Paloma Company Limited v Capxon Electronic Industral Company Limited

IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
CONSTRUCTION AND ARBITRATION PROCEEDINGS NO 53 OF 2017

PALOMA COMPANY LIMITED 
(Applicant/Claimant in the Arbitration)
V
CAPXON ELECTRONIC INDUSTRIAL COMPANY LIMITED

(Respondent/Respondent in the Arbitration)

BEFORE: Deputy High Court Judge Keith Yeung SC in Chambers
DATE OF HEARING: 2 May 2018
DATE OF DECISION: 2 May 2018
DATE OF REASONS FOR DECISION: 25 May 2018

REASONS FOR DECISION

THE APPLICATIONS

1. There are two matters before the court:

(a) the substantive hearing (the“Charging Order Hearing”) for the Charging Order: Notice to Show Cause dated 23 November 2017 (the “Charging Order Nisi”); and

(b) the hearing for the summons dated 13 March 2018 taken out by Capxon (the “Setting Aside Summons”) for setting aside the Order of Mimmie Chan J dated 12 October 2017 (the “Enforcement Order”) granting leave to enforce the Arbitral Award dated 6 August 2014 (the “Award”).

BACKGROUND LEADING TO THE APPLICATIONS

2. Paloma Company Limited (“Paloma”) is a company which business address is in Japan.

3. Capxon Electronic Industrial Company Limited (“Capxon”) is a subsidiary of Capxon International Electronic Company Limited, a company listed on the Main Board of the Hong Kong Stock Exchange. The registered address of Capxon is in Taiwan.

4. Capxon and Paloma engaged in the sale and purchase of electrolytic capacitors. Disputes arose between them in respect of certain capacitors that Capxon had supplied to Paloma. They were defective. Pursuant to the terms and conditions governing those sales, Paloma on 17 November 2011 commenced arbitration at the Japan  Commercial Arbitration  Association against Capxon. Japan is a contracting state of theNew York Convention. The matter was before a three-member tribunal (the “Arbitral Tribunal”). After 11 meetings (for variably oral arguments, technical explanations and examination of witnesses), and having received written submissions, the Arbitral Tribunal on 6 August 2014 delivered the Award in favor of Paloma in the sum of JPY2,427,186,647 plus interest and costs.

5. Subsequent to the Award, Capxon sought to have the same set aside in a number of courts. Its attempts in Japan were dismissed firstly by the Tokyo District Court (on 22 January 2016), then Toyko High Court (on 16 February 2017), and finally Japan Supreme Court (on 31 May 2017). Its attempt to resist the recognition of the Award in Taiwan was also rejected by the Taiwan Shilin District Court on 9 March 2018.

6. On 12 October 2017, Mimmie Chan J gave leave to enforce the Award in Hong Kong pursuant to section 87 of the Arbitration Ordinance Cap 609 and Order 73, rule 10(1) of the Rules of the High Court (ie the Enforcement Order).

7. On 23 November 2017, the Charging Order Nisi was granted in respect of 85,137,200 shares in Lancom Limited held by Capxon (the “Lancom Shares”). The hearing to show cause was originally set to take place on 22 December 2017.

8. On 19 December 2017, evidence was filed on behalf of Capxon alleging that the service of the Charging Order Nisi was “ineffective and illegal”. On that basis, Capxon craved that the Court should either refuseto make the Charging Order Nisi absolute, or alternatively that the hearing of 22 December 2017 be adjourned so that further evidence could be filed.

9. On 22 December 2017, the hearing to show cause was adjourned.

10. On 13 February 2018, Capxon filed further evidence (affirmation of Ms Chou Chiu-Yueh) concerning the alleged ineffective service of the Charging Order Nisi. Ms Chou also revealed in her affirmation that Capxon intended to make application to have the Enforcement Order set aside. She claimed that as the service of the Enforcement Order on Capxon was also ineffective, the time for Capxon to apply to set aside the Enforcement Order had not started to run, and the intended application was therefore not out of time.

11. On 13 March 2018, Capxon ultimately took out the Setting Aside Summons. The grounds upon which the application is premised are stated as follows:

“ 1. There was conflict with public policy by virtue of the following:

a. the tribunal unfairly formed a presumption that the defects of the Applicant’s products were attributable to contamination of the Respondent’s capacitors by chlorine (the ‘Chlorine Contamination’) as a result of the bare hand operation of the Respondent’s workers during the manufacturing process,on the sole basis of an alleged admission or confession by the Respondent in certain reports prepared by it in response to the Applicant’s queries (the ‘Report’);

b. the Respondent did not made admission to the Chlorine Contamination in the Report, and did raise this as an issue;

c. the tribunal failed to consider the issue, and came to a conclusion in favour of the said admission and presumptionwithout giving justification. On the other hand, there werefacts which clearly contradicted the Chlorine Contamination;

d. with the said unjustified presumption, the tribunal reverses the burden of proof to the prejudice of the Respondent, clearly in violation of Japanese law and also a serious procedural irregularity under Hong Kong law;

e. the tribunal also refused to accept evidence proffered by the Respondent which suggested that chlorine contamination was the result of the Applicant’s manufacturing process, without giving any reason; and

f. in the premises, the manner in which the tribunal conducted the Arbitration was clearly against the fundamental conception of morality and justice.

2. In the event that the presumption was not unfairly established orthe Respondent’s evidence pointing to a default on the part of the Applicant’s manufacturing process as the cause of the chlorine contamination was not unreasonably rejected, the ruling of the tribunal could have been very different.”

12. On 13 March 2018, Ms Chou Chiu-Yueh filed her 2nd affirmation in support of the Setting Aside Summons (which was further supplemented by her 3rd affirmation of 24 April 2018).

13. Until 16 April 2018, the only basis which Capxon had put forward to resist the Charging Order Nisi being made absolute was the alleged defective service of the same. That changed on 16 April 2018. On that day, Mr Lin Chin Tsun, the chairman of Capxon up to 10 April 2018 and since that date its liquidator, filed an affirmation. He disclosed that pursuant to a board meeting dated 19 March 2018, an extraordinary general meeting of shareholders of Capxon was convened on 10 April 2018. During that EGM, it was resolved that Capxon be dissolved, and Mr Lin be appointed as the liquidator for the conduct of the dissolution and liquidation procedure. He produced the financial statements and accountant’s report of Capxon as at 31 December 2017. He said that whilst Capxon was on the face of those statements solvent, “if the Lancom Shares are charged and removed from its assets, [Capxon] will not have enough assets to satisfy its outstanding liabilities owed to its other creditors as at 31 December 2017.” He further said that “The balance sheet and property inventory of [Capxon] is now being prepared by Deloitte & Touche for the purpose of the dissolution and liquidation process. I shall make further affirmation to exhibit such document to his Honourable Court once it is ready.”

14. On 24 April 2018, Ms Chou Chiu-Yueh filed her 3rd affirmation in support of the Setting Aside Summons.

ADJOURNMENT OF THE CHARGING ORDER HEARING

15. Mr Maurellet SC, who appears for Capxon together with Mr Mike Yeung, invites the Court to initially deal with the issue as to whether Capxon’s liquidation on 10 April 2018 would on its own be a sufficient ground for the Court to decline to make the Charging Order Nisi absolute. If the Court considers that it is not, the Court is invited not to proceed with the Charging Order Hearing before determination of the Setting Aside Summons.

16. Mr Jason Yu, counsel for Paloma, takes issue with the late filing of Mr Lin’s affirmation, on the basis that Mr Lin has raised a new point based upon the recent liquidation of Capxon, in respect of which Paloma has had no realistic opportunity to respond. He submits that the voluntary winding up of Capxon was engineered by its management. He further submits that whilst the new point cannot be sustained, he reserves the right to file evidence should the matter be adjourned.

17. Whilst comments can be made on the timing of Capxon’s liquidation and its revelation, I am not prepared to rule on the matter at this stage. As has been revealed by Mr Lin in his affirmation, the balance sheet and property inventory of Capxon for the purpose of the dissolution and liquidation process is now being prepared by Deloitte & Touche. Mr Maurellet has informed me that that may take about 6 weeks. A lot of things are going to hinge on the information that will be disclosed by that set of balance sheet and inventory. Apart from anything else, the legal principles to be applied may differ depending upon the state of solvency of Capxon. Further, third party interests’ (ie interests of other creditors) are potentially at stake. In the end, I have decided to adjourn the Charging Order Hearing with directions on the filing of further evidence.

THE SETTING ASIDE SUMMONS

18. I proceed to hear the Setting Aside Summons.

The applicable legal principles

19. The Award is a Convention Award. The Enforcement Order was sought and granted pursuant to section 87 of the Arbitration Ordinance, Cap 609.

20. The attitude of the Hong Kong Court towards enforcement of arbitration awards and parties’ agreements to submit their disputes to arbitration has been summarized by Mimmie Chan J in KB v S & Ors [2015] HKCFI 1787; [2016] 2 HKC 325, at 328 – 329, that:

“ (1) The primary aim of the court is to facilitate the arbitral process and to assist with enforcement of arbitral awards.

(2) Under the Arbitration Ordinance (Ordinance), the court should interfere in the arbitration of the dispute only as expressly provided for in the Ordinance.

(3) Subject to the observance of the safeguards that are necessary in the public interest, the parties to a dispute should be free to agree on how their dispute should be resolved.

(4) Enforcement of arbitral awards should be ‘almost a matter of administrative procedure’ and the courts should be ‘as mechanisticas possible’ (Re PetroChina International (Hong Kong) Corp Ltd [2011] HKCA 168; [2011] 4 HKLRD 604).

(5) The courts are prepared to enforce awards except where complaints of substance can be made good. The party opposing enforcement has to show a real risk of prejudice and that its rights are shown to have been violated in a material way(Grand Pacific Holdings Ltd v Pacific China Holdings Ltd [2012] HKCA 200; [2012] 4 HKLRD 1 (CA)).

(6) In dealing with applications to set aside an arbitral award, or to refuse enforcement of an award, whether on the ground of not having been given notice of the arbitral proceedings, inability to present one’s case, or that the composition of the tribunal or the arbitral procedure was not in accordance with the parties’ agreement, the court is concerned with the structural integrity of the arbitration proceedings. In this regard, the conduct complained of ‘must be serious, even egregious’, before the court would find that there was an error sufficiently serious so as to have undermined due process (Grand Pacific Holdings Ltd v Pacific China Holdings Ltd [2012] HKCA 200; [2012] 4 HKLRD 1 (CA)).

(7) In considering whether or not to refuse the enforcement of the award, the court does not look into the merits or at the underlying transaction (Xiamen Xingjingdi Group Ltd v Eton Properties Ltd [2009] HKCA 223; [2009] 4 HKLRD 353 (CA)).

(8) Failure to make prompt objection to the Tribunal or the supervisory court may constitute estoppel or want of bona fide (Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] HKCFA 40; (1999) 2 HKCFAR 111).

(9) Even if sufficient grounds are made out either to refuse enforcement or to set aside an arbitral award, the court has a residual discretion and may nevertheless enforce the award despite the proven existence of a valid ground (Hebei Import &Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR111, 136A–B).

(10) The Court of Final Appeal clearly recognized in Hebei Import&Export Corp v Polytek Engineering Co Ltd that parties to the arbitration have a duty of good faith, or to act bona fide (p 120Iand p 137B of the judgment).”

21. Specifically in respect of an objection to enforcement based on public policy (which Capxon is doing by the Setting Aside Summons to do), the relevant sections in the Arbitration Ordinance are section 81(1) (Article 34 of the UNCITRAL Model Law) and section 89 (Convention awards).

22. In Hebei Import & Export Corp v Polytek Engineering Co Ltd[1999] HKCFA 40; (1999) 2 HKCFAR 111 (which Mr Maurellet has fairly and properly highlighted for my attention), the Court of Final Appeal held and observed under the old Arbitration Ordinance, Cap 341 (but equally applicable to the current Arbitration Ordinance, Cap 609) that:

“ The expression public policy as it appears in s.44(3) of the Ordinance is a multi-faceted concept. Woven into this concept is the principle that courts should recognise the validity of decisions of foreign arbitral tribunals as a matter of comity, and give effect to them, unless to do so would violate the most basic notions of morality and justice. It would take a very strong case before such a conclusion can be properly reached, when the facts giving rise to the allegation have been made the subject of challenge in proceedings in the supervisory jurisdiction,and such challenge has failed.” (per Litton PJ at 118D–E)

“ In my judgment, the position is as follows. Before a Convention jurisdiction can, in keeping with its being a party to the Convention, refuse enforcement of a Convention award on public policy grounds, the award must be so fundamentally offensive to that jurisdiction’s notions of justice that, despite its being a party to the Convention, it cannot reasonably be expected to overlook the objection.

….

In the present context, I think that a distinction can and should be made between the effect of actual bias and that of apparent bias. (When I say ‘bias’ I mean a lack of the impartiality required of judges and arbitrators.) Actual bias would be more than our courts could overlook even where the award concerned is a Convention award. But short of actual bias, I do not think that the Hong Kong courts would be justified in refusing enforcement of a Convention award on public policy grounds as soon as appearances fall short of what we insist upon in regard to impartiality where domestic cases or arbitrations are concerned. Our stance must be that something more serious even than that is required for refusing such enforcement. In adopting such a stance, we would be proceeding in conformity with the stance generally adopted in regard to Convention award enforcement by the commercial jurisdictions whose decisions from around the globe have been cited to us by leading counsel for the buyer.” (per Bokhary PJ at 123H–I and 124B–D)

“ …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.

….

However, the object of the Convention was to encourage the recognition and enforcement of  commercial arbitration  agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced (Scherk v Alberto-Culver Co [1974] USSC 173; (1974) 417 US 506; Imperial Ethiopian Government v Baruch-Foster Corp [1976] USCA5 1064; (1976) 535 F 2d 334 at p.335). In order to ensure the attainment of that object without excessive intervention on the part of courts of enforcement, the provisions of art.V, notably art.V2(b) relating to public policy, have been given a narrow construction. It has been generally accepted that the expression ‘contrary to the public policy of that country’ in art.V2(b) means ‘contrary to the fundamental conceptions of morality and justice’ of the forum. (Parsons & Whittemore Overseas Co Inc v Societe Generale De L’Industrie Du Papier (RAKTA) [1974] USCA2 836; (1974) 508 F 2d 969 at p.974 (where the Convention expression was equated to ‘the forum’s most basic notions of morality and justice’); see AJ van den Berg, The New York Convention of 1958 (Kluwer, 1981) at p.376; see also Renusagar Power Co Ltd v General Electric Co (Yearbook  Commercial Arbitration  XX (1995) 681 at pp.697–702)).”
(per Sir Anthony Mason NPJ at 136E–F and 139D–H)

23. On the principles applicable where a party seeks leave to resist enforcement of a Convention award out of time, the Court of Final Appeal in the recent case of Astro Nusantara v PT Ayunda Prima Mitra [2018] HKCFA 12 held that the proper test involves looking at all relevant matters and considering the overall justice of the case, eschewing a rigid mechanistic approach (section E.2 of the Judgment).

24. When considering the Setting Aside Summons, I apply the principles and considerations set out above.

Discussions

25. The grounds which Capxon seeks to rely upon are set out in the Setting Aside Summons which I have reproduced above. In gist, the allegations are that as Paloma was the petitioner, it had the onus of proving the defects and their causes. But the Arbitral Tribunal relied upon certain alleged admissions made by Capxon in some reports (“Reports”) that it had made and formed a presumption against Capxon for its rebuttal, to the effect that the defects of the Capxon’s products were attributable to contamination by chlorine as a result of the bare hand operation of Capxon’s workers during the manufacturing process. The Arbitral Tribunal also ignored a lot of contrary evidence in Capxon’s favour (which Ms Chou endeavored to set out in her 2nd and 3rd affirmations). The Arbitral Tribunal had therefore, Capxon claims and Mr Maurellet submits, reversed the onus of proof. That wrongful reversal of burden of proof, it is further submitted, “clear shows an actual bias” on the part of the Arbitral Tribunal towards Capxon. As the manner in which the tribunal conducted the Arbitration was clearly against the fundamental conception of morality and justice, to enforce the Award would be contrary to public policy.

26. I have considered those Reports. There is no dispute that they were indeed prepared by Capxon in response to Paloma’s complaints about the capacitors concerned. Mr Yu has taken me through some of their contents, which in my view clearly contain matters and information which were capable of being accepted by the Arbitral Tribunal as evidence against Capxon:

• “ Defects in the manufacturing process: When the production records were investigated, there were orders submitted for a short term delivery for large volume in February of 2006, and our company responded through urgent production. In the assembly process, there was a defect caused by inappropriate tasks conducted by a worker. According to the dissection analysis, the life will be shortened if the task of bending the aluminum lead board is conducted inappropriately and the term is used for a long period of time because the aluminum lead board is damaged.” 

• “ In the 6th week of 2006 (C606), the number of orders accepted for LP series (including LP220uF00V 20×26) increased significantly, which caused the response to become tense in the Production Management due to urgent production. It is estimated that the workers will touch the elements by hand carelessly in the assembly process.”

• “ In the assembly process in lot C606 of LP220M200L260 which is the aluminum electrolytic capacitor manufactured by our company, individual defects occur due to inappropriate tasks conducted by workers. Furthermore, there are no defects in the products of other lots. Our company will take all responsibilities if there are defects in other lots.” 

• “ The aluminum electrolytic capacitor manufactured by us with the specification LP220M200L260 and cycle C606 has a few flaws due to improper operations by personnel during the assembly process, but there are no faults in other cycle. If there are faults in other cycles, we would like to take full responsibility.” 

• “ The chlorine does not have a very good effect of the characteristic of capacitors. There is possibility that the quality may be affected if the capacitor is produced by hand, since sweat contains chlorine.” 

27. It is also important to note that Capxon had been afforded opportunities to challenge those Reports. The authors of those Reports were called as live witnesses before the Arbitral Tribunal. The witnesses sought to explain that the material contents of the Reports were untrue. Despite their evidence, but having considered the same, the Arbitral Tribunal decided to place weight upon the Reports. The material parts of the Arbitral Tribunal’s observations and findings are as follows:

“ Lin I Chu and Factory Manager Lu Yan Cheng who had been in the leading positions in creating the reports for the respondent, endlessly explained that the content of the reports is false and does not reflect the facts as well as the motive leading to the falsification and the circumstances in the report creation, but they cannot be trusted. The statements of Lin I Chu stating that ‘you should really conduct self-examination when pointing out issues in our customers,’ and ‘the problem is in the customers. I instructed to not write in any key words which insinuate that or the keyword chlorine’ in relation to Petitioner’s Evidence 68 does not logically explain why Lin I Chu took this action as a response by a businessman. The statement that ‘there was no defects in the transactions with Higashibara Company” by Lin I Chu clearly contradicts the Respondent’s Evidence 33 which states that there was a defect; this document was created by Hin I Chu himself. Moreover, Lu Yan Cheng gave instructions to Lin I Chu to send a photo of the LP product that was corroded by soaking it in salt water and then applying a large electrical current as the Attachment of Petitioner’s Evidence 56, posing this photo to be the product that was actually corroded; Lu Yan Cheng also agreed to these instructions and contributed to the lie as well. The arbitral tribunal cannot place their trusts in the words of Lin I Chu and Lu Yan Cheng, who conducted actions outside of the realm of common businessmen, and who deny the content of the documents they created themselves. The reasons for withdrawal of submitted evidence to the arbitral tribunal (Respondent’s Evidence 11, Respondent’s Evidence 12, and Respondent’s Evidence 15 through Respondent’s Evidence 19) is not entirely convincing. Even with the other evidence submitted by the Respondent, it is not enough to state that the content of the report created by the respondent is false.”

28. Having considered the evidence and counsel’s submissions, I do not accept Mr Maurellet’s submissions that there has been any impermissible reversal of burden of proof. I further reject the submissions that the evidence or the reasoning of the Arbitral Tribunal shows any actual bias on its part against Capxon. I do not intent to look further at or into the merits of the Award or the Arbitral Tribunal’s reasoning which led to it. In fact, I ought not to: KB v S & Ors (paragraph 49). I accept Mr Yu’s submissions that “the inescapable conclusion is that Capxon is inviting the Court to review errors or explore the reasoning of a tribunal. This is not permissible.”

29. On the evidence, I cannot see any error or matter of the nature which, according to the elucidations by the Court of Final Appeal in Hebei, come close to justifying the setting aside of the Enforcement Order on the public policy ground.

30. For completeness sake, I should also mention the question of leave to extend time. In the Setting Aside Summons, Capxon seeks “leave to extend the time within which the application for the order under this Summons should be made until the date hereof should this Honourable Court consider that such application is made out of time” (emphasis added). Capxon’s primary contention is that as the service of the Enforcement Order was ineffective, the time for it to apply to have it set aside has not started to run. I do not intend to go into the issue of service unnecessarily and on such contingency basis. I will only say this. If extension of time is required, I will refuse to grant any. I have considered the overall justice of the case. I avoid the application of any rigid mechanistic approach. On the basis of my conclusion expressed above on the lack of any basis to challenge the Enforcement Order, it would have been futile for me to grant any extension.

Disposal

3 1. At the end of the hearing on 2 May 2018, I dismissed the Setting Aside Summons with costs to Paloma on an indemnity basis. I promised to hand down my reasons when ready, which I have now done.

(Keith Yeung SC)
Deputy High Court Judge

Mi v Li [2018] ACTCA 66

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

COURT OF APPEAL

CASE TITLE: Mi v Li

CITATATION: [2018] ACTCA 66

HEARING DATE: 8 August 2018

DECISION DATE: 14 December 2018

BEFORE: Elkaim, Loukas-Karlsson and Charlesworth JJ

DECISION: 
1. The appeal against the orders of McWilliam AsJ is dismissed.
2. The appellant is to pay the respondent’s costs of this appeal.

CATCHWORDS: APPEAL – ARBITRATION – Appeal against primary judgment – appeal against enforcement of Interim Arbitral Award – whether the primary judge erred by mischaracterising appellant’s case – whether the primary judge erred by finding that Anshun estoppel applied to the appellant – whether the primary judge erred in her application of rule 3254 of the Court Procedures Rules 2006 (ACT) – appeal dismissed

THE COURT

Introduction

  1. This is an appeal from a decision of McWilliam AsJ (the primary judge) arising out of a dispute surrounding a construction contract. On 30 October 2017, the primary judge ordered that the Interim Arbitral Award given in Arbitration proceedings with the designation IAMA # 5073 delivered on 20 August 2016 be registered as a judgment of the Supreme Court in favour of the plaintiff in the sum of $217,454.34 including interest, with the defendant to pay the plaintiff’s costs.
  2. The appellant appeals from these orders on the following grounds:

Ground 1:  The trial judge erred by misconstruing, misunderstanding, or mischaracterising the appellant’s case or submission in relation to the identity of the counterparty to any construction contract or arbitration agreement;

Ground 2:  The trial judge erred in finding that the appellant was estopped from arguing that the arbitrator lacked jurisdiction to make an arbitral award as between the appellant and the respondent; and

Ground 3:  The trial judge erred in finding that rule 3254 of the Court Procedures Rules 2006 (ACT) (the Rules) imposed a relevant constraint on the claims to be made by the appellant.

Relevant Legislation

  1. The applicable legislation is the Commercial Arbitration Act 1986 (ACT) (the Act). On 1 July 2017, the Commercial Arbitration Act 2017 (ACT) (the 2017 Act) commenced. Pursuant to the transitional provisions in Part 20 of the 2017 Act, commercial arbitrations commenced (and in this case concluded) before 1 July 2017 continue to be conducted in accordance with the Act.
  2. The relevant starting point is s 33 of the Act. That section provides as follows:

33          Enforcement of award

An award made under an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect, and where leave is so given, judgment may be entered in terms of the award.

  1. Rule 3260 of the Rules relevantly provides as follows:

3260        Commercial arbitration – application to enforce arbitral award

An application under the Commercial Arbitration Act, section 35 (Recognition and enforcement) to enforce an arbitral award—

(a) must be supported by an affidavit that states—

(i) the extent to which the award has not been complied with at the date the application is made; and

(ii) the usual, or last-known home or business address of the person against whom it is sought to enforce the award or, if the person is a corporation, its last-known registered office; and

(b) may be made without giving notice to anyone.

  1. Prior to the commencement of the Commercial Arbitration Act 2017 (ACT), r 3254 of the Rules provided as follows:

3254        Commercial arbitration—appeal under Commercial Arbitration Act, s 38

(1)          An appeal to the Supreme Court mentioned in the Commercial Arbitration Act, section 38 (4) (a) (Judicial review of awards) must be started not later than 28 days after—

(a)   if, by agreement of the parties to the arbitration agreement, the award is made without including a statement of reasons—the day the statement of reasons is given to the appellant; or

(b)   in any other case – the day notice of the award is given to the appellant

(2)          An appeal to the Supreme Court mentioned in the Commercial Arbitration Act, section 38 (4) (b) must be started not later than 28 days after the day leave is given by the court.

  1. Section 48 of the Act provides as follows:

48           Extension of time

(1)          Subject to subsection (3), the court shall have power on the application of a party to an arbitration agreement or an arbitrator or umpire to extend the time appointed by or under this Act or fixed by the agreement or by an order under this section for doing any act or taking any proceeding in or in relation to an arbitration.

(2)           The court may make an order under this section although an application for the making of the order was not made until after the expiration of the time appointed or fixed for doing the act or taking the proceeding.

(3)           An order shall not be made under this section extending the time within which arbitration proceedings might be commenced unless—

(a)           the court is satisfied that in the circumstances of the case undue hardship would otherwise be caused; and

(b)           the making of the order would not contravene the provision of any Territory law limiting the time for the commencement of arbitration proceedings.

Background

  1. On 10 November 2011, the appellant (Mr Mi) entered into a contract for the construction of a single dwelling with an entity that gave its business name as, “Kai Design and Construction,” and its ABN as 55 759 669 879.
  2. In March 2013, Mr Mi purported to terminate the contract. In January 2014, Kai Design & Construction Pty Ltd (in liq), brought an arbitration claim against Mr Mi. Kai Design and Construction Pty Ltd did not exist when the contract was made.
  3. Ultimately, by further amended statement of claim dated 25 February 2015, the claim against Mr Mi was advanced only by the respondent (Mr Li) (and not also by Kai Design and Construction Pty Ltd) (in liq)). On 20 August 2016, Mr William Sullivan (the arbitrator) made an interim award in favour of Mr Li, requiring Mr Mi to pay $205,121.75 (the award).
  4. On 23 August 2016, Mr Mi (then self-represented) filed an originating application in the Supreme Court of the ACT, seeking to challenge the award. The challenge was unsuccessful. On 16 March 2017, Mossop J dismissed the proceeding: Mi v Li [2017] ACTSC 54. This decision will be discussed below.
  5. On 2 August 2017, Mr Li filed an originating application seeking (inter alia) an order that the award be registered as a judgment of the Court in favour of Mr Li.
  6. On 15 September 2017, Mr Mi filed an application in proceeding seeking (inter alia) a declaration that “[Mr Li] is not the contractual party of the [contract].”
  7. On 4 October 2017, Mr Li’s originating application, and Mr Mi’s application in proceeding, were heard together by the primary judge. Mr Li was represented by solicitors and counsel. Mr Mi continued to be self-represented.
  8. On 30 October 2017, the primary judge delivered judgment: Li v Mi (No 2) [2017] ACTSC 318. Her Honour’s orders included that the award be registered as a judgment in Mr Li’s favour. The current appeal is brought from that order. This appeal is brought under section 37E of the Supreme Court Act 1993 (ACT).

Mi v Li [2017] ACTSC 54

  1. As set out above, this matter came before Mossop J when Mr Mi initially sought to challenge the interim award made by the arbitrator. This followed the same arbitration which is the subject of these proceedings (IAMA # 5073) between Mr Mi and Mr Li, who was named as the first defendant in those proceedings.
  2. Mr Mi sought that the interim award be set aside under s 42 of the Commercial Arbitration Act 1986 (ACT) (the Act), or alternatively that leave to appeal be granted under s 38 of the Act. The grounds of that application asserted misconduct on the part of the arbitrator, that the arbitration or award had been improperly procured, and manifest error of law on the face of the award.
  3. The award was made on 20 August 2016, with reasons extending over 80 pages. Mossop J summarised the background of the arbitration at [8] as follows:

(a)          On 10 November 2011 Mr Li and Mr Mi entered into a contract for the construction of a residential dwelling at a block in Franklin.  The contract price was $500,000.

(b)          Mr Li and Mr Mi entered into an arbitration agreement under the Franklin contract.  The claimant in that arbitration was Kai Design and Construction Pty Ltd (the Company) which is a company controlled by Mr Li.  A further arbitration agreement was entered into on 25 September 2014 which included the company, Mr Li and Mr Mi.

(c)          Construction of the residence ceased before it was complete. Mr Mi contended that he terminated the contract.  Mr Li contended that the contract was repudiated by Mr Mi.  Mr Mi took over the work in early April 2013 and completed the work that would have been required under the contract.

(d)          Mr Li initially claimed damages and in the alternative made a quantum meruit claim.  In final submissions he elected to pursue the quantum meruit claim and not the claim for damages.

(e)          Mr Mi made a counter claim in which he claimed rectification and completion costs as well as other components of damages. 

(f)          The arbitration involved 13 days of hearing.

  1. Mossop J summarised the key issues which arose for the arbitrator’s determination at [9] as follows:

(a)          Had Mr Li assigned his contractual obligations to the Company?

(b)          Did the contract require that the installation of windows and glass doors would be part of the Frame and Truss Stage identified in the contract or had there been some statement or agreement that they would be, so as to give rise to an estoppel?

(c)          Was Mr Mi’s termination of the contract on 21 March 2013 valid?

(d)          Did Mr Li have a right to terminate the contract arising from the failure by Mr Mi to pay a stage payment under the contract? 

(e)          What was the appropriate award of damages or upon a quantum meruit claim?

  1. The arbitrator assessed Mr Li’s entitlement upon a quantum meruit, relying upon the expert evidence of Mr Shepheard who estimated the total construction costs of the works up until the point of termination. The breakdown of the total amount was summarised by Mossop J at [15] as follows:

Cost of construction (before markup and GST):  $196,044

10% markup for overheads and profit  $19,604

Subtotal$215,648

GST  $21,565

Amount to be deducted for incomplete work or defective work                -$9500

Total value of work completed at April 2013 including GST          $227,713

  1. The total amount of the award to Mr Li, accounting for payments already made, and interest owing, and offsetting $6,630.85 plus interest owing to Mr Li, was $205,121.75.
  2. Mossop J organised Mr Mi’s submissions in support of his claim into three groups of issues as follows at [18]:

(a)          the allegation that the arbitration had been improperly procured or the award had been improperly procured (s 42(1)(b));

(b)          the allegation that the arbitrator had misconducted the proceedings or had misconducted himself (s 42(1)(a));

(c)          the allegation that there was a manifest error of law on the face of the award (s 38(5)(b)(i)).

  1. In relation to the first group of issues, being whether the arbitration or interim award was improperly procured, Mossop J considered the issues raised by Mr Mi individually, and concluded that none of the issues raised by Mr Mi could prove a basis for concluding that the interim award had been improperly procured.
  2. In relation to the second group of issues, being any misconduct by the arbitrator, Mossop J pointed to the standard of misconduct required, as stated in Holland Stolte Pty Ltd v Murbay Pty Ltd (1991) 105 FLR 304 at 308 per Miles CJ, as follows:

I come to the conclusion that although the word “misconduct” in s 42(1)(a) does not have to be read ejusdem generis with the categories of behaviour enumerated in the definition clause s 4 of the Act, there must nevertheless be some real dereliction of duty on the part of the arbitrator before it can be said that the arbitrator has been guilty of misconduct, or that the arbitrator has misconducted the proceedings.

  1. Mossop J individually considered the factual issues raised by Mr Mi, and concluded that no matters raised demonstrated misconduct on the part of the arbitrator, or that the arbitrator misconducted the proceedings. Mossop J noted that Mr Mi bore the onus of establishing a denial of procedural fairness, and that he was not satisfied that this onus had been discharged.
  2. In relation to the third group of issues, being whether there had been a manifest error of law on the face of the award, Mossop J first identified the relevant test as at [83] as follows:

In Westport Insurance v Gordian Runoff (2011) 244 CLR 239 at [42] a majority of the High Court identified that the words “a manifest error of law on the face of the award” comprise a phrase which was to be read and understood as expressing the one idea. What is required was the existence of the error of law to be manifest on the face of the award including the reasons given by the arbitrator. If the error is manifest and the determination of the question could substantially affect the rights of at least one of the parties then there is the discretion to give leave under the statute. The majority judgment rejected the proposition that in order to be “manifest” what was required was an error of law of a particular character: [45].

  1. Mossop J noted that the manner in which the errors were identified by Mr Mi in written submissions made it difficult to identify the precise errors alleged. In Mi v Li [2017] ACTSC 54, Mossop J noted at [84]:

The written submissions on this point were limited even though asserting a large number of manifest errors of law. I will set them out in full:

17.          There are numerous errors of law in the Award. At least following issues could be identified from the Award: (a) Development approval obtained in November 2011; (b) identification of the builder under the Building Act 2004; (c) Purported assignment; (d) Estoppel to deny a purported assignment; (e) Carry out works shown on the Approved Plan; and (f) Verification of Survey Reports and Termite Certificate during stages; (g) Steel frames are not included in frame and truss stage; (h) Strap-down or tie-down are not included in frame and truss stage and they are minor; (i) Fidelity Fund are not required to be provided by the builder and can be provided by the owner; (j) Waiver of Ms White’s email in November 2014; (k) Performing in proper and skilful manner; (l) Time frame for the construction period; (m) Claim for damage for delay with a $0/week liquidated damages term in the contract; (n)Quantum meruit claim from a party in default; (o) Profit and costs for the Franklin Project with admission of losses by the claimant; (p) Progress claim by Mr Li without issuing invoice as an individual; (q) Who perform the work? (r) Interest calculation based on an estimated figure from an “expert” report and not from Mr Li’s progress payment claim; and (s) Admissibility of filing a reply and expert report at a very late stage; (t) fraud.

