the award in part in the High Court of the Republic of Singapore – where award debtor applied under s 8(8) of the International Arbitration Act 1974 (Cth) to adjourn award enforcement – adjournment granted on condition that award debtor provide security for full amount of the award plus interest – where award debtor failed to provide security and then when into voluntary administration – application by award creditor under s 440D of the Corporations Act 2001 (Cth) for leave to proceed with enforcement application notwithstanding voluntary administration – leave granted

LEGISLATION:

  • Corporations Act 2001 (Cth), s 440D
  • International Arbitration Act 1974 (Cth), s 8(2)

CASES CITED:

DATE OF HEARING: 13 September 2018

REGISTRY: Victoria

DIVISION: General Division

NATIONAL PRACTICE AREA: Commercial and Corporations

SUB-AREA: International Commercial Arbitration

 

ORDERS

NSD 976 of 2018

HYUNDAI ENGINEERING AND STEEL INDUSTRIES CO LTD

(Applicant)

V

TWO WAYS CONSTRUCTIONS PTY LTD

(Respondent)

 

 

THE COURT ORDERS THAT:

 

1.           Pursuant to s 440D(1) of the Corporations Act 2001 (Cth), the applicant be granted leave to proceed against the respondent.

2.           The further hearing of this proceeding is adjourned until 11:00am on 2 October 2018 in Sydney.

3.           Costs be reserved.

 

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

 

REASONS FOR JUDGMENT
(Revised from transcript)

O’CALLAGHAN J:

  1. These reasons for judgment were delivered ex tempore at the hearing on 13 September 2018 and accompany the orders set out above.
  2. This is a proceeding brought under s 8(2) of the International Arbitration Act 1974 (Cth), in which the applicant seeks, among other orders, an order that “the Final Award dated 9 March 2018 of Mr Alvin Yeo registered in the Singapore International Arbitration Centre Registry of Awards as Award Number 024 of 2018 on 13 March 2018 and notified to the parties by the Registrar of the Court of Arbitration of the Singapore International Arbitration Centre upon or about that date be enforced as a judgment of this court.”
  3. Voluntary administrators were appointed by the directors of the respondent company on 4 September 2018, nine days ago. As a result of that appointment, this proceeding is stayed by operation of s 440D of the Corporations Act 2001 (Cth). Section 440D(1) relevantly provides as follows:

    During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except

    (b) with the leave of the court and in accordance with such terms (if any) as the court imposes.

  4. This morning I heard an application by the applicant company (Hyundai) for leave to proceed in this proceeding pursuant to s 440D(1)(b). Mr CRC Newlinds of senior counsel appeared for the administrators. Mr JA Hogan-Doran appeared with Mr Ball for Hyundai.
  5. At the conclusion of oral submissions in relation to the application for leave to proceed, I made an order that such leave be granted.  These are my reasons.
  6. In my view, the appropriate starting point for the consideration of an application for leave to proceed is that adopted by Hammerschlag J in Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd(2011) 285 ALR 207; [2011] NSWSC 1305, in particular at [36] to [40].
  7. I agree with his Honour’s view that it is not appropriate to commence consideration of an application of this sort with an assumption that leave would only rarely be granted: cf Foxcroft v Ink Group Pty Ltd (1994) 15 ACSR 203 at 205. As Hammerschlag J said at [36]-[40]:

    I respectfully take a view different to that of Young J and Austin J. It seems to me that an approach which commences with an assumption that leave will only rarely be granted or that the Court must approach this type of application with a degree of caution greater than that with which it would approach the exercise of any other discretion within a particular statutory context where it must be satisfied that appropriate circumstances exist for the making of an order imposes upon the applicant a standard higher than that which the section requires. This is an unwarranted confinement of the discretion.

    The policy underlying Pt 5.3A, as evinced by s 435A, is to maximise the chances of the beleaguered company staying alive.

    The stay of proceedings imposed by s 440D may facilitate the achievement of this object, amongst others, by

    (a) affording the administrator time to assess and report on the company without the distraction of the proceedings;

    (b) putting a brake on legal and associated costs;

    (c) allowing time for the development of proposals which might preserve the value of the company as a going concern;

    (d) giving the creditors time to consider their position for the purposes of the creditors’ meeting; and

    (e) in appropriate circumstances, preventing a creditor from obtaining some advantage over other creditors or potential creditors.

    Whilst the discretion under s 440D must be exercised with the objects of the Part in mind, it remains one at large. A stay is the starting point. There must be circumstances which warrant its displacement.

    Every application must be considered on its own circumstances. There are infinite possible scenarios. There may be a flurry or a dearth of meritorious applications. Those circumstances need have no particular quality of rarity.

  8. I agree, with respect, with those observations and approach this application accordingly.
  9. I refer, without repeating them, to my reasons for judgment in Hyundai Engineering & Steel Industries Co Ltd v Alfasi Steel Constructions (NSW) Pty Ltd [2018] FCA 1054. Those reasons should be regarded as incorporated into these reasons. In that decision, I ordered, among other things, that “Pursuant to subsection 8(8) of the International Arbitration Act 1974 (Cth), the proceedings be adjourned to 30 November 2018 … for further mention.” That adjournment was conditional upon the respondent providing security for the Award in the manner and period set out in other parts of the order in the sum of over $7.9 million. Those orders were made to permit the respondent (then named Alfasi) to pursue an application in the Singapore High Court partially to set aside the award. In the events that occurred, no security has been provided.
  10. At the hearing this morning, Mr Newlinds undertook on behalf of the administrators that, pending the hearing of any appeal in Singapore to set aside the award, Hyundai would, for voting purposes, be entitled to vote for the full amount of its debt, which, as I say, is in the vicinity of $7.9 million. Mr Newlinds informed the court that the administrators have not yet made a decision whether to proceed with the application in Singapore or whether the company has sufficient funds to run the case. All that Mr Newlinds was able responsibly to submit was that the proceeding is listed in Singapore for hearing on 14 November 2018.
  11. Mr Newlinds also said that a Deed of Company Arrangement should be put to creditors before the Singapore case comes on for hearing and that any such deed would, of course, deal with Hyundai’s debt. Mr Newlinds submitted that, in circumstances where Hyundai accepts, as it does, that it could not seek to enforce any judgment it obtains in this court until the administration takes its course, or until further order, and where the administrators agree to admit the whole of the debt for voting purposes unless and until the Singapore court rules otherwise, I should adjourn the leave application to enable the administration to work its course.
  12. In those circumstances, it was submitted that, although the relative prejudice of the parties was fairly evenly balanced, Hyundai would not suffer prejudice other than perhaps the cost of another days hearing in court.  Mr Newlinds also submitted that he was not in a position to make any submission as to the merits of the application in Singapore.
  13. Mr Hogan-Doran submitted, in substance, that the administrators have had time enough to consider their position about the merits of the Singapore application and to review any legal advice previously received by the company about it.
  14. He also submitted, with some force, that the appointment of the administrators may be viewed as a third attempt to achieve an adjournment of this proceeding to enforce the award by backdoor means that could not be achieved through the front door.
  15. In my view, adopting the approach adopted by Hammerschlag J in Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd (2011) 285 ALR 207; [2011] NSWSC 1305 it is appropriate to grant leave to proceed in this case. I cannot speculate on why the application for a stay made by the respondent before me in June 2018 was pressed or why it never paid any amount by way of security despite the court’s order that it do so. In the events that have occurred, however, as I observed to counsel, if the court had known in June what it now knows, I would have proceeded to hear and determine this proceeding in June.
  16. In my view, Hyundai should not be worse off as a result of the respondent’s failure to comply with the terms of the stay order.
  17. For those reasons, I made the order giving leave to proceed under section 440D of the Corporations Act 2001 (Cth).
  18. Upon making that order, Mr Newlinds made an application for a brief adjournment of this proceeding (he said something in the order of a week) to enable the administrators to offer assistance to the court in relation to this proceeding.
  19. The application was opposed, in substance, for most of the reasons that Mr Hogan-Doran advanced in support of his application for leave.
  20. I was initially inclined to the view that I should refuse the application for even such a short adjournment because, as I observed in my earlier reasons, Hyundai Engineering & Steel Industries Co Ltd v Alfasi Steel Constructions (NSW) Pty Ltd [2018] FCA 1054 at [54], even if the respondents are successful in its Singapore application, the application will only bring a partial variation of the award, and it will still be bound to pay Hyundai something in the vicinity of $5 million. Nonetheless, in my view, a short adjournment is unlikely to cause any additional significant prejudice to Hyundai, and, accordingly, I will hear the parties as to a mutually convenient time to which the further hearing of this proceeding may be adjourned.

UDP Holdings Pty Ltd v Esposito Holdings Pty Ltd & Ors [2018] VSC 316 (15 June 2018)

SUPREME COURT

VICTORIA

COMMERCIAL COURT

ARBITRATION LIST

 

UDP HOLDINGS PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT)(RECEIVERS AND MANAGERS APPOINTED) (ACN 167 100 692)  (Applicant)

V

ESPOSITO HOLDINGS PTY LTD (ACN 079 763 303) (First Respondent)

WILLIAM YAN SUI HUI (Second Respondent)

5 STAR FOODS PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT)(RECEIVERS AND MANAGERS APPOINTED) (ACN 005 714 16) (Third Respondent)

ANTONIO PATRICK ESPOSITO (Fourth Respondent)

 

JUDGE: Croft J

HELD: Melbourne

DATE OF HEARING: 12 June 2018

DATE OF JUDGMENT: 15 June 2018

ARBITRATION – PRACTICE AND PROCEDURE – Application for issue of subpoenas for examination of a person not party to the arbitration agreement – Alinta Sales Pty Ltd v Woodside Energy Ltd [2008] WASC 304 – Aurecon Australasia Pty Ltd v BMD Constructions Pty Ltd (2017) 52 VR 267 – International Arbitration Act 1974 ss 22A, 23.

 

HIS HONOUR:

Introduction

  1. This is an application under s 23 of the International Arbitration Act 1974 (Cth) (“the Act”) for the issue of subpoenas to two persons requiring them to attend for examination for the purpose of an arbitration between Esposito Holdings Pty Ltd as claimant and UDP Holdings Pty Ltd, William Yan Sui Hui, and 5 Star Foods Pty Ltd, as respondents, and Antonio Patrick Esposito as the second respondent by counterclaim (“the Arbitration”).
  1. The arbitral tribunal is the Honourable Mr Stephen Charles AO QC, as sole arbitrator, and the final hearing is to commence on 6 July 2018.
  1. This Court has previously issued subpoenas to produce documents in this arbitration: Esposito Holdings Pty Ltd v UDP Holdings Pty Ltd [2015] VSC 183.
  1. The Originating Application and supporting material was filed on 12 June 2018, returnable a week later, with an affidavit in support having been provided to the Court in draft form on 8 June 2018. The Respondents were informed that any submissions were to be provided to the Court by 5:00pm on 15 June. As no such submissions have been received, and, for the reasons which follow, I am satisfied that the subpoenas ought to be issued as sought under s 23 of the Act, the application has been determined on the papers.

Background

  1. The arbitration concerns disputes arising from the sale of a business.  The seller Esposito Holdings Pty Ltd (“the First Respondent” on this application) has obtained a partial award for outstanding sums due under the sale contract, but subject to set-offs claimed by the buyer UDP Holdings Pty Ltd and company 5 Star Foods Pty Ltd (“the Applicant” and “the Third Respondent” on this application, respectively) and to counterclaims made by the Applicant and the Third Respondent.  The set-offs and the counterclaims concern alleged breaches of warranties by the First Respondent.  The substantial factual issue to be determined at the final hearing is whether the business had been overcharging one of its largest customers.
  1. The persons to be summonsed to attend are:

(a)   Paula Deanne Barry (“Ms Barry”), a former employee of United Dairy Power Pty Ltd, a wholly owned subsidiary of the Third Respondent; and

(b)   Murray Jeffrey (“Mr Jeffrey”), an employee of the customer who is said to have been overcharged.

Both of these people have previously given evidence about the alleged overcharging at a compulsory examination before the Supreme Court and their attendance at the arbitration is sought to facilitate their cross-examination in respect of that testimony.

  1. The present application relies upon the provisions of s 23 of the Act, which is in the following terms:

23       Parties may obtain subpoenas

(1)           A party to arbitral proceedings commenced in reliance on an arbitration agreement may apply to a court to issue a subpoena under subsection (3).

(2)          However, this may only be done with the permission of the arbitral tribunal conducting the arbitral proceedings.

(3)          The court may, for the purposes of the arbitral proceedings, issue a subpoena requiring a person to do either or both of the following:

(a)          to attend for examination before the arbitral tribunal;

(b)          to produce to the arbitral tribunal the documents specified in the subpoena.

(4)          A person must not be compelled under a subpoena issued under subsection (3) to answer any question or produce any document which that person could not be compelled to answer or produce in a proceeding before that court.

(5)          The court must not issue a subpoena under subsection (3) to a person who is not a party to the arbitral proceedings unless the court is satisfied that it is reasonable in all the circumstances to issue it to the person.

(6)          Nothing in this section limits Article 27 of the Model Law.

These provisions are reflected in substantially similar terms in the provisions of ss 27A and 27B of the Victorian Commercial Arbitration Act 2011, which applies to domestic, Australian, arbitral proceedings. Sub-sections 23(1) to (4) and sub-s 23(5) of the International Arbitration Act 1974 (Cth) are reflected in ss 27A and 27B(5) of the Commercial Arbitration Act 2011respectively.

  1. For completeness, it is appropriate to note that this Court has jurisdiction to issue the subpoenas sought. Section 22A of the Act provides that “court” means, for the purposes of Division 3 of Part III of the Act (which includes s 23) “in relation to arbitral proceedings that are, or are to be, conducted in a State—the Supreme Court of that State”. As the arbitration is to be conducted in Victoria, it is unnecessary to consider whether this Court would be a court within the meaning of Division 3 of Part III of the Act in relation to arbitral proceedings being conducted overseas.

  2. It is clear from the wording of s 23 of the Act that before the Court issues a subpoena to attend for examination before the arbitral tribunal, the applicant must establish that:

(a)   the application is made with the permission of the arbitral tribunal; and

(b)   the issue of each subpoena is reasonable in all the circumstances.

While sub-s 23(4) of the Act prevents an addressee of a subpoena from being compelled to answer questions which they may not be compelled to answer in this Court, such matters do not appear to arise in the present circumstances. In any event, in order for sub-s 23(4) of the Act to be given practical operation, it must be construed as limiting the effect of a subpoena issued under s 23 of the Act, rather than requiring the Court to be satisfied that a proposed subpoena would not be in violation of sub-s 23(4) of the Act.

Permission of arbitral tribunal

  1. In contrast to Esposito Holdings Pty Ltd v UDP Holdings Pty Ltd, where the arbitral tribunal conducted an “informed evaluation” of the prospects of the Court issuing the subpoenas sought before granting permission, the arbitral tribunal here—now differently constituted—gave unconditional permission for the present application to be made on the basis that no party to the arbitration objected to that course. It is not for this Court to comment on the various approaches taken by arbitral tribunals to the grant of permission in accordance with s 23 of the Act. Rather, it is sufficient to observe that the Act requires parties to obtain permission from the tribunal before applying for the issue of subpoenas, and that such permission has been obtained for the present application.

Reasonableness of issue of subpoenas

  1. It is clear that the Court ought not to act as a mere rubber stamp upon the grant of permission by the arbitral tribunal for a party to apply for the issue of a subpoena.  The principled basis for this position was set out in Aurecon Australasia Pty Ltd v BMD Constructions Pty Ltd in the context of granting an application under the Commercial Arbitration Act 2011 for the issue of a subpoena to attend to give evidence against a person who was not a party to the arbitration:

The policy underlying the Court’s abstention from enquiry into the merits of arbitral decisions is that the parties have by consent subjected themselves to the jurisdiction of the arbitrator by their conclusion of an arbitration agreement.  The same policy considerations do not, however, justify  an exercise of the Court’s coercive powers against non-parties without enquiry into the reasonableness of the use of such powers.  Non-parties are strangers to the arbitration agreement, and they should be no more exposed to answering subpoenas in arbitration than they are in litigation, especially since arbitral examination is not under the immediate supervision of the Court.

  1. Of course, while the Court must be cautious against allowing the imposition of an unwarranted burden on strangers to the arbitration, this does not detract from the supportive role of the Court apropos the arbitral process.  As I said in Esposito Holdings Pty Ltd v UDP Holdings Pty Ltd:

The approach the Court should adopt under the corresponding provisions of the domestic commercial arbitration legislation—an approach, given the international provenance of the domestic legislation, which is equally applicable to the international legislation—was an issue in ASADA v 34 Players and One Support Person, where I said:

Having regard to the international provenance of the Act, particularly the provisions of the Model Law, it is, in my view, clearly inappropriate for the Court, in an application under s 27A of the … [Commercial Arbitration Act 2011] by a party to obtain subpoenas, to embark upon a process which would, in effect, “second guess” the arbitral tribunal which has already given permission for the application to obtain a subpoena under these provisions.  It is quite clear from the provenance of this legislation, internationally and domestically, that the emphasis sought to be achieved by the legislature is court assistance and support for arbitral processes, and not “heavy handed” intervention or, in effect, duplication of the functions of the arbitral tribunal.  Long gone are the evils of the case stated procedure under the Victorian Arbitration Act 1958 and its equivalents in other jurisdictions.  Since the Commercial Arbitration Act 1984 in Victoria, the trend in legislative developments and court decisions has been to constrain merits appeals and the consequent cost and delay that flows from duplication of the proceedings in this process. This is not to say, however, that a provision such as s 27A of the … [Commercial Arbitration Act 2011] is to be treated lightly by the courts. The sanctions for a breach of a court issued subpoena are potentially very serious indeed. Consequently, the basis upon which these powers are sought to be invoked must be established to the satisfaction of the court. Nevertheless, this process should, naturally, occur as expeditiously and cost effectively as possible; but it must be balanced against the seriousness associated with subpoenas and their possible breach. A fundamental prerequisite to invocation of powers such as those conferred by s 27A is, patently, that there must be an arbitration, an arbitral tribunal, in support of which any subpoena is issued under these provisions.

In expressing these views with respect to the principles relevant to applications of this kind, I was also assisted significantly by the statement of principles relevant to the grant of a subpoena by the court under relevantly similar provisions contained in the Commercial Arbitration Act 1985 (WA) by Beech J in Alinta Sales Pty Ltd v Woodside Energy Ltd

  1. Against this background, I turn now to consider whether it is reasonable to issue the subpoenas to each of the addressees in the present circumstances.
  2. Ms Barry was formerly employed as a financial controller and chief financial officer for United Dairy Power Pty Ltd.  She was publicly examined in relation to the affairs of the Third Respondent and other companies on 26 October 2015 before this Court.  Ms Barry was summonsed to appear at the examination and gave evidence about the overcharging.  Mr Jeffrey is director of agricultural procurement for National Foods Australia Pty Ltd, being the customer which is said to have been overcharged and was publicly examined in relation to the affairs of the Third Respondent and other companies on 6 November 2015 before this Court.  Mr Jeffrey was summonsed to appear at the examination, where he gave evidence about the overcharging.

  3. As part of their reply lay evidence, the Applicant and Third Respondent have filed with the arbitral tribunal statements of intended evidence from Ms Barry and Mr Jeffrey in which each witness will affirm and adopt the evidence given in the examination.  Although the transcripts of the public examinations of Ms Barry and Mr Jeffrey could likely have been tendered in the arbitration without their attendance, they were not cross examined at the examination and I accept, having regard to the clear relevance of their evidence to the issues in dispute, the submission of the Applicant that their cross examination would likely be of sufficient utility to render the issuance of the subpoenas prima facie reasonable.
  4. The Applicant has undertaken that the addressees will be provided with conduct money of $50.00 each on or around the date of service of the Application, and that it will reimburse them for any reasonable expenses incurred by them in connection with their attendance at the arbitration.

Conclusion

  1. For the preceding reasons, the Court is satisfied that it is reasonable in all the circumstances to issue the subpoenas to Ms Barry and Mr Jeffrey.  Accordingly, the Applicant has leave to issue the subpoenas as sought.

Esposito Holdings Pty Ltd v UDP Holdings Pty Ltd [2015] VSC 183 (8 May 2015)

SUPREME COURT

VICTORIA

MELBOURNE COMMERCIAL COURT

ARBITRATION LIST

 

ESPOSITO HOLDINGS PTY LTD (Applicant)

(ACN 079 763 303)

V

UDP HOLDINGS PTY LTD & ORS (Respondents)

(ACN 167 100 692)

 

JUDGE: Croft J

HEARING DATES: 6 & 7 May 2015

JUDGMENT DATE: 8 May 2015

MEDIUM NEUTRAL CITATION: [2015] VSC 183

ARBITRATION – Application for issue of subpoenas – International Arbitration Act 1974 s 23 – Alinta Sales Pty Ltd v Woodside Energy Ltd [2008] WASC 304 (17 December 2008).

PRACTICE AND PROCEDURE – Security for costs of compliance with subpoena – Supreme Court (Chapter II Arbitration Amendment) Rules 2014 r 9.06(4) – Supreme Court (General Civil Procedure) Rules 2005 r 42.11.

 

HIS HONOUR:

Introduction

1 This is an application under s 23 of the International Arbitration Act 1974 (Cth) (“the Act”) for the issue of subpoenas for the purpose of an arbitration between Esposito Holdings Pty Ltd as claimant and UDP Holdings Pty Ltd, William Yan Sui Hui, and 5 Star Foods Pty Ltd, as respondents (“the Arbitration”).

2 The arbitral tribunal is Mr M.W. Shand QC, as sole arbitrator.

Background

3 An application was made to the arbitral tribunal for permission to make the present application. A summary of the position with respect to the application appears in the Reasons for Decision of the arbitral tribunal dated 24 April 2015 (“the Reasons”). Omitting reference to a preliminary discovery issue with respect to the first and third respondents, the position is summarised in the Reasons as follows:

The applications

  1. By written application dated 30 March 2015, the claimant applied for leave and permission to make an application to the Supreme Court of Victoria under section 23(1) of the International Arbitration Act 1974(Cth) to issue subpoenas to:

(a) Coöperatieve Centrale Raiffeisen-Boerenleenbank BA, (RaboBank);(b) PPB Advisory, the firm of which the Receivers are members; and

(c) Nile Waters Pty Ltd trading as R Cubed, the corporate restructing and advisory firm operated by Mr Derwin as its sole director, principal and managing director.

  1. The hearing of the applications took place on 15 April 2015.

Summary of decision

  1. For reasons that follow, I have determined to grant the claimant permission to apply to the Court for the issue of the proposed subpoenas, in each case with paragraph 2(m) and the words “any Group Member” deleted. Accompanying the directions are the proposed subpoenas in amended form. I have had close regard to the constraints to which the arbitral tribunal is subject under article 17.1 of the UNCITRAL rules. In my view, the documents, the subject of the proposed subpoenas as amended have apparent relevance to the issues in the arbitration and the proposed subpoenas serve a legitimate forensic purpose. For like reasons, I have determined to refuse the application to vacate the category 1.14 directions, noting that, in any event, the first and third respondents have now purported to comply with those directions.

Application

4 The present application relies upon the provisions of s 23 of the Act, which is in the following terms:

  1. Parties may obtain subpoenas

(1) A party to arbitral proceedings commenced in reliance on an arbitration agreement may apply to a court to issue a subpoena under subsection (3).(2) However, this may only be done with the permission of the arbitral tribunal conducting the arbitral proceedings.

(3) The court may, for the purposes of the arbitral proceedings, issue a subpoena requiring a person to do either or both of the following:

(a) to attend for examination before the arbitral tribunal;

(b) to produce to the arbitral tribunal the documents specified in the subpoena.

(4) A person must not be compelled under a subpoena issued under subsection (3) to answer any question or produce any document which that person could not be compelled to answer or produce in a proceeding before that court.

(5) The court must not issue a subpoena under subsection (3) to a person who is not a party to the arbitral proceedings unless the court is satisfied that it is reasonable in all the circumstances to issue it to the person.

(6) Nothing in this section limits Article 27 of the Model Law.

These provisions are reflected in substantially similar terms in the provisions of ss 27A and 27B of the Victorian Commercial Arbitration Act 2011, which applies to domestic, Australian, arbitral proceedings. Sub-sections 23(1) to (4) and sub-s 23(5) of the International Arbitration Act 1974 (Cth) are reflected in ss 27A and 27B(5) of the Commercial Arbitration Act 2011 respectively.

5 The approach the Court should adopt under the corresponding provisions of the domestic commercial arbitration legislation — an approach, given the international provenance of the domestic legislation, which is equally applicable to the international legislation — was an issue in ASADA v 34 Players and One Support Person, where I said:

Having regard to the international provenance of the Act, particularly the provisions of the Model Law, it is, in my view, clearly inappropriate for the Court, in an application under s 27A of the … [Commercial Arbitration Act 2011] by a party to obtain subpoenas, to embark upon a process which would, in effect, “second guess” the arbitral tribunal which has already given permission for the application to obtain a subpoena under these provisions. It is quite clear from the provenance of this legislation, internationally and domestically, that the emphasis sought to be achieved by the legislature is court assistance and support for arbitral processes, and not “heavy handed” intervention or, in effect, duplication of the functions of the arbitral tribunal. Long gone are the evils of the case stated procedure under the Victorian Arbitration Act 1958 and its equivalents in other jurisdictions. Since the Commercial Arbitration Act 1984 in Victoria, the trend in legislative developments and court decisions has been to constrain merits appeals and the consequent cost and delay that flows from duplication of the proceedings in this process. This is not to say, however, that a provision such as s 27A of the … [Commercial Arbitration Act 2011] is to be treated lightly by the courts. The sanctions for a breach of a court issued subpoena are potentially very serious indeed. Consequently, the basis upon which these powers are sought to be invoked must be established to the satisfaction of the court. Nevertheless, this process should, naturally, occur as expeditiously and cost effectively as possible; but it must be balanced against the seriousness associated with subpoenas and their possible breach. A fundamental prerequisite to invocation of powers such as those conferred by s 27A is, patently, that there must be an arbitration, an arbitral tribunal, in support of which any subpoena is issued under these provisions.

In expressing these views with respect to the principles relevant to applications of this kind, I was also assisted significantly by the statement of principles relevant to the grant of a subpoena by the court under relevantly similar provisions contained in the Commercial Arbitration Act 1985 (WA) by Beech J in Alinta Sales Pty Ltd v Woodside Energy Ltd (in the passage referred to by the arbitral tribunal in that part of the Reasons which is set out in the following paragraph, below).

6 The arbitral tribunal considered the principles relevant to the issue, as set out in the Reasons:

Authority

  1. None of the parties to this arbitration were able to direct my attention to any direct authority on the provisions of s 23 of the International Arbitration Act 1974 and the task of the tribunal. Mr Harris QC for the claimant referred me to Alinta Sales Pty Ltd v Woodside Energy Ltd. In that case Beech J determined an application for leave to issue a subpoena under the Commercial Arbitration Act 1985 (WA). The scheme for the grant of leave differed from that provided for the grant of permission by the arbitral tribunal under the International Arbitration Act 1974. However the principles that Beech J identified as relevant to the application before him are of assistance in discerning the proper approach that the arbitral tribunal should adopt in the present case. Beech J stated at [20] and following —

[20] A court will only make an order for leave to issue a subpoena of documents returnable before trial if it is satisfied that the subpoena is issued for a legitimate forensic purpose: Commonwealth of Australia v Albany Port AuthorityDarbyshire v Gilbert.[21] There is a legitimate forensic purpose for the issue of a subpoena of documents in respect of a document or class of documents that is apparently relevant: Apache Northwest Pty Ltd.

[22] Apparent relevance is a low threshold. It is not a question of whether it appears that the party issuing the subpoena could, or could probably, tender the document in evidence. It is enough to establish apparent relevance if a document or class of documents gives rise to a line of enquiry relevant to the issues before the trier of fact, including for the purpose of meeting the opposing case by way of cross-examination: Apache Northwest Pty LtdStanley v Layne Christensen CoCommonwealth v Albany Port Authority.

[23] In determining relevance, the difficulty of assessing relevance prior to trial must be taken into account. The necessity for having a document in order to fairly dispose of the issues at trial might well not become apparent before trial: Apache Northwest Pty LtdStanley v Layne Christensen Co; Commonwealth v Albany Port Authority.

[…]

[27] In Australian Gas Light Co v Australian Competition & Consumer Commission French J said as follows:

It is not appropriate to be overly prescriptive in setting out criteria for the grant of leave to issue a subpoena. Plainly, the documents sought must have at least some apparent potential relevance to the matters in issue in the litigation. The assistance that the requesting party may derive from the production of such documents must be taken into account. Case management considerations are also relevant. A wide-ranging subpoena, seeking documents of doubtful relevance at great inconvenience to, or that risk compromising the commercial privacy of, a third party, may not readily attract the grant of leave. Where the issue of such a subpoena is likely to delay progress to trial because of the legitimate interests of a party in resisting its issue, that may also be a practical factor to be weighed.

This passage was cited with approval in Darbyshire and Commonwealth v Albany Port Authority.[28] Apparent relevance is to be assessed by reference to the issues in the arbitration, taking into account the competing contentions of the parties: Queensland Power Trading Corporation v Xstrata Queensland Ltd.

  1. In Hancock Prospecting Pty Ltd v Hancock, Pritchard J adopted the summary of principles formulated by Beech J.

7 Although the question whether the arbitral tribunal should or should not grant permission to a party to apply to the Court for the issue of a subpoena under s 23 of the Act (or the corresponding provisions of the domestic commercial arbitration legislation) is not necessarily to be answered by applying the principles which the Court applies in deciding whether to issue a subpoena under these provisions, I agree with the approach adopted by the arbitral tribunal in this respect. Clearly, there is every reason why an arbitral tribunal should not grant permission in circumstances where it is reasonably clear that the court will, in applying these principles, not issue the subpoena.

Application of the principles

8 In applying the principles to which reference has been made, the arbitral tribunal said in the Reasons:

Analysis

  1. The present application is not the first application for permission in this arbitration that the arbitral tribunal has heard. At the first directions hearing, on 18 December 2014, the claimant applied for permission to apply to the Court for the issue of a subpoena to produce the information memorandum relating to the first respondent and the other companies in the group (category 1.13 of the schedule to the directions made on 24 December 2014[)].
  2. In my reasons for dismissing that application, I discussed the question of the task before the tribunal and stated at [14] —

The provisions of s 23(2) of the Act would seem intended, in the context of this arbitration and the application of the UNCITRAL Rules, to respect the role of the arbitral tribunal to conduct the arbitration in such manner as it considers appropriate, subject to article 17, and to be satisfied that the making of any application to the court to issue a subpoena would not operate so as to frustrate or impede the conduct of the arbitral proceedings in a manner inconsistent with the provisions of the rules including article 17. In that sense the reasonableness of the party making the application and of the Court issuing a subpoena may well be a relevant consideration. However the arbitral tribunal is not in my view to determine an application for permission by seeking to prejudge the prospects of success of the application before the Court.

  1. I am not persuaded that there is any duty on the arbitral tribunal, as the first and third respondents contended in their written submissions, to identify all the relevant circumstances that make it reasonable for the Court to issue a subpoena. In my view, the determination of an application for permission is not to be treated as a de facto hearing of the application to the Court for the issue of a subpoena. Parliament has given that role to the Court not to the arbitral tribunal. I see no support in the language of s 23 for any conclusion that the application to the court proceeds in the nature of a merits review of the decision of the tribunal. In discussion, Mr Scott did not take his submission this far and did not contend that the arbitral tribunal was required to form a view about whether it was reasonable in all the circumstances for a subpoena to be issued. (T82.20).
  2. I do however accept, as Mr Scott QC contended, that in deciding whether or not to grant permission, I must make an informed evaluation, honouring the duty imposed by article 17.1 on the tribunal to “conduct the proceedings so as to avoid unnecessary delay and expense and to provide a fair and efficient process for resolving the parties’ dispute”.
  3. In my view, that informed evaluation must involve an examination of the issues put in dispute by the statements of claim and defence and whether the documents the subject of the proposed subpoenas have apparent relevance to the issues, the subject of the arbitration and whether therefore the proposed subpoenas serve a legitimate forensic purpose.

9 In my view, the position as stated by the arbitral tribunal, as set out in that part of the Reasons to which reference has just been made, is correct and appropriate on the basis of the matters discussed previously in these reasons and the authorities to which reference has been made. I particularly endorse the view of the arbitral tribunal that:

In my view, the determination of an application for permission is not to be treated as a de facto hearing of the application to the Court for the issue of a subpoena. Parliament has given that role to the Court not to the arbitral tribunal. I see no support in the language of s 23 for any conclusion that the application to the court proceeds in the nature of a merits review of the decision of the tribunal.

This is particularly so as neither the Act nor the Model Law countenance any merits review or appeal from decisions of an arbitral tribunal.

10 On this basis, it is sufficient to observe that the arbitral tribunal has conducted the informed evaluation foreshadowed in the passage in the Reasons set out above for the purpose of deciding whether or not to grant permission.

11 For the preceding reasons, and having regard to the Reasons, on the basis indicated, I am satisfied that it is reasonable in all the circumstances, to issue the subpoenas sought in this application to each of the persons specified, though such person is not a party to the arbitral proceedings, in the form of each subpoena as specified by the arbitral tribunal. In this respect I should, however, add that at the hearing on 7 May 2015 the Applicant advised the Court, that for reasons of expedition in relation to the arbitration proceedings, it pressed its application only with respect to RaboBank, the Fifth Respondent.

Security

12 In the course of this application, the Fourth and Fifth Respondent, two entities to which the proposed subpoenas were to be addressed, sought security for the costs of complying with the subpoenas. As the Fifth Respondent is now the only entity against whom a subpoena is sought it is only the Fifth Respondent now seeking such security. In this respect, reliance was placed on Rule 9.06(4) of the Supreme Court (Chapter II Arbitration Amendment) Rules 2014. It was, however, submitted that if the Court were satisfied that an order for fixing and payment of reasonable costs incurred in complying with the subpoenas should be made, the order would, most practicably, be an order for the provision of security as it would be very difficult to fix a sum having regard to the difficulty in estimating the precise extent and cost of the work involved, as is clear from the affidavit of Michael Gordon Sloan, sworn on 6 May 2015 (“the Sloan Affidavit”). Reliance was also placed on Rule 42.11(1) of the Supreme Court (General Civil Procedure) Rules 2005 in support of the power of the Court to make such an order. In response, the Applicant initially said that the estimates of the extent and cost of the work were too high as much of the work required to comply with the subpoenas has already been done in complying with discovery orders already made by the arbitral tribunal; though this criticism substantially fell away with the application being confined to the Fifth Respondent. In my view, this serves to strengthen the view that an order for security — by way of a bank guarantee — would be a more practical and desirable way to proceed rather than a fixed monetary order under Rule 9.06(4).