  1. No particular part of the award was identified as involving a manifest error of law. Mossop J concluded that having read the award and taken into account the written and oral submissions, no manifest error of law was apparent and as such, was not satisfied that leave under s 38 should be granted.
  2. In conclusion, Mossop J noted that the submissions made by Mr Mi sought to challenge a combination of questions of fact and law. Mr Mi had sought to characterise these contentions as falling within the scope of ss 38, 42, and 44, however Mossop J found that the challenges did not fall within the limited scope of those permitted grounds of challenge. As such, Mossop J made the following conclusions at [86]:

a)           the interim award should not be set aside;

b)           leave to appeal under s 38 should be refused;

c)           the arbitrator should not be removed;

d)           the arbitration should not be terminated and the dispute should not be removed into the Supreme Court.

  1. Mossop J dismissed the proceedings. There has been no appeal from this decision.  

Li v Mi (No. 2) [2017] ACTSC 318

  1. Mr Li sought to register the interim arbitral award (IAMA # 5073). Under s 33 of the Act, Mr Li made an application for the enforcement of the Interim Arbitral Award given in arbitration proceedings and delivered on 20 August 2016. As set out above, this matter came before the primary judge.
  2. Rule 3260(1)(a) of the Rules stipulates the procedural requirements in relation to such an application. There are two requirements, firstly, an affidavit supporting the application that states the extent to which the award has not been complied with at the date the application is made, and secondly, the usual or last-known home or business address of the person against whom enforcement is sought.
  3. At [4], the primary judge notes that Mr Mi resisted the application for enforcement on the basis that Mr Li was not the contractual party to the agreement. Mr Mi filed an application seeking a declaration, in addition to making five additional arguments set out by the primary judge at [5] as follows:

a)     The Award was an interim award, has not been finalised and is not a final order.

b)     There was a Calderbank offer made on 15 March 2015, which offered a sum greater than the Award.

c)     Registration of the Award cannot be granted unless the Court is fully satisfied that the party making the originating application is the right party.

d)     The Award does not specify who is the entity to receive payment.

e)     The Award is the result of fraud, misrepresentation, misconduct and concealment and must be set aside.

  1. In relation to Mr Mi’s claim, the primary judge at [17] cited the decision of Rolfe J in Cockatoo Dockyard Pty Ltd v Commonwealth of Australia (No 3) (1994) 35 NSWLR 689 at [694] as follows:

In my opinion s 33 of the Act does not provide another method whereby a party may call in question the award of an arbitrator and, although perhaps under another guise, provide the Court with a power to reverse what the arbitrator has done.

  1. The primary judge found that because Mr Li had complied with the requirements of r 3260, the Court was empowered to make the enforcement orders sought by Mr Li.
  1. The primary judge further found that none of the defendant’s arguments had any merit for the following reasons.
  2. First, her Honour found that Mr Mi’s right of appeal under the Act had already been invoked and ventilated in the proceedings and resulting judgment of Mi v Li [2017] ACTSC 54. As such, her Honour found that this was plainly a case where Anshun estoppel applied: see generally Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 597-603 per Gibbs CJ, Mason and Aickin JJ (Anshun). This doctrine prevents a party to litigation raising issues after judgment has been given which was or was available to be raised in the first proceedings. Her Honour found that the doctrine applied to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time: Henderson v Henderson [1843] EngR 917; (1843) 3 Hare 100 (Henderson) per Wigram V-C at 115, cited in Wagdy Hanna and Associates Pty Ltd v National Library of Australia [2012] ACTSC 126 per Refshauge ACJ at [270].
  3. Her Honour found that there was no reason why legal arguments about the nature of the parties to the arbitration agreement, the nature of the award or any improper conduct by the plaintiff could not have been agitated in the previous proceedings.
  4. Second, her Honour found that on a fair reading of the decision of Mossop J, the key issues sought to be raised by Mr Mi have now been ventilated and determined without any error having been found. Her Honour noted that Mossop J had considered arguments relating to the arbitrator’s treatment of Mr Mi’s submissions on this point. As such, her Honour found that Mr Mi faced a factual finding against assignment by the arbitrator, for which there plainly was evidence, and the finding by Mossop J that there had been no error in the reasoning process in the terms complained of by Mr Mi. Her Honour found that Mr Mi’s submissions in the primary proceedings amounted to no more than re-agitating an issue that has been already been determined.
  5. Her Honour found that as to fraud, misrepresentation, misconduct and concealment, those arguments had already been dealt with by Mossop J, and as such, an issue estoppel arose. Her Honour found at [33]:

To the extent that the arguments before this Court traverse beyond the findings made, such arguments would nevertheless be covered by my first finding that the defendant is estopped from bringing them in accordance with the principles articulated in Anshun.

  1. Third, her Honour found that any separate judicial review proceedings were out of time, given that more than a year had at that time passed since the award was delivered, with the reasons for the award also having been delivered contemporaneously. Her Honour found that this was well beyond the 28-day time limit stipulated in r 3254 of the Rules. Her Honour was not satisfied in the circumstances of the case, that any undue hardship would arise, which would empower the court to extend time under s 48(3) of the Act.
  2. Her Honour concluded that Mr Mi did not have the right under the Act to bring the application filed 15 September 2017, as the summary procedure cannot be used as a ‘back door’ procedure to enable a further challenge to the award. Her Honour therefore concluded that the award (IAMA # 5073) be registered as a judgment.

Submissions of the Appellant

The Notice of Competency

  1. A notice of competency was lodged by the respondent to this appeal. A number of grounds were relied on including relevantly that the notice of appeal discloses no error of law.
  2. The appellant submitted that Mr Li’s notice of competency proceeds on a misunderstanding of the nature of an appeal to this Court.
  3. An appeal under section 37E of the Supreme Court Act 1933 (ACT) is an appeal by way of rehearing, not an appeal limited to errors of law, or a question of law: Huen v Hyland [2004] ACTCA 5 at [54] and Australian Capital Territory v Crowley (2012) 7 ACTLR 142 at 146-147.
  4. An appeal under section 37E is by way of rehearing, and therefore a notice of appeal need only set out “some legal, factual or discretionary error”: see QA v Chief Psychiatristof the ACT [2018] ACTCA 10 at [36].
  5. Objections to competency are about jurisdiction, not the prospects of success of an appeal: see Davey v Herbst, Herbst and Bray (No. 2) [2012] ACTCA 19 at [99]. In short, an appeal is incompetent if it cannot be brought.
  6. If an appeal seeks to raise a point that is Anshun-estopped, the appeal may fail, though it cannot be said the appeal is not competent. This is an accepted, orthodox appeal point: see Gibbs & McAllion Lloyd Pty Ltd v Kinna [1998] VSCA 52; (1999) 2 VR 19.
  7. Accordingly, we find the appeal to be competent.

Ground 1: Misunderstanding of Mi’s Claim

  1. The appellant dealt with this ground in three parts: first, what was determined by the arbitrator; second, Mr Mi’s articulation of his claim before the primary judge; third, Mr Li’s mischaracterisation of Mr Mi’s claim; and, the primary judge’s error.

Part one: What was determined by the arbitrator

  1. The appellant submitted that when the arbitral claim was brought in early 2014, the sole claimant was Kai Design and Construction Pty Ltd. Mr Mi objected to the jurisdiction of the arbitrator on the basis that Kai Design and Construction Pty Ltd could not have been the counterparty to the contract. That was so because the contract was dated 10 November 2011 and Kai Design and Construction Pty Ltd was not registered until 17 April 2012.
  2. Mr Li’s then-solicitor wrote a letter to Mr Mi dated 18 March 2014. That letter stated as follows:

On 10 November 2012 you entered into a Master Builders’ Association ACT Home Building contract (‘contract’) with Zheng Kai Li.

We advise that on 17 April 2012 all interests of the construction business operated by Mr Li under the name Kai Design and Construction were assigned to Kai Design and Construction Pty Ltd, including Mr Li’s rights and obligations under the contract.

  1. The appellant submitted that there was no basis for that assertion. No evidence was ever put before the arbitrator, or any Court, to support it. Mr Li later resiled from it and denied the effectiveness of the assignment for which Kai Design and Construction Pty Ltd had contended.
  2. The issue was further confused by the fact that, when Mr Li commenced the arbitral claim, he lodged with the arbitrator a copy of the contract that had been altered: it bore a different ABN to the ABN that was actually written in the contract when it was made. Mr Li sought to explain this alteration in an affidavit made 23 April 2014:

In order to obtain the insurance in the name of the KDC Pty Ltd, the MBA required a copy of the contract entered into by KDC Pty Ltd. As the Franklin contract was entered into by myself, an employee of KDC Pty Ltd applied liquid paper over my ABN on page 21 of the Franklin contract which is exhibited at ZKL2p33 and wrote in the ABN of KDC Pty Ltd.

  1. On 28 November 2014, Mr Li affirmed an affidavit in which this was stated:

On or about 10 November 2011, Raymond and the Claimant (KDC Pty Ltd) entered into a contract for the construction of the Franklin property (the Franklin contract). A true copy of the contract is exhibited at ZKL-pl 5-55.

  1. Exhibited was the altered contract. The appellant submitted that in the six-month period between 23 April 2014 to 28 November 2014, Mr Li went from affirming that the contract had been “entered into by [him]self,” to affirming that “KDC Pty Ltd entered into [the] contract”.
  2. The arbitral claim was made by Kai Design and Construction Pty Ltd against Mr Mi. Mr Li was not made a party. On 11 November 2014, Mr Li’s solicitors expressly declined to amend to add Mr Li. The arbitral claim was predicated on the basis, as asserted by Mr Li’s then-solicitor in his letter of 18 March 2014, that the builder’s rights under the contract had been assigned to Kai Design and Construction Pty Ltd.
  3. This changed on the second day of the hearing. On 24 February 2015, Kai Design and Construction Pty Ltd withdrew its claims. It made an application to remove Kai Design and Construction Pty Ltd as claimant and to add Mr Li as a claimant. That leave was granted, and a Further Amended Statement of Claim dated 25 February 2015 was lodged. It removed Kai Design and Construction Pty Ltd and added Mr Li.
  4. The position at the time of the purported award was, it was submitted by Mr Mi, one of confusion. Kai Design and Construction Pty Ltd, which had made a claim on the basis that it was party to the contract, had withdrawn its claim. Mr Li, who at one time affirmed an affidavit to the effect that Kai Design and Construction Pty Ltd was party to the contract, and who asserted that the builder had assigned its rights to Kai Design and Construction Pty Ltd, asserted in a Further Amended Statement of Claim that he was the counterparty.
  5. The appellant submitted that issue remained joined on the question whether there had been an effective assignment to Kai Design and Construction Pty Ltd. On that issue the arbitrator determined that there had not been. This, Mr Mi submitted, was the issue that the arbitrator determined as to the identity of the counterparty to the contract: whether there had been an assignment to Kai Design and Construction Pty Ltd.

Part Two: Articulation of Mr Mi’s claim before the primary judge

  1. Before the primary judge, Mr Mi articulated his claim in his interlocutory application, the September and October affidavits, and in written submissions. The relevant paragraph in the interlocutory application follows:

Exhibited at ‘WM-6p89-90’ is the business name search of Kai Design and Construction. It shows Olivia Ooi lodged an application to the ACT Government changing the proprietor from Cypress Holding Pty Ltd (ACN 082416386) to Comtal Pty Ltd (ACN 145339457) on 4 November 2011. This was six days before the Contract was signed. The principle address of the business was at 2/70 Dacre Street Mitchell ACT 2911, the same address shown on the Contract (see ‘WM-6p23’). It does not show that Mr Li was a proprietor of Kai Design and Construction at around the contract date of 10 November 2011.

  1. This is from a document entitled “Particulars of Business Name”, lodged on 4 November 2011 with the Office of Regulatory Services. That is some six days prior to entrance into the contract. The form shows an application for “Change to particulars” of the registered business name, “Kai Design and Construction”. It shows that the business name “Kai Design and Construction” was owned by Cypress Holdings Pty Ltd before 1 October 2011, and by Comtal Pty Ltd (“Comtal”) after 1 October 2011 (“Regulatory Services Form”).
  2. Mr Mi made the same assertion later in the September affidavit. He developed it in the October affidavit. In particular:

The Franklin Contract and the Business Name Registration Form shows that Comtal Pty Ltd is the contractual party of the Franklin Contract.

  1. He supported this assertion including by reference to:

(a)          An inclusion list to the contract dated 10 November 2011, which shows the “[c]onstruction company of the proposed resident,” as Comtal;

(b)          An ASIC search showing that the business address for Comtal was at the relevant time, the same as the address written into the contract; and

(c)          The fact that, on 14 November 2011 (i.e., four days after date of the contract), Mr Mi was directed to deposit $10,000 into Comtal’s bank account, and did so.

  1. Mr Mi made the same assertions in written submissions to the primary judge. In his written submissions he gave reasons why it would be wrong to conclude that Mr Li was the counterparty:

The Business Registration Form, the contract and the Inclusion List all points to Comtal Pty Ltd (ACN 145339457) is the true proprietor of the Kai Design and Construction on 10 November 2011 (see WM-6p89-90) and is the contracting party of the contract at the time the contract was entered. (WM-11p1-12, WM-6p5-27, WM6p43-74).”

  1. The issue was discussed in the hearing on 4 October 2017. Mr Mi referred the primary judge to the Regulatory Services Form. The primary judge stated, “Are you taking me to all this to say the plaintiff is not the contractual party of the ACT building contract signed on 10 November?” Her Honour asked whether this issue had been raised with the arbitrator. Mr Mi replied that it had not. He explained that Mr Li’s former solicitor had asserted that Mr Li traded using the name “Kai Design and Construction,” and that the arbitration proceeded on that basis.
  2. He submitted that the Regulatory Services Form, not seen by the arbitrator, showed that “Comfortable Pty Ltd”, referring to Comtal, was the counterparty. He further submitted that the inclusion list showed Comtal as the counterparty, that the persons who signed the inclusion list were directors of Comtal, and that the address of Comtal was the same as that shown on the contract. He submitted that he had paid Comtal.
  3. Taking all of the foregoing matters collectively, Mr Mi’s submission was as follows:

(a)          He had been led to believe by correspondence from Mr Li’s former solicitors that Mr Li was, at the time of entrance into the contract, the owner of the business name “Kai Design and Construction”;

(b)          Later, he perused records kept by the Office of Regulatory Services. There, he discovered the Regulatory Services Form. That showed that Comtal owned the business name at the relevant time. He discovered various other matters—the inclusion list, the business address, etc.—that supported that finding;

(c)          These matters were neither before the arbitrator nor Mossop J.

  1. This was the crux of Mr Mi’s claim to the primary judge: he had not entered into the contract with Mr Li; he had entered into it with Comtal.

Part 3: Mr Li mischaracterised Mr Mi’s claim as having been determined by the arbitrator

  1. Mr Mi submitted that Mr Li relied upon three outlines of written submissions:

(a)          A document of 56 paragraphs entitled, “Plaintiff’s Submissions in relation to the Registration of an arbitral award with the designation IAMA # 5073 as a judgment of the Australian Capital Territory Supreme Court,” dated 15 September 2017;

(b)          A document of 43 paragraphs entitled, “Plaintiff’s Supplementary Submissions in relation to the Registration of an arbitral award with the designation IAMA # 5073 as a judgment of the Australian Capital Territory Supreme Court,” dated 3 October 2017;

(c)          A document of 22 paragraphs entitled, “Plaintiff’s Submissions in relation to the Unsworn Affidavit of Wai Man Mi sent by email to Baker Deane and Nutt at 1.42pm, 3 October 2017,” which does not bear a date but which was relied upon at hearing on 4 October 2017.

  1. The Supplementary Submissions directly addressed the content of Mr Mi’s interlocutory application and the supporting affidavits. There, at [35]—[37], Mr Li submitted as follows:

[35]         The defendant by his Application in proceeding continues to contend and argue that there had been an assignment of the contract by the plaintiff to the company, Kai Design and Construction Pty Ltd, and therefore the award made in favour of Mr Li in his personal capacity, is invalid.

[36]         It is unnecessary to say anything else about this issue, other than to point out it was dealt with comprehensively by the arbitrator, and rejected by him.

[37]         The arbitrator’s conclusion was that there was no assignment by the plaintiff, Zheng Kai Li to the company, see paragraph E31 of the award (page 25 of Exhibit ZK-1).

  1. The appellant submitted that this was an inaccurate description of Mr Mi’s submissions to the primary judge. It was not part of Mr Mi’s case that there had been an assignment of contractual rights or obligations to Kai Design and Construction Pty Ltd. His claim was that the original counterparty was Comtal and not Mr Li.
  2. In oral submissions, counsel for Mr Li stated as follows (P-25.15-22):

I haven’t in the shortness of time receiving the affidavit yesterday gone through and prepared a matrix of what the arbitrator, what Mossop J dealt with and what Mr Mi is now alleging but my cursory examination of those is there’s an enormous amount of overlap.

  1. Mr Mi’s claim was not articulated for the first time in the October affidavit, the appellant submitted. Rather, it was articulated in Mr Mi’s application dated 15 September 2017 and in the September affidavit. The October affidavit provided further evidence in support, but the claim remained the same.
  2. Counsel for Mr Li submitted that the argument advanced by Mr Mi had been dealt with by the arbitrator under the heading of “Assignment”, and by Mossop J.
  3. The appellant submitted that nowhere did Mr Li, in written or oral submissions, recognise that the issue agitated by Mr Mi in his interlocutory application raised a completely separate issue to assignment. The appellant submitted that Mr Mi raised the factual issue of who were the parties to the contract and that Mr Li’s submissions appeared to lead the Court into error:

MR VIVEKANANDA: Yes. We also say if you examine the argument, it was actually dealt with by the arbitrator.

HER HONOUR: Well, that’s what I thought.

MR VIVEKANANDA: Under the heading of Assignment.

HER HONOUR: All right.

MR VIVEKANANDA: That issue was also argued before Mossop J as well. That issue is something I think I dealt with in my submissions.

  1. The appellant submitted that this was not accurate. As Mr Mi explained, he did not have the Regulatory Services Form, and had not investigated other documents relating to Comtal, until September 2017.
  2. In this way, Mr Mi submitted that the primary judge failed to address Mr Mi’s claim, and adopted Mr Li’s mischaracterisation of Mr Mi’s claim, stating as follows at [4]:

The defendant now resists the application for enforcement, primarily because he says that the plaintiff is not the contractual party to the agreement. He contends that the agreement was assigned by the plaintiff to Kai Design and Construction Pty Ltd. The defendant has filed an application (on 15 September 2017) seeking a declaration to that effect.

  1. Mr Mi submits this is a mischaracterisation of his claim, of which assignment was no part. Nor is it correct to say that he sought a declaration to the effect that the agreement was assigned to Kai Design and Construction Pty Ltd. The declaration that he sought was simply that Mr Li was not a party to the contract.
  2. The primary judge identified that Mr Mi had adduced affidavit evidence in support of his claims, but said at [22] that “it [was] unnecessary to refer further to its factual content,” because the arguments that Mr Mi made could be “disposed of at law”.
  3. The primary judge reasoned that the principle established in Anshun precluded Mr Mi from advancing his claims. That reasoning is the subject of Ground 2. The appellant submitted that the primary judge’s consideration of Anshun proceeded by reference to a claim that Mr Mi had not made, and not with cognisance of the claim that he had made. Her Honour said this at [28]-[29]:

28.          Second, it seems to me that on a fair reading of Mi v Li, the key issues sought to be raised by the defendant now have in fact already been ventilated and determined, without error being found. Whether there was any assignment by the plaintiff to a company has now been agitated in different ways in two different forums. It is apparent from the reasons of the arbitrator (paragraphs [E9]-[E31]), which was in evidence before me, that the arbitrator expressly considered in detail whether there had been any assignment of contractual rights in the manner alleged by the defendant in these proceedings. The arbitrator rejected the contention that there had been any assignment (see in particular paragraphs [E22]-[E24]).

29.          Further in Mi v Li, Mossop J considered arguments relating to the arbitrator’s treatment of the defendant’s submissions on the point at [47]-[50].

  1. The appellant further submitted that it may be accepted that the arbitrator considered assignment, and that the arbitrator’s treatment of that issue was raised before Mossop J. That, the appellant submits, is not to the point, as Mr Mi was not seeking to re-agitate that issue. His point, it was submitted, was different.
  1. The appellant further submitted that nowhere in the judgment did the primary judge set out Mr Mi’s claim that Comtal was the true counterparty to the contract, and it does not appear in the primary judge’s reasoning that her Honour appreciated the difference between the issue considered by the arbitrator—whether there had been an assignment –and the issue that her Honour was asked to adjudicate—who had been the counterparty to begin with.
  2. Accordingly, in Mr Mi’s submission, the primary judge fell into appellable error.

Consideration

  1. What is sought to be argued under this ground is the issue of the identity of the contracting parties and the contention that the primary judge has mischaracterised that issue. The arbitrator and Mossop J dealt with the validity of an assignment from Mr Li to Kai Design and Construction Pty Ltd. They both found there was no assignment.
  2. Whether or not there was an assignment is not the point being advanced by the appellant. The point advanced by the appellant is the question of who were the parties to the contract. Kai Design and Construction was a business name owned by Comtal Pty Ltd. Kai Design and Construction Pty Ltd was not registered until after the contract was signed. The appellant submits that Comtal was the counterparty to the contract.
  3. Mr Mi entered into a novated arbitration agreement on 25 September 2014. The assignment is set out in the award.
  4. In that agreement the arbitrator noted that Mr Mi objected to the jurisdiction of the arbitrator and the arbitrator sets out how the parties resolved the jurisdictional objection.
  5. In the operative part of the novated arbitration agreement, the following is set out:

The parties agree to refer the following disputes to arbitration, which are to be resolved in IAMA #5073:

(c)          The questions of what relieve (if any) the First Claimant (Kai Design and Construction Pty Ltd) or the Second Claimant (Zheng Kai Li – the respondent) (as the case may be) is entitled to from the respondent (Wai Man Mi – the appellant) by reason of the Building contract, the works purportedly performed under it and matters arising out of or incidental thereto;

  1. This clause conferred upon the arbitrator jurisdiction to determine entitlement to relief including a claim based on quantum meruit. Mr Li elected to pursue the claim against Mr Mi on a quantum meruit basis rather than on a contractual basis.
  2. As was pointed out by the arbitrator in the award at page 71, the question of which entity incurred the cost of the construction work under the contract was an issue of diminished significance as the claim was based on quantum meruit:

Much was made of which entity, i.e. the First Claimant, Second Claimant, or another entity, incurred the costs of the construction work carried out. As the Second Claimant elected to pursue its claim based on quantum meruit this issue is of diminished significance. The Respondent submitted that there is an onus on the Second Claimant to demonstrate and satisfy the Arbitrator of the claimed costs the Second Claimant has incurred or which should be taken into account. The evidence of cost shows that the costs were not all incurred by the Second Claimant but that they were mostly incurred by the First Claimant or Comtal. It is important to recognise that the Franklin Contract was not one in which the personality or attributes of the Second Claimant required the Second Claimant to personally perform the Builder’s obligations under the Franklin Contract. The Second Claimant was therefore entitled to arrange for the work to be carried out by another entity. Zheng Kai Li was at all times the person who had contractual responsibility regardless of who he may have arranged to carry out the work. The Queensland Court of Appeal applied an assessment where the costs were incurred by Enviro Site & Civil Pty Ltd although the plaintiff claiming was Len Lichtnauer Developments Pty Ltd.

(Emphasis added.)

  1. The arbitrator addressed the respondent’s claim on a quantum meruit basis. Mossop J confirmed that the arbitrator addressed the claim on a quantum meruit basis at [15]:

He assessed Mr Li’s entitlement upon a quantum meruit.  In doing so he relied upon the expert evidence in the report of Mr Shepheard who estimated the total construction costs of the works up until the point of termination.   

  1. This ground in relation to the identity of the counterparty fails for the following reasons:

(a)          Mr Mi entered into a novated arbitration agreement as set out above;

(b)          The issue as to who was the builder under the contract was determined by the arbitrator;

(c)          In Mi v Li [2017] ACTSC 54, Mossop J found no error in the arbitrator’s reasoning as to the finding that Mr Li was the builder under the contract;

(d)          The election was made by Mr Li to seek relief on the basis of a quantum meruit claim;

(e)          The relief was granted by the arbitrator to Mr Li on a quantum meruit basis;

(f)          The appellant’s submission as to who was the correct contractual counterparty is now otiose. The issue was dealt with by Mossop J.

  1. No error on the part of the primary judge has been established by the appellant. The primary judge did not err by “misconstruing, misunderstanding, or mischaracterising the appellant’s case”. The primary judge correctly stated at [4] that Mr Mi “resists the application for enforcement, primarily because he says that [Mr Li] is not the contractual party to the agreement”. To the extent that the primary judge went on to state that “[Mr Mi] contends that the agreement was assigned by the plaintiff to Kai Design and Construction Pty Ltd” and did not specifically refer to the Comtal issue in the judgment, this cannot of itself amount to a mischaracterisation of the appellant’s case.
  2. This ground is not made out.

Ground 2: Error in Finding that Mr Mi was Anshun estopped

  1. The appellant submitted in relation to this ground that rejection of Ground 1 would entail the Court concluding that the primary judge did purport to address Mr Mi’s interlocutory application, and that in that event, Ground 2 is reached. The appellant submitted that the primary judge erred in finding that Mr Mi was precluded by application of the principle in  Anshun from advancing his claim.
  2. The appellant submitted in relation to this ground that the question for the primary judge, and for this Court, is whether it was unreasonable for Mr Mi to not have earlier raised his claim that Comtal, and not Mr Li, was the counterparty. The primary judge found that it was. This is challenged. The challenged finding was not made by reference to the credibility of Mr Mi’s evidence, so there is no impediment to this Court preferring its own conclusion.
  3. The primary judge gave two reasons for declining to permit Mr Mi to advance his claim. The two reasons are found at [27] and at [28]-[33].

Issue estoppel?

  1. The appellant submitted that the critical reasoning of the primary judge appears at [28] and [30]:

28.           it seems to me that on a fair reading of Mi v Li, the key issues sought to be raised by the defendant now have in fact already been ventilated and determined, without error being found. Whether there was any assignment by the plaintiff to a company has now been agitated in different ways in two different forums. It is apparent from the reasons of the arbitrator (paragraphs [E9]-[E31]), which was in evidence before me, that the arbitrator expressly considered in detail whether there had been any assignment of contractual rights in the manner alleged by the defendant in these proceedings. The arbitrator effectively found, based on the documentary material before him, that notwithstanding the building contract listed the registered business name of ‘Kai Design and Construction’ as the contractor, the plaintiff as the legal entity trading under that business name was the contracting builder. The arbitrator rejected the contention that there had been any assignment (see in particular paragraphs [E22]-[E24]).

30.          The defendant thus faces a factual finding against assignment by the arbitrator, for which there plainly was evidence, and the finding by this Court constituted by Mossop J that there had been no error in the reasoning process in the terms complained of by the defendant (and recalling the limited scope of review available to the defendant under s 38 of the Act). The defendant’s submissions in these proceedings amount to no more than re-agitating an issue that has been determined against him.

  1. The appellant submitted that the point agitated by Mr Mi before the primary judge was not one that “ha[d] been determined against him,” since he had never before raised it.
  2. The appellant further submitted that there are two errors. First, it was an error to place weight on the factual finding of the arbitrator. The issue for the enforcement court was one of the arbitrator’s jurisdiction, which it must determine itself. Second, contrary to the primary judge’s finding, Mossop J had not made any finding contrary to the case that Mr Mi sought to advance before the primary judge.
  3. An arbitrator only has jurisdiction to make a determination binding on particular parties to the extent that those parties agree to submit their disputes to arbitration. In other words, an arbitrator has no jurisdiction outside of that which the parties to an arbitration agreement have conferred upon him.
  4. The appellant referred to this and related propositions stated in Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2011] 1 AC 763 (Dallah).
  5. The appellant in this context underlined the judgment of Lord Mance JSC at 810 [24]:

Arbitration of the kind with which this appeal is concerned is consensual—the manifestation of parties’ choice to submit present or future issues between them to arbitration.

  1. The necessary corollary is that if a person is not, in truth, a party to an arbitration agreement, then the arbitrator has no power at all in respect of that person. In China Minmetals Materials Import and Export Co Ltd v Chi Mei Corpn 334 F 3d 274 at 288 (3rd Cir., 2003), the Court of Appeals for the Third Circuit stated that the court asked to enforce an award may determine independently the arbitrability of the dispute:

After all, a contract cannot give an arbitral body any power, much less the power to determine its own jurisdiction, if the parties never entered into it.

  1. Whether the arbitrator had power or not is a matter to be determined, at the instance of a party or purported party to the arbitration, by a court. Before a court, the arbitrator’s own view as to jurisdiction is not binding: see Dallah at 813 [30].
  2. The appellant submitted that since the arbitrator cannot conclusively determine his own authority, arguments may be raised as to the arbitrator’s jurisdiction in the supervisory court in the seat of arbitration, and in the court in which a purported arbitral award comes to be enforced: see Dallah, at 830 [84].
  3. The appellant further submitted that the equivalent of the “supervisory court of the seat”, here, was Mossop J on appeal under the Act. The equivalent of the enforcement court was McWilliam AsJ: see Dallah at 831 [86]:
  4. Accordingly, as Lord Collins observed (at 834 [96]), “[t]he consistent practice of the courts in England has been that they will examine or re-examine for themselves the jurisdiction of arbitrators”.
  5. Having considered arguments to the effect that enforcement courts were to adopt a more limited form of review, or to show deference to the arbitrator’s view as to his or her own jurisdiction, Lord Collins concluded at 837 [104]:

It follows that the English court is entitled (and indeed bound) to revisit the question of the tribunal’s decision on jurisdiction if the party resisting enforcement seeks to prove that there was no arbitration agreement binding upon it under the law of the country where the award was made.

  1. Were it otherwise, an arbitrator could create jurisdiction for himself or herself, divorced from any agreement by the parties: see Dallah at 850 [159]-[160] and at 849 [148]-[149].
  2. The appellant submitted that Mossop J did not himself examine the question of the arbitrator’s jurisdiction
  3. Mr Mi’s submission to Mossop J is stated in Mi v Li [2017] ACTSC 54 at [47]:

Mr Mi submitted that the arbitrator refused to address the most important question ‘who is the builder?’

  1. Mr Mi made submissions directed at the identity of the proper counterparty. Mr Mi did not advance the proposition sought to be advanced before the primary judge—that Comtal was the counterparty. In the interim, Mr Mi found “new evidence” namely the Business Registration Form described earlier in these reasons. The appellant submitted that Mossop J did not consider for himself whether Mr Li was the counterparty to the contract; rather, his Honour considered whether the arbitrator had considered for himself whether Mr Li was counterparty. This is stated in Mr Mi v Li [2017] ACTSC 54 at [48] and [50]:

48.          I am not satisfied that there is any failure on the part of the arbitrator to address the relevant issue.

50.          For these reasons I do not consider that the arbitrator failed to consider Mr Mi’s submissions.

  1. Mr Mi’s submission to Mossop J was to undertake an examination of whether the arbitrator had jurisdiction, which turned on whether Mr Li or some other entity was Mr Mi’s counterparty. The appellant submitted that Mossop J dealt with the question of whether the arbitrator had considered his own jurisdiction and not the question of whether the arbitrator had jurisdiction.  
  2. The appellant submitted that the arbitrator’s own view of his jurisdiction was irrelevant when Mr Mi was inviting a court to rule on the arbitrator’s jurisdiction. The appellant further submitted that Mossop J had not ruled on the issue. Rather, Mossop J ruled only on whether the arbitrator had considered his own jurisdiction.
  3. The consequence is Mr Mi submitted that no court dealt with the question whether the arbitrator did have jurisdiction to make the purported award: see Dallah. Mr Mi asked the primary judge for a determination of the issue. The primary judge declined to give one on the basis, set out at [28]-[33], that one had already been given. Mr Mi submitted that this was an error.

Anshun estoppel

  1. At [27], the primary judge stated as follows:

Here, there is no reason why legal arguments about the nature of the parties to the arbitration agreement, the nature of the Award or any improper conduct by the plaintiff could not have been agitated in the previous proceedings. There is certainly no satisfactory (or indeed, any) explanation as to why the Court ought entertain a second appeal. To the extent that the issues sought to be agitated here are any different to those determined by Mossop J in Mi v Li, it was unreasonable for the defendant to fail to raise them in those proceedings. The defendant is estopped from pursuing any of the remaining arguments now.

  1. The appellant submitted that it was an error to hold that there was no reason why arguments could not have been agitated in previous proceedings.
  2. The appellant further submitted that whether Mr Mi agitated the point about Comtal before the arbitrator is irrelevant. Mr Mi is entitled to resist enforcement of the purported award whether or not he advanced the Comtal point before the arbitrator.
  3. The appellant submitted that the arbitrator’s view of his own jurisdiction was a matter to which a court, faced with an argument about the arbitrator’s jurisdiction, would give no weight.
  4. Similarly, it was submitted that it is wrong to reason that there was “no reason” why the point could not have been taken before Mossop J. A point was taken before Mossop J concerning jurisdiction. Mossop J dealt with that submission by finding that the arbitrator had considered his own jurisdiction. There was no finding on this point.  
  5. Accordingly, Mr Mi submitted that the primary judge’s statement that there was no reason why argument as to the parties to the arbitration agreement could not earlier have been made proceeds from a false premise that Mr Mi submitted was in error.
  6. The appellant further submitted that it was an error to hold that there was no explanation as to why the Court ought to entertain the point.
  7. The appellant submitted that a characterisation of the proceedings before the primary judge as a “second appeal” is misplaced. It was necessary for Mr Li to seek to enforce the purported award. It was open to Mr Mi to resist enforcement including on the basis that the arbitrator had misconceived jurisdiction and that there was no arbitral agreement between Mr Mi and the person seeking to enforce an award against him.
  8. Further, it was submitted that the primary judge was in error to hold that no explanation had been given as to why the point should be entertained. The explanation was given in written submissions and in Mr Mi’s affidavits. The primary judge, it was submitted, may have overlooked this explanation by reason that, as her Honour recorded at [22], her Honour found it unnecessary to refer to the factual content of Mr Mi’s affidavits.
  9. The appellant submitted that Mr Mi has raised questions concerning the true identity of the counterparty. It was submitted that Mr Li’s, and Kai Design and Construction Pty Ltd’s, solicitors, made contradictory and incorrect assertions as to identity of the contractual counterparty. In these circumstances, it was reasonable for Mr Mi to have not advanced the Comtal point earlier.
  10. As early as February 2015, Mr Mi issued a notice to produce, “asking for the proof of relationship of Zheng Kai Li to the contract.” No document was produced.
  11. The appellant submitted that Mr Li, both in affidavits and through his solicitors, made contradictory and confusing assertions about who was the counterparty to the contract as follows:

(a)          In February 2014, the original claim named Kai Design and Construction Pty Ltd as the claimant, involving an assertion that Kai Design and Construction Pty Ltd was the counterparty;

(b)          On 18 March 2014, after Mr Mi challenged this, Mr Li asserted (through solicitors) that there had been an assignment from Mr Li to Kai Design and Construction Pty Ltd in 2012, involving an assertion that Mr Li was the original counterparty;

(c)          On 26 March 2014, Mr Li’s solicitors again asserted that Kai Design and Construction Pty Ltd was the contractual counterparty, this time relying on the Corporations Act 2001 (Cth) and the law relating to promoters. Enclosed with that letter were:

(i)          A business name showing that, as at April 2012, Kai Design and Construction Pty Ltd was the owner of the relevant business name; and

(ii)         A Building Commencement Notice showing that the Builder’s License holder was Kai Design and Construction Pty Ltd.