13 The Applicant submitted that the issues initially raised by both the Fourth and Fifth Respondent with respect to the cost of compliance with the subpoenas would be adequately addressed by an appropriate undertaking by the Applicant to meet these costs. The Fourth and Fifth Respondent, on the other hand, pointed to the request in a letter from Ashurst to K & L Gates, solicitors for the Fourth and Fifth Respondent and the Applicant, respectively, seeking information as to the Applicant’s capacity to meet these costs. There has been no response to this request — which I do not suggest is unreasonable, the request having been made the day before the hearing of this application — but, nevertheless, there is no evidence before the Court with respect to the Applicant’s financial capacity. Although the application now relates only to the Fifth Respondent, these issues remain alive and of relevance.

14 Although I accept that this application does not raise the type of issues which were before the Federal Court in Burrup Fertilisers Pty Ltd v Oswal (No 6), it does appear to me that it is appropriate on the basis of the evidence before the Court that the Fifth Respondent be afforded protection against the possibility of costs of compliance with the subpoenas not otherwise being recoverable. Rule 9.06(4) clearly contemplates this step being taken where the Court is of the view that it is appropriate. Having regard to difficulties in estimation of likely compliance costs, as indicated, I was of the opinion that a bank guarantee in favour of the Fifth Respondent would be appropriate. Having indicated my view in this respect, the parties agreed that a more expeditious and practical course would be for the position to be secured by payment of an appropriate sum of money to the Applicant’s solicitors’ trust account to be held in accordance with the Court’s orders. On the basis of the evidence as to the nature, extent and cost of the work estimated to be required to comply with the subpoena to the Fifth Respondent, as set out in the Sloan Affidavit, I determined that the sum of money required to be paid by the Applicant by way of security at $20,000. For the preceding reasons I am of the opinion that this is the appropriate course.

Conclusions and orders

15 The application for the issue of the subpoena to the Fifth Respondent in the form specified by the arbitral tribunal as settled by the Court as a result of the Applicant deciding not to proceed with its application with respect to other persons the subject of the arbitral tribunal’s permission is granted. Orders to give effect to these reasons are to be brought in by the Applicant. The question of costs is reserved.

Fitzpatrick v Emerald Grain Pty Ltd [2017] WASC 206

SUPREME COURT

WESTERN AUSTRALIA

FITZPATRICK V EMERALD GRAIN PTY LTD [2017] WASC 206

 

CORAM: Martin CJ

HEARD: 28 March 2017

DELIVERED: 31 July 2017

FILE NUMBER: CIV 2437 of 2016

BETWEEN:

  • Mark Fitzpatrick t/a JD & PM Fitzpatrick & Sons & Others (Plaintiffs)
  • Emerald Grain Pty Ltd (Defendant)

RESULT:

  • Proceedings stayed
  • Matter referred to arbitration

CATCHWORDS:

  • Arbitration – Arbitration clauses – Proper approach to construction
  • Arbitration – Stay of proceedings – Reference to arbitration – Effect of Commercial Arbitration Act 2002 (WA)

LEGISLATION:

  • Commercial Arbitration Act 2012 (WA)
  • Trustees Act 1962 (WA)

CASES CITED:

  • A Best Floor Sanding Pty Ltd v Skyer Australia Pty Ltd [1999] VSC 170

  • ACD Tridon Inc v Tridon Australia Pty Ltd [2002] NSWSC 896

  • Ace Capital Ltd v CMS Energy Corp [2008] EWHC 1843 (Comm)

  • Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488

  • Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52

  • Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; (2013) 298 ALR 666

  • Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; (2006) 157 FCR 45

  • Dowell Australia Ltd v Triden Contractors Pty Ltd [1982] 1 NSWLR 508

  • Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640

  • Ethiopian Oilseeds and Pulses Export Corporation v Rio del Mar Foods Inc (1990) 1 Lloyds Rep 86

  • Fiona Trust & Holding Corporation v Privalov [2007] EWCA Civ 20

  • Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40; (2007) 4 All ER 951

  • Flint Ink NZ Ltd v Huhtamaki Australia Pty Ltd [2014] VSCA 166; (2014) 44 VR 64

  • Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160

  • Harbour Assurance Co (UK) Ltd v Kansa General International Assurance Co Ltd [1993] QB 701

  • Heyman v Darwins Ltd [1942] AC 356

  • IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466

  • Incitec Ltd v Alkimos Shipping Corporation [2004] FCA 698; (2004) 138 FCR 496

  • John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451

  • Joint Stock Co ‘Aeroflot-Russian Airlines’ v Berezovsky [2013] EWCA Civ 784; [2013] 2 Lloyd’s Rep 242

  • Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104

  • Paharpur Cooling Towers Ltd v Paramount (WA) Ltd [2008] WASCA 110

  • Paper Products Pty Ltd v Tomlinsons (Rochdale) Ltd (1993) 43 FCR 439

  • Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10

  • Re Ikon Group Ltd [No 2] [2015] NSWSC 981

  • Rinehart v Rinehart [No 3] [2016] FCA 539; (2016) 337 ALR 174

  • Rinehart v Welker [2012] NSWCA 95

  • Samsung C&T Corporation v Duro Felguera Australia Pty Ltd [2016] WASC 193

  • Sulamerica CIA Nacional De Seguros SA v Enesa Engenharia SA [2012] EWHC 42 (Comm)

  • Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102

 

MARTIN CJ:

Summary

  1. Forty-seven grain growers (the Growers) have commenced proceedings in this court against Emerald Grain Pty Ltd (Emerald) relating to disputes arising from separate contracts between each of the Growers and Emerald (the proceedings).  The contracts were entered into at various times during 2011 and related to the placement of grain produced by the Growers into a pool of grain which was sold by Emerald to various purchasers.  The precise characterisation of the contracts, and in particular, whether they are simply contracts for the sale of grain by each grower to Emerald, containing terms and conditions by which the price for that grain will be calculated by reference to the proceeds of its sale by Emerald, or whether they give rise to a trust relationship whereby Emerald holds funds received from the sale of grain on trust for each grower, is one of the matters in dispute.
  2. Each of the contracts contains a provision requiring disputes arising out of, relating to or in connection with its terms to be resolved by arbitration.  Before submitting any statement on the substance of the dispute to the court, Emerald has applied for orders referring the disputes to arbitration pursuant to s 8 of the Commercial Arbitration Act 2012 (WA) (the Act) and staying the proceedings.  For the reasons which follow, orders should be made in those terms.

The facts

  1. The facts relevant to Emerald’s application for a stay of proceedings and referral to arbitration are not contentious.  They were established by affidavits which were read without substantive objection or cross‑examination of their deponents.

The parties

  1. Each of the plaintiffs was, at the relevant time, a wheat producer in Western Australia.  Emerald carries on business as the operator of grain commodity pools, including pools for wheat and various other grains.

Grain pooling generally

  1. One marketing option available to Australian wheat growers is to combine or pool their wheat with wheat grown by others in order to form larger exportable parcels.  Growers exercising this option commit a certain tonnage of wheat to a pool to be marketed by the relevant pool trader over a period of time.  Growers take this option in the expectation that the relevant trader will use their skill, access to markets and financing resources to provide favourable returns to the grower.

  2. A wheat grower in Western Australia who decides to participate in such a pool will deliver their wheat to a receival site operated by CBH Group Pty Ltd (CBH).  After grading and measurement, CBH will store the wheat with other wheat of the same grade.  If a grower elects to exercise the pooling option which I have described, wheat of equivalent weight and grade to that delivered by the grower will be delivered by CBH to the pooling trader (such as Emerald).  Payments made by pooling traders (such as Emerald) to growers contributing grain to their pools are usually made by instalments, as and when grain in the relevant pool is sold, under terms which result in the final payment to each grower being calculated by reference to the total receipts of the pooled grain sold less costs applicable to the pool.

The contracts

  1. As I have noted, the Growers entered into contracts with Emerald at various times during 2011.  All contracts related to grain pools conducted by Emerald over the period 2011/12.  The contracts take the form of a single page document entitled ‘Contract Confirmation’ which contains details provided by the Grower as to the quantity of grain to be provided, place and time of delivery and so on.  The contracts expressly incorporate the ‘Emerald Pool Terms and Conditions’ which are said to be available on request or at Emerald’s website.  The contracts are signed by each Grower and a representative of Emerald.

The Emerald Grain Pools Terms and Conditions

  1. The Grain Pools Terms and Conditions published by Emerald were amended in March 2011.  Contracts entered into prior to that time incorporated the Terms and Conditions published in October 2010 (2010 Conditions), whereas contracts entered into after that time incorporated the Terms and Conditions published in March 2011 (2011 Conditions).   Although the two sets of Terms and Conditions differ in some respects, neither the Growers nor Emerald contend that the differences are material to the outcome of Emerald’s application for a stay and referral to arbitration.

The trust issue

  1. During argument the court’s attention was drawn to various provisions in each of the Conditions which are relevant only to the question of whether the contracts give rise to a trust pursuant to which Emerald holds the proceeds derived from the sale of grain on trust for the growers who caused grain to be delivered into that pool.
  2. However, in the final result, each of the Growers and Emerald were content for the court to determine Emerald’s application for a stay and referral to arbitration on the basis that the trust issue was arguable and need not be resolved by the court for the purpose of resolving Emerald’s application.  It is therefore unnecessary to refer to provisions in each of the Conditions which go only to the trust issue in these reasons.

The Conditions

  1. The first clause of each of the 2010 and 2011 Conditions describes the nature of the pooling services provided by Emerald in the following terms:

    Pools involve the acquisition by Emerald of a Commodity from multiple suppliers.  Emerald arranges sale of the Commodity over time, and, after adjustments, returns the net average sale proceeds to all suppliers.

  2. The second clause of each of the Conditions provides that the terms and conditions which follow are incorporated into a contract made between Emerald and the grower for the supply of a commodity into a pool (Pool Contract).  The second clause of the 2011 Conditions also provides that if there any inconsistency in wording or meaning between the Pool Contract and the Conditions to which I am referring, the Pool Contract will prevail.  However, neither the Growers nor Emerald have pointed to any possible inconsistency between any Pool Contract and the 2011 Conditions.
  3. Later provisions of each set of Conditions describe the agreement between the grower and Emerald and the incorporation of the relevant terms and conditions into that agreement.  The Conditions include various provisions relating to delivery requirements, pool returns, buy-back options provided to growers, fees to be deducted by Emerald from the proceeds of sale of the pools, rights of set-off, force majeure, indemnities and limitation of liability.
  4. The 2010 Conditions contain provisions in the following terms:

    Trade Rules

    31.          These terms and conditions expressly incorporate the Trade Rules of Grain Trade Australia (GTA) in effect at the time You enter into a Pool Contract or deliver Commodities to a Pool, except to the extent of any inconsistency, in which case these Terms and Conditions will prevail.  The Trade Rules form an integral part of these Terms and Conditions and both parties agree to be bound by them.

    32.          Any dispute or claim arising out of, relating to or in connection with these Terms and Conditions, a Pool Contract or delivery of Commodities to a Pool, including any question regarding the existence of a contract, the validity or its termination, and which cannot be resolved between the parties, shall be resolved by arbitration in accordance with the GTA Dispute Resolution Rules in force at the commencement of any arbitration.

  5. The 2011 Conditions contain provisions in identical terms, except that the words ‘the Pool Contract and’ have been inserted before the words ‘these Terms and Conditions’ on the second occasion they appear in cl 31.
  6. Clause 47 of the 2010 Conditions provides:

    The law of Victoria applies to these Terms and Conditions, unless the Commodity is barley to be exported from South Australia, in which case the law of South Australia will apply.  The parties submit to the non‑exclusive jurisdiction of the courts of Victoria.

  7. Clause 47 of the 2011 Conditions is in the following terms:

    The law of Victoria applies to these Terms and Conditions except to the extent that the parties have agreed either expressly or by incorporation to apply another law for a particular purpose (for example arbitration).  The parties submit to the non-exclusive jurisdiction of the courts of Victoria.

  8. Although the clauses differ in some respects, the portion of each clause upon which the Growers rely in opposition to Emerald’s application – namely, the parties’ submission to the non-exclusive jurisdiction of the courts of Victoria – is identical.

The GTA Trade Rules

  1. It will be noted that cl 31 of the Conditions incorporates the GTA Trade Rules in effect at the time the relevant grower and Emerald enter into their contract.  The evidence establishes that the GTA Trade Rules in effect at the time all contracts were made were the trade rules as at March 2009.  The first page of those rules is headed ‘Commerce Committee’.  The first three paragraphs on that page provide:

    The GTA Commerce Committee formulates and recommends Rule changes to the GTA Membership.  Rules are proposed that reflect trade practice and facilitate trade between GTA Members specifically, as well as between all firms in the grain, feed, oilseeds and processing industry generally.

    GTA Trade Rules shall govern all disputes of a mercantile, financial or commercial character connected with grain, feed, oilseeds or other agricultural commodities, as they exist now or as amended from time to time, arising between Members or Allied Members of GTA and related counter‑parties, and shall be the basis of arbitration on such controversies, unless otherwise and specifically agreed to at the time of trade, or some subsequent time.

    All Members of GTA and related counter‑parties are free to agree upon contractual provisions that they deem appropriate.  These GTA Trade Rules apply only to the extent that the parties to a contract have not altered the terms of these Rules or the contract is silent as to a matter dealt with by the pertinent Rule.

  2. The second page of the GTA Trade Rules is headed ‘Trade Rules’, under which the following provisions appear:

    Preamble:

    The Trade Rules shall govern all disputes of a mercantile, financial or commercial character connected with grain, feed, oilseeds or other agricultural commodities, as they exist now or as amended from time to time, arising between Members or Non Members of GTA and related counter‑parties, and shall be the basis of arbitration on such controversies, unless otherwise and specifically agreed to at the time of trade, or some subsequent time.

    All Members or Non Members of GTA and related counter‑parties are free to agree upon any contractual provisions that they deem appropriate.  The GTA Trade Rules apply only to the extent that the parties to a contract have not altered the terms of these Rules or the contract is silent as to a matter dealt with by the pertinent Rule.

  3. After the general provisions to which I have referred, the GTA Trade Rules contain specific provisions relating to matters such as the terms of trade, brokerage, quantities, weights, quality of grades, chemical and pesticide residues, time of delivery or shipment, ownership and passing of title, rejection, default, payment and so on.
  4. Rule 24 provides:

    Disputes:

    Any party or parties who have entered into Terms of Trade subject to these GTA Trade Rules shall be entitled to refer any disputes arising out of such contract and which cannot be resolved between the parties to GTA for Arbitration as per Rule 26 [Arbitration].

  5. Rule 26 provides:

    Arbitration:

    (1)          The GTA Dispute Resolution Rules form an integral part of these GTA Trade Rules of which all parties subject to these GTA Trade Rules shall be deemed to be cognisant.

    (2)          If any dispute arises out of or relates to any contract subject to these Trade Rules or the breach, termination or subject matter of a contract, the dispute shall be submitted to and settled by Arbitration in accordance with the GTA Dispute Resolution Rules in the edition current at the date of the establishment of the Terms of Trade in the contract, such rules forming an integral part of the contract and of which both parties to the contract shall be deemed to be cognisant.

    (3)          Neither party to a dispute, nor any persons claiming under either of them, shall bring any action or other legal proceedings against the other in respect to any such dispute until arbitrated in accordance with the GTA Dispute Resolution Rules.

    (4)          It is expressly agreed and declared within these GTA Trade Rules that the obtaining of an award through GTA Arbitration shall be a condition precedent to the right of either party or of any persons claiming under either of them to bring any action or other legal proceedings against the other of them in respect of any such dispute.

  6. It will be noted that although Rule 26 of the GTA Trade Rules purports to apply the GTA Dispute Resolution Rules (DR Rules) as in force at the date of the contract between the relevant grower and Emerald, cl 32 of each of the 2010 and 2011 Conditions provides that any dispute between the parties is to be resolved by arbitration in accordance with the DR Rules in force at the commencement of any arbitration.  By cl 31 of each of the 2010 and 2011 Conditions, to the extent of any inconsistency between those Conditions and the GTA Trade Rules, the Conditions are to prevail.  Accordingly, in the event of any arbitration between the Growers, or any of them, and Emerald, the arbitration will be conducted in accordance with the DR Rules in force at the commencement of that arbitration, rather than the DR Rules in force at the time of the contract between the Grower and Emerald.

The GTA Dispute Resolution Rules

  1. The DR Rules in force at the time of Emerald’s application are those amended in June 2014.  Article 1 of those Rules provides, in part:

    Purpose and Description

    (1)          Through its Dispute Resolution Process (‘Process’), Grain Trade Australia Ltd (GTA) works to avoid litigation and reduce friction among GTA Members and other industry participants by encouraging dispute resolution through peer review.  The Process will be conducted in a manner that promotes the saving of time and expense while providing an efficient, fair and equitable means to settle disputes related to commercial transactions.

    (2)          These GTA Dispute Resolution Rules (‘Rules’) shall govern the resolution of any disputes falling within the jurisdiction of the GTA Process.

  2. Article 2 of the DR Rules contains provisions in the following terms:

    (2)          A Member or Non-Member, who incorporates the GTA Trade Rules or these Rules into its contract or agreement, agrees to resolve any disputes arising out of the inception, negotiation, formation, performance or any other aspect of the contract or contractual relationship, pursuant to these Rules.

    (3)          Members and Non-Members incorporating these Rules agree not to apply to any Court unless the dispute has been finalised pursuant to these Rules or the dispute falls outside the scope of these Rules.

  3. The DR Rules contain various provisions relating to such things as fees, confidentiality and different mechanisms for dispute resolution including expert determination, ‘Fast Track’ arbitration and ‘Full’ arbitration.  Article 3 of the DR Rules provides that any of those processes must be commenced by lodging a request with GTA and paying the relevant filing fee

    on or before twelve (12) months after the expiration date for performance of the contract(s) otherwise any claim is deemed to be waived and absolutely barred unless a GTA Arbitration Tribunal extends the time for commencing arbitration.

  4. Article 22 of the DR Rules empowers an arbitral tribunal to consolidate separate arbitrations.  Article 25 provides that the jurisdiction of an arbitral tribunal is to include:

    [T]he power to rule on its own jurisdiction, the validity and construction of the Arbitration Agreement, including any objection to the initial or continuing validity or effectiveness of the Arbitration Agreement, whether the Tribunal is properly constituted and what matters have been submitted to Arbitration in accordance with the Arbitration Agreement.

  5. Other provisions of the DR Rules deal with various procedural aspects of an arbitration including the powers of the arbitral tribunal, the provision of security for costs, witnesses, oral hearings, experts and publication of the arbitral award.

The proceedings

  1. The proceedings were commenced by a writ issued on 22 August 2016.  A statement of claim was issued with the writ.  In the statement of claim it is asserted that the effect of the contracts between each Grower and Emerald was that upon delivery of grain to Emerald, title would pass, after which Emerald would allocate the grain to a pool, effect the sale of grain within the pool, and hold all of the proceeds of sale of grain from that pool, after deduction of selling costs, for the benefit of all the suppliers whose grain was allocated to the pool.  It is asserted that the net proceeds of sale would be held on trust for all suppliers to the pool, to be distributed to each supplier in accordance with the terms of the contract.
  2. The statement of claim further asserts that the Growers delivered a total of some 101,000 tonnes of wheat to Emerald, which was allocated to a pool designated Number 1 Pool, which also included wheat supplied by other Western Australian wheat producers.  The statement of claim further asserts that Emerald wrongly included wheat within that pool which it had purchased for agreed prices, and that losses made upon the sale of wheat at prices below those agreed for its purchase had been wrongly debited to the proceeds of sale from that pool.  The statement of claim further asserts that the amount wrongly deducted and withheld from the proceeds was held by Emerald on trust for the Growers and other producers who had contributed grain to the pool.  The Growers assert their entitlement to be paid their portion of the amounts wrongly deducted and withheld, and further assert that by reason of the facts pleaded, Emerald committed a breach of trust, in respect of which relief was sought pursuant to s 93 and s 94 of the Trustees Act 1962 (WA).

  3. More specifically, the relief sought was an inquiry with respect to the identity and quantities of wheat supplied into the relevant pool by other suppliers; an inquiry into, and an account for, the total sums held in trust for the Growers and other suppliers into the pool; an order for payment to each of the Growers of their respective entitlements, together with interest; and such further or other relief as the court might think fit with respect to the due administration of the trust.
  4. On 28 September 2016, before taking any step other than entry of an appearance, Emerald applied for orders referring the parties to arbitration and staying the proceedings.
  5. On 23 December 2016, the Growers amended their statement of claim.  The amendments include the introduction of an allegation that Emerald was obliged to make a genuine and reasonable determination of the amounts due to all suppliers of grain to the relevant pool, and allege breach of that obligation.
  6. The relief sought was also amended, by deleting a reference to relief pursuant to s 94 of the Trustees Act and including a claim for relief pursuant to s 77 and s 78 of that Act, including the appointment of a new trustee to administer the trust.
  7. In its written submissions Emerald submitted that the amendment to seek the appointment of a new trustee was ‘a claim without merit clearly made in an attempt to craft a claim that may be asserted to be inarbitrable’, whereas ‘the true gravamen of the [Growers’] claim [was] for monetary relief against Emerald’.  In the course of oral submissions, counsel for Emerald submitted that the claim for the appointment of a new trustee and the due administration of the trust was a colourable attempt to avoid the operation of s 8 of the Act.  For reasons which will appear, it is unnecessary to decide whether that proposition is correct.

The Trustees Act 1962 (WA)

  1. As the relief sought by the Growers pursuant to the Trustees Act is a significant aspect of their opposition to Emerald’s application for a stay and referral to arbitration, it is appropriate to set out the relevant provisions of that Act:

    77.     New trustees, Court may appoint

    (1)          The Court may, whenever it is expedient to appoint a new trustee or new trustees, and it is inexpedient, difficult or impracticable so to do without the assistance of the Court, make an order for the appointment of a new trustee or new trustees, either in substitution for, or in addition to, any existing trustee or trustees, or although there is no existing trustee.

    (2)          In particular, and without limiting the generality of the provisions of subsection (1), the Court may make an order appointing a new trustee in substitution for a trustee who –

    (a)          desires to be discharged; or

    (b)          has been held by the Court to have misconducted himself in the administration of the trust; or

    (c)          is convicted of an indictable offence; or

    (d)          is a person of unsound mind; or

    (e)          is bankrupt; or

    (f)          is a corporation that has ceased to carry on business, or is in liquidation, or has been dissolved.

    (3)          An order under this section, and any consequential vesting order or conveyance, does not operate further or otherwise as a discharge to any discharged, former or continuing trustee than an appointment of new trustees under any power for that purpose contained in any instrument would have operated.

    (4)          Nothing in this section confers power to appoint an executor or administrator.

    (5)          Every trustee appointed by the Court has, as well before as after the trust property becomes by law or by assurance or otherwise vested in him, the same powers, authorities, and discretions, and may in all respects act, as if he had been originally appointed a trustee by the instrument (if any) creating the trust.

    78.     Vesting orders, when Court may make

    (1)          The Court may make an order, in this Act called a vesting order, that has effect as provided in section 85.

    (2)          A vesting order may be made in any of the following cases, namely –

    (a)          where the Court appoints or has appointed a new trustee; or

    (b)          where a new trustee has been appointed out of Court under any statutory or express power; or

    (c)          where a trustee retires or has retired; or

    (d)          where a trustee is under a disability; or

    (e)          where a trustee is out of the jurisdiction of the Court; or

    (f)          where a trustee cannot be found; or

    (g)          where a trustee, being a corporation, has ceased to carry on business or is in liquidation or has been dissolved; or

    (h)          where a trustee neglects or refuses to convey any property, or to receive the dividends or income of any property, or to sue for or recover any property according to the direction of the person absolutely entitled to the same for 28 days next after a request in writing has been made to him by that person; or

    (i)          where it is uncertain who was the survivor of 2 or more trustees jointly entitled to or possessed of any property; or

    (j)           where it is uncertain whether the last trustee known to have been entitled to or possessed of any property is alive or dead; or

    (k)          where there is no personal representative of the last trustee who was entitled to or possessed of any property or where it is uncertain who is the personal representative of that trustee or where the personal representative of that trustee cannot be found; or

    (l)          where any person neglects or refuses to convey any property, or to receive the dividends or income of any property, or to sue for or recover any property in accordance with the terms of an order of the Court; or

    (m)         where a deceased person was entitled to or possessed of any property and his personal representative is under a disability; or

    (n)          where property is vested in a trustee and it appears to the Court to be expedient to make a vesting order.

    (3)          Where the provisions of subsection (2) are applicable, they extend to a trustee entitled to, or possessed of, any property either solely or jointly with any other person and whether by way of mortgage or otherwise.

    93.     Applications to Court, who may make

    (1)          An order under this Act for the appointment of a new trustee, or concerning any property subject to a trust, may be made on the application of any person beneficially interested in the property, whether under a disability or not, or on the application of any person duly appointed trustee of the property or intended to be so appointed.

    (2)          An order under this Act concerning any interest in any property subject to a mortgage may be made on the application of any person beneficially interested in the property, whether under a disability or not, or of any person interested in the money secured by the mortgage.

The Commercial Arbitration Act 2012 (WA)

  1. It is also appropriate to set out the relevant portions of the Act, under which relief is sought in these proceedings.  Section 1C of the Act provides relevantly:

    1C.    Paramount object of Act

    (1)          The paramount object of this Act is to facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay or expense.

    (2)          This Act aims to achieve its paramount object by –

    (a)          enabling parties to agree about how their commercial disputes are to be resolved (subject to subsection (3) and such safeguards as are necessary in the public interest); and

    (b)          providing arbitration procedures that enable commercial disputes to be resolved in a cost effective manner, informally and quickly.

    (3)          This Act must be interpreted, and the functions of an arbitral tribunal must be exercised, so that (as far as practicable) the paramount object of this Act is achieved.

  2. The Act applies to domestic commercial arbitrations.  It was common ground that if the contractual provisions to which I have referred apply to the disputes the subject of the proceedings, they would give rise to domestic commercial arbitrations between each Grower and Emerald.  Some of the provisions of the Act only apply if the place of arbitration is in Western Australia.  However, other provisions, including s 8, are not so limited.

  3. Section 8 of the Act provides:

    8.       Arbitration agreement and substantive claim before court (cf. Model Law Art 8)

    (1)          A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

    (2)          Where an action referred to in subsection (1) has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.

  4. It is clear that Emerald made its application to the court prior to submitting any statement on the substance of the dispute the subject of the proceedings.  The issues which remain to be determined under s 8 are therefore:

    (a)          Is there an arbitration agreement between each Grower and Emerald, and, if so, what is the scope of that agreement?

    (b)          Do the proceedings include a matter or matters which are within the scope of the arbitration agreement?

    (c)          Is the arbitration agreement incapable of being performed?

The arbitration agreements

  1. There is no doubt that there is an arbitration agreement (within the meaning of that expression in s 8 of the Act) between each Grower and Emerald, and the Growers did not contend otherwise.  Clause 48 of each of the two versions of the Conditions defines the capitalised terms used in cl 32 of each version.  Predictably enough, ‘Terms and Conditions’ is defined to mean the terms and conditions in the document; ‘Pool Contract’ is defined to mean ‘the contract between Emerald and You for the delivery of a Commodity into a Pool’; and ‘You’ is defined to mean the seller – an expression which corresponds to the terminology used in the Contract Confirmation document.  ‘Commodity’ is defined to mean wheat, barley or canola; and ‘Pool’ is defined to mean ‘the Emerald Grain Pool managed by Emerald that You have delivered the Commodity to’.
  2. Applying the definitions contained within cl 48 of each version of the Conditions, it is clear that cl 32 of each version gives rise to an arbitration agreement[26] between each Grower and Emerald.  It is appropriate to now consider the ambit of those agreements by looking firstly at general principles relating to the construction of such agreements, and then the specific terms of the agreement between each Grower and Emerald.

The construction of arbitration agreements

  1. Arbitration agreements, as a species of commercial contract, are to be construed by reference to the general principles which apply to the construction of all commercial contracts.  Those principles require that the words used by the parties must be construed objectively by ascertaining what a reasonable businessperson would have understood the words of the contract to mean ‘by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose’.
  2. However, the commercial objectives ordinarily attributed, objectively, to rational businesspeople will generally require the court to adopt a broad, liberal and flexible approach to the construction of an arbitration agreement, to the extent that such an approach is consistent with the words used by the parties.
  3. In Australia, many judges have described this approach as arising from a profound change in the relationship between the courts and arbitration which occurred during the last quarter of the twentieth century.  The approach now taken in Australia is consistent with the approach taken in other comparable jurisdictions, although the cases in different jurisdictions reflect different degrees of emphasis upon the significance of the language used by the parties.  In Western Australia it is well established that the ‘broad, liberal and flexible’ approach to construction can only be adopted to the extent that it is consistent with the language used by the parties in their agreement, and does not authorise the court to disregard or depart from the clear meaning of that language.  Courts in other Australian jurisdictions have also recognised that due and appropriate regard to the language used by the parties in their arbitration agreement, consistently with general principles of contractual construction, is not inconsistent with the broad, liberal and flexible approach to the construction of that language endorsed by the many authorities in this area.

  4. Consistently with the general approach to contractual construction taken in Australia, it is now appropriate to turn to the language used by the parties in their arbitration agreements in this case, bearing in mind the ‘broad, liberal and flexible’ approach to the construction of that language endorsed by the authorities to which I have referred, and which is consistent with the legislative objectives specified in s 1C of the Act.

‘Arising out of’

  1. The term ‘arising out of’ is commonly used in arbitration agreements to describe the requisite degree of connection between the contract to which the arbitration agreement relates and the relevant dispute, and it is used in this way in cl 32 of each version of the Conditions.  The cases dealing with arbitration agreements containing such a provision establish that the agreement should be construed as covering every dispute having a close connection with the contract so that, for example, a claim for rectification of a contract gives rise to a dispute ‘arising out of’ the relevant contract, as does a dispute arising from a representation as to the manner in which powers to terminate a contract would be exercised.  Prior to the decision in the Harbour Assurance case, it was at least arguable that a dispute as to whether there was ever a contract at all was not a dispute ‘arising out of’ the relevant contract.  That contention may well explain the express inclusion within cl 32 of each version of the Conditions of ‘any question regarding the existence of a contract, the validity or its termination’, perhaps out of an abundance of caution.  However, the more recent cases to which I have referred establish that the ambit of the expression ‘arising out of’ is sufficiently broad to include disputes with respect to the existence of the relevant contract.

‘Relating to’

  1. Clause 32 of each version of the Conditions also uses the expression ‘relating to’ to describe the requisite degree of connection between a dispute or claim coming within the arbitration agreement and the substantive agreement.  The cases dealing with the use of that expression in an arbitration agreement establish that it is properly construed as a term of the widest import which should not, in the absence of compelling reasons, be read down.

‘In connection with’

  1. Clause 32 of each version of the Conditions also uses the expression ‘in connection with’ to describe the requisite degree of connection between a dispute falling within the arbitration agreement and the substantive agreement.  Cases dealing with the use of that expression in an arbitration agreement establish that it should be construed widely so as to include claims which do not arise out of or pursuant to the relevant contract, but nevertheless have a sufficient degree of connection with that contract.

The language of the arbitration agreements – summary

  1. Clause 32 of each version of the Conditions uses three expressions to describe the requisite degree of connection between ‘any dispute or claim’ and the Conditions themselves, the contract of which they form part, or the delivery of commodities to a pool.  Each of those expressions – namely ‘arising out of’, ‘relating to’ and ‘in connection with’ – have repeatedly been held to be words of the widest import.  Further, perhaps out of an abundance of caution, the parties have expressly included within the disputes or claims which can be resolved by arbitration ‘any question regarding the existence of a contract, the validity or its termination’.  The language used by the parties in their arbitration agreements compels the conclusion that an ordinary businessperson would understand the arbitration agreement to extend to, and embrace, a very wide ambit of disputes or claims having at least some degree of connection with, or relationship to, the substantive agreement between the parties for the delivery and sale of grain or its performance.

Do the proceedings involve ‘a matter’ which is the subject of the arbitration agreement?

  1. The next question to be addressed is the question of whether the proceedings involve a matter or matters which fall within the scope of the arbitration agreements construed in the manner described above.  Some years ago I reviewed some of the authorities in this area in the following terms:

    In Tanning Research Laboratories Inc v O’Brien [1990] HCA 8; (1990) 169 CLR 332, Deane and Gaudron JJ observed that in order for a dispute to be capable of settlement by arbitration:

    ‘[T]he controversy must be one falling within the scope of the arbitration agreement and, perhaps, one relating to rights which are not required to be determined exclusively by the exercise of judicial power (351).’

    In Hancock v Rinehart [2013] NSWSC 1352, Bergin CJ in Eq, referred to various decisions concerning the meaning to be given to the word ‘matter’ in the context of applications for the stay of proceedings under various legislative regimes, including the observations made in Tanning Research Laboratories v O’Brien, in which it was held that the word ‘matter’ could but does not necessarily mean the whole matter in controversy in the court proceedings, or the claims within the scope of the court proceedings [91]. In that case what was required for the purposes of s 7(2) of the International Arbitration Act 1974 (Cth) (which corresponds with s 8 of the 2012 Act) was some subject matter, right or liability in controversy falling within the scope of the arbitration agreement which need not be coextensive with the subject matter in controversy in the court proceedings.

    In Comandate Marine Corp v Pan Australia Shipping, Allsop J observed that the expression ‘matter’ when used in s 7 of the International Arbitration Act should be understood at a level of generality, without necessarily connoting exact correspondence between the ambit of the court proceedings and the ambit of the arbitration agreement [235]. In Carter Holt Harvey Ltd v Genesis Power Ltd [2006] NZHC 114; [2006] 3 NZLR 794, Randerson J, when considering a provision analogous to s 8 of the 2012 Act, observed that the requirement imposed was for a ‘direct relationship’ between the matter before the court and that which is the subject of the arbitration agreement [58].

  2. More recently, Mitchell J summarised the authorities in these terms:

    There are a number of Australian authorities which consider the meaning of the term ‘matter’ used in the context of s 7 of the International Arbitration Act 1974 (Cth). That section empowers a court to grant a stay where proceedings involve the determination of a matter that, in pursuance of an arbitration agreement, is capable of settlement by arbitration. In that context the ‘matter’ to be determined in a proceeding is to be ascertained by reference to the subject matter of the dispute in the proceeding and the substantive, although not necessarily the ultimate, questions for determination in the proceeding. The scope of the matter is to be ascertained from the pleadings and from the underlying subject matter upon which the pleadings, including the defence, are based.

    The language of s 8 of the Act differs from that of s 7 of the International Arbitration Act, in that the former refers to a matter which is the subject of an arbitration agreement while the latter refers to a matter capable of settlement in pursuance of an arbitration agreement. However, the context in which the term ‘matter’ is used in s 8 of the Act is even more likely to invoke the concept of a controversy for determination in legal proceedings as opposed to the legal proceedings themselves.

    Observations to similar effect have been made in the Court of Appeal of Victoria.