(d)          In April 2014, Mr Li made an affidavit that was ambiguous as to whether Mr Li or Comtal owned the business name “Kai Design and Construction,” but again asserted an assignment effective in April 2012;

(e)          In November 2014, Mr Li made a further affidavit asserting that Mr Mi had entered into the contract with Kai Design and Construction Pty Ltd, and that a true copy of that contract was exhibited. However, it was not a true copy, as the ABN of the counterparty in the exhibited document had been altered using white-out; and

(f)          Finally, on the second day of the arbitration hearing, the solicitors for Mr Li and Kai Design and Construction Pty Ltd resiled from the contention that Kai Design and Construction Pty Ltd was the counterparty and pressed an assertion that there had been no assignment.

  1. In November 2016, when proceedings before Mossop J had commenced, Mr Mi again issued a notice to produce, seeking these documents:

1.           GST registration record of Mr Li’s business ABN 55759669879 with the Australian Taxation Office (ATO) from 2011 to 2016.

2.           Trust Deed of the business ABN 55759669879 shown in Appendix A of the Franklin contract.

  1. The documents sought were not produced.
  2. The appellant submitted that these matters are all apparent from the September and October affidavits and they are detailed in Mr Mi’s written submissions. They were addressed in oral submissions. They were not addressed by her Honour. It was therefore submitted that this is an error.
  3. The appellant submitted that it was not unreasonable for Mr Mi to not earlier have raised the Comtal point.
  4. It was submitted that consideration of whether Mr Mi is Anshun estopped from advancing the claim that Comtal was counterparty required consideration of all the circumstances bearing upon unreasonableness in the particular matter.
  5. The primary judge stated at [22] that it was not necessary to consider the factual content of Mr Mi’s affidavits. The appellant submitted that reveals an error in principle.
  6. It was submitted that without considering Mr Mi’s explanation for not earlier having raised a claim, the primary judge failed to perform the analysis required for a finding of Anshunestoppel (consideration of all circumstances bearing on unreasonableness) and is therefore in error.
  7. The appellant submitted that it was not unreasonable for him not earlier to have raised the claim because:

(a)          So far as there was confusion as to who was the counterparty, it was caused by Mr Li and Kai Design and Construction Pty Ltd.

(b)          It is open to a person in Mr Mi’s position to resist the enforcement of an award at the enforcement stage on the basis that the arbitrator lacked jurisdiction to make the award.

  1. The appellant also underlined a finding of Anshun estoppel should not be made lightly: see Solak v Registrar of Titles [2011] VSCA 279; 33 VR 40 at [73]-[74] (Warren CJ, Neave JA and Hargrave AJA agreeing) and the discussion of inconsistent judgments.
  2. For these reasons, Mr Mi submitted that the Court would find that it was not unreasonable for him to raise his claim before the primary judge, and therefore would reverse the finding that he was estopped from doing so by operation of the Anshun principle.

Consideration

  1. This ground is dealt with on the basis that the primary judge did not specifically deal with the Comtal argument put forward by Mr Mi.
  2. The doctrine of Anshun estoppel applies to prevent the appellant from raising in a subsequent proceeding an issue which should have been raised in the earlier proceedings. The primary judge stated the following at [24]-[27]:

24.          First, the defendant has already invoked his right of appeal under the Act, resulting in the judgment of Mi v Li.  The parties here are the same as those in Mi v Li. The Award the subject of these proceedings is the same award that was under challenge in Mi v Li.  This is plainly a case where the doctrine of Anshun estoppel applies. Such a doctrine prevents a party to litigation in which a final judgment was given (or that party’s privy) from raising in subsequent litigation an issue or cause of action which was, or which should have been, raised in the first proceedings: see, generally, Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 597-603 per Gibbs CJ, Mason and Aickin JJ, referred to in Notaras & Anor v St George Bank Ltd & Ors [2005] ACTSC 5; 157 ACTR 1 at [8].

25.          The doctrine applies to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time: Henderson v Henderson [1843] EngR 917; (1843) 3 Hare 100; (per Wigram V-C at 115), cited in Wagdy Hanna and Associates Pty Ltd v National Library of Australia [2012] ACTSC 126 per Refshauge ACJ at [270].

26.           The test is based on the reasonableness or otherwise of the conduct of a litigant in earlier proceedings: Meriton Apartments Pty Ltd v Industrial Court of New South Wales [2009] NSWCA 434; 263 ALR 556 at [60].

27.          Here, there is no reason why legal arguments about the nature of the parties to the arbitration agreement, the nature of the Award or any improper conduct by the plaintiff could not have been agitated in the previous proceedings. There is certainly no satisfactory (or indeed, any) explanation as to why the Court ought entertain a second appeal. To the extent that the issues sought to be agitated here are any different to those determined by Mossop J in Mi v Li, it was unreasonable for the defendant to fail to raise them in those proceedings. The defendant is estopped from pursuing any of the remaining arguments now.

  1. The primary judge was correct in finding that this was a case where the doctrine of Anshun estoppel applied. The doctrine applies to the Comtal issue sought to be argued under this ground, on this appeal. The Anshun test is based on the reasonableness or otherwise of the conduct of a litigant in earlier proceedings: Meriton Apartments Pty Ltd v Industrial Court of New South Wales [2009] NSWCA 434; 263 ALR 556 at [60]. The argument relating to Comtal could have been agitated in the previous proceedings. It was unreasonable for the appellant to fail to raise this issue in the proceedings before Mossop J: Mi v Li [2017] ACTSC 54. It should be noted in this context that Comtal was referred to in the award. This was amatter noted above at [91] in the extract of the award. Although Mr Mi claims to have discovered “new evidence” bearing on the issue, the evidence is, and has at material times, been available on the public record. Mr Mi has no reasonable explanation as to why he did not seek out and utilise the evidence in the course of the arbitration or the proceedings before Mossop J. Moreover, Mr Mi did indeed contract to arbitrate his dispute with Mr Li, and the award based on a quantum meruit did not depend upon identification of Mr Li as the original contracting party.
  2. We find no error in the approach outlined by the primary judge.

Ground 3: Error in Relying on r 3254

  1. Rule 3254 of the Rules provides, in broad terms, that appeals to the Supreme Court from awards made under the Act are to be brought within 28 days.
  2. The primary judge dealt with r 3254 at [34]:

Third, any separate judicial review proceedings are out of time, given that more than a year has passed since the Award was delivered, with the reasons for the Award also provided on that date. This is well beyond the 28-day time limit stipulated in r 3254 of the Rules. I am not satisfied that in the circumstances of this case, any undue hardship would otherwise be caused (particularly because the defendant has already availed himself of the judicial review provisions under the Act) and accordingly, under s 48(3) of the Act, there is no power to extend time.

  1. The appellant submitted that this was an error. Mr Mi was not bringing “separate judicial review proceedings.” Nor was he agitating an appeal under s 38 of the Act, and that therefore r 3254 had no application.
  2. Similarly, and for the same reason, it was submitted that there was no occasion for consideration of whether an extension of time ought to be granted under s 48 of the Act. There was no “time appointed by or under this Act or fixed by the agreement or by an order under this section for doing any act or taking any proceeding in or in relation to an arbitration,” in respect of which Mr Mi required an extension.
  3. The appellant submitted that awards made under the Act are not automatically enforceable as judgments of the Supreme Court. A person seeking the benefit of a purported award requires the leave of the Court so to do, as set out in s 33 of the Act:

An award made under an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect and where leave is so given, judgment may be entered in terms of the award.

  1. It was submitted that if Mr Li wished to enforce the purported award, it was incumbent upon Mr Li to seek the leave of the Court. Mr Mi was entitled to oppose that leave including on the basis set out in Dallah, and on the basis that the condition prescribed in s 33 had not been met: i.e., the award was not made “under an arbitration agreement.”
  2. Mr Mi required no extension of time to oppose Mr Li’s application. It was submitted that in reasoning on the basis that an extension was required, the primary judge was in error.  

Consideration

  1. This ground can be dealt with succinctly. Section 33 does not confer a right of review of an award. Sections 38 and 42 confer limited rights of review of an award. Rule 3254 provides that such a review must be instigated within 28 days of the delivery of the award.
  2. The appellant has exercised his rights of review under ss 38 and 42 before Mossop J.
  3. The appellant has already availed himself of the judicial review provisions available under the Act. The principles in Henderson and Anshun preclude the appellant from agitating an issue that should have been raised at the time the appellant sought to review the award before Mossop J.
  4. We find that there is no error in the approach adopted by the primary judge.

Consideration

  1. The appeal against the orders of McWilliam AsJ is dismissed.
  2. The appellant is to pay the respondent’s costs of this appeal.

Forest Holdings Limited v Mangatu Blocks Incorporation [2018] NZHC 3272 (12 December 2018)

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2018-470-000084

[2018] NZHC 3272

FOREST HOLDINGS LIMITED

(APPLICANT)

V

MANGATU BLOCKS INCORPORATION

(RESPONDENT)

DATE OF HEARING: 23 August 2018

DATE OF JUDGMENT: 12 December 2018

 

JUDGMENT OF COURTNEY J

Introduction

[1] In 2003, Mangatu Blocks Incorporation (Mangatu) granted Forest Holdings Ltd (FHL) a Forestry Right in respect of land owned by Mangatu. In 2013, Mangatu purported to terminate the Forestry Right without giving the required notice. In an arbitration before the Hon. B J Paterson QC, Mangatu was found to have repudiated the contract (the Liability Award). It took some time to identify the correct basis on which damages should be assessed and, ultimately, FHL advanced its costs on a loss of chance basis. Eventually, the Arbitrator held that FHL had not sustained any compensable loss (the Further Ruling). FHL seeks leave under cl 5(1)(c) of Schedule 2 of the Arbitration Act 1996 to appeal that decision.

[2] The grounds advanced by FHL in its written submissions were expressed differently from its notice of application, but there was no objection and I proceed on the basis of the grounds as they were argued. Those grounds can be summarised broadly as being that the Arbitrator:

(a) made factual findings as to what steps Mangatu would have taken had it not repudiated the contract, even though Mangatu had failed to adduce evidence on the point (the evidential gap);

(b) made errors in his approach to assessing whether FHL had lost a commercial opportunity to extract value from the Forestry Right in the event of being served with the required notice and the value of any such opportunity (the loss of chance assessment); and

(c) failed to consider the discretion available under s 9 of the Contractual Remedies Act 1976.

[3] Mangatu opposes leave being granted. It says that the Arbitrator’s assessment of evidence is not a question of law, the Arbitrator correctly applied the law relating to the loss of chance assessment and there was no error in the Arbitrator declining to make an order under s 9 CRA (and, in any event, the exercise of a discretion cannot ground an appeal as an error of law).

Jurisdiction

[4] A party to an arbitration can appeal an arbitral award only on a question of law and only in limited circumstances; cls 5(1) , (2) and (10) of Schedule 2 of the Arbitration Act 1996 provide that:

(1) Notwithstanding anything in articles 5 or 34 of Schedule 1, any party may appeal to the High Court on any question of law arising out of an award

(a) if the parties have so agreed before the making of that award; or

(b) with the consent of every other party given after the making of that award; or

(c) with the leave of the High Court.

(2) The High Court shall not grant leave under sub-clause (1)(c) unless it considers that, having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of 1 or more of the parties.

(10) For the purposes of this clause, question of law –

(a) includes an error of law that involves an incorrect interpretation of the applicable law (whether or not the error on the record of the decision); but

(b) does not include any question as to whether –

(i) the award or any part of the award was supported by any evidence or any sufficient or substantial evidence; and

(ii) the arbitral tribunal draw the correct factual inferences from the relevant primary facts.

[5] Even if the determination of the question of law could affect a party’s rights, the Court still has a discretion whether to grant leave; in Gold & Resource Developments (New Zealand) Ltd v Doug Hood Ltd the Court of Appeal said that:

Once the statutory threshold has been passed, the Court should in each case exercise its discretion in a disciplined way. The following are factors to be considered. Other than the first, which is the most important, they are not listed in any particular order. As a matter of caution, it should be said that there may be other considerations which should be taken into account in the circumstances of a particular case. They are to be seen as guidelines to, rather than as governing, the exercise of the discretion

The Court should consider in a preliminary way…the strength of the argument that there has been an error of law and the nature of that point. If it is a one- off point, in the sense that it is unlikely to occur again and cannot be seen as having any precedent value, either generally or to the parties on another occasion, then unless there are very strong indications of error leave should rarely be given. In other cases, the Court will be looking for a somewhat less stringent assessment. In those cases a strongly arguable case would normally be required for leave to be granted. The existence of conflicting decisions will also be relevant.

Background

[6] Mangatu granted the Forestry Right by way of a Memorandum of Transfer and Grant of Forestry Right registered against the titles to the subject land. The Forestry Right granted FHL the rights “to manage, protect, harvest and carry away and otherwise utilise trees, timbers, logs growing on or to be grown on the land and within the Indigenous Forest, in accordance with this Grant”. FHL was required to comply with the Resource Management Act 1991 (RMA) and to indemnify Mangatu against any liability arising under the RMA.

[7] The RMA consent, finally issued in 2010, was the product of a long and difficult process that culminated in an Environment Court decision imposing some 60 conditions. It was common ground that compliance with these conditions would have been a complex and costly exercise.

[8] Subject to certain conditions, Mangatu was entitled to terminate the Forestry Right if FHL failed to meet its obligations. One of the constraints on the right of termination was that Mangatu had to give FHL 120 days’ notice to remedy any default. In July 2013, Mangatu’s solicitors wrote to FHL asserting breaches by it of the RMA consent and of the reporting obligation under the Forestry Right. The letter advised that the Forestry Right was cancelled with immediate effect and required FHL to remove its equipment and contractors from the land. FHL treated the termination as a repudiation and cancelled the Forestry Right. Prior to the cancellation, the Forestry Right still had 40 years to run.

[9] FHL had paid a non-refundable advance of $1.5 million plus GST which was to be set against royalties due to Mangatu under the Forestry Grant. When the grant was terminated, there remained more than $1 million that had not been offset and which Mangatu was entitled to retain.

[10] FHL claimed that Mangatu’s purported termination led to losses in excess of
$10 million. The parties agreed to arbitrate. In his Liability Award, the Arbitrator found that Mangatu’s actions amounted to repudiation of the Forestry Grant because no right to terminate arose until the required notice had been given. However, he also made a finding that FHL would not have been able to remedy the breach within the 120-day notice period.

[11] The Arbitrator gave a decision as to the basis on which damages might be assessed (the Preliminary Damages Decision). He found that FHL was entitled to claim damages for its capital loss and that, in assessing such damages, future events could be taken into account if there was a real possibility that they would have occurred at the time of the repudiation. But the Arbitrator also commented that, although he had not made a specific finding, the evidence suggested that Mangatu wanted to terminate the Forestry Right and would have issued a 120-day notice if that had been necessary. The Arbitrator considered that, consequently, the prospects of FHL obtaining more than a nominal damages award appeared to be minimal.

B J Paterson QC, 29 July 2016.

[12] FHL successfully appealed that decision. Alluding to the possibility of assessing FHL’s claim as one for loss of a chance, Heath J held that, although the finding that FHL could not have remedied the breach within 120 days could not be challenged, FHL could have used the notice period to negotiate with Mangatu and may have been able to persuade Mangatu to withdraw the notice, or it may have been able to assign its interest in the Forestry Right. Without going so far as to say that FHL could have established the necessary factual foundation, Heath J considered that FHL was entitled to adduce evidence of the value of the rights of which it had been deprived.

[13] The Arbitrator scheduled a further hearing to determine what action Mangatu would have taken if it had not repudiated the contract, what the resultant factual situation would have been and what consequential action FHL may have taken (the Amended Ruling). The parties were permitted to file further evidence. FHL filed a brief of evidence producing correspondence between the parties’ solicitors in August 2013. Mangatu did not file further evidence. It advised that it would rely on the affidavit evidence filed in the proceeding and on the evidence contained in briefs of evidence and cross-examination given at the earlier liability hearing.

The Further Ruling

[14] The Arbitrator identified the issues to be determined as:

(a) Whether FHL can succeed in claiming damages on the loss of chance basis?

(b) If the answer to (a) is “yes”, what is the percentage of the value of the Forestry Right at the date of repudiation which FHL is entitled to claim as damages?

(c) If loss of chance damages are not recoverable are reliance damages recoverable?

[15] After briefly summarising events to that point and setting out the parties’ respective positions, the Arbitrator turned his attention to the causation issue i.e.

whether FHL had been “denied a valuable commercial opportunity and that there was a real or substantial chance that it would have achieved this opportunity”. He canvassed the relevant principles before moving to the factual position. He considered that he had to determine the factual issues relating to damages on the basis of the evidence given at the liability hearing and whatever inferences could be drawn from that evidence. He identified the two issues on which factual findings were necessary as being, first, what Mangatu would have done had it not repudiated the contract and, secondly, what FHL would have done in response to Mangatu’s actions.

[16] The Arbitrator considered that Mangatu would have issued a notice requiring the breaches to be remedied within 120 days and then terminated the Forestry Right because it wished to terminate and would have taken every opportunity to do so. He considered that FHL would have taken such steps as it could to extract commercial value from the Forestry Right during the notice period. However, after canvassing the options available to FHL at some length, the Arbitrator concluded that FHL would have been unable to remedy the breaches within 120 days, persuade Mangatu to withdraw the notice or to have taken some other action to extract commercial value from the Forestry Right within the notice period. FHL had therefore failed to establish that it had anything other than a speculative right to secure a commercial opportunity of value. It could therefore not recover more than nominal damages.

[17] The Arbitrator also rejected any possibility of reliance damages beyond nominal damages.

First ground: the “evidential gap”

[18] There was no direct evidence from Mangatu as to what it would have done had it not terminated the Forestry Right in the (unlawful) way it did. It did not address that issue at the liability stage and, as already noted, it elected not to file further evidence for the purposes of the damages hearing. Nevertheless, the Arbitrator said that he accepted the submission made by Mangatu’s counsel that Mangatu would have issued a notice to remedy, and then continued:12

A finding to this effect was not made in the liability award. However, the evidence does establish that Mangatu wished to terminate and would have taken every opportunity to do so. It is difficult to see how there could be any other finding than that Mangatu would have issued a notice to remedy shortly after 10 July 2013.

In view of the onus which is on Mangatu in this matter, I have reviewed the evidence and confirm that if it had been necessary in the liability award, I would have determined on the balance of probabilities that Mangatu wished to terminate the Forestry Right and would have issued a notice to remedy shortly after 10 July 2013….

[19] He identified the evidence that he considered supported his conclusion. This included the nature of the breaches of RMA consent by FHL, the concern expressed by Mangatu’s officers about the breaches, the cost of remedying the breaches and FHL’s level of indebtedness.

[20] FHL frames its proposed ground of appeal as being that the Arbitrator “excused” Mangatu from discharging the onus on it of proving that it would have issued a notice to remedy. But this is not an apt characterisation; it is clear that the Arbitrator was alive to the onus and did not fail to apply it. What is really being said is that the Arbitrator made his finding as to what Mangatu would have done without an evidentiary foundation and/or in the face of evidence that was to opposite effect, for example evidence of the possibility of FHL being able to negotiate changes to the RMA consent with the Gisborne District Council (GDC).

[21] In relation to the reliance-based claim, FHL asserts that the position is clearer still because it was for Mangatu to prove that FHL would not have recovered any value at all from the Forestry Right. FHL relied on The Healey Holmberg Trading Partnership v Grant in arguing that Mangatu’s failure to produce evidence as to whatit would have done should have been taken into account in making the finding that it would have issued a notice.

[22] Mangatu’s position is that decisions about the evidence are matters for the Arbitrator and not questions of law that can be the subject of appeal. In the usual course, an assertion that a finding of fact was unsupported by any evidence may amount to an error of law on appeal. But that is not the position in the arbitral context; clause 5(10) Schedule 2 of the Arbitration Act is clear that such a question is not one of law for the purposes of leave to appeal. In Gold & Resource Developments the Court of Appeal said:

[55] While not expressing a final view, we see some 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 [1955] UKHL 3; [1956] AC 14 at 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 & Boyd, Commercial Arbitration assert at 592-593 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 master of the facts (now to be found in this country in art 19(2) of the First Schedule to the 1996 Act) 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 David Williams QC, Arbitration and Dispute Resolution [2000] NZ Law Review 61, 77-78, citing Russell on Arbitration (21st ed, 1997), para 8-057.

[23] Mr Branch, for FHL, submitted that Gold & Resource Developments did not represent the most recent authorities. However, the cases he cited do not deviate from the position articulated in Gold & Resource DevelopmentsCommerce Commission v Harmoney Ltd was not decided in the context of an arbitration but in a case stated under the Commerce Act 1980, and Wai-O-Tapu Partnership, although an arbitration case, was not concerned with an assertion of factual findings unsupported by evidence. This ground accordingly fails.

Second ground: errors in the loss of chance assessment

The issues

[24] It was common ground that FHL’s claim was one for loss of a chance. FHL maintained that if it had been given the required 120 days’ notice, it would have been able to obtain some commercial value from the Forestry Right. It identified a number of possible means of achieving this: persuading Mangatu to withdraw the notice, invoking the dispute resolution clause in the Forestry Right, seeking cancellation of the abatement notices, applying to the Environment Court or High Court for relief; persuading Mangatu that it was not entitled to cancel at the end of the 120-day period; selling 50 per cent of its shares or, alternatively, the entire Forestry Right. Some of these proposed courses of action overlapped. In particular, FHL maintained that it would have been able to argue that it had not actually logged illegally and, on that basis, would have been in a position to persuade Mangatu either to withdraw the notice or to consent to the involvement of a new investor.

[25] The Arbitrator accepted that FHL probably would have considered these alternatives. He saw the real issue as whether any one of them could have produced a commercial opportunity of substantial value, and concluded that they would not.

[26] FHL says that the Arbitrator misdirected himself as to the correct approach for the loss of chance assessment. Specifically, it is said that the Arbitrator:

(a) wrongly determined that the whole loss of chance enquiry was to be undertaken on a balance of probabilities basis, and therefore he failed to properly consider the percentage chance that FHL had of obtaining a commercial benefit;

(b) wrongly assumed that facts previously determined before the liability hearing were a 100 per cent certainty, whereas the previous finding meant only that a particular fact had been established to a degree of more or less than 50 per cent depending on the onus;
(c) wrongly required FHL to establish on the balance of probabilities that there was a market and buyer for the Forestry Right and that Mangatu would have approved assignment to that buyer;

(d) wrongly concluded that a chance of less than 10 per cent was not compensable; and

(e) failed to consider the overall effect of multiple chances rather than each chance separately.

[27] Mangatu argued that the Arbitrator correctly applied settled principles to both the causation and quantum questions, with the result that the proposed ground of appeal does not raise any question of law.

[28] I encountered difficulties with some aspects of the submissions (especially in relation to (a) and (d)) because both parties proceeded on the assumption that the Arbitrator had considered both causation and quantum issues. However, on my reading of the Further Ruling, the Arbitrator considered only causation and, having concluded that Mangatu’s conduct did not cause FHL to lose a commercial opportunity of any value, found it unnecessary to go further to consider quantum. I have endeavoured to address the substance of FHL’s complaints on the basis of my understanding of the Further Ruling.

Relevant principles

[29] The recognised approach for assessing the value of a loss of chance was described in Takaro Properties v Rowling:

In general a calculation of damages based upon the value of a chance will involve assessment at three levels. First there is the question as to whether there is affirmative evidence from a plaintiff that in the absence of the negligent conduct complained of he would have had some opportunity of achieving a particular purpose. For reasons already given that evidence is present in this case. Second, there is a need to estimate what would have been the outcome had there been complete success. And finally, that outcome reduced to money terms will have to be discounted to accord with what can fairly be regarded as the actual prospect of success….

[30] The first limb is concerned with causation; has the defendant’s conduct led to the loss of an opportunity that had some value? This limb is not concerned with the precise monetary worth of the opportunity, as explained by the High Court of Australia in Sellars v Adelaide Petroleum NL:

… The general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing the applicant’s case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable.

[31] In the present case, the answer to the first limb of Takaro Properties depended not only on FHL’s own conduct (i.e. its decision to negotiate or sell etc) but also on the response by third parties (e.g. Mangatu’s willingness to negotiate, the availability and interest of potential buyers). That type of situation requires the more nuanced approach described in Allied Maples Group Ltd v Simmons and Simmons:

… Where the plaintiff’s loss depends on the actions of an independent third party, it is necessary to consider as a matter of law what is necessary to establish as a matter of causation, and where causation ends and quantification of damage begins.

If the defendant’s negligence consists of an omission … causation depends, not upon a question of historical fact, but on the answer to the hypothetical question, what would the plaintiff have done … this can only be a matter of inference to be determined from all the circumstances. …

Although the question is a hypothetical one, it is well established that the plaintiff must prove on the balance of probability that he would have taken action to obtain the benefit or avoid the risk. But again, if he does establish that, there is no discount because the balance is only just tipped in his favour

In many cases the plaintiff ’s loss depends on the hypothetical action of a third party, either in addition to action by the plaintiff, as in this case, or independently of it. In such a case does the plaintiff have to prove on the balance of probability … that the third party would have acted so as to confer the benefit or avoid the risk to the plaintiff or can the plaintiff succeed provided he shows that he had a substantial chance rather than a speculative one, the evaluation of the substantial chance being a question of quantification of damages?

… I have no doubt that … the second alternative is correct. (emphasis added)

[32] The Court of Appeal applied this statement in Benton v Miller and Poulgrain (a firm). That case concerned the assessment of a loss of chance arising from the failure of a solicitor to advise the appellant on the implications of the Matrimonial Property Act 1976 (MPA). Following separation from his wife, the appellant found that he was adversely affected by not having an agreement under s 21 of the MPA providing that the couple’s home was his separate property. The Court said:

Applying [the Allied Maples] approach to the case at hand, uncertainties as to how Mr Benton would have acted had proper advice been given are to be dealt with on an all or nothing basis and decided on the balance of probabilities while uncertainties as to Mrs Benton’s conduct fall to be determined on a loss of a chance principles.

In making a “loss of chance” assessment, broad judgments are called for. At one end of the spectrum, very low probabilities are unlikely to be reflected in an award of damages. So if the chance of avoiding an adverse event is as low as say one in ten, a Court will probably reject the claim rather than fix damages at 10 per cent of the cost to the plaintiff associated with those adverse events. At the other end of the spectrum that approach is sometimes, but not always, adopted. So a 90 per cent chance of avoiding an adverse event may result either in the complete recovery of all losses associated with that adverse event (on the theory that the chance of not avoiding those losses was sufficiently speculative to be able to be ignored) or alternatively a discount of 10 per cent for contingencies.

[33] Applying the “loss of chance” principles to the facts before it, the Court said that the appellant had to prove on the balance of probabilities that he would not have entered into the transactions unless accompanied by a s 21 agreement. If he could do so, then he would be entitled to damages either if he could establish to a high degree of probability that Mrs Benton would have signed the s 21 agreement or if he could not establish that “but could show that there was a reasonable likelihood of Mrs Benton signing such an agreement”, loss of chance principles would require an award of damages proportionate to the likelihood of a s 21 agreement having been signed, less perhaps an adjustment for the possibility that the agreement might not have been upheld.

[34] Referring to the description of “speculative” in relation to the chance said to have been lost, the Court commented that:

The Judge seems to have regarded “speculative” as a synonym for “uncertain” whereas, in the context of loss of a chance principles, a possibility is only able to be ignored as “speculative” if it is at the unlikely end of the probability spectrum….

[35] It is apparent, on these principles, that the first limb of Takaro Properties required FHL to show

(1) on the balance of probabilities that it would have acted to extract some commercial value from its Forestry Right during the 120-day period and
(2) that it had “a substantial chance rather than a speculative one” or “a reasonable
likelihood” of being able to achieve that.

[36] If the answer to either question was negative, there would have been no need to go further and assess the value of the lost chance. But if the answer was affirmative then, on the Takaro Properties approach, the counter-factual would have to be identified (i.e. what FHL’s position would have been had it achieved its objective) and a discount applied to reflect the actual prospect of success.

The Arbitrator’s approach to the standard of proof

[37] In identifying the relevant principles, the Arbitrator did not cite Takaro Properties, nor refer specifically to the three-stage test. But he did refer to (among others) Benton v Miller and Poulgrain and Allied Maples Group v Simmons and Simmons. He said:

FHL’s damages claim is based on the loss of chance principle, namely that FHL was denied a valuable commercial opportunity and that there was a real and substantial chance that it would have achieved this opportunity. Whether it would have achieved that opportunity is in some respects dependent upon the hypothetical actions of third parties. The law is quite clear that when assessing for the purposes of damages arising from a loss of a chance, the hypothetical actions of third parties, it is necessary to assess the consequences not on the basis of the balance of probabilities but on the basis of the degree of possibilities or the probabilities of those hypothetical actions succeeding. If the assessment is less than 50 per cent there is an appropriate deduction in the damages awarded. Thus, even if there is only a 30 per cent chance of the valuable commercial opportunity being achieved, damages are awarded proportionally.

[38] It is unclear from this passage what the Arbitrator perceived to be the relevant legal principle for determining the causation limb when causation depended either entirely or in part on the hypothetical actions of third parties. This is because, having identified the issue, he moved immediately to state the legal position applying to the quantum stage. It appears from the Arbitrator’s next statement that he was uncertain as to what was required in terms of proof of the causation limb when it depended in part on the actions of third parties:

What is not so clear is what needs to be established on the balance of probabilities onus when considering causation … thus, if this is a loss of chance case, which Mangatu does not accept, FHL is required to discharge the onus on the balance of probabilities basis of establishing that the chance lost is valuable and not really speculative …

The New Zealand Court of Appeal in Benton referring to the uncertainty as to what would have happened in the future, noted that this uncertainty can be addressed in two ways. Either on an “all or nothing” approach by reference to the balance of probabilities standard of proof or alternatively, on a proportionate (or loss of a chance) base according to the judge’s assessment of probabilities. The Court acknowledged that the law as to when which of these approaches to causation and damages should be taken is difficult. That case dealt with a breach of duty but the principles applied, in my view, have a more general application.

[39] I respectfully consider that the Arbitrator took a wrong turn at this point. It is evident from a close reading of Benton that the “all or nothing” approach was not being discussed in relation to the hypothetical actions of third parties for the purposes of assessing causation. Rather, it was being discussed in the context of cases that turn on how the plaintiff itself would have acted. As a result, I consider that by the time the Arbitrator came to summarise the principles on which he intended to rely, he was under a misapprehension as to what the standard of proof of causation required in the circumstances of this case.

[40] At [12]–[13] of his decision, the Arbitrator said:

In summary, the principles which I intend to apply are:

(a) FHL needs to establish on the balance of probabilities that it has lost a commercial opportunity of some value (not being a negligible value).

(b) In the circumstances of this case, it is necessary to determine whether Mangatu would have issued the notice to remedy defaults under the provisions of Schedule D of the Forestry Right (notice to remedy). This needs to be established by Mangatu on the balance of probability basis.

(c) If it is accepted that the notice to remedy would have been issued, FHL is required to establish on the balance of probabilities what action it would have taken and that such action would have achieved a commercial opportunity of some value. The commercial opportunity must be more than a speculative opportunity.

(d) If a commercial opportunity of value is established, the damages are to be assessed on the degree of probabilities and possibilities.

I do not accept, as FHL appears to contend, that the future actions of the parties need to be assessed on the balance of probabilities and possibilities basis. As is implicit in the principle stated in the previous paragraph, the likely actions of both parties are relevant to establishing causation. In my view, their actions before the date of repudiation and the inferences that can be drawn from them are relevant in establishing causation and are to be assessed on the balance of probabilities basis.

[41] Nowhere in this passage does the Arbitrator specifically identify the different approach required to be taken to the part played by third parties in the causation assessment. I infer that he has treated that aspect as being required to be proved on the balance of probabilities. But Allied Maples and Benton make it clear that this is not the correct approach. Although FHL’s own conduct was to be proved on the balance of probabilities, the likely conduct of third parties (including Mangatu) did not require that standard; all that was required was a “substantial chance rather than a speculative one” of third parties acting so as to allow FHL to extract some commercial value from the situation.

The causation finding

[42] The Arbitrator identified the two issues on which factual findings were required as being, first, what Mangatu would have done had it not repudiated the contract and, secondly, what FHL would have done in response to Mangatu’s actions. He said:

As these would have been actions of the parties, I do not intend to determine them on a degree of probabilities and possibilities basis but will do so on the balance of probabilities basis.