  3. So, in this case, the question of whether the proceedings involve a matter or matters which are the subject of an arbitration agreement depends upon whether there are controversies which are to be determined in the course of those proceedings which can be the subject of arbitration pursuant to the arbitration agreement.  That question is to be ascertained by reference to the subject matter of the dispute or controversy in the proceedings and the questions that must be determined in the course of the proceedings.  If one or more of those questions is a ‘matter’ which can be determined pursuant to the arbitration agreement, the opening words of s 8 of the Act are engaged irrespective of whether or not the proceedings also raise controversies which cannot be determined by arbitration pursuant to the arbitration agreement, and irrespective of whether the ultimate relief sought in the proceedings cannot be obtained by arbitration.  The Growers’ submissions with respect to their inability to obtain relief in relation to the trust which they assert arises from the terms of their contracts with Emerald will be addressed below in the context of their submission that their arbitration agreements are, for that reason, incapable of being performed.
  4. However, it is appropriate in the present context to address the question of whether the existence of the trust which the Growers assert is a ‘matter’ which is the subject of the arbitration agreements between the Growers and Emerald which must be referred to arbitration for determination.  That is because, in their written submissions, the Growers submitted that the question of the existence of a trust was so inextricably connected with the scope of the arbitration agreement that the jurisdiction of the court under s 8 of the Act could not be determined in isolation from the question of the existence of a trust.  Although, in the result, that submission was not vigorously pressed by counsel for the Growers, it should be rejected.  Essentially, that is because the existence of a trust is not an issue which determines whether or not there is an arbitration agreement between each Grower and Emerald, to which a matter or matters which arise for determination in the proceedings are subject.

The standard of proof under s 8 of the Act

  1. The cases in different jurisdictions reveal different views on the question of whether it is sufficient for a party seeking a stay and reference to arbitration to establish an arguable case or sustainable argument to the effect that there is a matter or matters in the court proceedings which are the subject of an arbitration agreement or, alternatively, whether a party seeking a stay must prove, on the balance of probabilities, that a matter or matters in the court proceedings are the subject of an arbitration agreement.  The cases on the topic were thoroughly reviewed and analysed by Gleeson J in Rinehart v Rinehart [No 3].  Her Honour concluded that the weight of Australian authority favoured the view that an applicant for a stay and referral to arbitration must prove on the balance of probabilities that a matter or matters in the court proceedings are the subject of an arbitration agreement.  However, her Honour observed that the burden would generally be discharged through a process of characterisation of the matter, without it being necessary to assess or resolve the merits of the dispute or controversy which comprise the relevant ‘matter’.  Her Honour acknowledged that in some cases it may be necessary to consider the merits of a claim or defence said to be the subject of an arbitration agreement in order to be satisfied that there is a relevant matter.  Her Honour gave as an example a case in which there was an issue as to whether a controversy falling within the scope of an arbitration agreement could have any bearing or effect upon the questions for determination in the court proceedings.
  2. The decision in Rinehart v Rinehart [No 3] has been followed in this court.  In doing so, Le Miere J noted that the question which had to be determined on the balance of probabilities was whether there was an arbitration agreement to which a matter arising in the relevant court proceedings was subject.  In the case before him, that was a matter which could be resolved on the proper construction of the relevant contracts, in a relatively summary fashion.  However, he noted the decision of Aikens LJ in Berezovsky to the effect that in cases where that was not practicable, the court could either direct an issue to be tried by the court, or proceedings could be stayed under the inherent jurisdiction of the court so that the putative arbitral panel could decide the question of its own jurisdiction.

  3. For present purposes it is sufficient to note that questions of the kind addressed in Rinehart v Rinehart [No 3] and Samsung only arise where there is an issue which, if determined one way or another, will determine whether there is in fact a controversy arising for determination in the court proceedings which is the subject of an arbitration agreement. In the present case, the question of whether there is or is not a trust does not determine whether there is or is not a controversy which will arise for determination in the court proceedings which is the subject of the arbitration agreements between the Growers and Emerald. Rather, this case is an example of the usual case instanced by Gleeson J, in which the answer to the questions posed by s 8 of the Act can be determined by a process of characterisation of the relevant disputes or controversies, without requiring an assessment or determination of those disputes or controversies on their merits. The question of whether or not there is a trust has no bearing upon the existence or ambit of the arbitration agreements. The Growers’ submissions on the ambit of that arbitration agreement can and must be determined by reference to the character of the matter or matters arising in the court proceedings, including the trust issues, and not by the determination of those issues on their merits.
  4. Accordingly, in this case it is unnecessary, and indeed inappropriate, to make any assessment of the merits of the Growers’ assertion that Emerald holds the proceeds of sale of their grain on trust on their behalf.  Rather, the question is whether that issue is a ‘matter’ which is the subject of the arbitration agreement between each grower and Emerald, which is the question to which I will now turn.  If it is such a ‘matter’, the scheme of the Act, evident in s 8, is that it should be determined pursuant to the arbitration agreement, rather than by the court.
  5. For the same reason, it is unnecessary to address or resolve Emerald’s submission with respect to the true forensic purpose of the Growers’ claim for relief in the form of removal of Emerald as a trustee of the trust which they assert.  Rather, the question to be resolved is whether the existence of that claim takes the proceedings beyond the scope of s 8 of the Act, for one or other of the reasons asserted by the Growers.  This is not to say that the pursuit of a claim in bad faith or for a collateral purpose of a kind giving rise to an abuse of process could never be relevant to the determination of an application under s 8 of the Act, but it is to say that the application in this case can be determined without the need to resolve any such issue.

Is there a matter or matters falling within the scope of the arbitration agreements?

  1. It is necessary now to apply the conclusions I have drawn with respect to the existence and ambit of the arbitration agreements between each grower and Emerald, and the general principles relating to the identification of a ‘matter’ falling within the scope of such an agreement to determine whether, in this case, there is a matter or matters arising for determination in the proceedings which is the subject of the arbitration agreements.
  2. In the course of oral argument, counsel for the Growers conceded that viewed in isolation, the words used in cl 32 are words of the widest import which would, on their face, apply to at least some of the ‘matters’ arising for determination in the proceedings.  However, he submitted that when the arbitration agreements were viewed and construed in their proper context, it should be concluded that there were no matters arising in the court proceedings which fell within their scope.  He relied upon four matters which were said to provide this context, namely:

    (a)           cl 32 should be read in the context of the clause and heading which immediately precede it, and by reference to the Trade Rules which are incorporated by reference into the arbitration agreement;

    (b)          the conferral of non-exclusive jurisdiction on the courts of Victoria by cl 47 of the Conditions;

    (c)          the nature of the rights asserted in the proceedings, and in particular the trust issues asserted, the number of parties and the time limit to which arbitral proceedings were subject; and

    (d)          the terms of an exemption from the provisions relating to managed investment schemes issued by the Australian Securities and Investments Commission (ASIC) in respect of grain pooling operations (amongst other things).

  3. I will deal with each of these issues in turn, before turning, finally, to the Growers’ submission that the arbitration agreements are, in any event, incapable of being performed.

Trade Rules

  1. The Growers rely upon the heading to the section of the Conditions in which the arbitration agreement is located, the preceding clause (cl 31), which expressly incorporates the GTA Trade Rules, and that part of the arbitration agreement which requires the arbitration to be conducted in accordance with the DR Rules.  The Growers submit that when regard is paid to the general tenor of the GTA Trade Rules, the broad language of the arbitration agreement should be construed narrowly and as only applying to disputes of a ‘technical or mercantile nature’.  The Growers submit that the dispute the subject of the proceedings is not of that character.
  2. In this context the Growers rely upon the references in the introduction and preamble to the GTA Trade Rules to ‘disputes of a mercantile, financial or commercial character’ and contend that those words should be used to read down the ambit of rules 24 and 26, relating to arbitration.  They also draw attention to the fact that the rules refer to the resolution of disputes by peer review, which is said to provide another indication that arbitral disputes are limited to those of a technical or mercantile nature, as is the absence of legal representation without leave of the arbitral tribunal.  A similar inference is said to be drawn from the provision of the DR Rules which requires claims to be brought within 12 months, unless time is extended by the arbitral tribunal, and from the fact that the parties to any arbitration will be only the individual grower and Emerald, and not all growers contributing grain to a relevant pool.
  3. The Growers submit that all these provisions of the Conditions and the Trade Rules and DR Rules incorporated into the Conditions support the conclusion that the arbitration agreement should be construed as limited to matters of a technical or mercantile nature arising only as between an individual grower and Emerald, with the consequence that disputes between a number of growers and Emerald with respect to the operation of a pool and the performance of Emerald’s duties as a trustee fall outside the scope of the agreement.
  4. There are a number of reasons why this proposition must be rejected.
  5. First, cl 31 expressly provides that in the event of inconsistency between the Conditions and the GTA Trade Rules, the Conditions are to prevail.  Accordingly, it would be contrary to the hierarchy of contractual documents agreed by the parties to use the GTA Trade Rules to constrain or confine the unconstrained and unconfined language used in the arbitration agreement contained in the Conditions.  The Growers’ submissions based on the GTA Trade Rules and the DR Rules are inconsistent with the breadth of the disputes included within the ambit of the arbitration agreement by cl 31 of the Conditions, and that clause must prevail to the extent of that inconsistency.
  6. Second and in any event, the reference in the GTA Trade Rules to disputes of a ‘mercantile, financial or commercial character’ does not support the Growers’ contention that the arbitration agreement should be construed as confined to disputes of a ‘technical or mercantile nature’.  The GTA Trade Rules do not characterise the disputes by using the word ‘technical’, and the words which are used are of quite sufficient breadth to encompass the Growers’ claims against Emerald.  In substance, the Growers claim that Emerald has not complied with the terms of commercial contracts for the sale of grain, with the result that Emerald is obliged to pay further sums to each Grower.  Disputes of that character fall squarely within the natural and ordinary meaning given to the words ‘mercantile, financial or commercial character’.  It follows that nothing in the language of the introduction or preamble to the GTA Trade Rules justifies reading down the arbitration provisions within those rules to disputes of a ‘technical’ nature, or so as to exclude disputes of the kind raised by the Growers in their proceedings against Emerald.
  1. Third, the Growers’ argument with respect to the character of the disputes which can be the subject of arbitration under their agreements with Emerald is inconsistent with the express terms of the arbitration agreements, which require ‘any question regarding the existence of a contract, the validity or its termination’ to be resolved by arbitration.  Plainly, questions of that character are not questions of a ‘technical’ kind, but would ordinarily involve contested issues of law and fact.
  2. Fourth, it is not possible to read down the clear and unambiguous language of the arbitration agreements by reference to inferences which might (or might not) be drawn from such things as the composition of the arbitral tribunal and the requirement for leave to be granted before parties can be legally represented at a hearing.  Rather, those provisions simply reflect choices which the parties have made with respect to the mechanisms by which their disputes will be resolved and suggest, if anything, a preference for industry expertise and informality.  Those preferences shed no light on the proper meaning to be given to the words used in the arbitration agreement.
  3. Fifth, essentially for the same reasons, no inferences capable of confining the clear and unambiguous language of the arbitration agreements can be drawn from the provisions of the GTA Trade Rules with respect to the time within which claims are to be brought, or the fact that the parties to each arbitration will be the parties to the relevant contract – namely, each grower and Emerald.  In relation to time, again, the provisions in the GTA Trade Rules suggest nothing more than a preference for expeditious resolution and, in any event, an arbitral tribunal is given the power to extend time in an appropriate case.  In relation to parties, it is hardly surprising the arbitration agreement is limited to the parties to the relevant contract, and no inference can properly be drawn from that self‑evident fact.  Further and in any event, as I have noted, the DR Rules expressly allow for consolidation of separation arbitrations, as does s 27C of the Act.

  4. For these various reasons, the Growers’ reliance upon the GTA Trade Rules is misplaced and their submissions must be rejected.

Submission to the non-exclusive jurisdiction of the courts of Victoria

  1. The Growers submit that by submitting to the non-exclusive jurisdiction of the courts of Victoria in each version of cl 47 of the Conditions, the parties have acknowledged the jurisdiction of the courts with respect to disputes falling outside the scope of the arbitration agreement, which supports a narrow construction of the arbitration agreements.
  2. There are a number of reasons why this submission must be rejected.
  3. First, even if an inference could be drawn from the parties’ agreement to confer non-exclusive jurisdiction upon the courts of Victoria that not all conceivable disputes were covered by their arbitration agreement, it does not follow that their arbitration agreement should be given a narrow construction.  All that could properly follow from such an inference is that the parties have recognised that there may conceivably be disputes which do not fall within the terms of their arbitration agreement.
  4. Second, it is significant that the jurisdiction clause in the Conditions contains an agreement to submit to the non-exclusive jurisdiction of the courts of Victoria.  While there is an obvious tension between an agreement to confer exclusive jurisdiction upon a court or courts and an arbitration agreement, there is no such tension between an arbitration agreement and an agreement to submit to the non-exclusive jurisdiction of the courts.
  5. Third, even in cases in which parties have agreed to submit to the exclusive jurisdiction of courts and have also entered into an arbitration agreement, the courts have shown a willingness to construe the relevant provisions in such a way as to give effect to the parties’ evident intention to arbitrate their disputes.
  6. Fourth, in the present case there is no tension at all between the parties’ agreement to confer non-exclusive jurisdiction upon the courts of Victoria and the broad construction which I would give to their arbitration agreement. By cl 47, the parties have acknowledged that the courts of Victoria have jurisdiction to supervise the performance of their arbitration agreement and enforce the terms of any award made in accordance with that agreement and, perhaps, have made provision for the possibility that there may be disputes which do not fall within the scope of their arbitration agreement. None of those things are inconsistent with the natural and ordinary meaning properly given to the words used by the parties in their arbitration agreements.
  7. For these reasons, the Growers’ reliance upon the parties’ agreement to confer non‑exclusive jurisdiction upon the courts of Victoria is misplaced and does not support the proposition that the arbitration agreements do not apply to the matters raised in the proceedings.

The nature of the rights asserted

  1. The Growers submit that the arbitration agreement should not be construed in such a way as to attribute to the parties an intention that claims by numerous Growers based upon alleged breach of trust should be resolved by arbitration.  This submission is advanced as a matter of the proper construction of the arbitration agreements, as distinct from the submissions which will be addressed below, to the effect that the arbitration agreements, if applicable, are incapable of being performed because of the character of the rights asserted and the relief sought in the proceedings.
  2. There are a number of reasons why the Growers’ submissions, advanced as a matter of construction of the arbitration agreements, must be rejected.  First, there is nothing in the language of the agreements, or the contractual documents of which they form part, which would support the Growers’ contentions.  To the contrary, as I have observed, and as the Growers concede, the arbitration agreements are expressed in the widest possible terms.
  3. Second, the proposition that disputes involving more than one grower fall outside the arbitration agreements must be rejected because:

    (a)          for the reasons already given, no inference can properly be drawn from the fact that the arbitration agreement only applies to the parties to the contract;

    (b)          the DR Rules expressly provide for consolidation of arbitrations; and

    (c)          as the cases which will be considered below in the context of the Growers’ submission that the arbitration agreements are incapable of being performed demonstrate, the fact that an arbitration agreement does not extend to and include all persons with an interest in the outcome of a dispute does not mean that it cannot or should not be enforced by the court.

  4. Third, there are no words in any of the contractual documents, nor any basis in commercial experience for supposing that the parties to the agreements being on the one hand grain growers, and on the other hand a grain dealer, would attach any significance to the legal characterisation of their relationship, nor any basis for attributing to those parties an intention that the mechanism by which their disputes are to be resolved should be determined by that legal characterisation.
  5. For these reasons, the Growers’ submission based upon the nature of the rights asserted in the proceedings must be rejected.

The managed investment scheme exemption

  1. In their written submissions the Growers also placed reliance upon the terms used in an instrument of exemption from the operation of certain provisions of the Corporations Act 2001 (Cth)relating to managed investment schemes issued by ASIC. However, when pressed by the court as to an explanation for the basis upon which documents produced by a third party could shed any light upon the proper construction and effect of the contracts between the Growers and Emerald, counsel for the Growers did not press this submission.  As there is no basis upon which documents produced by ASIC could shed any light upon the proper construction and effect of the contracts between the Growers and Emerald, that concession was properly made.

Summary and conclusion – matter subject to an arbitration agreement

  1. For these reasons, all the arguments advanced by the Growers in an attempt to constrain the application and effect of the broad language used in their arbitration agreements with Emerald must be rejected.  As their contention that Emerald is a trustee of the proceeds of sale of their grain derives from and indeed depends upon the terms of their contracts with Emerald, the dispute as to whether Emerald is in fact a trustee, and if so, as to whether Emerald is in breach of trust, is clearly a dispute arising out of, relating to or in connection with their agreements with Emerald.  All the questions or controversies which arise for determination in the proceedings which they have commenced against Emerald are of that character, with the result that the parties must be referred to arbitration and a stay of the proceedings granted unless the court is satisfied that the arbitration agreements are incapable of being performed – a matter to which I will now turn.

Are the arbitration agreements incapable of being performed?

  1. Finally, the Growers submit that even if the proceedings which they have commenced give rise to matters falling within the scope of their arbitration agreements with Emerald, those matters are not arbitrable, and their arbitration agreements are therefore incapable of being performed within the meaning of s 8(1) of the Act.  The Growers’ submission relies primarily upon the nature of the issues raised in their proceedings with respect to the proper administration of the trust which they assert, and the relief which they seek with respect to the removal of Emerald as trustee, and the appointment of another trustee in place of Emerald.  The Growers also rely, although perhaps to a lesser extent, upon the fact that it is not possible to join all necessary and appropriate parties to the arbitral proceedings.

Does the court have a discretion with respect to arbitrability?