[43] I consider that the Arbitrator made an error at this point. FHL’s actions were certainly to be determined on the balance of probabilities. But Mangatu’s actions were, for the purposes of the loss of chance assessment, those of a third party. What it would have done fell to be determined on loss of chance principles in the way described by the Court of Appeal in Benton. However, I do not think that the error had any significant consequences at this point, because the Arbitrator concluded that Mangatu would have issued a notice requiring FHL to remedy the breaches, thereby providing FHL with the factual basis for the loss of chance claim.

[44] The Arbitrator then considered FHL’s own position. He accepted that it would have sought to extract some commercial value from the Forestry Right during the 120- day notice period if at all possible and, to that end, it would have considered taking the various actions that FHL had identified as available to it.

[45] The Arbitrator then turned to the contentious issue of what was required to establish causation on the basis of the courses of action open to FHL. In doing so, he signalled his intention to apply the approach that I have held to be erroneous:

… It is necessary to establish on a balance of probabilities basis that one at least of these actions would have given FHL a commercial opportunity of value and that the opportunity was not merely speculative. It is necessary to do so on the basis of the evidence adduced at the liability hearing and the submissions made at the current hearing.

[46] However, when the Arbitrator actually examined the various options available to FHL, he referred to an alternative finding on a “degree of probabilities and possibilities basis”. As I come to later, I do not consider that this approach overcame the earlier error.

[47] The Arbitrator began with the issue of whether FHL could have negotiated with Mangatu to withdraw the notice. In his Liability Award, the Arbitrator had found that the 2013 harvest, although not a breach of the 2011 abatement notice, was a breach of the Annual Harvest Operational Plan (AHOP) required by the RMA consent and that FHL could not have remedied that breach. He also found that Mangatu had acted on the basis that there had been illegal harvesting. In the Further Ruling, the Arbitrator proceeded on the basis that FHL “does not, and could not, rely on an assertion that it would have remedied the defaults within 120 days”.

[48] On the issue of FHL persuading Mangatu to withdraw the notice, the Arbitrator said:

FHL’s position is that it would have negotiated to have Mangatu withdraw the notice to remedy on the basis that it had not logged illegally. Despite a finding to this effect in the Liability Award, FHL says that the logging was not illegal and that when appraised of this by FHL’s lawyer, there was a strong chance that Mangatu would have withdrawn the notice to remedy.

There are three matters which need to be considered in determining whether FHL would have achieved a substantial prospect of a beneficial outcome on this ground. They are:

(a) Was illegal harvesting the sole reason for determination as alleged by FHL?

(b) Was the logging in fact illegal?

(c) Would FHL have been persuaded to withdraw a default notice on the basis of this submission?

I will determine the above issues on the balance of probability test. Because of the confusion in the authorities as referred to above, I will also consider what the position would have been on a degree of probabilities and possibilities basis.

The conclusion that I have come to is that the discovery by Mangatu of illegal harvesting was certainly the tipping point which led to the termination notice which was ultimately held to be a repudiation of contract. However, it was not the sole reason. It brought to a head simmering discontent by Mangatu with FHL’s performance. It was also concerned that FHL had misled it when it said it had complied with the consent conditions. When all the circumstances are considered, I am not persuaded, if the logging was in fact illegal, that FHL could have persuade Mangatu to withdraw a notice to remedy. The evidence from Mangatu is such that FHL could not have on the balance of probabilities established that the notice would have been withdrawn. If I was required to assess this matter on the degree of probabilities and possibilities, my assessment would be that FHL’s chances on this particular point were less than 10%.

(emphasis added)

[49] Mr Branch argued that the Arbitrator should have set aside his earlier finding that the breach could not have been remedied for the purposes of the damages assessment and instead assessed the chance of that happening in accordance with loss of chance principles. This would have required him to consider chances of FHL remedying the breach afresh and a 50 per cent chance of doing so would result in judgment of 50 per cent of the market value of the Forestry Right. I do not accept this. As I have discussed, under the Allied Maples and Benton approach what FHL would have done, had it been given the opportunity, was to be considered on the balance of probabilities, which is what the Arbitrator had already done. Even if the earlier factual finding were wrong, no error of law was made.

[50] Mr Branch also challenged the Arbitrator’s finding that Mangatu had acted in the belief that the 2013 harvest was illegal. He submitted that this finding was an error because the harvest had not, in fact, contravened the abatement notice and the Arbitrator’s previous finding in the Liability Award that it had breached the AHOP was wrong, and the earlier finding had been the subject of a recall application that, ultimately, was not advanced because it was agreed that the issue of whether there had been illegal logging would be addressed as part of the loss of chance assessment. Mangatu did not dispute the assertion that there had been a recall application, but pointed to evidence at the liability hearing and the Arbitrator’s findings on this issue, which it said could not now be impugned.

[51] I do not appear to have documents relating to the recall application. If the parties had agreed to proceed at the damages hearing on the basis that the question of illegal logging was to be considered afresh, there may have been an error of law because, clearly, it was not considered afresh. But I cannot conclude that that is the case on the information before me. That aside, the position must be that the Arbitrator’s findings of fact must stand, whether correct or not. They cannot be impugned as a question of law in the present context.

[52] In considering the prospect of alternative dispute resolution, the Arbitrator found that:37

… FHL had the right to invoke the provisions of this clause and was entitled to endeavour to resolve the matter by discussion failing which it could have referred the matter to arbitration. On the findings already made, Mangatu would not have been prepared to have withdrawn the notice to remedy and would have been prepared to terminate. As already noted, I do not accept the submission that in assessing the actions which either party would have taken, it is necessary to do so on the degree of probabilities or possibilities basis.

The second step in the dispute resolution process would have been to refer the matter to arbitration. On the authorities noted above, FHL would be required to establish on the balance of probabilities that it had a substantial chance rather than a speculative one of achieving a satisfactory result. …

An arbitrator under the interim relief powers in the Arbitration Act 1996 has the power to stay the determination pending the arbitration. However, it is still necessary in my view, for FHL to show that it would have had a substantial, rather than a speculative chance of success. In my view for the reasons already given, I am of the view that the chances of success are speculative and not substantial. …

If I am incorrect and the matter has to be determined on the degree of probabilities or possibilities, I assess the chance of succeeding in an arbitration as no greater than 10%.

(emphasis added)

[53] On the question of whether FHL could have sought cancellation of the abatement notices that were (among other things) factors leading to the notice to terminate being served, the Arbitrator said:

Notwithstanding the previous history if FHL can establish on the balance of probabilities that it had a substantial chance of obtaining a commercially valuable opportunity either through an application to the GDC or on an appeal or application to the Environment Court, it is entitled to have an assessment of the degree of probabilities and possibilities made. It did not call further evidence on this aspect.

It is necessary to assess what possible action to have the abatement notices cancelled would have had on the decision-making process of Mangatu as well as that of GDC. In summary, FHL’s position is that by challenging the abatement notices it would have either persuaded GDC to cancel the notices or have persuaded Mangatu that it should not proceed with termination or would have been successful in the Environment Court which would have led to the abatement notices being cancelled. To assist FHL’s position it is necessary for it to establish on the balance of probabilities that there would have been a substantial prospect of achieving value by one of these methods

It is my opinion that on the basis of the above findings FHL did not have a substantial chance of either persuading Mangatu to withdraw a notice to remedy if one had been issued or of having GDC cancel the abatement notice. If it is necessary to assess on a degree of probabilities and possibilities basis, the chances were in my view negligible.

(emphasis added)

[54] Finally, on the question of whether FHL had a substantial opportunity to sell some of its shares or assign the Forestry Right, the Arbitrator said:

FHL’s position is that a sale of half of the shares in it would have no doubt allayed Mangatu’s concerns and would have provided significant cash resources which could then be used to ensure any breach was remedied. …

The only evidence adduced in support of the prospects of a sale was at the liability hearing when Mr Scott referred to two possible purchasers, …

Accepting that these two possible purchasers did express interest, the hearsay evidence of Mr Scott is not sufficient to satisfy the onus of FHL that there was a realistic rather than a speculative prospect of selling a half-interest in the company or assigning FHL’s interest in the Forestry Right. There was no evidence at the liability hearing and as noted no further evidence was called at the recent hearing, which establishes on the balance of probabilities that a sale of a half-interest was a realistic or significant prospect. …

… I do not necessarily accept that [Mangatu] would not have consented to a transfer of shares if the proposition involved a commercial benefit to Mangatu.

However, in summary, the evidence is not sufficient to show that if a notice to remedy had been issued, the prospective purchasers or any other purchaser knowing of the notice to remedy and knowing of the true condition of the Forestry Right would have made an offer to purchase either half the shares in FHL or the Forestry Right itself. The need to obtain Mangatu’s consent to either transaction would be another factor. This ground cannot assist FHL because the prospects of such a sale would at the most be speculative.

(emphasis added)

[55] FHL maintained that it had good prospects of securing a sale of part of its shareholding and securing Mangatu’s consent to that course. It says that the Arbitrator erred in his consideration of this possibility, because he was required to proceed on the basis that both a market and a buyer existed. Mr Branch relied on the following statement by Cooke J (as he then was) in Takaro Properties:

Whether or not there was in fact a market, in the sense of any potential outside purchaser or purchasers, for Takaro’s assets, including the prospect of ultimately successful development, seems to me irrelevant. In the light of more recent events and trends, the possibility of some outside interest cannot be excluded. Be that as it may, the honesty of Mr Rowling was expressly found and is accepted by all, so there could be no question of exemplary damages. The issue is simply as to provable economic loss. In that situation, it seems to me legitimate to think in terms of hypothetical willing seller and a hypothetical willing buyer, by analogy with the fields of compensation for compulsory acquisition and land valuation. In those fields, it is well settled that it makes no difference that in fact the only or most likely “buyer” would be the person deprived of the property or the owner whose land is being valued: … That is only to say in other words that the value of the potentiality of profits has to be assessed and that it must be done fairly and objectively, excluding wishful thinking.

[56] As I have indicated, I consider that the Arbitrator’s references to FHL’s chances being less than 10 per cent in relation to all of these issues were part of the causation assessment rather than quantum. Although the use of percentages is typically associated with the third limb in the Takaro Properties approach of quantifying the lost opportunity, the Arbitrator has, as part of the causation assessment, used percentage assessment of 10 per cent or less as, essentially, a proxy for the finding that the opportunity that existed was merely speculative. This is evident in his concluding paragraphs:

[85] It follows from the above that in my view FHL has not established on the balance of probabilities that it had other than a speculative right to obtaining a commercial opportunity of value if Mangatu had proceeded and given its notice to remedy. Any damages award based on loss of chance can therefore only be nominal.

[86] In several instances I have determined causation on the basis that FHL has not satisfied the onus on the balance of probabilities. If in any of these instances I am incorrect and should have determined the matter on the degree of probabilities and possibilities, I would have assessed such degree as being no more than 10% and therefore in the negligible category. As such, any award of damages could not be more than nominal.

[57] I prefer not to express a view on whether an assessment at 10 per cent or less will inevitably represent a merely speculative chance because counsel have not had the opportunity to respond to my view of what the Arbitrator meant when he used this percentage as the basis for an alternative view on causation.

[58] It is, however, evident that the Arbitrator failed to approach the issue with the standard of proof clearly in mind. Even in the instances in which he sought to make an alternative finding on the basis of “probabilities and possibilities”, the risk of a flawed assessment remained because his consideration of the evidence relating to the hypothetical actions of third parties was largely focused on the balance of probabilities. I therefore accept that the Arbitrator did approach the causation limb of the assessment on the incorrect basis that it was to be decided on the balance of probabilities and his references to the alternative “probabilities and possibilities basis” was not sufficient to overcome that error.

[59] Finally, I turn to the argument that the Arbitrator erred in not approaching the avenues open to FHL on a totality basis. Counsel did not provide any authority to support this argument. Mr Branch simply submitted that assessing each avenue separately rather than the single overall chance was an error because “the chances of getting heads in a single coin toss is 50 per cent [but] the chance of getting heads from two coin tosses is 75 per cent”. I do not find that analogy helpful. In order to assess a lost opportunity as being one of substantial value, there must be a reasonably clear path visible as to the means by which the plaintiff could achieve the proposed outcome.
If each proposed means of achieving the desired outcome is merely speculative, the prospects of a substantial commercial opportunity cannot be stronger merely because there are several of them. I therefore do not accept that the Arbitrator made an error in principle in considering the various possible ways in which FHL could have secured a better outcome at the end of the 120-day notice period.

[60] I accept that there may be cases in which the various options available to a plaintiff overlap to such an extent that an overall view would be needed. And in some respects, FHL’s case was advanced in this way. But to the extent that it was advanced in this way, the Arbitrator dealt with the overlap. Specifically, FHL was proposing a multi-pronged approach by which it hoped to use errors in Mangatu’s understanding of the breach, and arguments as to whether there was a breach, as leverage in the negotiation to either persuade Mangatu to withdraw the notice or to consent to a partial assignment of FHL’s interest in the Forestry Right. But the Arbitrator was alive to this issue and considered it in relation to the question whether FHL could have persuaded Mangatu to withdraw the notice.

Summary

[61] In respect of FHL’s various points, I have concluded that

(a) The Arbitrator made an error in his approach to the causation assessment by applying the balance of probabilities standard to the hypothetical question of how Mangatu and other third parties would have acted in response to FHL’s efforts to retrieve its position during the notice period.

(b) Subject to the question whether there had been agreement to approach the issue of Mangatu’s belief as to breach by FHL afresh following withdrawal of FHL’s application for recall of the Liability Award, the Arbitrator did not err in adopting factual findings made at the liability stage.
(c) The Arbitrator did not err in his approach to the likelihood of a potential buyer being found for part or all of FHL’s interest in the Forestry Right.

(d) The Arbitrator made no error in considering each of the courses of action proposed by FHL separately rather than in totality.

[62] In my view, the error at (a) had a potentially significant effect. I consider that, by virtue of that error, this ground for leave is made out.

Third ground: failure to consider s 9 of the Contractual Remedies Act 1979

[63] The Contractual Remedies Act 1979 (since repealed by the Contract and Commercial Law Act 2017) continued to apply in this case. Section 9 provided that:

(1) When a contract is cancelled by any party, the court, in any proceedings or on application made for the purpose, may from time to time if it is just and practicable to do so, make an order or orders granting relief under this section.

(2) An order under this section may –

(b) … direct any party to the proceedings to pay to such other party such sum as the court thinks just.

[64] FHL argued that the Arbitrator was required to, and failed to, consider a remedy for FHL under s 9, particularly in relation to the prepaid royalties of over $1 million that still remained at the time the grant was terminated which, in the absence of any other remedy, Mangatu would simply retain.

[65] Mangatu argued that FHL’s position was nothing more than an attempt to have the Arbitrator punish Mangatu for its failure to the give the 120-day notice, thereby attaching moral culpability to Mangatu’s breach of contract, for which there is no recognition in contract law.41 Mangatu also argued that the exercise of an arbitrator’s discretion under s 9 is not an error of law and, thus, not amenable to an appeal.

[66] FHL’s initial claim included one for relief under s 9 even if it were found that Mangatu had not repudiated the agreement.42 In the Liability Award, the Arbitrator expressed the view that if (contrary to his finding) Mangatu had lawfully terminated the Forestry Right, then FHL would have been entitled to have its s 9 claim considered in respect of the unused portion of the royalty ($1,280,984) and other costs.

[67] In the Preliminary Damages Decision, the Arbitrator noted that, on the pleadings, FHL had not sought s 9 relief in the event of him holding that Mangatu had unlawfully repudiated the contract, but that s 9 allowed him to consider a reliance award in respect of the unused portion of the royalty and the costs incurred, though FHL would need to amend its pleadings. The Arbitrator did make the observation that FHL would face difficulty in advancing a claim of that kind, given that the Forestry Right entitled Mangatu to retain the unused portion of the royalty payment. Nevertheless, FHL was invited to consider its position and advise what it proposed to do.

[68] There is nothing in the documents before me to indicate that FHL did take the opportunity to amend its pleading. However, in the Further Ruling the Arbitrator identified one of the issues to be determined as:

If loss of chance damages are not recoverable, are reliance damages recoverable?

[69] Since FHL’s claim for the unused portion of the royalty as reliance damages had been specifically considered in the Preliminary Damages Decision as falling within the discretion to grant relief under s 9, I infer that the reference to reliance damages in the Further Ruling was similarly intended to refer to s 9. However, the discussion on this aspect of FHL’s claim made no reference at all to s 9. Instead, the Arbitrator rejected the claim for reliance damages on the basis that reliance expenditure could only be recovered to the extent that future profits would have been made to enable such expenses to be recovered, and, since there would not have been future profits, no such damages were available.

[70] Since I do not have the benefit of the current pleadings or the submissions made to the Arbitrator on this issue, it is not possible to resolve this issue. If the claim for reliance damages had been advanced, either in pleadings or submissions, as being amenable to relief under s 9, the Arbitrator would have made an error in not considering the issue. Such an omission would not be the exercise of a discretion as such, but rather the failure to actually consider a legal issue raised in the proceeding. If, however, the issue had not been advanced by counsel in that way either in pleadings or submissions, then I cannot see that any error was made.

Leave should be granted

[71] FHL has satisfied me that the Arbitrator made an error in identifying the correct standard of proof required for determining causation in cases based on loss of a chance where the loss turns, in part, on the hypothetical actions of third parties. It may also be that there was an error in failing to consider the application of s 9 of the CRA in relation to the retained portion of the royalty payment, though I cannot resolve that question on the material before me.

[72] Not only is the issue important to the parties to this case, but the identified error of law is likely to be relevant to others involved in arbitration proceedings. I consider that this is an appropriate case for leave to appeal to be granted.

Result

[73] The application for leave to appeal is granted.

[74] The parties may address the issue of costs by way of memoranda filed by FHL within 10 days of the date of the judgment, by Mangatu within a further seven days, with any response seven days after that.

Sincore International Co Ltd v RBRG Trading (UK) Ltd [2017] EWHC 251 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION

COMMERCIAL COURT

B e f o r e :

MR JUSTICE PHILLIPS
____________________

Between:

SINOCORE INTERNATIONAL CO LTD
Claimant

– and –

 
RBRG TRADING (UK) LTD
Defendant

____________________

Nicholas Vineall QC and Neil Henderson (instructed by Holman Fenwick Willam LLP) for the Claimant
Neil Calver QC and Tom Pascoe (instructed by King & Spalding International LLP) for the Defendant

Hearing date: 5 October 2016. Further written submissions on 10 and 12 October 2016 

Crown Copyright ©

 

Mr Justice Phillips :

    1. On 2 March 2016 Burton J made an order (“the Order”) pursuant to s.101(2) of the Arbitration Act 1996 (“the Act”) giving the claimant (“Sinocore”) permission to enforce a CIETAC arbitration award dated 30 June 2014 (“the Award”) against the defendant (“RBRG”) and providing for judgment to be entered in the terms of the Award. The Order was sought and made under s.101(2) of the Act as the Award was made in China, a party to the New York Convention.
    2. The Order, made on Sinocore’s without notice application on paper, provided (as required by CPR 62.18(9) and (10)) that RBRG had liberty to apply to set the Order aside within 14 days after service and that the Award was not to be enforced pending any such application and its disposal.
    3. By application notice dated 18 March 2016 RBRG applied to set aside the Order pursuant to s.103(3) of the Act on the grounds that recognition or enforcement of the Award would be contrary to public policy. The gist of RBRG’s contention is that the Award gives effect to a claim by Sinocore which is “based on…. forged bills of lading“.

The background facts

(i) The Sale Contract

    1. On 15 April 2010 Sinocore agreed to sell 14,50MT (+/- 10%, at sellers option) of prime newly produced cold rolled steel coils (“the Coils”) to RBRG (then named Metalloyd Limited) at a price of US$870/MT CNF FO, shipped from any port of China to Tampico or Altamira in Mexico (“the Sale Contract”). The Sale Contract, governed by Incoterms 2000, required RBRG to open an irrevocable letter of credit for 100% of the contract price in strict conformity with the Sale Contract. The letter of credit was to allow shipment by July 2010 at the latest.
    2. The Sale Contract contained a CIETAC arbitration clause and expressly provided that any dispute would be determined according to Chinese law, that the language of the arbitration would be Chinese and that the venue of arbitration proceedings would be Beijing, China.
    3. On 7 May 2010 the Sale Contract was amended to permit RBRG to arrange an inspection of the Coils for quantity and quality, providing that such inspection might be carried out during and prior to loading. The quantity tolerance was also adjusted to +5/-10%.

(ii) The Letter of Credit

    1. RBRG procured that, on 22 April 2010, a conforming letter of credit was issued by Rabobank Nederland (“Rabobank”) in the sum of US$12,616,000 (“the Letter of Credit”), providing that the latest date of shipment was 31 July 2010. The Letter of Credit was subject to the UCP600.
    2. On 12 June 2010, on the instructions of RBRG, Rabobank purported to issue an amendment to the Letter of Credit, changing the shipment period to read “20th to 30th July 2010“. It is common ground that that change was not agreed by Sinocore and was therefore ineffective (see Article 10 of the UCP600).

(iii) Shipment of the Goods

    1. On 5 and 6 July 2010 the Coils were loaded onto the “Magic Striker” at Xingjang port, China. Genuine bills of lading were issued bearing the dates 5 and 6 July 2010. The vessel departed on 7 July 2010. That same day Sinocore sent a formal shipping advice to RBRG recording that the date of the bills of lading was 6 July 2010.

(iv) Request for payment under the Letter of Credit

    1. On 22 July 2010 the Bank of Communications Beijing Branch (“BoC”), as collecting bank for Sinocore, requested payment from Rabobank under the Letter of Credit, presenting purported bills of lading bearing the dates 20 and 21 July 2010. As shipment in fact took place on 5 and 6 July 2010, it is plain (and Sinocore now accepts) that those bills were forgeries, being concocted so that documents were presented to Rabobank which, on their face, evidenced shipment within the period required by the purported amendment to the Letter of Credit referred to above. No explanation has been provided by Sinocore of how or by whom the forgeries were created and provided to BoC for presentation to Rabobank.

(v) Disputes and proceedings between the parties

    1. On 26 July 2010 the Court of Amsterdam, on the petition of RBRG, granted a temporary injunction restraining Rabobank from making payment under the Letter of Credit.
    2. On 13 August 2010 Sinocore commenced proceedings against Rabobank in the Beijing First Intermediate People’s Court, claiming damages for Rabobank’s alleged failure to make payment under the Letter of Credit pursuant to the request made by BoC on 22 July 2010. The claim was subsequently reduced by the amount Sinocore received on re-selling the Coils as set out in paragraph 14 below, but was dismissed on 26 June 2013 on the grounds that the presentation to Rabobank was fraudulent. Sinocore has appealed that decision and the appeal is still pending.
    3. On 20 August 2010 Sinocore sent notice of termination of the Contract of Sale to RBRG, alleging that RBRG had repudiated the agreement and reserving its right to claim damages. RBRG accepted the termination without prejudice to its right to claim damages for breaches of contract.

(vi) Re-sale of the Coils

    1. On 26 August 2010 Sinocore sold the Coils to another buyer, Chimay Industrial Inc (“Chimay”), at a price of US$535/MT, well below the price agreed with RBRG in the Sale Contract.

(vii) The arbitration proceedings

    1. On 11 April 2012 RBRG commenced CIETAC arbitration proceedings against Sinocore in Beijing for damages caused by Sinocore’s breach of the inspection clause added to the Sale Contract on 7 May 2010. In its skeleton argument for this hearing RBRG explained that the essence of its contention in the arbitration was that Sinocore had shipped the Coils early in order to prevent RBRG from inspecting the (presumably defective) Coils, and had then produced forged bills of lading to cover this up.
    2. Sinocore counterclaimed for damages for breach of contract, claiming the difference between the sale price in the Sale Contract and the price obtained from Chimay.
    3. RBRG and Sinocore each appointed an arbitrator, but failed to agree on the joint appointment of a chief arbitrator. CIETAC therefore appointed Ms Yan Siyi to that position. Oral hearings took place before the arbitral tribunal (“the Tribunal”) in Beijing on 10 April and 9 August 2013. The Award was handed down in Beijing on 30 June 2014.

(viii) The Award

    1. In its written Award, the English translation of which extends to 53 pages, the Tribunal determined (applying Chinese law) as follows:

i) that RBRG had not requested that it be permitted to arrange an inspection of the Coils before or during shipment, notwithstanding that Sinocore had given sufficient notice of shipment. Sinocore was therefore not in breach of the Sale Contract. Further, any such breach was not causative of any loss suffered by RBRG, the Tribunal holding that the termination of the Sale Contract had nothing to do with the quality of the Coils but with the failure of the parties to reach an agreement as to whether the amendment of the shipment period in the Letter of Credit was consistent with the Sale Contact.

ii) that, as Sinocore had not agreed to the revised shipment date, RBRG was in breach of the Sale Contract in procuring that Rabobank amended the Letter of Credit so that it was inconsistent with the terms of the Sale Contract in that regard. It was this breach of contract, the Tribunal found, which resulted in Sinocore not receiving payment and caused the termination of the Sale Contract and losses to be incurred.

iii) that the submission of forged bills of lading under the Letter of Credit was a deception of Rabobank, but did not mean deceiving RBRG. RBRG had actual knowledge of the true shipment dates, and its purported amendment of the Letter of Credit “was like a trap set by the buyer for the seller…“.

    1. The Tribunal therefore ordered RBRG to pay Sinocore damages of US$4,857,500, costs of RMB 535,492 and a proportion of the arbitration fees. The tribunal declined to award Sinocore any interest.
    2. On 24 December 2014 RBRG applied to the Beijing Second Intermediate People’s Court to set aside the Award, but that application was dismissed on 18 March 2015. It is common ground that the Award is final and that RBRG has exhausted its rights of appeal.

(ix) The application for leave to enforce the Award

    1. On 15 February 2016 Sinocore issued its application for leave to enforce the Award. The application was supported by witness statements from (i) Feng Jing, a partner in the firm of Chinese lawyers which acted for Sinocore in the arbitration and (ii) Marie-Anne Claire Smith, an associate of Holman Fenwick Willan LLP, Sinocore’s Solicitors. As already stated, the Order was made on 2 March 2016.

The grounds of RBRG’s challenge to the Order

    1. The main ground on which RBRG seeks to set aside the Order is that recognition or enforcement of the Award would be contrary to public policy within the meaning of s.103 of the Act. That section provides, in so far as relevant, as follows:

103 Refusal of recognition or enforcement

(1) Recognition or enforcement of a New York Convention award shall not be refused except in the following cases

(3) … if it would be contrary to public policy to recognise or enforce the award.

    1. RBRG contends that enforcement of the Award would be contrary to the policy of the English courts of not allowing their processes to be used to give effect to commercial fraud, putting its case as follows:

i) firstly, on the narrow basis that it had been open to Sinocore to present the genuine bills of lading under the Letter of Credit and to obtain payment according to its original terms (as Sinocore had not consented to the proposed amendment), with the result that Sinocore’s case, properly analysed, can only be that a breach occurred and loss was suffered when payment did not result from the presentation of the forged bills of lading to Rabobank. It follows, it is argued, that Sinocore’s claim in the arbitration was directly based on its own fraudulent presentation of documents, to which the court would be giving effect if the Award were enforced; and/or

ii) secondly, on the much wider basis that the English courts will not assist a seller who presented forged documents under a letter of credit. In this regard RBRG refers to the well-known statement, approved by Lord Denning M.R. in Edward Owen v Barclays Bank International Ltd. [1978] QB 159 at 171D, that letters of credit are “the life-blood of international commerce” and to the exception to the strict contractual obligation of a bank which has issued a letter of credit to pay against apparently conforming documents where they contain fraudulent statements, an exception explained by Lord Diplock in UCM v Royal Bank of Canada [1983] 1 AC 168 at 184A as follows:

… The exception for fraud on the part of the beneficiary seeking to avail himself of the credit is a clear application of the maxim ex turpi causa non oritur actio or, if plain English is to be preferred, “fraud unravels all”. The courts will not allow their process to be used by a dishonest person to carry out a fraud.

    1. RBRG further contends that Sinocore, in its without notice application, failed to make full and frank disclosure of all material matters in that it did not draw to the court’s attention (i) the fact that it had presented forged bills of lading under the Letter of Credit and (ii) that it was still separately pursuing its claim against Rabobank for payment under the Letter of Credit against the forged bills of lading. However, Mr Calver QC, leading counsel for RBRG, accepted that non-disclosure by Sinocore (if established) would be relevant only to questions of costs and that the point added nothing to the substantive merits of RBRGs application: if the only objection to the Order was material non-disclosure in the way it was obtained, Sinocore would be entitled to an order for recognition and enforcement, if necessary by making a fresh application.
    2. RBRG also points out that Sinocore’s continued pursuit of its claim against Rabobank under the Letter of Credit in Beijing, by way of appeal, not only demonstrates that Sinocore continues to rely on the forged bills of lading, but also gives rise to a risk of double-recovery by Sinocore (under both the Award and any judgment against Rabobank, RBRG undoubtedly being liable to indemnify Rabobank in respect of any such judgment), particularly as it appears that there is no principle of Chinese law which would prevent such double recovery. However, in its skeleton argument RBRG expressly confirmed, for the avoidance of doubt, that it did not rely upon the risk of double-recovery as a free-standing public policy reason for refusing to enforce the Award. Further, Sinocore has offered to give an undertaking to the court designed to exclude the risk of double recovery: issues arising in relation to that offer are addressed at the end of this judgment.
    3. It follows from the above that the sole substantive issue arising on RBRG’s application is whether it would be contrary to public policy to recognise and enforce the Award on either of the two bases identified by RBRG.

The relevant legal principles

(a) The proper approach to s.103(3)

    1. The general approach to an application under s.103 of the Act, recognising that there is a strong presumption that New York Convention awards are enforceable and that public policy defences are to be treated with extreme caution, was summarised by Gross J (as he then was) in IPOC (Nigeria) v Nigerian National Petroleum [2005] 2 Lloyd’s Rep 326 as follows:

11… First, there can be no realistic doubt that section 103 of the Act embodies a pre-disposition to favour enforcement of New York Convention Awards, reflecting the underlying purpose of the New York Convention itself; indeed, even when a ground for refusing enforcement is established, the court retains a discretion to enforce the award: Mustill & Boyd, Commercial Arbitration, 2nd edn, 2001 Companion, at page 87.

………

13. Thirdly, considerations of public policy, if relied upon to resist enforcement of an award, should be approached with extreme caution: Deutsche Shachtbau-und Tiefbohrgesellschaft mbh v Ras Al,Khaimah National Oil Co [1987] 2 Lloyd’s Rep 246, at page 254. The reference to public policy in section 103(3) was not intended to furnish an open-ended escape route for refusing enforcement of New York Convention awards. Instead, the public policy exception in section 103(3) is confined to the public policy of England (as the country in which enforcement is sought) in maintaining the fair and orderly administration of justice: Mustill & Boyd, at pages 91-92.

    1. Whilst the court does retain a discretion to enforce an award even where a ground for refusing to do so is established (broadly, where the award is subject to a fundamental or structural defect), that discretion is not open-ended. It is unlikely to be exercised unless the right to object to enforcement had been lost, for example, by way of another agreement or estoppel or some other recognised principle: see Dallah Real Estate and Tourism Holding Co v The Ministry of Religious Affairs, Government of Pakistan [2011] 1 AC 763 SC per Lord Mance at §68 and Honeywell International Middle East Ltd. v Meydan Group LLC [2014] 2 Lloyd’s Rep 133 per Ramsey J at §66.

(b) The approach to awards alleged to give effect to fraud or illegality

    1. It is clear that the public policy exception will be engaged where an award, on its face, gives effect to a contract or enterprise which is unlawful in the place of performance or is otherwise contrary to English public policy (such as a contract to pay a bribe). The court will not enforce such an agreement and the interposition of an arbitration award will not isolate the successful party’s claim from the illegality which gave rise to it: see Soleimany v Soleimany [1999] QB 785 CA, in which the Court of Appeal refused to enforce an award of the Beth Din in relation to the performance of a contract to smuggle carpets out of Iran.
    2. The same approach will apply where the award gives effect to a corrupt practice, such as to enforce payment or recovery of a bribe (see National Iranian Oil v Crescent Petroleum [2016] 2 Lloyd’s Rep 146 at §41-42, referring to Nayyar v Denton Wilde Sapte [2010] Lloyd’s Rep PN 139). Although I was not directed to any authority directly on the point, there is no doubt that the court would equally refuse to enforce an award which upheld a fraudulent claim to payment based on the presentation of documents which were admitted (or found by the Tribunal) to be forgeries.
    3. It is recognised, however, that the position is more complex where illegality does not appear on the face of an award, but is asserted by a party opposing enforcement. The position is further complicated where the arbitral tribunal has itself considered and rejected the alleged illegality. Colman J in Westacre Investments Inc v Jugoimport-SPDR Holding Co. Ltd. [1999] QB 740 at 767C-768A considered that the approach the court should adopt in such cases was as follows:

(i) Where it is alleged that an underlying contract is illegal and void and that an arbitration award in respect of it is thereby unenforceable the primary question is whether the determination of the particular illegality alleged fell within the jurisdiction of the arbitrators. (ii) There is no general rule that, where an underlying contract is illegal at common law or by reason of an English statute, an arbitration agreement, which is ancillary to that contract is incapable of conferring jurisdiction on arbitrators to determine disputes arising within the scope of the agreement including disputes as to whether illegality renders the contract unenforceable. (iii) Whether such an agreement to arbitrate is capable of conferring such jurisdiction depends upon whether the nature of the illegality is such that, in the case of statutory illegality the statute has the effect of impeaching that agreement as well as the underlying contract and, in the case of illegality at common law, public policy requires that disputes about the underlying contract should not be referred to arbitration. (iv) When, at the stage of enforcement of an award, it is necessary for the court to determine whether the arbitrators had jurisdiction in respect of disputes relating to the underlying contract, the court must consider the nature of the disputes in question. If the issue before the arbitrators was whether money was due under a contract which was indisputably illegal at common law, an award in favour of the claimant would not be enforced for it would be contrary to public policy that the arbitrator should be entitled to ignore palpable and indisputable illegality. If, however, there was an issue before the arbitrator whether the underlying contract was illegal and void, the court would first have to consider whether, having regard to the nature of the illegality alleged, it was consistent with the public policy which would, if illegality were established, impeach the validity of the underlying contract, that the determination of the issue of illegality should be left to arbitration. If it was not consistent, the arbitrators would be held to have no jurisdiction to determine that issue. (v) If the court concluded that the arbitration agreement conferred jurisdiction to determine whether the underlying contract was illegal and by the award the arbitrators determined that it was not illegal, prima facie the court would enforce the resulting award. (vi) If the party against whom the award was made then sought to challenge enforcement of the award on the grounds that, on the basis of facts not placed before the arbitrators, the contract was indeed illegal, the enforcement court would have to consider whether the public policy against the enforcement of illegal contracts outweighed the countervailing public policy in support of the finality of awards in general and of awards in respect of the same issue in particular.

    1. In Soleimany the above difficulties did not arise because the illegality of the underlying contract was recognised in the award itself. However, the Court of Appeal, albeit obiter, approved Colman J’s suggested approach, save to express the view that (vi) above should not be limited to cases where the challenge to enforcement of the award is on the basis of facts not before the arbitrators. Waller LJ, giving the judgment of the Court, stated as follows at 800F:

“… In our view, an enforcement judge, if there is prima facie evidence from one side that the award is based on an illegal contract, should inquire further to some extent. Is there evidence on the other side to the contrary? Has the arbitrator expressly found that the underlying contract was not illegal? Or is it a fair inference that he did reach that conclusion? Is there anything to suggest that the arbitrator was incompetent to conduct such an inquiry? May there have been collusion or bad faith, so as to procure an award despite illegality? Arbitrations are, after all, conducted in a wide variety of situations; not just before high-powered tribunals in international trade but in many other circumstances. We do not for one moment suggest that the judge should conduct a full-scale trial of those matters in the first instance. That would create the mischief which the arbitration was designed to avoid. The judge has to decide whether it is proper to give full faith and credit to the arbitrator’s award. Only if he decides at the preliminary stage that he should not take that course does he need to embark on a more elaborate inquiry into the issue of illegality.

    1. In the subsequent appeal from Colman J’s decision in Westacre, reported at [2000] 1 QB 288, Waller LJ, at 311D, explained his understanding of the approach of both Colman J and the Court of Appeal in Soleimany as follows:

… although normally at the enforcement stage a party who brings an action on the award will be estopped from attempting to re-argue the points on which he has lost the arbitration …. there are exceptional circumstances where the court will not allow reliance on an estoppel ….

There are authorities which in my view support the proposition that where illegality is raised and at least where the evidence of illegality is so strong that if not answered it would be decisive of the case, the court would not allow reliance on issue estoppel, or on the principle in Henderson v Henderson to prevent the point being ventilated. In other words, illegality can if raised provide the special circumstances in which an estoppel will not provide a defence.

    1. Mantell LJ and Sir David Hirst expressed some reservation as to the obiter suggestion that there should be a preliminary enquiry of some nature, but both emphasised that, in any event, if there is to be an enquiry, the court must balance the competing public policy considerations of finality of arbitration awards on the one hand and the alleged illegality on the other.

(c) The approach to awards alleged to be “tainted” by fraud or illegality

    1. Whilst the court will consider refusing to enforce awards which give effect to fraudulent or illegal enterprises or claims on the basis of the approach set out above, it will not refuse to enforce a lawful claim under a lawful transaction (even if voidable) on the basis that the transaction is “tainted”.
    2. Thus in Honeywell (above), Ramsey J upheld the enforcement of an award notwithstanding that it was alleged that the underlying contract had been induced by bribery. Applying the reasoning in Wilson v Hurstanger [2007] 1 WLR 2351, Ramsey J stated, at §178-185, that whilst bribery is clearly contrary to English public policy and contracts to bribe are unenforceable, contracts which have been procured by bribes are not unenforceable but voidable.
    3. In National Iranian Oil (above), an arbitration award was challenged on the ground that the successful parties in the arbitration had offered a bribe to procure the underlying contract, with the result that the contract was “tainted” by corruption. Burton J (at §49) rejected that submission in the following robust terms :

(1) English public policy applies so as to lead a court to refuse to enforce an illegal contract, even if not illegal at relevant foreign law, such as a contract to pay a bribe. The contract cannot be enforced because ex turpi causa non oritur actio: out of a disgraceful cause an action cannot arise….

(2) There is no English public policy requiring a court to refuse to enforce a contract procured by bribery. A court might decide to enforce the contract at the instance of one of the parties. It is not that the contract is unenforceable by reason of public policy, but that the public policy impact would not relate to the contract but to the conduct of one party or the other.

(3) There is certainly no English public policy to refuse to enforce a contract which has been preceded, and is unaffected, by a failed attempt to bribe, on the basis that such contract, or one or more of the parties to it, have allegedly been tainted by the precedent conduct. The siren call of Ms Dohmann, referring to recent international Conventions to outlaw bribery, and the increase of legislation to criminalise it, is attractive. But to introduce a concept of tainting of an otherwise legal contract would create uncertainty, and in any event wholly undermines party autonomy. There may be many contracts which have been preceded by undesirable conduct on one side or other or both – lies, fraud, threats and worse – but the Court would not interfere with a contract entered into by such parties, even if one or more of those parties had committed criminal acts for which they could be prosecuted, unless the contract itself was illegal and unenforceable, or one or more of the acts of such parties induced the contract, in which case it might be voidable at the instance of an innocent party so induced.

(4) In any event, in this case, the conclusion to which the Arbitrators came was that the GSPC was not procured by bribery, after full consideration and evidence. The English Court should not interfere with the Arbitrators’ decision under s.68, or s.103, without fresh evidence of which there is none, or save in very exceptional circumstances, of which there are none.

Whether the Award in the present case is contrary to public policy

(a) The common ground

    1. RBRG’s grounds for challenging the Award must be considered in the following context:

i) this is not a case in which there is any suggestion that the contract the Tribunal was considering was unlawful or otherwise contrary to public policy: it is common ground that the Sale Contract and its intended performance was entirely lawful.

ii) further, the Award does not, on its face, uphold a claim for payment against the presentation of the forged bills of lading. There is no doubt that a claim for such payment, whether against RBRG or Rabobank, would be fraudulent (and the claim against Rabobank has been rejected in Beijing on the ground) and it is difficult to imagine circumstances in which the court would enforce an Award (or judgment of a foreign court) which upheld such a claim. But the Award in the present case is expressed to be for damages for breach of the Sale Contract by RBRG in respect of its instruction to Rabobank to amend the Letter of Credit, a breach which occurred before the forgery of the bills of lading, let alone their presentation.

iii) yet further, the Tribunal was aware of the full facts of the matter, including the fact that the bills of lading were forgeries: RBRG does not rely on any new evidence and does not assert that the Tribunal was misled or acted improperly in any way. The Tribunal, with knowledge of the full facts, considered the question of whether the presentation of such forged instruments afforded RBRG a defence to Sinocore’s claim, but concluded that it did not, both because RBRG was not in fact itself deceived and also because the Tribunal considered that the “real cause for the breach of contract and all the consequences” (§65-68 of the Award) was the amendment to the Letter of Credit.

(b) The narrow ground: that the Award is based on fraud

    1. RBRG’s first ground of challenge is that, notwithstanding the above considerations, Sinocore’s claim (upheld by the Award) was based on its fraudulent presentation of forged bills of lading as it was the failure of Rabobank (and thereby RBRG) to make payment against those bills of lading which Sinocore relied upon as a repudiatory breach of the Sale Contract.
    2. In my judgment that argument mischaracterises both the claim and the Award:

i) As to the claim, Sinocore’s letter of termination dated 20 August 2010 alleged a repudiatory breach on the part of RBRG, but did not identify the breach, let alone assert that the breach was a failure to pay against presentation of the (forged) bills of lading. The Award simply records that Sinocore’s case was that RBRG breached the Sale Contract (§27);

ii) The reasoning of the Award is that RBRG was in breach of its obligation under the Sale Contract to provide a conforming letter of credit, having instructed Rabobank to amend the Letter of Credit without Sinocore’s consent (§57-59 and §69). That breach was held to be the real cause of Sinocore being unable to obtain payment, the termination of the Sale Contract and the losses which were thereby incurred (§56, §68-69). The Award was accordingly for damages for breach of the obligation to provide a conforming letter of credit, not for failure to pay against the (forged) bills of lading.

    1. RBRG seeks to go behind the Tribunal’s reasoning by pointing out that, as the amendment of the Letter of Credit was not binding on Sinocore by virtue of the UCP, Sinocore could have presented the genuine bills of lading and thereupon been entitled to payment, demonstrating that the real cause of Sinocore’s losses was its failure to present the genuine bills of lading (or Rabobank’s refusal to pay against the forged bills), not RBRG’s contractually ineffective instructions to Rabobank to amend the Letter of Credit.
    2. However, that submission is a direct attack on the Tribunal’s findings, applying Chinese law, that RBRG’s wrongful instruction to Rabobank to amend the Sale Contract was (i) the operative breach of contract and (ii) was the real cause of the termination of the Sale Contract and the losses which followed. It may be that an English court would not have reached the same conclusion (as a matter of English law or even as a matter of logic), but that is entirely irrelevant. The Tribunal clearly had jurisdiction to determine which party breached the Sale Contract and the losses caused by that breach: the Tribunal did so decide, and found that RBRG breached the Sale Contract and caused Sinocore loss regardless of the forgery of the bills of lading.
    3. Further, the Tribunal expressly considered the argument now advanced by RBRG and rejected it in the following terms:

68. … Under Contract No 415, the buyer issued a letter of credit that did not meet the contracted requirement and put the seller into trouble. Such breach where the buyer failed to provide a letter of credit complying with the sales contract is still the primary or fundamental cause why the seller could not get the payment and why the sales contract was terminated. The arbitral tribunal totally agrees that the seller could have done it better. For example, the seller may insist that such amendment did not have any effect on it according to the provision of Article 10.a of UCP600, and act and present the documents according to the terms of the letter of credit first issued by the buyer, instead of making such an unwise decision. However, even if the seller had acted poorly or defectively in a difficult situation (e.g., failing to timely show its disagreement on the amendment of the shipment period in the letter of credit), it would not change the real cause for the breach of contract and all the consequences thus incurred.

    1. It follows that the Award was expressly not based on RBRG’s failure (through Rabobank) to pay against the presentation of the forged bills so lading, but on RBRG’s prior breach of contract in wrongfully instructing Rabobank to amend the Letter of Credit. In my judgment it is not appropriate or, indeed, permissible for this court to subject the Tribunal’s analysis of the issues to scrutiny with a view to deciding whether the Tribunal was wrong (as a matter of applicable Chinese law) in its determination of what was the operative breach and the real causation of loss. But even if it was permissible to undertake such an exercise, it would plainly be appropriate to uphold and enforce the decision of a Tribunal which considered the matter fully and properly as a matter of Chinese law: the public interest in upholding the finality of arbitration awards clearly must prevail in such a situation.

(c) The wider ground: not assisting a seller who presents forged documents

    1. RBRG’s contention is that, regardless of whether or not the Tribunal was right in its analysis of the operative breach of the Sale Contract and the cause of losses on its termination, the fact that Sinocore had presented forged bills of lading in a fraudulent attempt to obtain payment from RBRG entails that the court should refuse to enforce the Award.
    2. However, the well-established fraud exception to which RBRG refers, summarised in the maxim “fraud unravels all”, arises in the context of an issuing bank’s strict duty to pay under a letter of credit against the presentation of apparently conforming documents. A recognised exception is that a bank need not pay against such documents (and may be restrained from so doing) if the presentation is in fact fraudulent. What the authorities do not support is the much wider proposition that a party who presents forged documents cannot obtain relief from the court in respect of the transaction more generally, even if his claim is for damages for a prior breach of contract. The argument is similar to that mounted in National Iranian Oil, namely, that fraudulent behaviour by the successful party in an arbitration in some way “taints” the Award, so that it should not be enforced as a matter of English public policy. As Burton J stated in that case, to permit such an argument to succeed would be to introduce uncertainty and to undermine party autonomy. In my judgment there is no merit in RBRG’s wider argument.
    3. Further, even if it was appropriate to consider such a wider issue, I would nevertheless conclude that public interest in the finality of arbitration awards, particularly an international award such as in the present case determined as a matter of a foreign law, clearly and distinctly outweighs any broad objection on the grounds that the transaction was “tainted” by fraud.

(d) Conclusion on public policy

    1. In the light of the above, I am satisfied that enforcement of the Award would not be contrary to public policy.

Whether Sinocore was guilty of material non-disclosure

    1. It is recognised that the duty of disclosure in the context of a without notice application to enforce an award is not diminished by reason of the fact that enforcement will be stayed until after the respondent has had an opportunity to be heard: Omnium de Traitment et de Valorisation SA v Hilmarton Ltd. [1999] 2 All ER (Comm) 146 per Timothy Walker J at 152E. Sinocore did not suggest otherwise.
    2. However, as the Award (which was exhibited to the witness statement of a solicitor from Holman Fenwick Willan (“HFW”) in support of the application) referred to and dealt with the fact that the bills of lading presented to Rabobank had been forged, I do not consider that it was necessary for Sinocore to have specifically identified that fact in making its application. Further, it is inconceivable that, in those circumstances, a specific reference to such forgeries would have had any material effect on Burton J’s consideration of the application.
    3. I also see no merit in the complaint that Sinocore did not disclose its continuing appeal in the proceedings against Rabobank given that RBRG does not even assert that the risk of double recovery is in itself a ground for refusing to enforce the Award.
    4. I therefore reject the contention that Sinocore breached its duty of making full and frank disclosure.

Sinocore’s offer of an undertaking

    1. RBRG first raised its concerns as to the risk that that Sinocore would make double recovery in a letter to HFW dated 11 March 2016. On 14 September 2016, by letter from HFW, Sinocore offered to undertake to the court (i) to withdraw its claim against Rabobank in the event that it made full and actual recovery against RBRG in respect of the Award and (ii) in the event that it did not make full recovery, to inform the Beijing High Court of how much it recovered and give credit for those sums in its claim against Rabobank.
    2. In its Skeleton Argument (at paragraph 82) RBRG invited the court to accept that undertaking, whether or not RBRG’s application was successful.
    3. At the hearing I raised the question of whether it was appropriate for the court to accept and act on the basis of an undertaking from a party as to how it would pursue a plainly fraudulent claim to obtain payment against documents it knows are forgeries. I asked Mr Vineall QC, counsel for Sinocore, why his client was not abandoning its appeal in the claim against Rabobank (or offering an undertaking to do so) given its acceptance that the documents on which the claim was based were not genuine. Mr Vineall asked for an opportunity to take instructions on the point.
    4. In subsequent written submissions Sinocore offered a revised form undertaking, re-worded so as to ensure that it would in no circumstances recover a total amount greater than the amount of the Award, but firmly declined to undertake to abandon its appeal in the proceedings in Beijing against Rabobank. Sinocore asserted that it would not be appropriate to insist on abandonment of its appeal as the price of Sinocore being permitted to enforce a valid New York Convention award.
    5. In written submissions in response RBRG contended that Sinocore’s revised undertaking and its refusal to discontinue its claim against Rabobank demonstrated both (i) that Sinocore was not acting in good faith and (ii) that the loss that Sinocore was seeking to recover in the arbitration was interchangeable with the loss claimed in the fraudulent proceedings against Rabobank. RBRG further reversed the position it had adopted in its Skeleton Argument, contending that it was not open to me to accept an undertaking from Sinocore which related to proceedings it knows to be fraudulent.
    6. In my judgment, however, Sinocore’s conduct in commencing and continuing separate proceedings against Rabobank, even though they are plainly fraudulent in nature, cannot have any effect on the enforceability of the Award. The fact that Sinocore is willing to undertake to ensure that it does not recover more than the Award in total does not entail that the Award is somehow to be treated as merged with or tainted by the separate claim against Rabobank. The only potential relevance of those proceedings would be the risk of double recovery, but RBRG has expressly accepted that that risk does not in itself justify setting aside the Order. Further in that regard, and despite the questions I posed in argument, I see no reason why Sinocore’s undertaking, which removes the possibility of double recovery, should not be accepted. The undertaking does not require or permit Sinocore to pursue its fraudulent claim or otherwise conduct itself unlawfully from an English law perspective, but merely requires it to take steps (which are in themselves unobjectionable) to procure the entirely lawful and beneficial result that RBRG is not liable for more than the amount of the Award. RBRG has not identified the legal principle which would prevent the court accepting an undertaking in such circumstances, let alone any authority in support of its contention that the court cannot do so.
    7. It follows that, unless RBRG invites me not to do so, I will accept Sinocore’s revised undertaking and require it to be recorded in the order dismissing RBRG’s application.

Conclusion

  1. For the reasons set out above, RBRG’s application is dismissed.

Mitchell Water Australia Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2018] VSC 753 (14 December 2018)

IN THE SUPREME COURT OF VICTORIA

MELBOURNE COMMERCIAL COURT

ARBITRATION LIST

MITCHELL WATER AUSTRALIA PTY LTD (ACN 097 612 149)

(Applicant)

V

MCCONNELL DOWELL CONSTRUCTORS (AUST) PTY LTD (ACN 002 929 017)

(Respondent)

 

JUDGE: Croft J

HELD: Melbourne

DATE OF HEARING: 7 December 2018

DATE OF JUDGMENT: 14 December 2018

CATCHWORDS: ARBITRATION – Application for adjournment of application to enforce arbitral award pending resolution of applications in the court of the “arbitral seat” (Supreme Court of Queensland) – Commercial Arbitration Act 2011 (Vic), ss 35 and 36 – Commercial Arbitration Act 2013 (Qld), ss 16(9), (11) and 34.

 

HIS HONOUR:

Introduction

1 The Applicant (“Mitchell Water”) applies pursuant to s 35 of the Commercial Arbitration Act 2011 (“the Act”) for the enforcement of the arbitral award titled “VO#300: Outstanding Matters” dated 29 October 2018 (“the Award”) made by Mr Paul Santamaria QC as arbitrator (“the Arbitrator”). The Respondent (“McConnell Dowell”) seeks an adjournment of this application pursuant to s 36(2) of the Act, and alternatively, pursuant to the Court’s inherent or general power to control its own proceedings, on the basis that it has issued an application to set aside the Award in the Supreme Court of Queensland. Mitchell Water contends that, contrary to that contention, McConnell Dowell has done no such thing.

Brief history of the arbitration

2 Mitchell Water and McConnell Dowell are parties to a subcontract dated 1 May 2012 (“the Subcontract”) containing the agreement of the parties to submit disputes to arbitration. Pursuant to the subcontract, McConnell Dowell initiated the arbitration on 15 December 2014.

3 The arbitration was conducted pursuant to the Commercial Arbitration Act 2013 (Qld) (“the Queensland Act”). The arbitral hearings took place before the Arbitrator in the County Court building in Melbourne between May and December 2016. Both parties were represented by solicitors and counsel, and both parties called lay and expert evidence. It is uncontroversial between the parties that the “arbitral seat” is Queensland and that the supervising court is the Supreme Court of Queensland; and that this position was not affected merely because the arbitration hearings took place in Melbourne.

4 On 14 December 2017, the Arbitrator delivered an initial award dated 6 December 2017, which was subsequently amended by a supplementary award, dated 24 December 2017 (together referred to as “the December Award”). On 27 December 2017, Mitchell Water paid McConnell Dowell the amounts found to be payable to it in the December Award, less an amount of $4,010,893.20. This unpaid amount reflected the value of Mitchell Water’s security that McConnell Dowell continues to hold; despite, Mitchell Water says, its requests for return of this security.

5 On 12 January 2018, Mitchell Water issued a request pursuant to s 33(5) of the Queensland Act (“the Request”). The Request concerned Mitchell Water’s alternative claim for its direct costs of delay because it was delayed in achieving substantial completion of the Branch “B” and, or alternatively, the Branch “A” Gathering Systems by the applicable Date(s) for Substantial Completion under the Subcontract (“Alternative VO#300 delay costs claim”). The basis of the Request was that the December Award did not address the Alternative VO#300 delay costs claim, but made all the requisite legal and factual findings to make out that claim.

6 The parties filed written submissions in relation to the Request and, on 16 March 2018, the Arbitrator issued his determination (“the Determination”). The Determination refused the Request on the basis that s 33(5) of the Queensland Act did not apply. The Arbitrator did not determine the residual question of whether his mandate subsisted in respect of the Alternative VO#300 delay costs claim (“the Mandate Issue”).

7 Between 23 March 2018 and 12 April 2018, the parties exchanged letters regarding the Mandate Issue. Whilst Mitchell Water insisted the Arbitrator’s mandate subsisted, McConnell Dowell denied that it did then subsist. On 12 April 2018, the Arbitrator requested further submissions from the parties on the Mandate Issue. On 20 April 2018, the parties exchanged their further written submissions on the Mandate Issue pursuant to the Arbitrator’s request. McConnell Dowell submitted, inter alia, that the Arbitrator was functus officio and had no jurisdiction to determine the Alternative VO#300 delay costs claim (“the Jurisdiction Submission”). McConnell Dowell did not make any submission on the grounds of procedural fairness (being an issue that it now seeks to agitate in this Court and the Supreme Court of Queensland); but it is not clear why it might be thought that this would be a live issue if the Arbitrator were simply functus officio.

8 While these issues were in play, McConnell Dowell sought to enforce the December Award by an application dated 4 April 2018 to this Court. That application was, however, rendered redundant after 10 April 2018, when Mitchell Water paid to McConnell Dowell the remaining amount due under the December Award of $4,010,893.20, together with interest. That proceeding was, consequently, dismissed by consent.

9 The Arbitrator published his ruling—subject to some minor corrections, on about 7 June 2018—concluding that the arbitral mandate subsisted in respect of Mitchell Water’s Alternative VO#300 delay costs claim, and rejecting the Jurisdiction Submission (“the Mandate Determination”). Thus, as Mitchell Water contends, McConnell Dowell was expressly on notice that the Arbitrator considered that his mandate continued in respect of the Alternative VO#300 delay costs claim, and that he would proceed to determine that claim. Indeed, the Mandate Determination invited McConnell Dowell to make submissions on any potential procedural fairness issues that arose. It appears, however, that McConnell Dowell never did so.

10 On 15 June 2018, after receiving the respective positions of the parties on what further directions should be made, the Arbitrator issued directions regarding Mitchell Water’s Alternative VO#300 delay costs claim. In June 2018, the parties each filed with the arbitral tribunal, as directed, memoranda regarding their respective positions on that claim. Mitchell Water’s memorandum was, as ordered, limited to identifying the evidence already filed in the arbitration, and the findings in the December Award, on which it relied to substantiate the Alternative VO#300 delay costs claim. McConnell Dowell’s memorandum did not identify any procedural fairness concerns; a position which Mitchell Water contends is contrary to the position McConnell Dowell now adopts.

11 On 2 July 2018, McConnell Dowell filed an application under s 16(9) of the Queensland Act (“the s 16(9) application”), challenging the Mandate Determination and seeking an order from the Supreme Court of Queensland that the arbitral tribunal does not have jurisdiction to make any additional award. McConnell Dowell says that the s 16(9) application was filed in the Supreme Court of Queensland, as the place of arbitration was specified as Brisbane, Queensland. Moreover, it says that the project in respect of which the dispute arose was located in Queensland and the subcontract pursuant to which the subject works were undertaken and which contained the arbitration agreement was required to be construed in accordance with the laws of the State of Queensland.

12 However, as submitted by Mitchell Water, McConnell Dowell did not prosecute the s 16(9) application. It says that its solicitors had been provided with a copy of the application by email on 2 July 2018 under cover of an email asking whether they had instructions to accept service. Mitchell Water says that despite those instructions being confirmed, McConnell Dowell took no step to serve the application until 29 October 2018 and that there was no affidavit filed in support and no hearing of any kind, even of a procedural nature, being called. McConnell Dowell, on the other hand, says that it did not serve the s 16(9) application at the time as, depending on the outcome of any further “purported” award, the hearing and determination of the application may have proved to be unnecessary. However, McConnell Dowell did write to the Arbitrator on 12 June 2018, challenging the Mandate Ruling and foreshadowing the application to the Supreme Court of Queensland. This letter stated, among other things, that:

(a) the tribunal was functus officio and that it had no further authority to make any further award;

(b) McConnell Dowell would apply to the Supreme Court of Queensland under s 16(9) of the Queensland Act and ask that Court to decide the matter of the Arbitrator’s jurisdiction;

(c) the arbitral tribunal should, nevertheless, continue with the arbitration process (which it had power to do in any event, under s 16(11) of the Queensland Act); and

(d) it reserved all its rights, including without limitation in relation to the tribunal’s continuing jurisdiction.

13 In the s 16(9) application, McConnell Dowell sought the following order:

An order pursuant to section 16(9) of the Commercial Arbitration Act 2013 (Qld) that Mr Paul Santamaria QC, Arbitrator, does not have jurisdiction to hear and determine the Respondent’s [Mitchell Water’s] “alternative delay claim” as described in the Arbitrator’s Award or ruling entitled “VO#300 and Separable Portions: does the arbitral mandate subsist?”, dated 3 June 2018.

As observed previously, McConnell Dowell says that it did not serve the s 16(9) application at the time because it may have proved to be unnecessary. More particularly, it says that if the Arbitrator went on to consider the purported alternative claim—a step that McConnell Dowell says it was powerless to prevent—and rejected Mitchell Water’s purported alternative claim, the matter would have fallen away and there would have been no need to occupy the time of the Supreme Court of Queensland or to incur the costs of the hearing and determination of the s 16(9) application. This is, in my view, a reasonable position to take and not a circumstance at odds with s 24B of the Act—rather, it is consistent with the obligations under the Civil Procedure Act 2010 (to the extent this legislation may be relevant with respect to a Queensland-seated arbitration).

14 In any event, the arbitral tribunal, on 29 October 2018, made a further award (“the Additional Award”) in favour of the claim made by Mitchell Water. Consequently, McConnell Dowell now seeks to prosecute, among other things, the s 16(9) application in the Supreme Court of Queensland. That application has now been served and a directions hearing took place before the Honourable Justice Martin on 13 November 2018. Additionally, McConnell Dowell has also applied to amend the s 16(9) application to also seek orders setting aside the Additional Award under s 34(2)(a)(iii)—on the ground that the tribunal had no jurisdiction to make the Additional Award—and also under s 34(2)(a)(ii) and (b)(ii)—on the ground that McConnell Dowell was unable to present its case and, or alternatively, that the Additional Award was contrary to public policy. Mitchell Water submits that a challenge to an arbitrator’s jurisdiction can be one of two types: either an active challenge (under s 16, or alternatively, under s 34 of the Queensland Act) or a challenge on a passive basis (under s 36 on grounds that mirror s 34 of the Act). The Act, and its equivalents in other jurisdictions, give, it says, a choice of remedies. Thus it is submitted that an arbitrating party’s choice to pursue one remedy may have implications for the availability of others. This is, Mitchell Water contends, such a case: so, as McConnell Dowell elected to challenge the Arbitrator’s jurisdiction under s 16, it cannot bring an application under s 34. These are, however, matters which, as I have indicated in these reasons, are properly resolved by the Supreme Court of Queensland—and matters which, in my view, only strengthen the position that an adjournment as sought by McConnell Dowell is the appropriate course.

15 Similarly, the argument by Mitchell Water that there is no basis upon which s 36(2) of the Act is presently enlivened because there is no extant application in the Supreme Court of Queensland for “setting aside” should, in my view be rejected for two reasons in this instance. First McConnell Dowell has applied to amend the s 16(9) application in the Queensland Supreme Court; the relevant court under the provisions of s 36(1)(a)(v). Secondly, I am of the view that the provisions of s 36(2) which are drafted broadly, descriptively, and without express reference to other provisions of the Act do comprehend an application under s 16(9) of the Act in addition, of course, to an application under s 34. In my opinion both a consideration of the language used in s 36(2), its purpose and the substance and effect of an application under s 16(9) or s 34 of the Act support this position.

16 As previously observed, the provenance of the Act is international, closely based as it is on the provisions of the Model Law and with reference to the New York Convention. It is, nevertheless, legislation operating with respect to domestic commercial arbitration within Australia and in circumstances where the other Australian states and territories have enacted uniform legislation in the same terms; though with some local variations, which are not relevant in the present context. This is, in my view, reflected in the provisions of s 36(1)(a)(v) of the Act which, unlike the corresponding provisions of Art 36(1)(a)(v) of the Model Law, makes specific reference to the “court of the State or Territory in which, or under the law of which, that award was made…”. So s 36(2) of the Act is clearly intended to operate with respect to an application to which its provisions apply in an Australian state or territory court. Thus a mechanism is provided to avoid a multiplicity of proceedings in various state and territory courts and the risk of inconsistent findings and any compromising or erosion of the effective exercise of jurisdiction under their particular state or territory arbitration legislation; viewed in the context of the Australian national scheme of uniform commercial arbitration legislation. It follows that, in addition to a consideration of the provisions of s 36(2) in its own particular legislative context, regard must also be had to this national picture. This position does, in my view, tend to suggest that the cases in relation to international arbitration under the New York Convention or the Model Law supporting the possibility of a divergence between the approach of the court of the arbitral seat—the supervising court—and an enforcing court, on the other hand, should not be applied in an Australian domestic arbitration context between courts of the Australian states and territories—certainly not without careful regard to the provisions of the uniform domestic arbitration legislation.

17 Looking at s 36(2) in its own particular legislative context and having regard to the language used I am of the opinion that the expression “setting aside” must be read as indicating both an application under s 16(9) and s 34. True it is that this expression leaps out at a reader of the Act in the heading to s 34 but that cannot be decisive when matters of substance are considered. Clearly if an arbitral award is set aside under s 34 by the court of the arbitral seat there would be no basis for its enforcement by that court under s 35(1). The same is true if that court were to find on an application under s 16(9) that the arbitral tribunal had no jurisdiction. It would be absurd in these circumstances if the legislation operated otherwise in these circumstances. The question then arises whether the position would be different if the court hearing an application under s 36(2) is not the court of the arbitral seat—the supervising court. In my view the position under s 36(2) does not change in these circumstances.

18 Where the court hearing an application under s 36(2) is not the supervising court it is not a court which could hear an application under s 16(9) or, for that matter, s 34. Thus there is no basis for supposing that the breadth of the expression “setting aside” should be viewed narrowly in these circumstances as only extending to s 34 applications. Moreover, having regard to the specific reference in s 36(1)(a)(v) to state and territory courts and in the context of the Australian uniform legislative scheme for commercial arbitration it seems quite clear, in my view, that the legislative intention is—subject to a proper basis for adjournment otherwise being established under s 36(2)—to protect the exercise by other state and territory courts of their jurisdiction with respect to s 16(9) or s 34 applications.

19 A point made against an interpretation of the expression “setting aside” in s 36(2) as including both s 16(9) and s 34 applications is that the former are intended in the legislative scheme to be brought promptly with a view to efficiency and expedition in arbitral proceedings—a legislative intent also evident in the duties imposed on parties under s 24B of the Act. This consideration is not, however, a matter going to the proper interpretation of s 36(2). Clearly the provisions of both s 16(9) and s 34 are intended to cover a significant variety of circumstances. It is a matter for the court which hears applications of either type to determine whether grounds for their success are made out. Failure to act promptly in bringing or prosecuting a s 16(9) application may militate against its success—but this is not a matter which impinges on the proper interpretation of s 36(2)—though it may well be a matter going to the success or failure of an application under those provisions.

20 Finally the parties made submissions with respect to the inherent jurisdiction of the Court to adjourn an application under s 35(1) in any event—a jurisdiction going beyond that conferred by s 36(2). It is common ground between the parties that the Court does have inherent jurisdiction to adjourn such an application to prevent an abuse of its processes and, I take it, the abuse of the processes of other courts which have a relevant connection with such an application. In my view this is the correct position but I do readily accept the caveat advanced that such a jurisdiction must be exercised cautiously having regard to the provisions of the Act and the clear legislative intention to cover the field of commercial arbitration law domestically and to strike a balance in favour of court support for arbitral processes—rather than intervention in those processes. Thus any inherent jurisdiction in this respect must be exercised with this balance in mind and in support of the operation of the legislation. It follows in the present circumstances that were I not of the view that, properly interpreted, s 36(2) extends to include an application under s 16(9) I would be of the view that the inherent jurisdiction should be exercised in favour of an adjournment to allow a s 16(9) application to proceed in the court of the arbitral seat—in this case the Supreme Court of Queensland. Some concern was expressed that the exercise of inherent jurisdiction of this nature would open the floodgates, so to speak, and encourage applications at odds with the balance against court interference. In my view this is not an argument against the existence and exercise of this inherent jurisdiction—rather than that Courts must be mindful of the matters to which I have referred. In any event the facts and circumstances of each application or applications are considered case by case—and there are unusual features in the present circumstance which are unlikely to occur frequently.

21 On 8 November 2018, Pinsent Masons, the solicitors for McConnell Dowell, wrote to HWL Ebsworth Lawyers, the solicitors for Mitchell Water, and proposed a timetable for the hearing of McConnell Dowell’s amended s 16(9) application. The proposed directions anticipated a one day hearing to be held on 22 February 2019 in the Supreme Court of Queensland. That date was, McConnell Dowell says, suggested because, among other things, it is a date on which the Supreme Court of Queensland could hear and determine the dispute. Mitchell Water did not, however, agree to the proposed consent orders and opposed McConnell Dowell’s application to amend its s 16(9) application to include the s 34 setting aside grounds (s 34(2)(a)(ii) and (iii), and s 34(2)(b)(ii)). McConnell Dowell contends, implicitly, that this is unhelpful, as it is at liberty, in any event, to issue a fresh setting aside application.

22 Orders were made by the Supreme Court in Queensland on 13 November 2018 in relation to the application by McConnell Dowell to amend the s 16(9) application. McConnell Dowell says that, to its knowledge, there are dates available in February 2019 in the Supreme Court of Queensland for the hearing of McDonnell Dowell’s s 16(9) application—but if that date or dates does not suit Mitchell Water, then McConnell Dowell is content to agree a mutually convenient date and to prosecute the application as swiftly as possible. Consequently I am satisfied that granting the adjournment as sought by McConnell Dowell will not result in any significant delay in resolving outstanding matters between the parties. Also, in relation to delay I am satisfied on the basis of these particular matters and more generally, as indicated in these reasons, that McConnell Dowell is not seeking and has not been seeking to delay the arbitral process or the resolution of matters with respect to that process as between the parties.