  1. In Rinehart v Rinehart [No 3], Gleeson J addressed the question of whether the court had a discretion to decide or not decide whether an arbitration agreement is null and void, inoperative, or incapable of being performed.  The proposition that the court has such a discretion is said to be supported by the terminology of s 8, which provides that the court must refer to the parties to arbitration, unless it finds that the arbitration agreement has one or other of the specified characteristics.  Gleeson J concluded that the court did have such a discretion.  The issue was not addressed in argument in this case, and it is not necessary for me to express a view upon it, given that there is no reason why I should not proceed to determine whether the arbitration agreements between the Growers and Emerald are incapable of performance.

Non-arbitrability

  1. It is well‑established that the doctrine of non‑arbitrability is recognised by Australian law and reflected in the provisions of s 8 of the Act and, in particular, that portion of s 8 which provides that the court is not required to refer the parties to arbitration if it finds that the arbitration agreement is incapable of being performed.  As I noted in ATCO, the doctrine has been described as resting on the notion that ‘some matters so pervasively involve public rights, or interests of third parties, which are the subjects of the uniquely governmental authority, that agreements to resolve such disputes by “private” arbitration should not be given effect’.

  2. The proposition that disputes with respect to the administration of a trust are inherently of this character was considered and rejected by the majority in Rinehart v Welker.  After reviewing the authorities, Bathurst CJ concluded that ‘it is only in extremely limited circumstances that a dispute which the parties have agreed to refer to arbitration will be held to be non‑arbitral’.  In that context, Bathurst CJ addressed the question in these terms:

    It is with this background that it falls to be determined whether a claim to remove a trustee is capable of settlement by arbitration.  None of the parties were able to point to any authority on the question.  It is correct, as the respondents submitted, that a trust is a creature of equity and the courts maintain an inherent supervisory jurisdiction over the administration of trusts:  McLean v Burns Philp Trustee Co Ltd(1985) 2 NSWLR 623 at 633 and 637. This court in Rinehart v Welker [2011] NSWCA 403 at expressed the view that the proper conduct of trustees was a matter which required close public scrutiny. Further, the approach of a court in evaluating all relevant circumstances in considering whether it is in the interests of the beneficiaries to remove a trustee (Miller v Cameron supra) is a matter which tends against such disputes being arbitrable.

    In an article ‘The Arbitration of Trust Disputes’ Journal of International Trust and Corporate Planning (1999) Vol 7 No 4, Messrs Cohen QC and Staff expressed the view that the statutory jurisdiction of the court to appoint a new trustee could not be ousted by an arbitration provision.  The only authority cited in support of that proposition was the decision of the United Kingdom Court of Appeal in Czarnikow v Roth Schmidt & Company [1922] 2 KB 478 which held void a provision in the rules of the Refined Sugar Association prohibiting an application by the arbitrator to the court for an opinion of the court on any question of law. The clause was held to be void for the reasons set out by Atkin LJ at 491:

    ‘The jurisdiction that is ousted in this case is not the common law jurisdiction of the Courts to give a remedy for breaches of contract, but the special statutory jurisdiction of the Court to intervene to compel arbitrators to submit a point of law for determination by the Courts. This appears to me to be a provision of paramount importance in the interests of the public.’

    Notwithstanding these matters, it is my opinion that at least in circumstances where the trustee and each beneficiary have expressly agreed to their disputes being referred to arbitration, a court should give effect to that agreement.  The supervisory jurisdiction of the court is not ousted.  It continues to have the supervisory role conferred upon it by the relevant legislation, in this case the Commercial Arbitration Act.  There may be powerful commercial or domestic reasons for parties to have disputes between a trustee and beneficiary settled privately.  It does not seem to me that the matters to which I have referred above should preclude a court from giving effect to such an agreement provided the jurisdiction of the court is not ousted entirely.

    The fact that an arbitrator may not have power to remove a trustee or make a vesting order does not alter this position.  An arbitrator could give effect to a claim for removal by ordering the trustee to resign, to appoint a new trustee and to convey the trust property to that person. Such an award could be enforced as a judgment under, in this case, the Commercial Arbitration Act s 33.

    In these circumstances it does not seem to me to be contrary to public policy for the beneficiaries under the Trust and the trustee to agree to resolve their disputes by arbitration, provided the supervisory jurisdiction of the court contained in the relevant legislation is maintained. It is not necessary in the present case to deal with a more difficult question which would arise if the arbitration clause was contained in the Trust Deed and purported to bind all persons beneficially entitled under the Trust, including infants and unborn beneficiaries.

  3. McColl JA generally agreed with Bathurst CJ on this issue, while adding a number of observations of her own.  In the course of those observations, her Honour noted that the mere fact that a power is conferred on a court by a statute does not mean that an arbitrator cannot exercise such a power – rather, the question turns upon the language of the arbitration clause, and, in particular, whether there is to be implied in the parties’ agreement to submit their disputes to arbitration a term to the effect that the arbitrator is to have the authority to give such relief as would be available in a court having jurisdiction with respect to that subject matter.

  4. McColl JA accepted the force of observations made by Young JA with respect to the potential practical difficulties of enforcing an arbitrator’s award relating to the removal of a trustee and appointment of another trustee, but concluded that they did not militate against the conclusion that the claims were arbitrable.
  5. Young JA disagreed with the other members of the court on the issue of arbitrability, largely because of the practical difficulties in the path of a court enforcing any decision of an arbitrator with respect to the removal of a trustee and the appointment of a new trustee.
  6. The Growers submit that the decision in Rinehart v Welker should be distinguished on two grounds:

    1.           in this case, not all beneficiaries support the reference of disputes to arbitration; and

    2.           the degree of curial supervision under the Act is not as extensive as was available to the court at the time Rinehart v Welker was decided, because the ambit of an appeal from an award is now much more constrained.

  7. The second proposition may be shortly disposed of.  Any arbitration of the matters raised in the proceedings brought by each Grower will be supervised by a court, being this court if the arbitration takes place in Western Australia, or by the court in the jurisdiction in which the arbitrations take place, or by the Supreme Court of Victoria pursuant to cl 47 of the Conditions.  The supervising court will have the capacity to ensure compliance with the provisions of the agreement and the proper and orderly conduct of the arbitration in accordance with law, and will have the capacity to set aside an award if the minimum standards specified in the governing law are not met.  For these reasons, the distinction between the ambit of appeal available at the time Rinehart v Welker was decided and the narrower ambit presently available does not support the conclusion that a court will lack the power to supervise the proper conduct of an arbitration or arbitrations under the arbitration agreements.
  1. Turning now to the other point of distinction upon which the Growers rely, there is no doubt that, in Rinehart v Welker, all the beneficiaries of the trust, and the only third party identified as having an interest in the dispute, all supported the reference to arbitration. In the present case, the Growers are all opposed to the dispute being referred to arbitration, and the position of third parties whose interests might be affected (namely, other wheat producers supplying grain into the pool) is not known. The question is whether these factual distinctions lead to the conclusion that an allegation that the Growers’ contracts have given rise to a trust, which Emerald has failed to perform, has the consequence that those issues are not arbitrable.
  2. The circumstances of Rinehart v Welker are quite different to the circumstances of the present case.  Rinehart v Welker was concerned with an express trust, created for the benefit of members of a family. The corporate entity described as the third party with an interest in the outcome of the dispute was under the control of members of the family. In the present case, the existence of the alleged trust is contested. If the trust does exist, as the Growers assert, it arises from the terms of a commercial contract entered into by parties at arm’s length. Further, if there is a trust, the beneficiaries of that trust have no common interest, other than their individual interest in the due execution of the trust. In the present case, the trust is not said to confer any discretion upon the trustee, and the entitlements asserted by each Grower are entitlements capable of measurement in exclusively pecuniary terms, and will result in a payment calculated in accordance with the terms of their contracts if, as they assert, the trust has not been fully performed.
  3. While I can understand, with respect, why Bathurst CJ would have placed significant weight upon the position adopted by the beneficiaries and the interested third party in the circumstances of Rinehart v Welker, in the quite different circumstances of the present case, I do not consider that the position adopted by the Growers renders the matters raised in their proceedings non‑arbitrable. Although they assert equitable rights, those rights are entirely commercial in character. Whether or not they have been denied the rights to which they are entitled will depend entirely upon the proper construction and effect of their contracts. In those circumstances, the possible legal characterisation of the rights which they assert as equitable does not lead to the conclusion that the disputes are not arbitrable.
  4. Turning now to the Growers’ contentions with respect to the limitations upon the relief which they might obtain in an arbitration, it is unnecessary and, in my view inappropriate, for the court to determine whether it would be open to an arbitrator or arbitrators to grant the Growers relief in the form of removal of Emerald as trustee of the trust which the Growers assert.  Essentially, that is because it is now well‑established that the fact that an arbitrator cannot grant all the relief a court is empowered to grant does not mean that the dispute is incapable of arbitration.  As I have noted, that question will turn upon the question of whether the arbitration agreement should be construed as implying that the arbitrator is empowered to grant all the relief which a court might have granted.  That is a question best determined by the arbitral tribunal.

  5. It only remains to consider the submission to the effect that the matters raised in the proceedings are not arbitrable because it is not possible to join all wheat producers who may have an interest in the outcome of the proceedings in the arbitral process.
  6. In relation to that submission, it should first be noted that the Growers have not endeavoured to join all other producers who contributed grain to the relevant pool as parties to the proceedings.  In any event, it is now well‑established that the fact that a ‘matter’ the subject of proceedings falling within s 8 of the Act may have an effect upon the interests of others who are not party to the arbitration agreement does not result in the ‘matter’ falling outside the scope of s 8.  These decisions must place the decision in Paharpur in doubt.  However, it is unnecessary in the present case to resolve that doubt because Paharpur can be distinguished on the basis that in that case, a party not a party to the arbitration agreement was a central and integral party to the relevant dispute.  In the present case, the other wheat producers who contributed grain to the relevant pool cannot be described in those terms.  If the Growers are successful in their claims against Emerald, it may well follow that other contributors to the relevant pool would also be successful in advancing such claims.  However, the calculation of the amount due to each Grower can occur quite easily, taking into account the interests of other producers contributing grain into the pool, whether or not those producers participate in the arbitral proceedings.
  7. For these reasons, the Growers’ contention that their arbitration agreements with Emerald are not capable of performance must be rejected.

Conclusion

  1. For the reasons given, Emerald has established that s 8 of the Act applies to these proceedings.  It follows that the court must refer the parties to arbitration and stay the proceedings for that purpose.

ASTRO NUSANTARA INTERNATIONAL B.V. AND OTHERS v. PT FIRST MEDIA TBK [2018] HKCFA 12; (2018) 21 HKCFAR 118; [2018] 3 HKC 458; FACV 14/2017

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO.14 OF 2017 (CIVIL)

(ON APPEAL FROM CACV NO. 272 OF 2015)

 

APPLICANTS / CLAIMANTS IN THE ARBITRATION / JUDGMENT CREDITORS (RESPONDENTS)

  1. Astro Nusantra International B.V
  2. Astro Nusantara Holdings B.V
  3. Astro Multimedia Corporation N.V
  4. Astro Multimedia N.V
  5. Astro Overseas Limited (formerly known as AAAN (Bermuda) Limited)
  6. Astro All Asia Networks PLC
  7. Measat Broadcast Network Systems SDN BHD
  8. All Asia Multimedia Newtwork FZ-LLZ

DEFENDANTS / RESPONDENTS / JUDGMENT DEBTORS (APPELLANTS)

  1. PT Ayund Prima Mitra
  2. PT First Media TBK (formerly known as PT Broadband Multimedia TBK)
  3. PT Direct Vision

BEFORE: Chief Justice Ma, Mr Justice Ribiero PJ, Mr Justice Tang PJ, Mr Justice Fok PJ and Lord Reed NPJ

DATE OF HEARING: 12 March 2018

DATE OF JUDGMENT: 11 April 2018

 

JUDGMENT

 

Chief Justice Ma:

1. I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Ribeiro PJ:

2. This appeal raises issues concerning the principles applicable where a party seeks leave to resist enforcement of a New York Convention arbitration award out of time.

3. The eight respondent companies, members of a Malaysian media group conveniently referred to as “Astro”, were the claimants in the arbitration. The 1st to 5th, 7th and 8th respondents are subsidiaries of the 6th respondent, a substantial company listed on the Kuala Lumpur Stock Exchange.

4. The appellant (“First Media”) is a substantial company listed on the Indonesian Stock Exchange and part of an Indonesian conglomerate referred to as “Lippo”. It was a respondent in the arbitration and Astro seeks to enforce an award against it in a sum exceeding US$130 million. First Media seeks leave to resist enforcement out of time on the basis that the award was made without jurisdiction.

A. The underlying dispute and the arbitration

5. By a Subscription and Shareholders’ Agreement (“the SSA”) dated 11 March 2005, Lippo companies including First Media entered into a joint venture with companies in Astro (originally consisting of the 3rd to 5th respondents and then, by novation, the 1st and 2nd respondents) for the provision of multimedia and television services in Indonesia. The joint venture vehicle was to be “Direct Vision” which was the 3rd respondent in the arbitration.

6. The arbitration agreement is contained in the SSA and provides for arbitration through the Singapore International Arbitration Centre (“SIAC”), applying Singapore law. However, the 6th, 7th and 8th respondents were never parties to the SSA. They have been referred to throughout as “the Additional Parties”.

7. The joint venture failed because certain conditions precedent were not fulfilled. However, in the meantime, Direct Vision had pressed ahead with the commercial launch of its pay satellite television service in Indonesia and between about December 2005 and October 2008, the Additional Parties had been providing Direct Vision with substantial funds and services. The breakdown of the joint venture led Lippo to commence court proceedings against Astro in Indonesia, alleging that Astro was obliged to continue the funding and support services under an oral joint venture contract. Astro’s riposte was to commence the arbitration against Lippo, including First Media, at SIAC by notice dated 6 October 2008, seeking an anti-suit injunction to restrain the Indonesian proceedings and advancing monetary claims, inter alia, by way of restitution and quantum meruit.

8. Astro applied to join the Additional Parties (who had the main monetary claims) to the arbitration relying on rule 24(b) of the 2007 SIAC Rules. Such joinder was unsuccessfully resisted by Lippo before the arbitral tribunal. By its Award on Preliminary Issues dated 7 May 2009, the tribunal ruled that on the true construction of rule 24(b), it had power to join persons, such as the Additional Parties, who were not already parties to the agreement to refer the dispute to arbitration. Lippo could have, but did not, challenge that award in the Singapore Court which had supervisory jurisdiction.

9. The arbitration then proceeded on the merits, with the tribunal rendering four additional awards, including an Interim Final Award dated 16 February 2010 in favour of Astro in a sum exceeding US$130 million. Lippo again did not seek to challenge the validity of those awards in the Singapore Court.

B. Astro’s enforcement of the awards

10. Astro then proceeded to seek enforcement of the awards, principally against First Media, in various jurisdictions including Singapore and Hong Kong.

11. In Singapore, Astro was initially granted leave to enforce the awards but First Media succeeded on its appeal to the Singapore Court of Appeal which held, by a judgment dated 31 October 2013 (“the SCA Judgment”), that rule 24(b) did not empower the tribunal to order joinder of the Additional Parties since they were not parties to the SSA. The tribunal therefore lacked jurisdiction to make the awards in favour of the Additional Parties and the Singapore enforcement orders in their favour were set aside.

12. On 3 August and 9 September 2010, at about the same time as the enforcement proceedings were commenced in Singapore, Astro obtained orders from Saunders J granting them leave to enforce the tribunal’s awards in Hong Kong against the Lippo parties pursuant to section 2GG of the Arbitration Ordinance.

13. In accordance with Order 73 r 10(6), Lippo had 14 days after service of those orders to apply to set them aside. Believing that they did not have any assets in Hong Kong, Lippo made no such application and, on 9 December 2010, Saunders J entered judgment against them in terms of the awards.

14. However, on 22 July 2011, Astro obtained a garnishee order nisi attaching a debt of US$44 million due from AcrossAsia Limited (“AAL”) to First Media. AAL is a Cayman Islands company listed on the Growth Enterprise Market of the Stock Exchange of Hong Kong and holds 55.1% of the issued shares, and thus a controlling interest, in First Media. The debt arose out of an agreement dated 30 June 2011 whereby First Media granted a loan facility of US$44 million to AAL. When, on 5 August 2011, the garnishee order nisi was served on First Media, AAL filed an affirmation opposing the grant of an order absolute and, on 18 January 2012, First Media took out the summons applying for an extension of time to apply to set aside the Hong Kong enforcement orders and judgment. That summons is at the centre of the present appeal.

15. The SCA Judgment was then pending and, at Astro’s instigation, First Media’s application was stayed to await the Singapore Court of Appeal’s decision. Astro also obtained judgment, dated 31 October 2013, from Deputy High Court Judge Mayo (who took a dim view of what he found to be collusive conduct between First Media and AAL) directing that the garnishee order be made absolute.

16. The SCA Judgment was coincidentally also published on 31 October 2013 and appeals were lodged against Deputy High Court Judge Mayo’s decision by both AAL and First Media. In the light of the SCA Judgment, Mimmie Chan J unconditionally stayed execution of the garnishee order absolute pending determination of First Media’s setting aside application. The Court of Appeal refused Astro leave to appeal against Her Ladyship’s unconditional order and Chow J therefore proceeded to deal substantively with First Media’s summons for leave to make a setting aside application.