The Mandate Determination and the Additional Award

23 As contended by McConnell Dowell, a clear distinction does need to be drawn between the Mandate Determination on the one hand, and the Additional Award on the other. The position put by McConnell Dowell in relation to this determination and this award is as follows:

  1. A clear distinction needs to be drawn between the Mandate Determination on the one hand, and the Additional Award on the other. As is explained below:

(a) McConnell Dowell challenges the jurisdiction of the arbitral tribunal to make the Mandate Determination by way of its section 16(9) application in the Supreme Court of Queensland, which application will be heard and determined de novo; and(b) McConnell Dowell intends to set aside the Additional Award in Queensland (and to resist enforcement of the Additional Award in this court if the Enforcement Application proceeds) on the basis that:

(i) McConnell Dowell was otherwise unable to present its case: s. 34(2)(a)(ii), or the award was contrary to the public policy of this State: s. 34(2)(b)(ii); or

(ii) the Additional 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: s 34(2)(a)(iii).

24 McConnell Dowell submits that there are two separate issues that spring from the fact that both the Mandate Determination and the Additional Award are in contest. First, it says, the Mandate Determination was a discrete and separate determination and, arguably, it is not an award and so it is not “caught by” s 36 of the Act. Moreover, it says that given the place of arbitration was Brisbane, only the Supreme Court of Queensland has jurisdiction with respect to McConnell Dowell’s s 16(9) application to challenge the Mandate Determination and the Arbitrator’s jurisdiction. This, it is said, has important consequences if the Enforcement Application proceeds first in time; a matter which is discussed further in the reasons which follow. Secondly, McConnell Dowell says that the s 16(9) application will be by way of de novo hearing, while it is not clear whether any challenge to the Additional Award, on jurisdictional grounds, will necessarily proceed by way of de novo review. It is to these issues that I now turn.

If Mandate Determination is not an arbitral award — recourse only pursuant to s 16(9) of the Queensland Act

25 As McConnell Dowell submits, the term “award” is not defined in the Act; and nor is it defined in the Queensland Act. Having regard to the international provenance of the provisions of the Act and also the Queensland Act (both being based on the 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) (“the Model Law”)) it is appropriate and helpful to look to some international authorities. Consistently with this position, reference is made by Holmes and Brown to a decision of the Ontario Court of Appeal as to the definition of “award”, as follows:

The Act does not define ‘award’, but the term generally connotes the judgment, decision or order of an arbitral tribunal that disposes of part, or all of, the dispute between the parties. Decisions, determining the substantive issues are awards. Matters relating to the conduct of the arbitration are not awards but, rather, are procedural orders and directions (Inforica Inc v CGI Information Systems and Management Consultants Inc 2009 ONCA 642 (CanLII) at [29] Sharpe JA).

Consistent with this position is the commentary in Williams & Kawharu on Arbitration:

14.2.1 Definition of “award”The United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration 1985 (the Model Law) does not contain a definition of an award, but s 2(1) of the NZ Act defines an award as “a decision of the arbitral tribunal on the substance of the dispute and includes any interim, interlocutory or partial award”.

The reference to a decision on the substance of the dispute connotes a final determination of the rights and obligations of the parties which gave rise to the dispute. The phrase “the substance of the dispute” generally precludes procedural rulings, orders or directions from qualifying as awards, and there are many cases to this effect. The distinction between an award and a procedural decision of the arbitrators may be a fine one in practice. The intituling of a decision as an order is not decisive if the decision comes within the definition of an award. It has been suggested persuasively by Rix J that there are three relevant principles:

(a) A decision which finally determines a claim can be made the subject matter of an award; if it is determinative of all issues, it is a final award, but if part of the reference only is resolved it is a partial award only.

(b) The arbitrators probably have the discretion to render any decision in the form of an award, even a procedural decision. This is not to be encouraged, given that procedural decisions cannot be attacked during the course of an arbitration whereas an appeal to the courts can be lodged against an award as soon as the award is made. However, in appropriate circumstances, for example decisions involving important points of principle, a procedural decision may be made in the form of an award.

(c) It is doubtful whether all interlocutory decisions can be treated as awards even though they are so expressed.

A negative decision on the preliminary question of jurisdiction does not amount to an award, even if by virtue of that ruling the arbitration comes to an end. This is because, by its very nature, such a ruling leaves undetermined all the substantive claims of the parties.

26 The Mandate Determination proceeded by way of consideration of a preliminary question which was, in essence, whether the tribunal had jurisdiction to make the Additional Award. The arbitral tribunal ruled that it did. This was, as McConnell Dowell contends, the determination of a “preliminary question” and, on one view which is, in my opinion, correct, it did not result in the handing down of an award on the merits. The provisions of ss 16(9) and 16(11) also indicate by their terms, strongly, in my view, that a ruling on jurisdiction is not an award for the purposes of either the Act or the Queensland Act. This point is, in my opinion, made clear by a consideration of the provisions of these subsections—particularly the language of s 16(11)—which are cast in the following terms (the provisions of the Act and the Queensland Act being identical):

  1. Competence of arbitral tribunal to rule on its jurisdiction (cf Model Law Art 16)

…(9) If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within 30 days after having received notice of that ruling, the Court to decide the matter.

(11) While a request under subsection (9) is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.

27 Accordingly, in my view, in the Enforcement Proceeding in this Court, McConnell Dowell may not be able to challenge the Mandate Determination if it is found not to be an “award”. In this respect, it is pertinent to keep in mind that as both s 16(9) and s 36(1)(a)(iii) of the Act and the Queensland Act are concerned with the jurisdiction of the arbitral tribunal, if this Court makes a determination based on s 36(1)(a)(iii) in relation to the arbitral tribunal’s jurisdiction, McConnell Dowell may face conflicting findings and be issue estopped from seeking orders contrary to those findings, based on s 16(9).

28 Moreover, given that the Mandate Determination may not be an “award” to which s 36(1)(a)(iii) applies, McConnell Dowell may not be able to submit to this Court, for example, that it contained decisions on matters beyond the scope of submission to arbitration. Put differently, McConnell Dowell contends, the Enforcement Application concerns the Additional Award and not the Mandate Determination. So, to the extent that the jurisdictional issue was determined in the Mandate Determination (which it was), McConnell Dowell may be shut out from impugning the arbitrator’s lack of jurisdiction in the Enforcement Proceeding. If this were found to be the position, it would, as McConnell Dowell contends, severely prejudice its ability to exercise various statutory rights under the Act and the Queensland Act.

29 The possibility of severe prejudice to McConnell Dowell’s ability to exercise statutory rights is because, in resisting enforcement of the Additional Award in this Court, it will rely, as it says, on s 36(1)(a)(iii) of the Act. In so doing, issues of jurisdiction will be agitated in this Court in relation to the Additional Award. I accept that it is likely that, as submitted, this Court, though not considering directly, the Mandate Determination, is likely to make findings about the jurisdiction of the arbitral tribunal to make the Additional Award. Those findings may well, as McConnell Dowell contends, prevent it from prosecuting, at a later time, its s 16(9) application in the Supreme Court of Queensland, on the basis of issue estoppel. That is because both s 16(9) and s 36(1)(a)(iii) of the Act are concerned with the jurisdiction of the arbitral tribunal and, if this Court makes a determination on s 36(1)(a)(iii) in relation to the arbitral tribunal’s jurisdiction, McConnell Dowell may well face conflicting findings and be subject to an issue estoppel from seeking orders contrary to those findings, based on s 16(9). I also accept that, even though this Court may not rule on whether the arbitral tribunal was correct in making its Mandate Determination, its findings on the Additional Award may well impinge upon McConnell Dowell’s ability to challenge the Mandate Determination in the Supreme Court of Queensland.

30 In Hebei Jikai Industrial Group Co Ltd v Martin (“Hebei Jikai”), Wigney J considered the operation of Article 16(3) of the Model Law. Article 16(3) of the Model Law is cast in similar terms to ss 16(9) and 16(11) of the Act and the Queensland Act. Article 16(3) of the Model Law provides:

The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article [i.e. rule on the tribunal’s jurisdiction] either as a preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specified in article 6 to decide the matter, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.

In this context, Justice Wigney said:

Article 16(3) provides that where one of the parties pleads that the arbitrator does not have jurisdiction, the arbitrator may rule on the plea in one of two ways. First, it may rule on the plea as a “preliminary question”. If decided as a preliminary question, the parties have no recourse to the court unless the decision is that the arbitrator has jurisdiction. Recourse to the court in that circumstance is not recourse under article 34. Rather, it is recourse under article 16(3).

31 The Mandate Determination was, in this case, decided as a preliminary question, rather than as part of an award on the merits. Accordingly, for the preceding reasons, it may well be that McConnell Dowell cannot challenge the Mandate Determination in the Enforcement Proceedings in this Court because, as a separate determination as a preliminary question, the argument is stronger that it is not an “award” and hence not subject to the provisions of s 36 of the Act. It is for these reasons, and because McConnell Dowell contends that it may be shut out from prosecuting its s 16(9) application in the Supreme Court of Queensland if the Enforcement Application proceeds before the hearing and determination of the s 16(9) application; hence, the Enforcement Application in this Court should be adjourned.

Standard of review applicable on jurisdiction review under s 36 of the Act

32 In hearing the s 16(9) application, the Supreme Court of Queensland will determine the matter de novo. In relation to these provisions and in a recent judgment of this Court in Lin Tiger Plastering Pty Ltd v Platinum Construction (Vic) Pty Ltd, it was said:

On the basis of these authorities and commentaries, the position is, in my view, that a hearing de novo is the correct standard of review to be applied under s 16(9) of the CAA. Deference should duly be given to the cogent reasoning of the arbitral tribunal but the Court is the final “arbiter” on the question of jurisdiction. As has been observed, this is an aspect of court assistance and support of arbitral processes and is not at odds with the policy of minimal court intervention or “interference”.

33 The position with respect to the standard of review under s 36(1)(a)(iii) of the Act is, however, less clear, as submitted by McConnell Dowell:

  1. However, the standard of review (de novo or merits review) on an application to resist enforcement under section 36(1)(a)(iii) has not been authoritatively determined in Australia. While it is probable that the standard of review is de novo, the same as under section 16(9), there does not appear to be Australian authority on point. Therefore, if McConnell Dowell is not permitted to agitate its s 16(9) application in the Supreme Court of Queensland, and is left to argue the jurisdiction point (on the Additional Award; not the Mandate Determination) under section 36(1)(a)(iii) instead, then it may not have the advantage of a de novo review (and will thereby be prejudiced by the hearing of the enforcement proceeding first).

[emphasis in original]

34 I accept that, as submitted by McConnell Dowell, these are further reasons, in addition to those previously discussed and those discussed further below, why the Court should exercise its discretion and adjourn the Enforcement Application.

Discretionary factors in deciding whether to adjourn the Enforcement Proceeding

Factors to be considered

35 The provisions of Article VI of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (“the New York Convention”) make provision for adjournment of an enforcement application in the following terms (terms which are now also reflected in s 36 of the Act):

If an application for the setting aside or suspension of the award has been made to a competent authority referred to in Article V(1)(e), the authority before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.

In IPCO (Nigeria) Ltd v Nigerian National Petroleum Corp, Gross J, sitting in the Commercial Court of the English High Court, said:

… Ordinarily, a number of considerations are likely to be relevant: (i) whether the application before the court in the country of origin is brought bona fide and not simply by way of delaying tactics; (ii) whether the application before the court in the country of origin has at least a real (i.e. realistic) prospect of success…; (iii) the extent of the delay occasioned by an adjournment and any resulting prejudice. Beyond such matters, it is probably unwise to generalise; all must depend on the circumstances of the individual case.

It is to these criteria that I now turn.

McConnell Dowell’s jurisdictional argument – is it bona fide and does it have real prospects of success?

36 In the context of jurisdiction and the s 16(9) application, the real controversy is whether the purported alternative claim was pleaded by Mitchell Water at all and, secondly, having regard to the position that the arbitral tribunal found that the claim was not pressed by Mitchell Water in the arbitral hearing at all—even if pleaded—what are the consequences of that finding. Moreover, it should be observed that in the Final Award, the arbitral tribunal made no mention of the VO#300 Alternative Direct Costs claim at all, and the arbitrator did not reserve to himself jurisdiction to deal with that claim subsequently.

37 The VO#300 Alternative Delay Claim, also known as the “separable portions claim” or the “alternative delay claim”—given it referred to separable portions of the work known as “Branch B”, “Branch A” and “Branch G”—is the alternative claim in issue in the s 16(9) application and is a claim for direct costs. The primary claim of Mitchell Water was that it was entitled to both direct and indirect costs resulting from delay if the project in its entirety was completed later than its own scheduled completion date, even if completion occurred prior to the contractual date for completion. This primary claim was rejected by the arbitral tribunal in the Final Award. The alternative delay claim was brought by Mitchell Water after the arbitral hearing had commenced and it was to the effect that even if no delay costs were available if the project in its entirety was completed before the contractual completion date, delay costs were available if one or more of the separable portions were delayed beyond the contractual completion date for that or those particular portion or portions. Potentially, the alternative claim had two limbs: a claim for direct costs on the one hand (the VO#300 claim), and indirect costs on the other hand (the VO#98 claim). The alternative indirect costs claim was agitated at the arbitral hearing and the tribunal dismissed the claim, but the alternative direct costs claim was not agitated in the arbitral hearing at all.

38 Against this background with respect to the pleadings and the conduct of the arbitral hearing, McConnell Dowell contends that its s 16(9) application is both bona fide and that it has real prospects of success. This, it is said, is evident by the fact that the arbitral tribunal itself, in the s 33(5) Determination—which preceded the Mandate Determination, and which is extensively quoted from and relied on by the arbitral tribunal in the Mandate Determination—made the following comments and findings:

  1. Mitchell Water submits that on a plain reading of paragraph 89 [of its pleading] (which cross-references paragraphs 84A to 87D), the pleading claims both indirect and direct costs arising from the delays in question. This is true to an extent – in as much as the plea does not expressly confine itself to indirect costs. …

[emphasis in original]

  1. The mischief caused by pleading the particulars in this way was that the ambit of the paragraph 89 claim became hostage to the content of Mr Andrews’ [Mitchell Water’s expert] subsequent report, which had not been served by that date and, in all likelihood, was still in the course of preparation by him. But because Mr Andrews report was confined to indirect costs, Mr Blunden’s [McConnell Dowell’s expert] responding report was similarly confined to indirect costs. For reasons which remain something of a curiosity, Mitchell Water did not request Mr Andrews to revisit his 17 June 2016 report to include his opinion on direct costs…

[emphasis added]

  1. Mitchell Water did not alert McConnell Dowell (in particular Mr Blunden) that paragraph 89 was intended to comprehend both indirect and direct costs. I do not give weight to Mitchell Water’s submission that it was incumbent on McConnell Dowell to “complain about a lack of particulars of the direct cost component of the claim”. It was for Mitchell Water to recognise, and address, any lacuna in its proofs, not the other way around.

[Emphasis in original]

  1. The mischief that might fairly be said to have arisen would, one expects, to have been recognised and addressed in final submissions in the arbitration. So that although there would be no question that the amended plea in paragraph 89 would be secondary to Mitchell Water’s primary claim based on the reference point of the Rev 2 Program, nevertheless the secondary claim would be pressed with sufficient vigour as the alternative claim for recovery of its reasonable costs pursuant to clause 7.2.
  2. That did not occur, as I have indicated in paragraphs 100 to 106 above. Mitchell Water’s VO#300 case was pressed in the context of the Rev 2 Program, not the Date or Dates for Substantial Completion in the Subcontract [i.e. not in relation to the alternative direct costs claim]. Mitchell Water’s submissions in respect of the present Request identify the pleadings, the evidence, findings made by the tribunal – but there is no mention of submissions on the VO#300 separable portions claim which the tribunal might, apparently, have ignored.

[emphasis added]…

  1. … I concluded on the materials and submissions that the tribunal was required to determine the Paragraph 89 Claim only in respect of VO#98, the indirect costs claim. …
  2. … The tribunal did not address the Paragraph 89 Claim in the context of direct costs because it was not developed by reference to the separable portions; it was confined to indirect costs. Mr Andrews’ expert evidence on the separable portions concerned only indirect costs. …

39 McConnell Dowell submits that these findings which were made by the Arbitrator show that the jurisdiction issue is a genuine issue and that it has real prospects of success in succeeding on the point. This, it is said, is because McConnell Dowell says it will say that the alternative claim was not pleaded or pressed and that the consequence of that is that it was not within the arbitrator’s jurisdiction to decide the claim.

40 In relation to the question whether to stay recognition proceedings, Professor Gary Born, in his text, International Commercial Arbitration, makes the following point:

A highly-important issue in determining whether to stay recognition proceedings concerns the nature of the issues presented in the annulment proceeding and the recognition proceeding. In cases where the annulment court has particular expertise in issues pending before both the annulment and recognition courts, there is a particularly strong case for staying recognition. As discussed above, this can involve questions whether there is a valid arbitration agreement (where the law applicable to the arbitration agreement may be that of the arbitral seat), falling within Article V(1)(a), or whether the arbitral procedures complied with the law of the arbitral seat, falling within Article V(1)(d).

41 McConnell Dowell submits that Professor Born’s commentary in this respect applies, analogously, to the issues presently before this Court. That is, it is said, the Queensland Supreme Court is the only court that can hear and determine the s 16(9) application. That application involves consideration of the Mandate Determination; a challenge which McConnell Dowell says it made clear to Mitchell Water in a letter dated 12 July 2018. Thus it is McConnell Dowell would be prejudiced if now denied the opportunity to make this application before the Queensland Supreme Court.

42 In Toyo Engineering Corp v John Holland Pty Ltd (“Toyo”), Byrne J considered an application to adjourn an enforcement application pending the hearing of a setting aside application. Though the application in Toyo was made under the International Arbitration Act 1974 (Cth), the reasoning does, in my view, apply equally in the present statutory context having regard to the common international provenance.

43 In Toyo, which was heard and determined on 19 December 2000, and after listing the various matters submitted by counsel as relevant to the exercise of the Court’s discretion, Byrne J concluded that “it could not be stated with confidence that the impeachment application is unarguable”, and went on to say that the “determinative factor is that the adjournment will be only for a relatively short time”. His Honour then said:

… [I]t seems likely that the impeachment application will be heard on 16 February 2001. I consider that this period of stay upon enforcement is so short that I should not, by any order on my part, put an obstacle in the way of the effective disposition of that application or in any way pre-empt it. It must be remembered that the parties themselves, including [Toyo Engineering Corp (Japan)], have selected the Singapore High Court as the appropriate forum to deal with matters affecting the arbitration. It seems not unreasonable that a challenge to the award should be permitted to proceed in that court.

44 Thus, McConnell Dowell submits that it cannot be said that its s 16(9) application, as amended, is “unarguable”, and that a similar, short, time frame applies here. Moreover, it is said that it is likely that the setting aside application in Queensland can be heard and determined in February 2019, and that a short delay until February 2019 is not unreasonable in all the circumstances. McConnell Dowell also undertakes to diligently prosecute its s 16(9) application and that it is also ready, willing and able to provide security for the full amount of the Additional Award; including ongoing interest.

45 For these reasons, but subject to those which follow with respect to procedural fairness/natural justice issues, I accept McConnell Dowell’s submission that the Court should, for the reasons identified by Byrne J in Toyo, exercise its discretion and grant an adjournment.

McConnell Dowell’s procedural fairness/natural justice argument – is it bona fide and does it have real prospects of success?

46 As already observed, McConnell Dowell has applied to amend its s 16(9) application in the Supreme Court of Queensland to include reliance on ss 34(2)(a)(ii) and 34(2)(b)(ii), both of which deal with the procedural fairness or natural justice ground for setting aside the Additional Award (and the same provisions are available in opposing recognition and enforcement under ss 36(1)(a)(ii) and 36(1)(b)(ii)). With respect to the procedural fairness and natural justice ground, there are three important issues which, McConnell Dowell submit, illustrate that the claim is bona fide and that it has a real prospect of success—or is, at least, not unarguable.

47 The first of such grounds is that the purported alternative claim was not agitated in the arbitral hearing at all. So much is evident from the arbitral tribunal’s s 33(5) Determination and the extracts therefrom at paragraph 38, above. Neither the arbitrator nor McConnell Dowell addressed the VO#300 alternative claim (McConnell Dowell led no evidence about it) at the arbitral hearing simply because it was not pleaded (on McConnell Dowell’s case) and it was not pressed (as determined by the arbitral tribunal). It was addressed post-hearing, by limited submissions, only. Where a claim is pleaded, but not pressed, there is authority that it is res judicata on delivery of the arbitral award.

48 Secondly, McConnell Dowell had no opportunity to lead evidence about the purported alternative claim at the arbitral hearing, nor to cross-examine witnesses on the claim at the hearing, because the claim was—as found by the arbitrator—not pressed at the hearing. It is contended by McConnell Dowell that it was simply not a “live” claim. McConnell Dowell says it had no reasonable opportunity (or any opportunity at the hearing) to address the claim nor to lead evidence on the claim because it did not know the claim was actually being made. While McConnell Dowell had no opportunity to oppose the alternative claim at the hearing, to cross-examine witnesses and the like (with the alternative claim being considered “on the papers” post hearing); Mitchell Water, on the other hand, had full opportunity to test all of McConnell Dowell’s claims by putting on evidence and by way of cross-examination at the hearing. Thus, McConnell Dowell contends that the claims as treated by the Arbitrator were “unequal”; that is, the process was unfair.

49 Moreover, in the Mandate Determination, the arbitrator:

(a) found that McConnell Dowell would, in all likelihood, have led evidence and made submissions on the issue of whether Mitchell Water had suffered a loss of direct costs for each of Branch B, Branch A and Branch G Gathering Systems, if Mitchell Water had itself put on evidence and made submissions about those costs;

(b) stated that he was cognisant of McConnell Dowell’s submission on the Section 33(5) Determination, which he noted was equally pertinent to the Mandate Determination, that if Mitchell Water had made a claim for direct costs for VO#300 for each of Branch B, Branch A and Branch G Gathering Systems, McConnell Dowell would have had the opportunity to respond to that claim, including the opportunity to deliver evidence responding to that claim;

(c) noted McConnell Dowell’s submission that no such opportunity arose because the claim was not made and that to permit the claim to be made now would deny McConnell Dowell natural justice;

(d) stated that “without having formed a final view on this issue without availing the parties an opportunity to be heard, it seems to me that it might be argued that McConnell Dowell is entitled to submit that” as a result of Mitchell Water’s failure to press the alternative claim, its evidence did not address the alternative claim and it did not include the topic in its written, or oral, closing submissions; and

(e) stated that it would be unhelpful to say more on the above matters at that stage, but that, while he did not wish to prolong matters “it is trite that, ‘win, lose or draw’, both parties will have been afforded procedural fairness …”.

50 In the VO#300 Alternative Delay Claim Determination, the Arbitrator quoted from his own observations in the Section 33(5) Determination about the fact that McConnell Dowell would have put on evidence and submissions on the alternative direct costs claim if Mitchell Water had done so. The Arbitrator, however, took the matter no further and proceeded to analyse the evidence and arguments in relation to the issue. No further mention is made of his finding that McConnell Dowell would have, but due to the conduct of Mitchell Water did not, put on evidence or makes submissions on the alternative claim. Nevertheless, the Arbitrator referred to the fact that McConnell Dowell had failed to prove a matter of evidence in relation to a response that it now raised to Mitchell Water’s alternative claim:

McConnell Dowell’s case appears to be premised on the assumption that whenever the one crew was delayed in work on Branch “B”, then it was possible for the crew to move to Branch “A” or “G”, and perform work which it would necessarily have to undertake en route to completing the works at the conclusion of Branch “G”, by 20 October 2012. So that, although there may have been delays within Branch “B”, in net terms there would be no loss provided that work was made up by the one crew prior to the completion of Branch “G”. However, it is not sufficient to state that assumption without more: the feasibility of alternative, or substitute, work would need to be proved – by McConnell Dowell, who raise the issue as a defence.[emphasis in original]

Thus McConnell Dowell contends that the Arbitrator appears to have overlooked that, in order to prove this issue, it would have needed to know that the claim was pleaded and pressed against it. If it had been pleaded and pressed, McConnell Dowell says that it may have led evidence from its own witnesses, may have sought to extract concessions from Mitchell Water’s witnesses and may have sought to tender documents which tended to prove the matters referred to by the Arbitrator.

51 Thus, for the purposes of the adjournment application, the fact that McConnell Dowell was not able to lead evidence and to test the evidence of Mitchell Water’s witnesses on the alternative claim does, in my view, for the purposes of this application, meet the threshold of a relevantly arguable denial of natural justice.

52 Thirdly, the post-hearing consideration of the purported alternative claim that took place was undertaken by the arbitral tribunal after the Arbitrator had considered McConnell Dowell’s three without prejudice Calderbank offers, all of which were rejected by Mitchell Water, and all of which were made well before the Final Award. The Arbitrator’s discussion of McConnell Dowell’s Calderbank offers is set out in the Final Award from pages 1698 to 1701. In particular, the Arbitrator said in the Final Award:

41.51 I do not propose to set out in any detail the contents of the three McConnell Dowell offers, other than to summarize them as follows:(a) by letter dated 7 May 2015, that Mitchell Water pay McConnell Dowell $7,747,644.30 in full and final settlement inclusive of interest and costs (“May 2015 Offer”);

(b) by letter dated 30 July 2015, that Mitchell Water pay McConnell Dowell $7 million plus costs in full and final settlement; (“July 2015 Offer”)

(c) by letter dated 26 April 2016, (“April 2016 Offer”) that Mitchell Water pay McConnell Dowell $5 million plus costs (of $1.8M or to be taxed in default of agreement) in full and final settlement.

41.53 I have read the Calderbank letters exchanged by the parties.

41.60 That the April 2016 Offer was open for (only) a week was not unreasonably short in all of the circumstances. I reject Mitchell Water’s submission on that point. I also reject Mitchell Water’s submission that the Offer was vague, unclear or lacked necessary explanation as to how the offer was framed.

41.62 I find that McConnell Dowell’s April 2016 Offer was effective for the purposes of its costs of the arbitration incurred after the period of, the one week in which Mitchell Water had to evaluate it. Subject to the operation of the cap, McConnell Dowell is entitled to its costs from 3 May 2016 on a legal practitioner and client basis.

[emphasis in original; citations omitted]

53 McConnell Dowell contends that it is procedurally unfair and a denial of natural justice for the Arbitrator to have made the Additional Award—in an amount which happens to be in the range of the Calderbank offers made by McConnell Dowell—afterconsidering McConnell Dowell’s without prejudice Calderbank offers. Against this position, Mitchell Water submits that McConnell Dowell has failed to identify any part of the Additional Award which suggests that the consideration by the Arbitrator of the Calderbank offers resulted in him not treating the parties “with equality”. Moreover, it is suggested by Mitchell Water that the arbitral regime established by the Model Law and implemented in the Act contemplates that additional awards, whether under s 33(5) of the Act or otherwise, may be delivered by an arbitrator who has considered correspondence which is “without prejudice save as to costs”. This issue is, in my view, sufficiently arguable for the purposes of the adjournment application.

Conclusions and orders

54 For the preceding reasons, the application for adjournment of the Enforcement Proceeding is granted. I will hear the parties further on the appropriate formulation of orders in this respect. Also, the question of costs is reserved and I will hear the parties further in relation to this issue.

55 Having reached this position, it follows that it is neither appropriate nor desirable to deal with the enforcement application at this stage. Moreover, it should be made clear that nothing in these reasons should be taken to indicate any view with respect to either the enforcement application or any application which may be made in the Supreme Court of Queensland.

Authenticateit Pty Ltd v Enikom Pty Ltd (Civil Claims) [2016] VCAT 2134 (19 December 2016)

VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL

CIVIL CLAIMS LIST

 

VCAT REFERENCE: C5870/2016

CATCHWORDS: Dispute resolution clause in contract – providing for arbitration in Singapore – respondent applies for summary dismissal – discretion to grant a stay of the proceeding.

APPLICANT: Authenticateit Pty Ltd (ACN 155 162 253)

RESPONDENT: Enikom Pty Ltd (ACN 003 151 960)

WHERE HELD: 55 King Street, Melbourne

BEFORE: Senior Member A. Vassie

HEARING TYPE: Civil Claims Hearing

DATE OF HEARING: 16 November 2016

DATE OF ORDER: 19 December 2016

 

ORDERS

  1. The proceeding is stayed until further order.
  1. The applicant may, by notice in writing given to the principal registrar and to the respondent, apply for an order lifting the stay if the applicant alleges that:

(a) by 1 March 2017 the respondent has not given written notice under clause 13.1 of the agreement between them, or

(b) after having given such written notice the respondent is not pursuing with due expedition the dispute resolution procedure set out in clause 13 of the agreement.

REASONS

  1. The applicant Authenticateit Pty Ltd has claimed from the respondent Enikom Pty Ltd $13,741.12 as money owing for the provision of computer software services. They were provided under a written contract, undated but made in 2013. The contract contained a dispute resolution clause. By a written application dated 15 November 2016 Enikom has sought an order that the proceeding “be dismissed on the basis that VCAT does not have jurisdiction to hear the matter”, relying on the dispute resolution clause.
  1. The clause in question was as follows:
  1. Dispute Resolution

13.1 A party claiming that a difference, dispute or question has arisen concerning this Agreement (including any question regarding its existence, validity or termination), must give written notice to the other party specifying the nature of the difference, dispute or question.

13.2 On receipt of a notice under clause 13.1, the parties must endeavour in good faith to expeditiously resolve the difference or dispute, or to expeditiously answer the question contemplated by clause 13.1, which has arisen between the parties.

13.3 If the parties do not agree within thirty (30) days of receipt of the notice under clause 13.1 (or such further period as agreed upon in writing by them) the difference, dispute or question shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by a sole arbitrator appointed in accordance with the said Rules. The seat, or legal place, of the arbitration shall be Singapore. The language to be used in the arbitral proceedings shall be English.

13.4 Nothing in this clause 13 shall prevent either party from having recourse to a court or tribunal of competent jurisdiction for the sole purpose of seeking a preliminary injunction or such other provisional relief as it considers necessary to avoid irreparable damage.

13.5 In calculating the limitation period for any claim that is ultimately pursued through arbitration, the period between the date of the notice in clause 13.1 and the date on which the parties are free to resort to arbitration shall be excluded.

  1. The contract bore the name of Authenticateit’s solicitors, who drew it, I presume.
  1. I heard Enikom’s application during a directions hearing on 16 November 2016. Gennady Volchek, Authenticateit’s manager, represented it at the hearing. Enikom’s director, Andrew Thomas represented it and attended the hearing by telephone. Neither of those gentlemen is a lawyer. I gave Authenticateit leave to file a written submission of law, gave Enikom leave to file a written submission of law in reply, reserved my decision and said that I would decide the application on the papers after having considered the submissions.
  1. Authenticateit filed a written submission which obviously had been prepared by a lawyer. Enikom filed a written submission in reply which obviously had not been prepared by a lawyer.
  1. Neither in its written application nor in its submission did Enikom allege that clause 13 of the agreement was an arbitration agreement for the purposes of the Commercial Arbitration Act 2011. Authenticateit has not been called upon to respond to any such allegation. So, as the agreement itself does, I refer to clause 13 as a dispute resolution clause rather than as an arbitration clause.
  1. Whatever else is the effect of the dispute resolution clause, it does not oust the Tribunal’s jurisdiction. The dispute between the parties being about the supply or possible supply of services by Authenticateit to Enikom, it is a “consumer and trader dispute” and the Tribunal has jurisdiction to hear and determine the dispute and all aspects of it, including the issue of the effect of clause 13.
  1. As Authenticateit has correctly submitted, the effect of the clause is that the courts or the Tribunal have a discretion whether to stay a proceeding until the dispute resolution clause has been complied with, but in exercising the discretion that courts (and the Tribunal) “consider the circumstances of a case with a strong bias in favour of maintaining the special bargain” and follow “the guiding principle” that “parties who have made a contract should keep it.” Although that principle was enunciated in an age when the courts’ facilitation of alternative dispute resolution was much less common than it is now, the courts have consistently and recently applied it and have made orders that stay a proceeding pending the outcome of the dispute resolution procedure provided for under a dispute resolution clause.
  1. In its submission Authenticateit referred to two cases as examples of a court exercising its discretion to refuse a stay of a proceeding. The two cases were not helpful because they dealt with exclusive jurisdiction clauses, not dispute resolution clauses.
  1. Sometimes a reason for exercising the discretion against granting a stay of a proceeding is that the dispute resolution clause is so vaguely expressed, or so difficult to put into operation, that the interest of the parties are best served by allowing the proceeding to continue. There is no allegation that such circumstances exist in this case.
  1. In its written submission Authenticateit put forward circumstances which, it argued, justified the exercise of the discretion against granting a stay despite the “strong bias”:

(a) The amount of the claim is relatively small, about $25,000.00, and presents as a straightforward dispute as to whether or not the respondent ought to pay for services rendered by the applicant.

(b) Both parties and their principal officers and witnesses are located in Melbourne (although the applicant is also based in Singapore and is less inconvenienced by the matter being heard there). Both parties will be put to cost in travelling to and staying in Singapore for an arbitration.

(c) Unlike conducting an arbitration in Singapore, which would come at significant expense for both parties including the costs of hiring an arbitrator and the cost of legal representation, VCAT provides the ideal venue for both parties to resolve their relative dispute in a convenient location and without requiring the involvement or costs of legal representation.

(d) As a consumer and trader dispute as described above, the dispute is of a type that, were it brought in a Court in Victoria, the respondent would have been entitled to seek a stay of under s.188 of the Act on the basis that VCAT is a more appropriate forum.

I am not able to say whether the dispute, whatever it is, is “straightforward”. Otherwise, all those circumstances do exist. Later in its written submission Authenticateit stated:

Here, the respondent curiously wants to prevent what is a small dispute from being heard in a local forum more convenient to itself (and the applicant, but less so), in a jurisdiction that is disposed towards excluding legal representation and not awarding costs, in favour of forcing the applicant re-issue in a foreign jurisdiction less convenient to itself and in which legal representation will be expected and costs will be a factor.

I agree that Enikom’s stance is curious in the way that Authenticateit has described it, but Authenticateit was the creator of the agreement that enabled Enikom to take that stance. I framed the order I made on 16 November 2016 in a way that virtually invited Enikom to withdraw the application that it had made. It did not.

  1. If I were to exercise a discretion against granting Enikom a stay I would, in effect, be permitting Authenticateit to ignore the dispute resolution clause and take proceedings at VCAT whenever that suited Authenticateit, but to invoke the dispute resolution clause to require an arbitration in Singapore whenever that suited Authenticateit. I have decided that I should not do that, at least at the moment. The “strong bias” in favour of granting a stay remains. That is to say, I consider that the bias has not been counteracted by any of the circumstances on which Authenticateit has relied.
  1. Although there is nothing in the VCAT Act 1998 which specifically empowers the Tribunal to make an order staying a proceeding, the Tribunal has for many years made such an order on the footing that a combination of several sections of the Act results in the existence of the power. The Court of Appeal has appeared to accept that the power exists.
  1. I propose to make an order that stays this proceeding. The matter does not end there, however. Neither party has given any written notice to the other under clause 13.1 of the agreement. There is no reason why Enikom could not give such a notice and thus enliven the dispute resolution procedure. If Enikom really wishes to enliven that procedure it will give such a notice. I propose to allow it until 1 March 2017 to do so. If it has not given such a notice by that date, or if it does not pursue the procedure expeditiously after giving such a notice, Authenticateit may apply for an order that lifts the stay. It would then be on stronger ground that it is at the moment to persuade the Tribunal that Enikom has no genuine intention to follow the dispute resolution procedure under clause 13 but rather wishes to obstruct and delay.
A. Vassie
Senior Member19 December 2016

Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170

FEDERAL COURT OF AUSTRALIA

HANCOCK PROSPECTING PTY LTD V RINEHART [2017] FCAFC 170

 

APPEAL FROM: Rinehart v Rinehart (No 3) [2016] FCA 539

FILE NUMBERS: NSD 916 of 2016, NSW 922 of 2016

JUDGES: Allsop J, Besanko and O’Callaghan JJ

DATE OF JUDGMENT: 27 October 2017

CATCHWORDS: ARBITRATION – appeal from interlocutory decision on an application under s 8(1) of the Commercial Arbitration Act 2010 (NSW) seeking an order that the parties to the proceeding be referred to arbitration in respect of the subject matter of various deeds – whether the primary judge erred in ordering a proviso trial under s 8(1)

ARBITRATION – whether the arbitration contemplated by the arbitration agreements is commercial for the purposes of the Commercial Arbitration Act 2010 (NSW) – meaning of the phrase “commercial arbitration” – whether parties need to demonstrate the existence of a pre-existing commercial relationship between the parties to the dispute – whether a family or domestic dispute and the arbitration to resolve it can also be characterised as a commercial dispute

ARBITRATION – proper approach to determination of an application under s 8(1) of the Commercial Arbitration Act 2010 (NSW) – proper approach to construction of an arbitration agreement – whether the disputes in question are the subject of an arbitration agreement – where arbitration agreements refer to “any dispute under this deed” – whether that phrase should be read as limited to those disputes governed or controlled by the deed – breadth of the potential meaning of entire phrase “any dispute under this deed”

ARBITRATION – whether parties that are not parties to the deeds and arbitration agreements can be referred to arbitration because they claim “through or under” entities who are parties – definition of party within s 2(1) of the Commercial Arbitration Act 2010 (NSW) – whether the claims against third parties are part of the same “matter” within s 8(1) of the Commercial Arbitration Act 2010 (NSW) – circumstances in which claims against third party companies can be stayed under the Court’s general power to stay proceedings

ARBITRATION – principles of separability and competence – whether any of the arbitration agreements can be said to be null and void, inoperative or incapable of being performed – whether the requisite separate attack on the arbitration agreement present – character of the necessary attack on the arbitration agreement for the proviso of s 8(1) – construction of phrase “null and void” – circumstances in which the Court should hear the separate attack or permit the arbitral tribunal to hear the attack

CONSTITUTIONAL LAW – Constitutional validity of s 8(1) of the Commercial Arbitration Act 2010 (NSW) – whether s 8(1) is picked up by s 79 of the Judiciary Act 1903 (Cth) – whether allowing the arbitrator to decide the proviso challenge under s 8(1) impermissibly confers judicial power upon the arbitrator

DATE OF HEARING: 13, 14, 15, 16, 17 February 2017

REGISTRY: New South Wales

DIVISION: General Division

NATIONAL PRACTICE AREA: Commercial and Corporations

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

 

ORDERS

THE COURT ORDERS THAT:

 

1.Within 14 days of today’s date, the parties, after consultation with each other, file an index of any subject, including the form of orders proposed in [417] of the reasons, upon which they seek leave to address the Court conformably with what is contained in [416] of the reasons.

2.The proceedings be stood over to a date to be fixed for the hearing of submissions (if any) as to the form of orders or any other matter upon which the Court gives leave to address and for the making orders.

 

REASONS FOR JUDGMENT

THE COURT:

Introduction

  1. In October 2014, Bianca Rinehart (Ms Rinehart) and her brother, John Hancock (Mr Hancock having changed his surname by deed poll from Rinehart some years ago), commenced a proceeding in this Court against 15 respondents, including their mother, Georgina Rinehart (Mrs Rinehart), in her personal capacity and as a trustee of two trusts. Among the 14 other named respondents are Hancock Prospecting Pty Ltd (HPPL), various companies in the HPPL group, and individuals, including Hope Welker and Ginia Rinehart (as the ninth and tenth respondents respectively) who are Mrs Rinehart’s other children.  (Neither Hope Welker nor Ginia Rinehart has appeared in this proceeding.)  From time to time in these reasons, we refer to the parties as they are named in the underlying proceeding. A schedule of parties and how they are named in the appeals brought by HPPL and Mrs Rinehart is annexed as Schedule A to these reasons.
  2. The statement of claim filed by the applicants, in substance, alleges that following the death of her father, Langley “Lang” Hancock, in 1992, Mrs Rinehart controlled all of the entities in what is called “the Hancock Group”, including the trusts which owned shares in HPPL and the Hancock Family Memorial Foundation Limited (HFMF, the fourth respondent). It is further alleged, in substance, that having assumed that position of control, Mrs Rinehart, in breach of her duties as a fiduciary and as a trustee, used that positon with the knowing assistance of HPPL to:

    (1)          remove all of the valuable mining assets from HFMF and transfer them to HPPL, because she held shares in HPPL and had no financial interest in HFMF; and

    (2)          “renege upon and circumvent” an agreement reached in 1988 between Mr Hancock and herself about the ownership of the Hancock Group, “by engineering a situation” giving Mrs Rinehart a 76.55% shareholding in HPPL and her children a 23.45% shareholding, instead of the 49% Mrs Rinehart agreed with Lang Hancock that the children would have after Lang Hancock’s death.

  3. The statement of claim, the precise terms of which it will be necessary to return to later in these reasons, also makes allegations in respect of deeds entered into by one or both of the applicants, on the one hand, and various of the respondents. The deeds are the 2005 Deed of Obligation and Release; the Hope Downs Deed; the 2007 HD Deed; the 2009 Deed of Further Settlement; and the 2010 Deed of Variation. The primary judge also dealt with submissions made by the parties below about another deed, executed in 2003, known as the Porteous Settlement Deed. For reasons we give below, it has no bearing on any issue arising on these applications and appeals. The statement of claim alleges that the execution of those deeds, which contain acknowledgements, releases, covenants not to sue, and arbitration agreements, was procured by misconduct of one sort or another by Mrs Rinehart and HPPL. The causes of action pleaded are false and misleading conduct, fraudulent concealment, misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (the TP Act) and Sch 2 to the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law), material non-disclosure, unconscionable conduct, undue influence, duress, breach of trust and fraud on a power. Both Ms Rinehart and Mr Hancock plead that they are entitled to rescind, and, by their pleading, do rescind, the various deeds to which they are a party. They also seek declarations that the deeds, and the arbitration agreements, are void.
  4. The respondents are yet to file a defence to the pleading, but the case before the primary judge and on appeal proceeded on the assumption that the respondents (or at least those that appeared) deny every material allegation of wrongdoing.
  5. It is necessary to say something of the respondents.  The respondents described as the HPPL respondents are the second, third, fifth, sixth, seventh, twelfth, thirteenth and fifteenth respondents in the substantive proceeding and are the first to eighth applicants/appellants in the appeal.  The fourth, ninth, tenth, eleventh and fourteenth respondents in the substantive proceedings did not appear, although in correspondence the fourteenth respondent consented to the substance of the relief sought by the HPPL respondents.  The eighth respondent in the substantive proceedings, Mrs Rinehart, consented to the orders sought by the interlocutory applications referred to below.
  6. The HPPL respondents brought an interlocutory application under s 8(1) of the Commercial Arbitration Act 2010 (NSW) (the CA Act) seeking an order, among others, that the parties to the proceeding be referred to arbitration in respect of the matters the subject of the various arbitration agreements contained in the deeds pleaded in the statement of claim, by staying the proceedings in this Court. (The HPPL respondents also relied on the identical provision in s 8(1) of the Commercial Arbitration Act 2012 (WA).  The parties have since agreed that nothing turned on that, and that the Court should apply the New South Wales Act.) The HPPL respondents submit that the applicants have repeatedly given up any right to bring any of the claims made in the statement of claim and have in any event repeatedly agreed that any such claims be made in confidential arbitral proceedings.
  7. Mrs Rinehart and the eighth respondent, 150 Investments Pty Ltd (150 Investments), a company controlled by her, were separately represented.
  8. Section 8(1) of the CA Act is in the following terms:

    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.

  1. The application of the HPPL respondents came before the primary judge on 24 April 2015. It occupied eight hearing days. The parties proffered 17 questions for the primary judge to decide. Those questions are set out in Schedule B to these reasons.
  2. The questions proffered by the parties did not expose with sufficient precision, and in some ways obscured, the true issues required to be decided by the primary judge.
  3. It is not necessary for present purposes to recite the primary judge’s answers to each of the 17 questions. Her Honour held that the CA Act applied to the dispute because any arbitration of it would be a “commercial arbitration” within the meaning of the Act. However, for the reasons the primary judge gave, her Honour did not order that the parties be referred to arbitration by staying the proceedings, but instead directed that the Court try the question of whether the relevant arbitration agreements were “null and void, inoperative or incapable of being performed” within the meaning of s 8(1) of the CA Act: see Rinehart v Rinehart (No 3) [2016] FCA 539; 337 ALR 174 at 301 [669]. In that regard, the primary judge held that some of the disputes in the proceeding were the subject of an arbitration agreement, and others, including, in particular, issues concerning the enforceability of the releases and arbitration clauses in the Hope Downs Deed, were not: see Rinehart v Rinehart (No 3) 337 ALR at 288-299 [597]-[661].
  4. The HPPL respondents, and Mrs Rinehart and the eighth respondent, sought leave to appeal and to appeal against the orders of the primary judge. The applicants (Ms Rinehart and Mr Hancock) sought leave to cross-appeal and to cross-appeal; and they rely upon a notice of contention.
  5. It is not necessary to consider in detail the question of whether leave should be granted. For the reasons set out below, the issues raised by both applications concern significant matters of principle and, it seems to us, with respect, that the primary judge’s  reasoning and approach was in error in certain important respects. The parties, sensibly enough, did not address the question of leave during the course of oral submissions. Each party was content to rely on their written submissions and affidavits on the leave issue. Because the applications for leave self-evidently raise important questions and because the primary judge’s discretion miscarried, we will grant leave to appeal in both applications.The structure of these reasons
  6. On the first day of hearing of the appeals, the Court raised with the parties “a decisional structure of the appeal” the purpose of which was to elucidate with precision the issues between the parties. The parties did not demur from the Court’s suggestion.  We have used that decisional tree to assist in the structure of these reasons.
  7. Having had the benefit of oral submissions, we propose to approach the issues in controversy between the parties in the following manner.
  8. The first issue is whether the CA Act applies at all. This has a number of sub-issues. The first sub-issue, which is related to the Constitutional challenge by the applicants to the validity of s 8(1) of the CA Act, is whether the CA Act, and relevantly s 8(1), is picked up by s 79 of the Judiciary Act 1903 (Cth). It is convenient to deal with this question towards the end of these reasons, apart from saying here that our view is that s 8(1) of the CA Act is relevantly picked up by s 79, that s 8(1) is Constitutionally valid, and that these reasons proceed on that basis.
  9. The second sub-issue to the question whether the CA Act applies is whether, assuming the disputes are matters which are the subject of the relevant arbitration agreements, the arbitration contemplated by the agreements is “commercial” for the purposes of the CA Act.  As part of this sub-issue, it will be necessary to consider whether (as the applicants submitted) the parties to the dispute must also be, or have at relevant times been in “a commercial relationship”.
  10. We are of the view that the CA Act is engaged. Should we be wrong in that conclusion, it would be necessary to consider whether the Court has power or discretion to stay the proceedings and refer the parties to arbitration in any event, and if it does, whether and how that power or discretion should be exercised. Given our views as to the engagement of the CA Act, it is unnecessary to address these questions save in one respect.
  11. The second issue is the extent to which the various arbitration clauses cover the matters in dispute, or, to put the matter in the words of s 8(1), the extent to which the matters are the subject of an arbitration agreement. Closely related to this is the proper approach of the Court to deciding that question. This issue relates, in particular, to the Hope Downs Deed.
  12. The third issue or group of issues concerns the operation of the principles of separability and competence.  The separability principle requires the arbitration agreement (as an agreement distinct from the main substantive agreement in which it is found as a provision or clause) to be directly impugned or attacked as “null and void, inoperative or incapable of being performed”.  In the light of this principle and the competence principle, the question arises whether the applicants by their pleading, or by their articulation of the controversy in argument (if the latter be a legitimate way to address the question), have attacked the arbitration agreement itself, and if they have, what the limits of that attack are.  Related to this is the question whether any such articulated attack can be said to be that the arbitration agreement is “null and void, inoperative or incapable of being performed”.  In this respect, the HPPL parties, Mrs Rinehart and the eighth respondent contend that the attack must be that the arbitration agreements were invalid ab initio, or at least at the time of the stay application.
  13. The fourth issue, assuming there is a sufficiently articulated attack on the arbitration agreements such that the proviso to s 8(1) is engaged, is whether the power to refer that attack on the arbitration agreement to arbitration is mandatory or discretionary, and if the latter, how that discretion is to be exercised.
  14. The fifth issue is whether any of the parties to the proceeding, who are not parties to any deed or arbitration agreement, should nonetheless be referred to arbitration because they claim “through or under” entities who are parties to the relevant deed or agreement for the purpose of the definition of the word “party” in s 2(1) of the CA Act.
  15. Leave was granted at the hearing of the appeal for Wright Prospecting Pty Ltd (WPPL) to intervene to put submissions on limited questions.  Those submissions (notwithstanding some attempts during oral argument to widen the ambit of the intervention) principally concerned the question of “through or under” referred to in the last paragraph and were in support of contentions, which we accept, that the entities who were not parties to the deed do not claim through or under the parties to the agreements.
  16. A number of other subsidiary issues, including whether and to what extent the learned primary judge was entitled to make use of certain evidence before her, whether the primary judge erred in making certain factual findings or observations, and questions relating to standards of proof, were also the subject of extensive written and oral submissions and are dealt with below.  These will be dealt with to the extent necessary to dispose of the main issues.
  17. At the hearing, the Court rejected the application of Ms Rinehart and Mr Hancock to amend their notice of contention and to adduce fresh evidence.  The reasons for this are set out later.
  18. The analysis must commence, however, with a discussion, necessarily in some detail, of the surrounding facts and the allegations made by the applicants in the statement of claim.
  19. Thus, the structure of these reasons is as follows:
A. The surrounding facts and the allegations in the statement of claim.   [28]-[105]
B. The conclusions of the primary judge. [106]-[114]
C. Whether the arbitration is “commercial” for the purposes of the CA Act. [115]-[139]
D. The extent to which the matters in dispute are the subject of an arbitration agreement. [140]-[268]
E. (1) Whether any party that is not a party to the deeds and to the arbitration agreements can be referred to arbitration because they claim “through or under” entities who are parties; (2) whether the claims against the third party companies are part of the same “matter” within s 8(1) of the CA Act; (3) whether WPPL should be granted leave to intervene; and (4) whether the claims against the third party companies should be stayed under the Court’s general power. [269]-[336]
F Whether the applicants have engaged the proviso to s 8(1) by a relevant attack on the arbitration agreements. [337]-[394]
G. Whether the power to refer any attack on the arbitration agreements to arbitration is mandatory or discretionary. [337]-[394]
H. To the extent that the power to refer any attack on the arbitration agreements to arbitration is discretionary, how that discretion should be exercised. [337]-[394]
I. The Constitutional validity of s 8(1) of the CA Act. [395]-[400]
J. The applications by the applicants to amend their notices of contention and to adduce fresh evidence. [401]-[414]
K. Orders [415]-[417]

A.       The surrounding facts and the allegations in the statement of claim

  1. The events go back to the 1980s.  Lang Hancock was the founder and controller of the Hancock Group, including HPPL.  Hope Margaret Hancock, Lang Hancock’s wife, died in 1983.  Lang Hancock then married Rose Porteous, and by 1985 disputes had arisen between Lang Hancock and his daughter (Mrs Rinehart) about this relationship and about his dealing with assets of HPPL.  The statement of claim pleads that, by 1988, Lang Hancock and Mrs Rinehart reached an agreement, known as the “1988 Agreement”, the essential aspects of which were referred to by the primary judge at [179(2) and (3)] of the reasons as follows:

    (2)          The 1988 Agreement provided that, upon Mr Hancock senior’s death, 51% of HPPL would be held by Mrs Rinehart while the other 49% of HPPL and 100% of HFMF would be owned by Mrs Rinehart’s four children, that is, the applicants, Ms Welker and Ms Ginia Rinehart (collectively, the “children”);

    (3)          It was a term of the 1988 Agreement that, upon Mr Hancock senior’s death and when Mrs Rinehart’s youngest child, Ms Ginia Rinehart, reached the age of 25, the children’s entitlement would be 15.6% of the ordinary and special cumulative shares held by the “HMH Trust” and absolute ownership or control over HFMF, which would give them ownership or control over the 33.3% shares in HPPL held by HFMF with a total interest of 49%.

  2. Two trusts were said to be established pursuant to the 1988 Agreement: the HMH Trust and the HFMF Trust.  (HMH were the initials of the late wife of Lang Hancock, Hope Margaret Hancock.)  After the death of her father in 1992, Mrs Rinehart assumed the trusteeship of the HMH Trust; her four children (Mr Hancock, Ms Rinehart, Hope Welker and Ginia Rinehart) were the beneficiaries in equal shares and the principal asset of the trust was a significant shareholding in HPPL.  It was stated in argument by Mr Hutley SC, who appeared for the HPPL parties, that there will be an issue as to whether the HFMF Trust was established.  The HFMF Trust lies at the heart of the claims as to the wrongful transfer of the valuable mining assets from the applicants to HPPL and Mrs Rinehart.
  3. After the death of her father, Mrs Rinehart also assumed the trusteeship of the HFMF Trust; her children were beneficiaries in equal shares, and its principal asset was two shares in a company called Zamoever Pty Ltd (Zamoever) whose principal asset was a shareholding in a company called The Hancock Family Memorial Foundation Limited (the fourth respondent – HFMF).
  4. The HFMF Trust (through Zamoever and HFMF) is said to have owned 33.3% of the shares in HPPL, owned the sixth respondent, Hancock Resources Limited (HRL), now known as Westraint Resources Pty Ltd (WRL), which owned valuable mining tenements, including the Hope Downs, Nicholas Downs and Mulga Downs Tenements, and which was pursuing an opportunity to obtain an exploration licence over the area now known as the Roy Hill Tenements, and owned Hancock Mining Limited (HML), which was sold to BHP Minerals Limited in 1992.
  5. The statement of claim pleads (at para 115) that upon the death of her father, Mrs Rinehart came to control the family interests as: chair and controlling mind of HPPL; director and controlling mind of Zamoever; director and controlling mind of HFMF; and director and controlling mind of HRL.
  6. All four children were minors in 1992.  The youngest, Ginia, reached her majority in 2004.
  7. The statement of claim (at para 124) alleges that from these facts Mrs Rinehart owed fiduciary obligations to her children:

    124.1    to act in their best interests;

    124.2    not to act capriciously or unreasonably;

    124.3       not to put herself in a position whereby her interests conflicted or may conflict with the interests of her children; and

    124.4       not make a profit or pursue a gain in circumstances where there existed a conflict or real or substantial conflict on possibility of         conflict between GHR’s personal interests and those of her children.

  8. Central to the substantive claims made by the applicants is the asset position of the family, of the HPPL group, of the HFMF Trust and of the children at the death of Lang Hancock, and the steps said to have been taken thereafter by Mrs Rinehart, in asserted breach of trust and fiduciary duty to her children, to place herself and HPPL in control and ownership of significant and extremely valuable commercial assets, to which, it is asserted, the children were entitled, through the various trust arrangements.
  9. In sections 8 to 18 of the statement of claim (paras 128 to 271 thereof) the applicants plead various bodies of misconduct by Mrs Rinehart in which HPPL is said to have participated.  The primary judge dealt with this at [198]-[230] of her Honour’s reasons.  That alleged misconduct was said to be the following.
  10. First, and within two months of the death of her father, Mrs Rinehart is said to have given up the pursuit of a valuable exploration licence over the Roy Hill Tenement by HRL (the company owned by HFMF on trust for the children) and thereafter applied for and won the exploration licence for the tenement in the name of HPPL.  By so doing, Mrs Rinehart is said to have breached her duties to her children, to the HFMF Trust and to HRL, to advantage herself as the majority shareholder in HPPL.  The applicants seek an account of profits or equitable compensation against Mrs Rinehart in respect of the Roy Hill Tenements.  Relief in the nature of an account or equitable compensation is also sought against HPPL as a knowing participant in a dishonest breach of trust by Mrs Rinehart, and against the thirteenth respondent – Roy Hill Iron Ore Pty Ltd (RHIO) to which HPPL transferred legal title to the Roy Hill Tenements, which is said to have received that property with knowledge of the breaches by Mrs Rinehart, she being a director of the company.  The applicants claim against RHIO a constructive trust over the Roy Hill Tenements, in addition to an account or equitable compensation.
  11. The second body of asserted misconduct by Mrs Rinehart occurred within three years of her father’s death.  This involved the asserted manipulation of HFMF’s financial position which is said to have facilitated Mrs Rinehart increasing her ownership of HPPL from 51% to 76.55%.  The asserted manipulation involved the following.  In 1992, Mrs Rinehart is said to have caused HPPL to make a claim against HFMF and HRL that the Hope Downs Tenements were held by HRL on constructive trust for HPPL, and then, in 1994 or 1995, to have caused HRL and HFMF to agree to relinquish ownership of those tenements to HPPL – in effect, to capitulate (without justification) to the claims in the litigation.  The assertion by the applicants is that this claim by HPPL was confected.  This will be a central issue in the proceedings.  Also in 1992, Mrs Rinehart is said to have caused HRL to execute a charge to HPPL for a purported liability of $15 million and HFMF to execute a charge and a guarantee to HPPL for that purported liability.  In 1995, HFMF revalued downwards its investment in HPPL and made provision for its liability to guarantee HRL’s purported liability.  Mrs Rinehart is said to have caused this through her (conflicting) positions controlling HPPL, HRL, HFMF, the HFMF Trust, Zamoever and the HMH Trust.
  12. The consequences of these asserted manipulations is pleaded in para 183 of the statement of claim as follows:

    183.1       a $77,871,422 decrease in the net assets recorded in the HFMF financial statement for the year ended 30 June 1994, reducing net assets from $61,730,338 in 1993 to negative $27,595,965 in 1994;

    183.2    the loss of HFMF’s principal income generating assets;

    183.3       the Roy Hill Tenements not being recorded on the balance sheet of HRL as an asset of HRL;

    183.4       the loss of HFMF’s ability to earn income independently or separately from its entitlement to dividends from HPPL; and

    183.5       a significant diminution in HFMF’s bargaining power in any future dealings with HPPL.

  13. These matters are said to form the background to the “Debt Reconstruction Deed” between HPPL and HFMF under which HPPL became entitled to buy back HFMF’s 33.3% shareholding in HPPL for only $9.3 million, on the basis that HFMF was insolvent.  Upon the cancellation of those shares when bought back, Mrs Rinehart’s shareholding increased to 76.55%, and the effective shareholding of the four children was reduced to 23.45%.
  14. It is unnecessary to recite all aspects of the detail of the Debt Reconstruction Deed and associated conduct and agreements that are dealt with in section 10 of the statement of claim.  It is sufficient to say that HFMF was effectively placed under the control of HPPL and Mrs Rinehart, and was required to pay significant dividends in 1995 and 1996 to HPPL in priority to any other distribution.
  15. Further, in 1995, in a “Deed of Acknowledgement and Release”, HFMF agreed with HPPL to relinquish ownership of all of the shares in HRL to HPPL and to recognise in HPPL the beneficial ownership of the shares in HML that had been sold to BHP in April 1992.
  16. The consequences of the reconstruction are pleaded in paras 208 and 209 of the statement of claim: to divest the HFMF Trust of its major assets (the shares in HRL and HPPL and the Hope Downs Tenements), to remove Zamoever’s control of HFMF and to give it to Mrs Rinehart, to require almost $33 million in dividends to be paid by HFMF to HPPL and, until such be done, to preclude the children participating in any profits of HFMF, and to increase Mrs Rinehart’s control of HPPL to 76.55%.
  17. The above asserted manipulations are alleged to have been brought about by Mrs Rinehart in furthering her own personal interest and in breach of her duties as a trustee of the HFMF Trust, as a director of Zamoever, of HRL and of HML and her fiduciary duties to her children.
  18. The legal consequences of this asserted misconduct are pleaded in sections 13 to 17 of the statement of claim.
  19. Sections 13 and 14 claim a constructive trust in favour of the children over a 25.5% shareholding held by Mrs Rinehart in HPPL (that is, the percentage above 51%).  The claim to these shares, and an accounting or the payment of equitable compensation by Mrs Rinehart and her company, 150 Investments, is made in claims 8 to 14 of the application.
  20. Section 15 is directed to the Hope Downs Tenements held by HPPL.  It is pleaded that HPPL was aware of the breaches of duty of Mrs Rinehart involved in the Debt Reconstruction Deed and Deed of Acknowledgement and Release when it received “legal title” to the Hope Downs Tenements.  HPPL has since (in 1997) transferred the Hope Downs Tenements (para 231 of the statement of claim says “transferred legal title”) to Hope Downs Iron Ore Pty Ltd (HDIO), the twelfth respondent.  The claim is then made that HDIO took the “legal title” with knowledge of the breaches of duty and of trust by Mrs Rinehart because she was a director and the controlling mind of HDIO.
  1. The claim that HDIO holds the Hope Downs Tenements on constructive trust for the children of Mrs Rinehart and orders for accounting or payment of equitable compensation by Mrs Rinehart, HPPL and HDIO are claims 15 to 21 of the application.
  2. Section 16 frames relief for the asserted contractual breach of the 1988 Agreement, and claims 22 to 26 of the application claim specific performance and damages in the alternative.
  3. Section 17 frames relief for the conduct involving the assets of HFMF and the debt reconstruction as unconscionable conduct within the meaning of s 51AA of the TP Act and s 20 of the Australian Consumer Law.  Importantly, the allegations in this regard are based upon the assertion in para 238 that Mrs Rinehart was engaged in trade and commerce, as follows:

    Each of:

    238.1       GHR’s conduct in devaluing the assets of HFMF and procuring the Debt Reconstruction referred to in Sections 10 and 11 above; and

    238.1       GHR’s refusal to acknowledge, since the vesting of the HFMF Trust on 6 September 2011 that she holds 25.55% of her present shareholding in HPPL on trust for JLH, BHR, HRW and GHFR, GHR

    is conduct in trade or commerce

  4. Claims 27 to 28 in the application claim damages and specific relief under the TP Act and the Australian Consumer Law for this conduct characterised as unconscionable.
  5. Section 18 of the pleading and claims 29 to 34 of the application concern other asserted misconduct of Mrs Rinehart since 1992 concerning two mining tenements: Nicholas Downs and Mulga Downs. In a series of transactions from 1992, it is said that the interest in the Nicholas Downs Tenements came to be held by HPPL via subsidiaries, having originally been owned by HFMF.  These allegations form part of the claims concerning the movement of assets from the HFMF Trust to HPPL.  Claims 29 to 31 of the application seek the imposition of a constructive trust over HPPL’s ownership of the tenements and orders for accounting or payment of equitable compensation by HPPL.
  6. The Mulga Downs Tenement was owned by HRL, and prior to the transfer of shares in HRL from HFMF to HPPL was an asset of the HFMF Trust.  In the 1998 transfer of HRL shares to the HPPL (see [42] above), the HFMF Trust is said to have lost this asset.  Since 1998, another exploration licence was applied for adjacent to the Mulga Downs Tenement for the development of a mine.  HPPL has also transferred the Mulga Downs Tenement to Mulga Downs Investments Pty Ltd (MDI) and Mulga Downs Iron Ore Pty Ltd (MDIO) (the fourteenth and fifteenth respondents, respectively) for no value, and Mrs Rinehart is said to have caused the shareholding in those companies to be transferred to associates of her and to HPPL.  Claims 32 to 34 of the applications seek the imposition of a constructive trust over MDI’s and MDIO’s ownership of HRL and the Mulga Downs Tenement and an order for an account or equitable compensation.
  7. These are the substantive claims.  They originate in the family ownership of large and extremely valuable commercial assets.  They involve assertions of breaches of equitable duties springing from trust, corporate responsibilities, familial duty and obligations of honesty, proper purpose and good faith.  Some of the asserted breaches are said to have occurred when all four children were minors.
  8. Meanwhile, litigation between Mrs Rinehart and Rose Porteous had been proceeding since 1992.  This was constituted by an action against Lang Hancock’s estate brought by Rose Porteous, proceedings brought by HPPL against Rose Porteous and various applications in relation to the bankrupt estate of Lang Hancock.
  9. This litigation was settled in 2003.  The applicants were among 16 signatories to the settlement deed.  The primary judge at [244]-[247] of her Honour’s reasons set out the following important aspects of the background:

    244         In the email, Mrs Rinehart expresses a concern to prevent the continuation of litigation after the deed is signed, and a proposal to include the applicants as signatories as a means of addressing this concern. The email is signed off “love Mother”. There is nothing in the email suggesting that the Porteous settlement deed was intended to confer any benefit in favour of Mrs Rinehart (or any of the HPPL respondents) at the expense of the applicants.

    245         An email dated 8 September 2003 from Peter Neil, an in-house lawyer at HPPL, to Mr Hancock advises him to sign the then proposed deed in his personal capacity to avoid “the severe risk of vindictive action by the Porteous interest against you personally”. There is no suggestion in this email that the Porteous settlement deed was intended to confer rights in favour of Mrs Rinehart (or any of the HPPL respondents) by Mr Hancock.

    246         According to Mr Hancock’s unchallenged evidence, prior to signing the Porteous settlement deed, Mrs Rinehart said to him words to the effect of:

    You need to sign this Deed. Rose and her lawyers have insisted you sign it so that you cannot make a claim against Rose in the future.

    And:

    You cannot not [sic] hold up a settlement that has taken so many years to reach.

    247         There is no specific evidence that either of the applicants had made any of the allegations of misconduct set out above against any of the respondents at any time before the Porteous settlement deed was executed. However, by email dated 15 September 2003 (that is, the date of the Porteous settlement deed), Mr Hancock made proposals to Mrs Rinehart for financial accommodation in return for which he agreed “not to take any action regarding the HMHT, debt reconstruction issues, make media comment regarding family etc”.

  10. Mrs Rinehart relies on cl 3.9 of the Porteous Deed signed 15 September 2003.  That clause was in the following terms:

    3.9      General Mutual Release
    Subject hereto on and from the Effective Date, the parties release each other from all claims in respect of:
    (a)       the Proceedings;

    (b)          the circumstances or allegations giving rise to or referred to in the Proceedings; and

    (c)          any claim which was or could reasonably have been known to the parties (or any of them) as at the date of this deed,

    arising from:

    (i)        the Proceedings;

    (ii)         the circumstances or allegations giving rise to or referred to in the Proceedings.

  11. She also relies on the arbitration clause in cl 16.2.
  12. The primary judge dealt with the Porteous Deed at [248]-[275], [511]-[512] and [548] of her Honour’s reasons.  Her Honour found that the matters of context were such that the deed should not be construed as one whereby intra-Hancock family parties were releasing each other or dealing with issues among themselves, even if, as appears to have been the case, the dispute between Mrs Hancock and the applicants, or at least Mr Hancock, was nascent.
  13. The primary judge was plainly correct in this conclusion.  There was no suggestion that there was any intra-Hancock family settlement of any claim of the children against their mother or any Hancock group company (of which there is no evidence of any articulation).  The deed should be viewed in its context and construed accordingly.  The general words of a release are limited always to that thing or those things which were especially in the contemplation of the parties at the time the release was given: Grant v John Grant & Sons Proprietary Limited [1954] HCA 23; 91 CLR 112. The release and the arbitration clause should be viewed accordingly, as not directed to any intra-family disputation.
  14. Mr Hancock began to investigate the affairs of the HMH Trust in late 2003, perhaps earlier.  By mid-2004 there was reference in communications between Mrs Rinehart and Mr Hancock to litigation. The correspondence alleged wrongdoing by Mrs Rinehart and HPPL concerning the transfer of missing interests out of the trust (the HFMF Trust) and the reduction in shares in HPPL held for the children. Mr Hancock had solicitors acting for him in this regard (Butcher Paull & Calder).
  15. By October 2004, these solicitors sent Mrs Rinehart and HPPL an early version of an unsworn affidavit of Mr Hancock concerned with complaints about the HMH Trust.  The primary judge dealt with this at [284]-[308] of her Honour’s reasons, including the question of the overlap between the contents of the statement of claim and the unsworn affidavit.  The allegations in the unsworn affidavit set out at [288] of the reasons reveal the themes of the statement of claim:

    285.         At all times in the past 10 years, my mother acted in conflict with her various positions as director and Trustee, to her benefit. It is my strong belief that she must be removed as Trustee of the Trust, and that there should be some form of redress for the calculated and astounding breaches of fiduciary duty she displayed in divesting HFMF, which was always intended to be solely for the benefit of myself and my siblings, of all its valuable assets, particularly its shareholding in HPPL.