C. Chow J’s judgment

17. It is common ground that the awards in question are Convention awards. The law’s policy is to aid enforcement of such awards, section 42 making them enforceable, with leave, in the same way as a judgment of the Court. Grounds for refusing (and hence for setting aside) enforcement are strictly limited. Section 44(1) provides that enforcement of a Convention award “shall not be refused except in the cases mentioned in this section”. Accordingly, to succeed in its setting aside application, First Media has to bring itself within one of the cases listed in section 44(2) or section 44(3) (and also persuade the Court that its application should be allowed to proceed although well out of time).

18. Since First Media contends that the awards were made without jurisdiction, the exception which is principally relevant is contained in section 44(2)(b):

“Enforcement of a Convention award may be refused if the person against whom it is invoked proves …

(b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made …”

19. Chow J upheld the enforcement orders and judgment, rejecting First Media’s application for leave to apply out of time to set them aside on the section 44(2)(b) ground.

C.1 The effect of the SCA Judgment

20. His Lordship so decided even though he held that the SCA Judgment had conclusively established that the arbitral tribunal did not have power to join the Additional Parties to the arbitration, that being a matter governed by Singapore law. It follows, so the Singapore Court of Appeal held, that there was no arbitration agreement in existence and thus no valid agreement on which to found the awards. That conclusion, as Lord Collins of Mapesbury JSC pointed out, is in accordance with consistent international practice:

“Although article V(1)(a) [of the New York Convention] (and section 103(2)(b) [of the Arbitration Act 1996]) deals expressly only with the case where the arbitration agreement is not valid, the consistent international practice shows that there is no doubt that it also covers the case where a party claims that the agreement is not binding on it because that party was never a party to the arbitration agreement.”

21. Moreover, Chow J held that since the Singapore Court of Appeal was undoubtedly a court of competent jurisdiction which had determined an identical issue between the parties on the merits in a final and conclusive judgment, the SCA Judgment raised an issue estoppel per rem judicatam preventing Astro from denying the absence of a valid arbitration agreement.

22. It follows that if leave had been granted, First Media would have brought itself within section 44(2)(b) as a ground for refusing enforcement. Chow J’s refusal of leave is therefore, as the Judge himself acknowledged, somewhat surprising. He noted that, when refusing Astro leave to appeal against Mimmie Chan J’s grant of an unconditional stay of execution of the garnishee order absolute, the Court of Appeal had commented obiter that it would:

“… indeed be remarkable if, despite the Singapore Court of Appeal judgment on the invalidity of arbitration awards, Astro will still be able to enforce a judgment here based on the same arbitration awards that were made without jurisdiction.”

23. Chow J, however, did not consider the SCA Judgment definitive since, he reasoned, questions of enforcement are governed by Hong Kong law, being the law of the forum in which enforcement is sought; our law makes enforcement mandatory unless the case falls within section 44(2) or (3); and refusal of enforcement abroad is not a ground for resisting enforcement of the award in Hong Kong. His Lordship proceeded to refuse leave on two grounds.

C.2 The good faith principle

24. First, his Lordship decided that First Media was precluded from relying on section 44(2)(b) on the ground that it was in breach of a duty of good faith.

25. Chow J’s starting-point was that the word “may” in section 44(2) – “Enforcement of a Convention award may be refused” – makes it clear that the Court has a residual discretion to order or uphold an order for enforcement even though the person resisting that order comes within one of the section 44(2) exceptions.

26. The existence of such a residual discretion is supported by the authority of this Court in Hebei Import & Export Corp v Polytek Engineering Co Ltd, where Sir Anthony Mason NPJ endorsed the decision of Kaplan J in China Nanhai Oil Joint Service Corp Shenzhen Branch v Gee Tai Holdings Co Ltd, to that effect.

27. Chow J also relied on those two authorities as establishing that the discretion may be exercised in favour of enforcement where the resisting party (although within a section 44(2) exception) has acted in breach of his duty of good faith, drawing parallels between those two cases and the present.

28. In China Nanhai, having participated in the arbitration and having lost on the merits, the defendant sought to oppose enforcement on the section 44(2)(e) ground, ie, that “the composition of the arbitral authority … was not in accordance with the agreement of the parties”. It complained that whereas the arbitration agreement provided for arbitration before a CIETAC panel in Beijing, at the plaintiff’s behest, a Shenzhen CIETAC panel had assumed jurisdiction. Kaplan J held that while technically the Shenzhen tribunal lacked jurisdiction, the residual discretion in favour of enforcement ought to be exercised because there was:

“… a duty of good faith which in the circumstances of this case required the Defendant to bring to the notice of the full tribunal or the CIETAC Commission in Beijing its objections to the formation of this particular arbitral tribunal. Its failure to do so and its obvious policy of keeping this point up its sleeve to be pulled out only if the arbitration was lost, is not one that I find consistent with the obligation of good faith nor with any notions of justice and fair play.”

29. However, his Lordship regarded the arbitration as one which the parties had in substance agreed to:

“The parties agreed on a CIETAC Arbitration under CIETAC Rules. They got it. CIETAC, Shenzhen, is a sub-commission of CIETAC in Beijing. The Defendants participated in the arbitration and have raised no other grounds whatsoever which go to the procedure of the arbitration or the substance of the award. Had they won, they would not have complained. … I am quite satisfied that the Defendants got what they agreed in their contract in the sense that they got an arbitration conducted by 3 Chinese arbitrators under CIETAC Rules. To exercise my discretion against enforcement on the facts of this case would be a travesty of justice. Had I thought that the Defendants’ rights had been violated in any material way, I would, of course, have taken a different view.”

30. The Hebei case involved a CIETAC arbitration regarding the allegedly sub-standard performance of certain equipment supplied under a contract. The complaint was that, without notice to the respondent, an inspection had been conducted by experts appointed by the arbitral tribunal accompanied by the chief arbitrator at the end user’s factory, where technicians who had installed the equipment communicated with the chief arbitrator in the respondent’s absence. Enforcement of the award was resisted on the section 44(2)(c) ground, namely, that the resisting party had been “unable to present his case” and on the section 44(3) ground that enforcement in such circumstances would be contrary to public policy. However, when the respondent discovered that the inspection had occurred it did not raise the matter with the tribunal but continued to participate in the arbitration. It was held that:

“The respondent’s conduct amounted to a breach of the principle that a party to an arbitration who wishes to rely on a non-compliance with the rules governing an arbitration shall do so promptly and shall not proceed with the arbitration as if there had been compliance, keeping the point up his sleeve for later use.”

31. Chow J considered that the principles established by China Nanhai and Hebei were applicable on the facts of the present case:

“In my view, what was considered to be so objectionable in China Nanhai Oil Joint Service Corporation Shenzhen Branch and Hebei Import & Export Corp v Polyteck Engineering Co Ltd was the idea that a party to an arbitration, while being fully aware of an objection (whether in relation to the jurisdiction of the tribunal or the procedure or conduct in the course of the arbitration), should be permitted to keep the objection in reserve, participate fully in the arbitration and raise the objection in the enforcing court only after an award had been made against him by the tribunal. This is effectively what happened in the present case. First Media was fully aware of its right to challenge the Tribunal’s ruling on jurisdiction before the Singapore High Court under article 16(3) of the Model Law, but chose not to do so. It seems clear that what First Media decided to do was to defend the claim on the merits in the hope that it would succeed before the Tribunal, and keep the jurisdictional point in reserve to be deployed in the enforcement court only when it suited its interests to do so.”

32. His Lordship arrived at this conclusion notwithstanding that he:

(a) accepted that a party is not obliged to exhaust its remedies by challenging the validity of an award in the courts of the arbitral seat, having a choice between the “active remedy” of making such a challenge and a “passive remedy” of resisting enforcement in the jurisdiction where enforcement is sought;

(b) acknowledged that First Media had objected to and expressly reserved its position concerning the tribunal’s jurisdiction both before and after the Award on Preliminary Issues so that it could not be said to have kept the objection “up its sleeve”; and,

(c) recognised that the SCA Judgment had conclusively established that the tribunal lacked jurisdiction in respect of the Additional Parties, bringing First Media within section 44(2)(b) and that “it would take a very strong case to permit enforcement of an arbitral award in circumstances where it was made by an arbitral tribunal without jurisdiction”.

C.3 Refusal of an extension of time

33. Secondly, Chow J held that even if he had decided not to exercise his residual discretion under section 44(2) in favour of enforcement, he would have refused to extend time for First Media to make its application for leave.

34. The time limit is the limit of 14 days after service of the orders in question, laid down by Order 73 r 10(6). It expired on 1 November 2010 so that First Media’s summons for a time extension, issued on 18 January 2012, was 14 months out of time. The Court’s power to grant an extension is contained in Order 3 r 5 which materially states:

“(1) The Court may, on such terms as it thinks just, by order extend or abridge the period within which a person is required or authorized by these rules, or by any judgment, order or direction, to do any act in any proceedings.

(2) The Court may extend any such period as is referred to in paragraph (1) although the application for extension is not made until after the expiration of that period.”

35. After having considered authorities on how the discretion should be approached, in particular The Decurion and Terna Bahrain Holding Company WLL v Al Shamsi (to which I shall return), Chow J based his refusal of an extension on three factors namely:

(a) the fact that the delay of 14 months, viewed in the light of the 14 day limit prescribed by Order 73 r 10(6) was very substantial;

(b) the fact that First Media’s delay was a deliberate decision not to take action within the time limit because it thought that it had no assets here, thus taking a “calculated risk”; and,

(c) the fact that the awards had not been set aside in Singapore and thus were “still valid and create legally binding obligations on First Media to satisfy them”, so that refusing an extension of time “merely means that Astro is permitted to obtain satisfaction of a legally binding debt due and owing by First Media to Astro”.

36. His Lordship refused an extension even though he accepted “that Astro has not suffered any substantial prejudice (other than costs which can be compensated) as a result of First Media’s delay of 14 months”.

D. The Court of Appeal’s judgment

D.1 Good faith and the residual discretion

37. The Court of Appeal overturned the Judge’s decision based on the good faith principle.

38. Kwan JA considered the conclusive judgment of the Singapore Court of Appeal (which she referred to as the supervisory court) as to the invalidity of the arbitration agreement “a very strong policy consideration” in the Hong Kong courts for section 44(2) purposes.

39. The Judge had found it objectionable (relying on China Nanhai and Hebei) that First Media, while “fully aware of its right to challenge the Tribunal’s ruling on jurisdiction before the Singapore High Court” chose not to do so, but “decided … to defend the claim on the merits in the hope that it would succeed before the Tribunal … [keeping] the jurisdictional point in reserve to be deployed in the enforcement court”, but her Ladyship pointed out that First Media was fully entitled under Singapore law to follow that course. The SCA Judgment had held that a challenge to the tribunal’s preliminary ruling was not a “one-shot remedy” and did not affect the availability of defences at the enforcement stage. It had also found that First Media had not waived its rights, but had disputed the tribunal’s jurisdiction and then proceeded with the arbitration reserving its position. Chow J was thus held by the Court of Appeal to have fallen into error “in not giving proper recognition to the findings in the SCA Judgment.”

40. The SCA Judgment is undoubtedly of central importance because it conclusively determined, as a matter governed by Singapore law, that there was no valid arbitration agreement between First Media and the Additional Parties and raised an issue estoppel to that effect. The Singapore Court of Appeal was, however, acting as an enforcement court and not invalidating the awards in its supervisory capacity. The proposition that First Media’s adoption of a passive remedy was in accordance with Singapore law is, with respect, not to the point since the availability of enforcement in Hong Kong is governed by the law of this forum. The true issue was whether, as a matter of Hong Kong law, Chow J was right to find that First Media was in breach of its duty of good faith so as to justify precluding it from relying on section 44(2)(b). Many of the points made by the Court of Appeal as to the consequences of the SCA Judgment are, however, equally relevant to the position under Hong Kong law.

41. In any event, Kwan JA’s rejection of the Judge’s application of the good faith principle is soundly based on her Ladyship’s finding that, when exercising his discretion, Chow J failed to take sufficient account of “the fundamental defect that the Awards were sought to be enforced against the Additional Parties who were wrongly joined by the Tribunal into the Arbitration and the Awards were made without jurisdiction”.

42. It is clear that the absence of a valid arbitration agreement between the parties is a fundamentally important factor militating against discretionary enforcement. Thus, referring to equivalent provisions, Rix LJ stated in the English Court of Appeal in Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan as follows:

“… There is no express provision however as to what is to happen if a defence is proven, but the strong inference is that a proven defence is a defence. It is possible to see that a defence allowed under Convention or statute may nevertheless no longer be open because of an estoppel (Professor van den Berg’s view, see The New York Arbitration Convention 1958, at p 265), or that a minor and prejudicially irrelevant error, albeit within the Convention or statutory language, might not succeed as a defence (as in the China Agribusiness case [1998] 2 Lloyd’s Rep 76). But it is difficult to think that anything as fundamental as the absence of consent or some substantial and material unfairness in the arbitral proceedings could leave it open to a court to ignore the proven defence and instead decide in favour of enforcement.”

43. And in the UK Supreme Court in the same case, Lord Collins of Mapesbury JSC pointed out that “… article V safeguards fundamental rights including the right of a party which has not agreed to arbitration to object to the jurisdiction of the tribunal”. He acknowledged that because of the word “may”:

“The court before which recognition or enforcement is sought has a discretion to recognise or enforce even if the party resisting recognition or enforcement has proved that there was no valid arbitration agreement.”

However, his Lordship emphasised the limits of that discretion, observing that “it is not easy to see how that could apply to a case where a party had not acceded to an arbitration agreement.”

44. In the light of such authority, at paragraph 59 of its judgment the Court of Appeal, in my view correctly, held as follows:

“The judge had misdirected himself and failed to take into account the fundamental defect that the Awards were sought to be enforced against the Additional Parties who were wrongly joined by the Tribunal into the Arbitration and the Awards were made without jurisdiction when he exercised his discretion under section 44(2) whether to refuse enforcement. Had he taken this into account, he could only have exercised his discretion to refuse enforcement.”

D.2 Extension of time

45. Given the forceful statement in paragraph 59, one might have expected the Court of Appeal to allow the appeal and grant First Media leave to make its setting aside application. However, instead, it upheld Chow J’s refusal of a time extension and dismissed the appeal.

46. The Court of Appeal declined to interfere with Chow J’s exercise of discretion and endorsed his reliance on the three factors mentioned above, namely, (i) the length of the delay, (ii) the fact that a deliberate decision was taken not to apply to set aside within the time prescribed and (iii) the fact that the awards had not been set aside at the seat of the arbitration.

47. The Court rejected First Media’s argument that factor (iii) was an irrelevant matter erroneously taken into account and also disagreed with the submission that the Judge’s exercise of discretion, guided largely by the decision of Popplewell J in Terna Bahrain Holding Company WLL v Al Shamsi, was inappropriate and plainly wrong.

48. The Appeal Committee granted leave to appeal to this Court on both the question of law and the “or otherwise” bases. The questions of law are formulated as follows:

(1) What is the proper test for determining whether an extension of time should be granted for the purposes of an application to resist enforcement of an arbitral award under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral AwardS (“the New York Convention”)? (“Question 1”)

(2) In determining whether to extend time for the purposes of an application to resist enforcement of an arbitral award under the New York Convention, is the fact that the award has not been set aside by the courts of the seat of arbitration a relevant factor? (“Question 2”)

E. This appeal

49. As those questions indicate, the issue before this Court concerns the refusal of a time extension. Although the good faith ground is no longer advanced by Astro, aspects of why that ground was rejected provide a context relevant to considering the refusal to extend time in the Courts below.

E.1 Appellate review of discretion

50. The grant or refusal of a time extension is of course discretionary and the principles as to when an appellate court may interfere with a discretionary decision are conveniently summarised by Yuen JA in the Court of Appeal in Tai Fook Futures v Cheung Moon Hoi Jeff as follows:

“It is well-established law that an appellate court should not interfere with the exercise of a judge’s discretion unless it is satisfied that the judge has erred in law or in principle, or if she has taken into account some matter which she should not have taken into account, or has left out of account some matter which she should have taken into account, or if the decision was so plainly wrong that it must have been reached by a faulty assessment of the weights of the different factors which have to be taken into account …”

51. Mr Toby Landau QC submits that (i) as presaged in Question 1, the Judge and the Court of Appeal erred in principle in applying the wrong test when exercising the discretion; (ii) that, as anticipated in Question 2, they erroneously took into account an irrelevant factor, namely, the fact that the award has not been set aside by the Court at the seat; and (iii) that looked at overall, the refusal was plainly wrong, being perverse and disproportionate in its consequences.

52. Mr David Joseph QC seeks to uphold the Court of Appeal’s decision as one made within the proper bounds of its discretion and seeks to rely on a line of cases concerning applications for relief from sanctions under CPR r 3.9(1) of the English Civil Procedure Rules, not previously explored.

E.2 The appropriate test

53. It has often been emphasised that the discretion to extend time conferred by Order 3 r 5 is broad and unrestricted, designed to enable justice to be done between the parties. Thus, in Kwan Lee Construction Co Ltd v Elevator Parts Engineering Co Ltd, Litton VP in the Court of Appeal, stated:

“The court’s jurisdiction to extend time, as conferred by O 3 r 5, is as broad as it can come and, in the exercise of that discretion, the court would, generally speaking, have some regard to what might ultimately be in issue.”

54. In Costellow v Somerset County Council, dealing with the equivalent provision in England and Wales, Sir Thomas Bingham MR noted that the discretion involves the intersection of two principles. The first promotes the enforcement of time limits for the expeditious dispatch of litigation in the public interest and the second recognises that a plaintiff should not ordinarily be denied adjudication of his claim on the merits because of a procedural default “unless the default causes prejudice to his opponent for which an award of costs cannot compensate”. His Lordship noted that the second principle “is reflected in the general discretion to extend time conferred by Ord 3, r 5, a discretion to be exercised in accordance with the requirements of justice in the particular case.”

55. The approach advocated on First Media’s behalf as formulated by the Court of Appeal in The Decurion, is in line with the foregoing authorities. Citing Costellow, Cheung JA acknowledged the intersecting principles and stated:

“It is clear that the applicable principle in deciding whether time should be extended is to look at all relevant matters and consider the overall justice of the case. A rigid mechanistic approach is not appropriate…”

56. Although Chow J and the Court of Appeal cited The Decurion, it is clear that they laid primary emphasis on Terna Bahrain Holding Company WLL v Al Shamsi, quoting extensively from the judgment of Popplewell J. In Terna Bahrain,the respondent in a London arbitration sought an extension of time to challenge the validity of the award under sections 67 and 68 of the Arbitration Act 1996 on the footing that the award had been made on a basis not advanced by the claimant so that the award was vitiated by serious irregularity and lack of jurisdiction.

57. The focus of Mr Landau QC’s criticism is on the passages in Popplewell J’s judgment in which, having cited certain authorities for the applicable principles, his Lordship stated:

“(1) Section 70(3) of the Act requires challenges to an award under sections 67 and 68 to be brought within 28 days. This relatively short period of time reflects the principle of speedy finality which underpins the Act, and which is enshrined in section 1(a). The party seeking an extension must therefore show that the interests of justice require an exceptional departure from the timetable laid down by the Act. Any significant delay beyond 28 days is to be regarded as inimical to the policy of the Act.

(2) The relevant factors are:

(i) the length of the delay;

(ii) whether the party who permitted the time limit to expire and subsequently delayed was acting reasonably in the circumstances in doing so;

(iii) whether the respondent to the application or the arbitrator caused or contributed to the delay;

(iv) whether the respondent to the application would by reason of the delay suffer irremediable prejudice in addition to the mere loss of time if the application were permitted to proceed;

(v) whether the arbitration has continued during the period of delay and, if so, what impact on the progress of the arbitration, or the costs incurred in respect of the arbitration, the determination of the application by the court might now have;

(vi) the strength of the application;

(vii) whether in the broadest sense it would be unfair to the applicant for him to be denied the opportunity of having the application determined.

(3) Factors (i), (ii), and (iii) are the primary factors.”

58. Popplewell J added four observations: (i) that “the length of delay must be judged against the yardstick of 28 days provided for in the Act. Therefore a delay measured even in days is significant; a delay measured in many weeks or in months is substantial;” (ii) that reasons given for the delay had to be supported by evidence; (iii) that in the light of CPR r 3.9(1) which identifies an intentional failure as a separate factor, an intentional failure to comply militates against a finding that the applicant acted reasonably; and (iv) that since the Court will not normally conduct a substantial investigation into the merits, they are of secondary significance:

“Unless the challenge can be seen to be either strong or intrinsically weak on a brief perusal of the grounds, this will not be a factor which is treated as of weight in either direction on the application for an extension of time. If it can readily be seen to be either strong or weak, that is a relevant factor; but it is not a primary factor, because the court is only able to form a provisional view of the merits, a view which might not be confirmed by a full investigation of the challenge, with the benefit of the argument which would take place at the hearing of the application itself if an extension of time were granted.”

59. The elaborately structured approach to discretion in Terna Bahrain is qualitatively different from the broad, unrestricted approach espoused in cases like The Decurion.

60. Popplewell J’s reference to CPR r 3.9(1) is instructive since that is a provision addressing applications for relief from a sanction imposed for failure to comply with any rule, practice direction or court order. Those are situations in which, as one might expect, a substantial burden is placed on an applicant seeking relief from an applicable sanction, and where features such as intentional non-compliance with the rule or order weigh heavily against relief. Given this perspective, it is unsurprising that Popplewell J’s focus was not so much on finding a balance between intersecting policy principles but on the enforcement of procedural orders which have triggered sanctions against the applicant. Thus, his Lordship requires the party seeking an extension to “show that the interests of justice require an exceptional departure from the timetable laid down by the Act”, treating the grant of an extension as “exceptional”.

61. His Lordship’s treatment of the merits is also important. In paragraph (3) cited above, he states that items (i), (ii) and (iii) “are the primary factors”. These comprise the length of delay; the reasonableness of allowing the time limit to expire and whether the other side or the arbitrator contributed to the delay. The strength of the application and fairness to the applicant are only mentioned at the end of the list as items (vi) and (vii) and are thus treated as secondary considerations. As indicated in Popplewell J’s fourth observation, this is because his Lordship’s view was that an investigation of the merits is not generally undertaken so that the court is only able to form a provisional rather than a concluded view of the merits.

62. The Terna Bahrain approach of promoting the importance of certain factors and according to others (including the merits) a secondary status is plainly inconsistent with the The Decurion approach of looking at all relevant matters and considering the overall justice of the case, eschewing a rigid, mechanistic methodology. The downgrading of the merits as a factor is particularly inapt in a case like the present, where the tribunal’s lack of jurisdiction has been conclusively shown.

63. Mr Landau QC convincingly submits that the Judge faithfully applied the approach of Popplewell J set out in the passages cited above, focussing especially on items (i) and (ii) of the listed principles. While it is true, as Mr Joseph QC points out, that Popplewell J did refer to cases where the merits “may be a powerful factor in favour of the grant of an extension” where “the court can determine that the challenge will succeed”, Chow J did not give any weight to, or even mention in this context, the conclusively established merits.

64. It follows, in my judgment, that the test in Terna Bahrain was inappropriately applied in the present case. It led to a failure to accord proper weight to the established lack of a valid arbitration agreement which, if recognised, would have wholly undermined the central arguments made on Astro’s behalf. Thus, much emphasis was laid on section 2AA(1) which states that the object of the Arbitration Ordinance is “to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense”. This led the Court of Appeal to state as follows:

“As rightly submitted by Mr Joseph, a more disciplined approach is called for in the arbitration context, with its emphasis on speedy finality and the short statutory time limits. It is accordingly in an ‘entirely different territory’ from applications for extensions of time for compliance with interlocutory orders or rules applying during the currency of a case (Soinco Saci v Novokuznetsk Aluminium Plant [1998] 2 Lloyd’s Rep 337 at 338, per Waller LJ).”

65. The policy favouring speedy finality in resolving an arbitration is necessarily premised on a valid arbitration agreement between the parties which is absent in the present case. The trite proposition that binding arbitrations must rest on a consensual basis is reflected in section 2AA itself which, in subsection (2)(a) states:

“(2) This Ordinance is based on the principles that-

(a) subject to the observance of such safeguards as are necessary in the public interest, the parties to a dispute should be free to agree how the dispute should be resolved…”

66. Soinco Saci v Novokuznetsk Aluminium Plant, cited by the Court of Appeal, is not a case where a valid arbitration agreement was lacking. The challenge to enforcement was there based on the argument (held to be unsustainable) that it would be contrary to public policy to enforce the award. In any event, Waller LJ’s approach differed significantly from that of Terna Bahrain in that the strength of the applicant’s case was given equal prominence with other discretionary factors comprising the extent of and excuse for the delay, and the degree of prejudice to the respondent.

67. Terna Bahrain involved an active remedy challenge to the validity of the award, launched before the Court with supervisory jurisdiction in London. There is force in Mr Landau QC’s submission that, unlike challenges in an enforcement forum other than the seat, such a challenge involves invoking the procedural rules contractually agreed upon by the parties, and may justify a stricter approach to procedural time limits.

68. For the foregoing reasons, I conclude that in adopting the Terna Bahrain approach, the Courts below erred in principle, leading them to downgrade the fundamentally important absence of a valid arbitration agreement between First Media and the Additional Parties. They thereby failed to take proper account of a relevant matter, justifying this Court’s interference with their exercise of discretion.

69. Before leaving this part of the discussion, I note that Mr Joseph QC sought to rely on a line of English authority on the application of CPR r 3.9(1) culminating in Denton v TH White Ltd. That rule provides:

“On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need— (a) for litigation to be conducted efficiently and at proportionate cost; and (b) to enforce compliance with rules, practice directions and orders.”

70. It is a procedural rule which makes no mention of the substantive merits, setting out an approach to applications for relief from sanctions imposed for non-compliance with rules or orders. I do not accept Mr Joseph QC’s submission that First Media’s application “is as a matter of substance analogous to” such applications for relief. Thus, Denton was a consolidated appeal before the English Court of Appeal involving three cases which, respectively, concerned (i) service of witness statements outside time limits set at a case management conference, carrying the automatic sanction of prohibiting the proposed witness from being called; (ii) failing to comply in time with a pre-trial checklist setting a deadline for payment of court fees with an unless order for automatically striking out the claim in default; and (iii) filing a costs budget form 45 minutes late, carrying the automatic sanction of restricting the applicable cost budget. It is obvious that these situations are miles away from the circumstances under discussion. There is no question of the discretion exercised in such cases being overshadowed by a lack of jurisdiction to make the awards upon which the challenged orders are based.

71. Even at a purely procedural level, cases in the Denton line (in which the parties’ substantive rights do not feature) sit uncomfortably with the procedural regime in this jurisdiction. Order 1A r 2(2) provides that:

“In giving effect to the underlying objectives of these rules, the Court shall always recognize that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.”

This Court in Wing Fai Construction Co Ltd v Yip Kwong Robert, reiterated the importance of the primary aim of securing the just resolution of disputes in accordance with the parties’ substantive rights, stressing that compliance with the rules is not an end in itself and that a mechanistic approach is to be eschewed. The overriding objective in the English CPR r 1.1 emphasises procedural fairness and economy rather than the parties’ substantive rights.

E.3 Deliberate failure to set aside the awards at the arbitral seat

72. The third discretionary factor relied on for refusing a time extension by Chow J and upheld by the Court of Appeal involved the fact that the awards had not been set aside in Singapore and thus were “still valid and create legally binding obligations on First Media to satisfy them”. This is closely linked to Chow J’s second factor, which is that First Media’s delay involved a deliberate decision not to take action to set aside the orders and judgment within time.

73. First Media’s submission, based principally on the “choice of remedies” doctrine, is that, in giving weight to those two factors, the Courts below erred in principle and took account of irrelevant factors.

74. In Paklito Investment Ltd v Klockner East Asia Ltd, Kaplan J referred to the choice of remedies doctrine as follows:

“It is clear to me that a party faced with a Convention award against him has two options. Firstly, he can apply to the courts of the country where the award was made to seek the setting aside of the award. If the award is set aside then this becomes a ground in itself for opposing enforcement under the Convention. Secondly, the unsuccessful party can decide to take no steps to set aside the award but wait until enforcement is sought and attempt to establish a Convention ground of opposition.”

75. Those options are mirrored in section 44(2) itself. Thus, where a party opts to set aside the award in the courts of the seat and succeeds in doing so, it acquires a defence against enforcement under section 44(2)(f) which covers cases where the award has been set aside by a competent authority of the country in which, or under the law of which, it was made. The other option is to resist enforcement on other grounds, including section 44(2)(b), without having taken steps to set aside the awards in the supervisory court. They are options which are independently available.

76. As Lord Collins of Mapesbury pointed out in Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan:

“There is nothing in the Convention which imposes an obligation on a party seeking to resist an award on the ground of the non-existence of an arbitration agreement to challenge the award before the courts of the seat.”

77. In the Hebei case, Sir Anthony Mason NPJ points out that even where the supervisory court has held that the awards are valid, it would be open to the Hong Kong court in the enforcement forum to refuse enforcement, for example, on the ground of a differing Hong Kong public policy:

“The Convention distinguishes between proceedings to set aside an award in the court of supervisory jurisdiction (arts VI and VI(e)) and proceedings in the court of enforcement (art VI). Proceedings to set aside are governed by the law under which the award was made or the law of the place where it was made, while proceedings in the court of enforcement are governed by the law of that forum. The Convention, in providing that enforcement of an award may be resisted on certain specified grounds, recognises that, although an award may be valid by the law of the place where it is made, its making may be attended by such a grave departure from basic concepts of justice as applied by the court of enforcement that the award should not be enforced. It follows, in my view, that it would be inconsistent with the principles on which the Convention is based to hold that the refusal by a court of supervisory jurisdiction to set aside an award debars an unsuccessful applicant from resisting enforcement of the award in the court of enforcement.”

78. Section 44(2) is therefore consonant with the choice of remedies principle and enables the party concerned to resist enforcement in Hong Kong without having challenged the awards in the supervisory court. It follows that the decisions of the Courts below to treat the fact that the awards have not been set aside in Singapore as a major factor in refusing a time extension come into conflict with the choice of remedies principle.

79. Moreover, since the doctrine admits of (and indeed presupposes) a choice being made between an active or passive remedy, to hold it against First Media that it made a deliberate choice in favour of a passive remedy also conflicts with the choice of remedies principle.

80. Respecting that principle, Chow J’s second and third factors should not have been taken into account and, in embracing them, the discretionary exercise in the Courts below miscarried.

81. The decision not to embark upon a setting aside application within the 14 day time limit (which Mr Joseph QC submitted was incumbent on First Media) when there were then no assets in Hong Kong was entirely reasonable, particularly where the tribunal’s jurisdiction had been challenged and the right to bring further challenges was expressly reserved.

82. Mr Joseph QC sought to submit that the continued existence of the Singapore awards is a relevant discretionary factor to be taken into account because, as he puts it, they constitute “documents of title” creating legally binding debts which Astro is entitled to enforce.  The Court of Appeal sought to buttress that proposition by reference to section 42(2), stating:

“… unless an award is set aside, it is treated as binding for all purposes between the parties as between whom it is made, see section 42(2) of the Ordinance.”

83. In my view, section 42(2) does not assist. It relevantly provides:

“Any Convention award which would be enforceable under this Part shall be treated as binding for all purposes on the persons as between whom it was made, and may accordingly be relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings in Hong Kong…”

84. The binding quality of the award therefore depends on whether it would be enforceable under the Ordinance. Such enforceability is of course the very issue between the parties and section 42(2) does not help to resolve it. To argue, as Mr Joseph QC does, that the awards are relevant because they create enforceable debts begs the very question of their enforceability.

F. Proper exercise of the discretion

85. For the foregoing reasons, this Court is entitled and bound to set aside the decisions below and to exercise the discretion under Order 3 r 5 afresh, looking at all relevant matters and considering the overall justice of the case.

86. Having discarded two of the three factors given weight by Chow J and the Court of Appeal, one is left only with the factor of the 14 month delay as a possible basis for refusing an extension. Viewed against the 14 day limit prescribed by Order 73 r 10(6), that period is obviously substantial. However, as Chow J accepted, “Astro has not suffered any substantial prejudice (other than costs which can be compensated) as a result of First Media’s delay of 14 months”. Moreover, it is clear that Astro did not feel the need to press on urgently with the litigation since it was on Astro’s application that the hearing of First Media’s summons was stayed to await the Singapore Court of Appeal’s decision, involving a delay of some 20 months.

87. There must be balanced against the 14 month delay, the fundamentally important absence of a valid arbitration agreement between First Media and the Additional Parties, so that those parties were wrongly joined and the tribunal’s awards were made in their favour without jurisdiction. Thus if an extension of time is granted, the section 44(2)(b) defence against enforcement will clearly be available, there being no basis for precluding its operation. To refuse an extension would be to deny First Media a hearing where its application has decisively strong merits and would involve penalising it for a delay which caused Astro no uncompensable prejudice to the extent of permitting enforcement of an award for US$130 million. That would self-evidently be wholly disproportionate.

88. In my view, the Court’s discretion can only properly be exercised by setting aside the decisions below and granting the appellant an extension of time. Mr Joseph QC submitted that if the Court were minded to grant such an extension, it should do so only on terms that First Media makes full payment in satisfaction of all outstanding costs orders. That submission cannot be accepted. It was advanced without prior notice to the other side; without identifying what, if any, costs orders have been left unpaid; without considering whether any such orders may be subject to appeal; and without taking into account any available set-offs.

G. Disposal of this appeal

89. I would accordingly allow the appeal and grant the appellant an extension of time to apply to set aside the orders granting leave to enforce the awards and the judgment entered on the strength of those orders.

90. My answer to Question 1 is that the proper test involves looking at all relevant matters and considering the overall justice of the case, eschewing a rigid mechanistic approach, as indicated in The Decurion. And my answer to Question 2 is “No” except in cases where section 44(2)(f) is relied on. It is unnecessary to consider the “or otherwise” ground.

91. I would make an order nisi that the respondents pay to the appellant the costs of the appeals in this Court and in the Court of Appeal. Since it was necessary for the appellant to apply to Chow J for an extension of time, it must bear to some degree the costs of seeking the Court’s indulgence. But since it has succeeded in showing that his Lordship’s exercise of discretion miscarried on both grounds relied on when refusing them an extension, I would set aside his order as to costs and make an order nisi that the appellant pay half of the respondents’ costs before Chow J.

92. If a different order on costs is sought, written submissions should be lodged with the Registrar and served on the other parties within four weeks of the handing down of this judgment with liberty to the other parties to serve written submissions in reply within four weeks thereafter. If no submissions are lodged or served within the initial four-week period, the orders nisi shall stand as orders absolute without further direction.

Mr Justice Tang PJ:

93. I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Fok PJ:

94. I agree with the judgment of Mr Justice Ribeiro PJ.

Lord Reed NPJ:

95. I agree with the judgment of Mr Justice Ribeiro PJ.

Chief Justice Ma:

96. The Court unanimously allows the appeal, sets aside the orders of the Courts below and directs that time for the appellant to file its application for leave to set aside the orders granting the respondents leave to enforce the awards and to enter judgment thereon be extended for three months from the date of the handing down of this judgment. The Court also makes the orders as to costs set out in paragraphs 91 and 92 above.