    286.          My mother has also divested HFMF of the Hope Downs tenement, which would have provided a huge source of income to HFMF.

    296.         My mother’s conduct as director and controller of the various Hancock group entities, as well as her performance as trustee of the Trust and the Zamoever Trust, demonstrate she has only acted in her own interests, to the detriment of her children, and their rightful entitlements, in breach of her director’s duties, and fiduciary duties as trustee. I believe she is totally unsuitable and also incapable of properly performing her role as trustee of the Trust, based on the matters I have described, and she continually fails to make provision for her children from the Trust in any amount that reflects the fact that the Trust holds 23.4% of HPPL shares for our benefit. I also feel that there must be some redress for the systematic, calculated action she has taken to divest HFMF and the Zamoever Trust of its most valuable assets.

    297.        As for her performance as trustee of the Zamoever Trust, it is completely obvious that she has breached her duty in the most fundamental manner imaginable, by rendering the trust worthless through removal of assets worth many millions of dollars from the Zamoever Trust, and placing them within her own grasp. My mother has even gone so far as to de-register Zamoever Pty Ltd.

  16. The primary judge concluded that whilst there was significant overlap, certain matters in the statement of claim were not contained in the unsworn affidavit, namely, the wrongful giving up of the Roy Hill Tenement exploration licences on behalf of HRL.  We will deal with this later in the context of the application of the Hope Downs Deed, but it is sufficient at this point to say that we consider that the primary judge was overly narrow in characterising the nature of the claims in the unsworn affidavit.  It can be accepted that the events pleaded in the statement of claim about Roy Hill were not adverted to, but the draft affidavit can be seen as a claim that Mrs Hancock had dishonestly breached her duty as trustee, should be replaced and the trust’s administration, hitherto undertaken by her, reviewed.  Though not couched as an equity writ, the breadth of the claims amounted almost to a claim for general administration of the trust.  Viewed thus, the claims made can be seen to extend to any breach of trust found to have occurred.
  17. The next important documents signed by the parties were the April 2005 Deed of Obligation and Release and Deed of Loan.  The events leading up to this are discussed by the primary judge at [309]-[314] of her Honour’s reasons.  A significant aspect to this background was the prospect of a joint venture with the Rio Tinto Ltd group over the Hope Downs Tenements that was to the knowledge of all being negotiated at the time, being the joint venture that eventuated in March 2006 (see the statement of claim, section 19, paras 272-274), and the need to stabilise the question of claims to ownership of tenements as a safe foundation for this important external commercial relationship.
  18. The two deeds (of obligation and release, and of loan) were entered into by Mr Hancock in April 2005, and can be seen as closely related.  The Deed of Obligation and Release was signed by Mr Hancock, his three sisters, Mrs Rinehart, HPPL, HFMF, the directors and officers of HPPL and the executors of Lang’s estate.  The primary judge set out the major recitals at [317] of her Honour’s reasons as follows:

    C.           Serious and substantial differences have arisen between the Covenantor [JLH] and the Hancock Group which the parties hereto have agreed shall be settled upon the execution hereof on the terms herein.

    D.           Having particular regard to the commercial interests and the commercial sensitivities of the Hancock Group (and the potential for the Covenantor to negatively seek exposure with the public or with the media particularly during periods of negotiation of large commercial projects such as the Hope Downs Project currently under complex negotiation by HPPL at the date of execution of this Deed), HPPL and the Hancock Group are desirous of obtaining the undertakings of the Covenantor to wholly retract, cease and desist from any such activities now and in the future.

    E.           The parties hereto by their execution hereof acknowledge that the primary nature of the HPPL business, is very long-term, complex, large-scale mining projects. The HPPL business necessitates long term consistent business plans, and many dealings with third parties on a strictly confidential basis, and the contrary, short-term and time consuming demands of the Covenantor, linked to his use of sensationalist media to publicise his contrary views, are opposed to the careful focus required and successful achievement and attainment of HPPL’s interests. Accordingly, the Board of HPPL, having considered the matter in depth, has resolved that the making of the payments to the Covenantor under this Deed is necessary in order to enable the required focus and to protect the confidential nature of information, including with third parties, the business, prosperity and future profitability of HPPL.

  19. From these recitals it is clear that the Deed of Obligation and Release was directed to the intra-Hancock family disputes.  Only Mr Hancock was a convenantor.  Ms Rinehart, at this point, was not in dispute with her mother.  Indeed, she was a director of HPPL.  The releases were wide and set out at [319] and [320] of the primary judge’s reasons, as follows:

    2.        Release of the Releases by Covenantor:

    The Covenantor hereby wholly releases and discharges all and singular the Releasees and each of them and all of the successors in time and title of them and each of them from all and any obligations they and each of them may have to him in any manner and in any capacity whatsoever as at the date of execution hereof.

    3.        Further releases by Covenantor

    Without limiting or derogating from the provisions of clause 2 herein, the Covenantor additionally:

    (a)          hereby releases and forever discharges all and singular the Releasees from all and any liability, claims, demands, suits and actions of any nature whatsoever and any loss, injury or damage that might be caused to the Covenantor therefrom, and the liability of the Releasees in respect of any such claim is hereby absolutely extinguished, discharged and in all respects ended;

    (b)          abandons any claims against all and singular the Releasees which he may, but for this provision, at the date of executing this Deed have had on any account whatsoever;

    (c)          will not bring or make any other claim or proceeding against all and singular the Releasees or any one or more of them that is in any way connected with or incidental to the matters the subject of this Deed or any earlier claims;

    (d)          acknowledges that this Deed may be pleaded in bar against any claim or proceeding by him against all and singular the Releasees; and

    (e)          releases and forever discharges all and singular the Sisters from all and any liability, claims, demands, suits and actions of any nature whatsoever and any loss, injury or damage that might be caused to the Covenantor therefrom, and the liability of the Releasees in respect of any such claim is hereby absolutely extinguished, discharged and in all respects ended.

  20. The phrases “Hancock Group” and “The Releasees” were defined in cl 1, as follows:

    1.        Definition of “the Hancock Group” and “the Releasees”

    (a)          In this Deed of Obligation and Release, HPPL and all of its subsidiary, affiliated and associated companies, present, former and future directors, secretaries, officers, employees and consultants on whose behalf and on behalf of each of whom HPPL enters into this Deed, in addition to entering into this Deed on its own behalf, are herein collectively referred to as “the Hancock Group”.

    (b)          In this Deed of Obligation and Release, HPPL, the Hancock Group, HFMF, Georgina Hope Rinehart as former Trustee of the Hope Margaret Hancock Trust, Georgina Hope Rinehart in right of herself, the Sisters, the Other Beneficiaries of the Hope Margaret Hancock Trust, the Trustee of the Hope Margaret Hancock Trust Stephen John Scudamore, the HPPL Directors and Officers and the Executors of the Estate of Langley George Hancock deceased are collectively referred to as “the Releasees”.

  21. Other relevant provisions concerning consideration to Mr Hancock and the independent advice he received were dealt with by the primary judge at [324]-[326] of her Honour’s reasons:

    324         Clause 5 specifies consideration payable by HPPL to Mr Hancock “in particular in consideration of the covenants of the Covenantor set out in clause 4”, including a payment of money in lieu of further distributions from the HMH Trust prior to the date of vesting of the HMH Trust and other monetary payments.

    325         Clause 6 provides for Mr Hancock to have use of two apartments on a rent-free basis for his personal residence, subject to conditions. Clause 7 provides for Mr Hancock to have access to an apartment on a cruise liner and a farm, on certain conditions.

    326         Clause 11 contains an acknowledgement by Mr Hancock that he acted “wholly without duress in making this Deed” and that, before executing the deed, he had received independent advice “on all matters relating to or which are the subject of this Deed”.

  22. Clause 14 of the deed was a proper law and dispute resolution clause in the following terms:

    This Deed shall be governed by and shall be subject to and interpreted according to the laws of the State of Western Australia, and the parties hereby agree, subject to all disputes hereunder being resolved by confidential mediation and arbitration in Western Australia, to submit to the exclusive jurisdiction of the Courts of Western Australia for all purposes in respect of this Deed.

    (emphasis added)

  23. At [328] of her Honour’s reasons, the primary judge summarised the context, purpose and intent of the Deed of Obligation and Release, as follows:

    The “serious and substantial differences” that had arisen between Mr Hancock and the Hancock Group are not identified in the 2005 deed of obligation and release. Based on the recitals to the deed, it appears to have been made, at least in part, to address a perceived risk of commercial damage to the Hancock Group and the business of HPPL arising from public statements by Mr Hancock, including a risk of disclosure of confidential information. Under the deed, Mr Hancock received financial benefits on the condition that, if he did not comply with the deed, those benefits would be discontinued.

  24. Under the Deed of Loan, Mr Hancock was entitled to a loan of $3 million repayable after the vesting of the HMH Trust.
  25. Shortly after the execution of the Deed of Obligation and Release, on 1 July 2005, the Hancock and Rio Tinto parties executed documentation concerning the Hope Downs Joint Venture and the joint venture was announced.
  26. Despite Mr Hancock’s broadly framed releases in the April 2005 Deed of Obligation and Release, shortly after the announcement of the joint venture, he gave notice of his intention to become a party to, and make an application in, Supreme Court of Western Australia proceedings concerning the trusts that had been brought by his mother; and through his solicitors, he stated that he considered himself free of the releases (entered into only months before) in the 2005 Deeds because they were said to be the product of undue influence. In late September 2005, he filed a supporting affidavit in the Supreme Court in which he alleged that his mother had committed “grave breaches of trust”.  The primary judge referred at [344] of her Honour’s reasons to part of the affidavit containing the following allegations:

    (a)          the removal of the Hopes Downs Mining Tenements (which have been publicly reported to have a value of around 1.6 billion dollars) from the control of the Trust;

    (b)       the reduction of the Trust ownership or control of shareholding in [HPPL];

    (c)          the simultaneous increase in my mother’s shareholding in HPPL from 51% to about 76%; and

    (d)          my mother refusing me any financial support whatsoever from the trust after early 2003 and inadequate support previously.

  1. Ms Rinehart made a record of a conversation that she had with her brother in November 2005, which the primary judge set out at [345] of her Honour’s reasons:

John stated that I was not to assume his attack against GHR was over. He said that Hope Downs “belongs to the children” and that because he was aware GHR was under immense pressure to get the Hope Downs deal signed in time for Government deadline of 30 June 2005, that is why he decided to ‘hit her up’ for a “few mill” then, but that his ‘case’ against GHR was by no means over…he stated that he would fight for ownership of our company’s other assets (excluding Hope Downs) – ie Roy Hill, and that he would float these once he had control of them.

  1. In March 2006, the parties signed the Hope Downs Joint Venture Agreement involving the Rio Tinto group. This was executed by Ms Rinehart as a director of HDIO.
  2. In August 2006, the next important document was signed – the Hope Downs Deed. This was signed, amongst others, by the three sisters, Mrs Rinehart and HPPL. The correspondence leading up to its signature is discussed by the primary judge at [349]-[363] of her Honour’s reasons. Ms Rinehart now says that she signed the deed unwillingly. There was some contemporaneous communication in which she said that she objected to being harassed; but she received legal advice.
  3. It is plain from the recitals and terms of the Deed that its purpose was to quell disputes as to title concerning the mining tenements, especially Hope Downs. The deed involved releases of claims (which terms were drawn widely). The attempt to draft the widest possible release is to be seen in the definitions of “claims” and “Proceedings” which specifically included reference to the September 2005 version of Mr Hancock’s unsigned affidavit and the subsisting Supreme Court proceedings. In return for acknowledgments of title, releases and promises not to sue, HPPL agreed to pay dividends on a quarterly basis, conditional upon compliance with the deed.
  4. The proper construction and operation of the Hope Downs Deed is central to this application, the appeals and the ultimate resolution of the disputes between the parties.
  5. It is convenient to set out [366]-[385] of the primary judge’s reasons for the relevant terms of the Hope Downs Deed:

366 The recitals to the Hope Downs deed are:

(A) GHR is the daughter of the late Langley George Hancock who was the founder of HPPL and the Hancock Group and who established the HMH Trust and who died on 27 March 1992.

(B) JLH and BHR, HGRW, GHFR are the natural children of GHR and with GHR they constitute the total present class of capital and income beneficiaries of the HMH Trust.

(C) GHR, the Trustee, JLH, BHR, HGRW, GHFR, HMHTI and 150 together constitute one hundred per cent (100%) of the legal and beneficial owners of all of the issued share capital of HPPL.

(D) Those of the parties hereto who are parties to the Porteous Settlement Deed and who are parties to the Deed of Obligation and Release desire by their execution hereof to reaffirm and ratify the same.

367 Clause 3 provides:

3. AFFIRMATIONS AND ACKNOWLEDGMENT

3(i) All parties to this deed which or who were parties to the Porteous Settlement Deed reaffirm the Porteous Settlement Deed and all their obligations and releases thereunder.

3(ii) All parties to this deed which or who were parties to the Deed of Obligation and Release reaffirm and ratify the Deed of Obligation and Release and all their obligations and releases thereunder.

3(iii) The parties acknowledge that the obligations of the Hancock Group, due to HDIO’s ownership and interest in the Hope Downs Tenements and pursuant to the HDJVA and HDIO’s obligations under financing arrangements for its interest in the HDJV may include the following:

(a) as a result of the HDJV transaction a Capital gains tax of $36,856,597.00;

(c) no repayment of or contribution by the HMH Trust for all expenditure by HDIO to date on the Hope Downs Tenements, overheads and HDJV costs, and including without limitation the financing costs for HDIO’s interest in the HDJV; and

(d) HDIO, and where relevant HPPL, will continue to finalise and maintain to the best of its endeavours, the required financing for HDIO’s interest in the Hope Downs Joint Venture;

368 Clause 4 provides:

4. HPPL/HDIO OWNERSHIP OF HOPE DOWNS

The parties acknowledge that at all material times the Hancock Group Interests have been and remain beneficially owned by the Hancock Group member that purports to own them including, without limitation, the Hope Downs Tenements which Tenements have been at all times beneficially owned by only HPPL and or HDIO and which are now fifty per cent (50%) beneficially and legally owned by HDIO.

369 The “Hancock Group Interests” are defined in clause 1.1 to mean:

(a) the Hancock Group’s interests in the Hope Downs tenements and the Hope Downs Joint Venture;

(b) all other mining tenements, licences, permits and interests therein currently held by any member of the Hancock Group including without limitation any joint venture interests in any state or territory of Australia;

(c) any partnership or royalty interests, choses in action, real property and any other property or asset of any nature or description held or owned by the Hancock Group.

  1. The “Hancock Group” is defined to mean HPPL and any “Related Body Corporate” of HPPL. “Related Body Corporate” is stated to have the meaning given in s 50 of the Corporations Act 2001 (Cth).
  2. Section 50 provides that, where a body corporate is a holding company of another body corporate or a subsidiary of another body corporate or a subsidiary of a holding company of another body corporate, the first mentioned body and the other body are related to each other.

372 Clause 5 provides:

5. DISTRIBUTION COVENANT

In consideration of the matters recited in and the subject of this deed (including without limitation the undertakings and releases given herein) HPPL and the Trustee covenant and agree with each other and the other parties hereto that they will implement the following according to these terms:

(a) to the extent that it is lawfully permitted and subject to sub-clause (f), HPPL shall pay dividends to holders of A Class shares in HPPL, based upon a proportion of the Hope Downs Net Cash Flow After Tax commencing 6 September 2011, with the first such payment being made in respect of the quarter ending on 31 December 2011 and subsequent payments being made in respect of each quarter ending on 31 March, 30 June, 30 September and 31 December, each payment being made as soon as practicable after the end of the respective quarter and calculated as follows:

(i) twenty-five per cent (25%) of the Hope Downs Net Cash Flow After Tax;

(ii) a further twenty-five per cent (25%) of the Hope Downs Net Cash Flow After Tax, less any amounts required to be retained for HPPL’s and the Hancock Group’s equity requirements in relation to additional developments of or associated with the Hope Downs Joint Venture and/or the development of the Hope Downs Tenements as determined by the Directors of HPPL and/or HDIO in accordance with the requirements of the HDJV, and subject to the further requirements of this Clause 5;

(b) subject to sub-clause (c) the Trustee shall pay any dividend received from HPPL in accordance with sub-clause (a) above to the Beneficiaries in equal shares of one-quarter each on the relevant dates as noted in sub-clause (a) above;

(c) if any one or more of the Beneficiaries commit a breach of this deed at any time then:

(i) HPPL’s obligation to pay further dividends on the A Class shares pursuant to sub-clause (a) shall immediately cease from and after a date fourteen days after the service by HPPL on all other executing parties to this deed of a notice in writing advising of the breach which has been committed and advising the notice recipients that HPPL’s said obligation will cease on the said date fourteen days after service of the notice if the said breach has not by then been rectified; the parties each undertake to advise HPPL in writing if and when they or any of them first become aware that any party has or may have committed a breach of this deed;

(ii) subject to clause 5(c)(iii) HPPL shall pay any further dividends to holders of the B Class shares in HPPL on the same terms as to time and amount as set out in sub-clause (a);

(iii) upon the cessation of the default and the carrying out or payment by the defaulting party of any remedy or damages to be performed or paid pursuant to any judgment consequent upon the default or upon any settlement of the same, HPPL shall reinstate the arrangements referred to in clause 5(a) and any further declaration of dividend pursuant to clause 5(c)(ii) shall thereupon cease;

(d) any default by a Beneficiary under the Deed of Obligation and Release dated 1 April 2005 (or as such is amended in writing by mutual agreement of all parties thereto) shall be deemed to be a default by that Beneficiary under this deed for the purpose of this clause;

(e) within one hundred and twenty (120) days of the end of any financial year of HPPL in respect of which payments are made under sub-clause 5(a) any amount calculated under this Clause 5 shall be verified by an independent auditor appointed by HPPL, at the request of any Beneficiary. A copy of the audit certificate will be provided to each Beneficiary. Any adjustments to the amounts paid required as a consequence of the audit shall be made as soon as practicable after the date of the audit certificate. The cost of such audit will be borne by all Beneficiaries receiving any payment under Clause 5 for the relevant year, in equal proportions; and

(f) payments under this Clause 5 shall immediately cease upon the declaration of an Event of Force Majeure under the HDJV and shall resume upon such an event abating and being rectified.

373 Clause 6 provides:

6 RELEASES

Each party hereto both in its own right and in any representative capacity hereby:

(a) releases and discharges each of the other parties hereto now and in the future from any Claims,

(b) Irrevocably covenants not to take any proceedings against any of the other parties to this deed in relation to any matter arising in any jurisdiction, in respect of the Claims;

(c) Withdraws and forever abandons any and all allegations made against any of the other parties to this deed in respect of or arising (in whole or in part) directly or indirectly out of:

(i) the Proceedings and any of the other Claims;

(ii) the subject matter of the Proceedings;

(iii) any claim relating to an undertaking given or costs orders made in the Proceedings,

wherever and whenever arising, whether;

(iv) known or unknown at the time of execution of this deed;

(v) presently in contemplation of such parties; or

(vi) arising under common law, equity, statute or otherwise.

374 A “Claim” is defined in clause 1.1 to mean:

(a) any claim, demand, action, suit or proceeding whether existing or discontinued, whether at law, under statute, in equity or otherwise:

(i) for damages, injunctions, debt, restitution or other remedy including, without limitation, breach of fiduciary duty of whatever nature and howsoever arising with respect to events or matters arising or actions taken prior to the date of this deed but not including any claim, demand, action, suit or proceedings arising as a consequence of the obligations and releases which any of the parties to this deed have agreed to in the Deed of Obligation and Release or the Deed of Loan or the Porteous Settlement Deed;

(ii) with respect to any attempt to remove or vary the Trustee or any subsequent Hancock Family Group Member as trustee of the HMH Trust and replace the trustee with a person or entity who or which is not a Hancock Family Group Member; and

(iii) any damage, loss, liability, costs, charge, expense, outgoing or payment;

(iv) any action against any of the Directors of any company within the Hancock Group, including without limitation, the Other Directors; and

(b) without limitation of clause (a) includes any claim made in the Proceedings;

(c) any damage, loss, liability, costs, charge, expense, outgoing or payment; and

(d) without limitation of sub-clause (a) includes any claim made in the Proceedings; and

(d)[sic] without limitation of sub-clauses (a) and (b) includes any claim made in any proceeding or any discontinued proceeding and any documents to support such claim and without limitation and for clarity in the case of the Proceedings includes the unsigned draft affidavit of JLH.

375 “Proceedings” is defined in clause 1.1 to refer to proceeding CIV 1327/2005.

  1. The “unsigned draft affidavit of JLH” is annexure C to Mr Hancock’s September 2005 affidavit. That is, it is a later version of Mr Hancock’s unsworn affidavit.

377 Clauses 7(a) to (e) of the Hope Downs deed provide:

7. UNDERTAKINGS

Each of the parties to this deed undertakes with each of the other parties to this deed

(a) that they will not at any time do, nor attempt to do nor encourage, nor assist in any way any other party or third party to do anything which could have an adverse impact on the Hancock Group’s rights under:

the Services and Commingling Agreement entered into or which may subsequently be entered into between Hamersley Iron Pty Ltd and members of the Hancock Group;

or any of the documents entered into by the Rio Tinto Group and the Hancock Group in respect of the Hope Downs Joint Venture;

or under any of the financing arrangements entered into by members of the Hancock Group in respect of the Hope Downs Joint Venture;

(b) not to challenge the right of any member of the Hancock Group to any of the Hancock Group Interests at any time.

(c) not to take any steps at any time which would result in HPPL ceasing to be wholly owned and controlled by Hancock Family Group Members, including without limitation any change to the Trustee in contravention of the provisions of this Deed; and

(d) not to Disparage at any time.

(e) subject to the rights of HPPL under the Deed of Loan not to challenge the rights of any of GHR, JLH, BHR, HGRW or GHFR who execute this Deed to any of their right title or interest in any of the Hancock Group or in any trust in which they or any member of the Hancock Group is a beneficiary.

378 Clauses 8, 9.1 and 9.2 provide, respectively:

8. GHR CONTROL OF HPPL

The parties hereto acknowledge that GHR by her direct ownership of the share capital of and voting power in HPPL, has control of HPPL and without limiting in any way the legal and other rights of GHR in that regard whether at law or in equity or pursuant to the Constitution of HPPL, the parties hereto acknowledge that during her lifetime GHR shall maintain full ongoing control and management of HPPL and that GHR shall accordingly have the continuing right during her lifetime at her election from time to time to maintain or relinquish or re-establish herself as the chairman on an executive or non executive basis as she in her sole discretion shall decide of HPPL.

9 VESTING OF HMH TRUST

9.1 Subject to GHR’s agreement at any time prior to 6 September 2011, the Beneficiaries agree to extend the vesting date of the HMH Trust to the maximum extent permitted by law or to any prior date after 6 September 2011 by agreement of the majority of Beneficiaries.

9.2 Each of the Beneficiaries shall do all matters and things necessary to implement and facilitate any decision at any time by the Trustee to appoint any one or more of JLH, BHR, HGRW and GHFR as trustee of the HMH Trust and such appointment may be as an additional trustee together with the Trustee or to replace the Trustee permanently or temporarily or to succeed the Trustee when at some future time she may retire or otherwise cease to be trustee during her lifetime (which shall be deemed to be conditional upon the continuing right of GHR to decide to reassume the position of trustee by herself or with one or more of her children if and when she should subsequently so decide).

379 Clause 11 states:

11. PLEA IN BAR

On and from the Effective Date each party may plead this deed in bar to any Claim or proceeding the subject of a release in this deed PROVIDED HOWEVER that nothing in this clause shall prevent any party from enforcing the provisions of this deed, the Porteous Settlement Deed, the Deed of Obligation and Release or Deed of Loan.

  1. Clause 12 contains various acknowledgements to the effect that the parties entered into the deed freely, without duress or influence and agreeing to bound irrespective of “the mother/child/beneficiary aspects of the HMH Trust relationships between GHR, the Trustee and the Beneficiaries”.

381 Clause 13 provides:

13. PARTIES NOT TO ASSIST PROSECUTION OF CLAIMS

Each party severally covenants with each of the other parties to this deed that he, she or it will not advance, cause, procure, finance, support, encourage or otherwise assist or facilitate in any way (except on compulsion of law including, but not limited to service of a subpoena) directly or indirectly the advancement, institutional prosecution of any Claim the subject of a release in this deed.

382 Clause 20 provides, relevantly:

20. CONFIDENTIAL MEDIATION/ARBITRATION

In the event that there is any dispute under this deed then any party to his [sic] deed who has a dispute with any other party to this deed shall forthwith notify the other party or parties with whom there is the dispute and all other parties to this deed (“Notification”) and the parties to this deed shall attempt to resolve such difference in the following manner.

20.1 Confidential Mediation

20.2 Confidential Arbitration

(a) Where the disputing parties are unable to agree to an appointment of a mediator for the purposes of this clause T within fourteen (14) days of the date of the Notification or in the event any mediation is abandoned then the dispute shall on that date be automatically referred to arbitration for resolution (“Referral Date”) and the following provisions of this clause shall apply;

(i) in the event that no agreement on the arbitrator can be reached within three (3) Weeks of the Referral Date, the arbitrator will be Mr Tony Fitzgerald QC (provided he is willing to perform this function and has not reached 74 years of age at that time), or in the event Mr Tony Fitzgerald QC is unwilling or unable to act, the Honourable Justice John Middleton (provided he is no longer a Judge of the Federal or other Australian Court and provided he has not reached 74 years of age at that time), and irrespective of whether either of these persons have carried out the mediation referred to above, or in the event that neither is willing or able to act,

(ii) subject to paragraph (iv) below by confidential arbitration with one (1) party to the dispute nominating one (1) arbitrator, and the other party to the dispute nominating another arbitrator and the two (2) arbitrators selecting a third arbitrator within a further three (3) weeks, who shall together resolve the matter pursuant to the Commercial Arbitration Act of Western Australia and whose decision shall be final and binding on the parties;

(iii) if the arbitrators nominated pursuant to paragraph 2(a)(ii) are unable to agree in the selection of a third arbitrator within the time provided in paragraph 2(a)(iii), the third arbitrator will be designated by the President of the Law Society of Western Australia and shall be a legal practitioner qualified to practise in the State of Western Australia of not less than twenty (20) years standing.

(iv) in the event that a disputing party does not nominate an arbitrator pursuant to Clause 2(a)(ii) within twenty-one (21) days from being required to do so it will be deemed to have agreed to the appointment of the arbitrator appointed by the other disputing party.

(b) The dispute shall be resolved by confidential arbitration by the arbitrator agreed to by each of the disputing parties or appointed pursuant to paragraph (2)(a)(i) above (or if more than one is appointed pursuant to paragraph 2(a)(ii) then as decided by not less than a majority of them) who shall resolve the matter pursuant to the Commercial Arbitration Act of Western Australia and whose decision shall be final and binding on the parties.

20.8 Confidentiality of Proceedings

The dispute the subject of the mediation/arbitration, the mediation and arbitration hearing and submissions thereto and the decision of the mediation and/or arbitration shall be kept confidential.

  1. Clause 21 provides that the deed “shall be governed by and be subject to and interpreted according to the laws of the State of Western Australia”.
  2. Clause 22 provides that “Other than as specifically provided in this deed it sets out the only conduct relied on by the parties in connection with its subject matter”.

385 Clause 23 states:

23. FURTHER ASSURANCES

Each party shall sign, execute and deliver all deeds, documents, instruments and assurances and shall do all acts, matters and things as shall be necessary for the complete performance of all its duties, responsibilities and obligations under this deed and the transactions contemplated by it.

  1. The full terms of cll 21 and 22 were as follows:

21 APPLICABLE LAW

This deed shall be governed by and be subject to and interpreted according to the laws of the State of Western Australia and (subject to the provisions hereof requiring all disputes hereunder to be resolved by confidential mediation and confidential arbitration) the parties agree to submit to the exclusive jurisdiction of the Courts of Western Australia for all purposes in respect of this deed.

22 ENTIRE DEED

This deed contains the entire agreement between the parties with respect to its subject matter. Other than as specifically provided in this deed it sets out the only conduct relied on by the parties in connection with its subject matter.

  1. We will come to the arguments of the parties in due course. It is helpful, however, at this point to remark upon some of the features of these provisions of the Hope Downs Deed. First, recital D and its reference to the Porteous Deed cannot change the proper approach to, and construction of, that deed in its contemporaneous circumstances. Secondly, Mr Hancock did not sign the Hope Downs Deed; though the draft form anticipated his signature. Nevertheless, when he adopted it in April 2007 (see below) he reaffirmed and ratified the Deed of Obligation and Release. Thirdly, the releases in cl 6, the undertakings in cl 7, especially cl 7(b) and (e) and the plea in bar provision in cl 11 are critical to the debate about whether or not the matters raised in the statement of claim properly fall within the arbitration clause of the Hope Downs Deed.
  2. With the execution of the Hope Downs Deed, all four children had signed wide releases: Mr Hancock in the 2005 Deed of Obligation and Release and his three sisters in the Hope Downs Deed. Mr Hancock had shown that he was prepared to continue to challenge his mother by his actions in 2005 in the Supreme Court and by the deployment of the updated unsworn affidavit in those proceedings. Mrs Rinehart was anxious to have Mr Hancock commit to a settlement. This led to the 2007 deeds, sometimes referred to as the April 2007 HD Deed (also sometimes referred to as the 2007 HD Deed) and the 2007 CS Deed, both executed on 13 April 2007.
  3. The April 2007 HD Deed included Mr Hancock, Mrs Rinehart and the three sisters. Recital B states that the parties to the Hope Downs Deed wished to facilitate Mr Hancock becoming a party to the Hope Downs Deed. Clause 2 achieved that aim, providing as follows:

JLH Covenants and Agrees with all and singular the parties hereof and each of them and with the parties to the Hope Downs Deed and each of them that he will observe perform and fulfil all and singular the terms covenants, conditions and provisos of the Hope Downs Deed and his obligations and undertakings thereunder AND without limitation and for the avoidance of doubt the parties acknowledge that the requirements of clause 12 of the Hope Downs Deed which require provision of a letter from a lawyer shall not be required to be complied with by JLH.

  1. Clause 3 provided:

The parties to the Hope Downs Deed and JLH hereby jointly and severally ratify and confirm the Hope Downs Deed as hereby amended.

  1. Clause 9.2 was relevantly identical to the arbitration clause in cl 20.2 of the Hope Downs Deed.
  2. The 2007 CS Deed was only executed by Mrs Rinehart, Mr Hancock and HPPL. It was a side agreement. The recitals and relevant clauses were set out by the primary judge at [431]-[435] of the reasons. The deed involved a salary to Mr Hancock of $750,000 per annum; it involved Mr Hancock repaying loans; it also involved covenants not to proceed against the others and an abandonment of all claims including expressly the Supreme Court proceedings and the allegations in the draft affidavit. Butcher Paull & Calder advised Mr Hancock on the terms of the deed. The firm wrote to HPPL on 13 April 2007 in the following terms:

We confirm that we have advised John Langley Hancock on the terms of the Confidential Settlement Deed Final received 12 April 2007.

Our client has read the Deed, understood its terms, and has obtained advice from Robert Butcher in respect of it. He will execute the Deed of his own volition. He agrees to be bound by its terms.

  1. For a time, Mr Hancock appears to have complied with his contractual undertakings. On 20 April 2007, he agreed to orders dismissing his application in the Supreme Court.
  2. A new loan agreement was entered in November 2007 between Mr Hancock and HPPL.
  3. At this point, the sequence of events in relation to the Roy Hill, Hope Downs, Nicholas Downs and Mulga Downs Tenements should be noted for the purposes of the arguments concerning the operation of the Hope Downs Deed. We have referred to these tenements above at [37] and [39] (Roy Hill), [47] and [48] (Hope Downs), [52] and [53] (Mulga Downs and Nicholas Downs). The Roy Hill Tenements were transferred from HPPL to RHIO after the execution of the Hope Downs Deed. HPPL held title to the relevant interest at the time of the Hope Downs Deed. HPPL, but not RHIO, was a party to the Hope Downs Deed. The Hope Downs Tenements were transferred from HPPL to HDIO in September 1997, before the Hope Downs Deed. HDIO was not a party to the Hope Downs Deed, but it was mentioned in the Deed in the acknowledgment of ownership in cl 4 and was part of the defined “Hancock Group”. The Mulga Downs Tenement was transferred to MDIO in February 2009. The tenement had been held by HRL, which until 1998 was owned by HFMF, but the ownership in HRL had then been transferred to HPPL: see paras 260 to 271 of the statement of claim. The ownership and control of the Nicholas Downs Tenement is dealt with at paras 243 to 259 of the statement of claim. For present purposes, it is to be noted that the shares in HRL were transferred to HPPL in 1998, by which time HRL had, through one of its subsidiaries, ownership of the Nicholas Downs Tenement. From October 2008, that subsidiary’s interest in the Nicholas Downs Tenement was dealt with as discussed in paras 252 to 258 of the statement of claim.
  4. In August 2009, Mrs Rinehart, HPPL and Mr Hancock executed the August 2009 Deed of Further Settlement. The deed provided for some further financial accommodation to Mr Hancock. The deed contained a dispute resolution clause (cl 16), as follows:
    1. The CS Deed and this Deed will be governed by the following dispute resolution clause:

(i) the parties shall first seek to resolve any dispute or claim arising out of, or in relation to this Deed or the CS Deed by discussions or negotiations in good faith;

(ii) Any dispute or claim arising out of or in relation to this Deed or the CS Deed which is not resolved within 90 days, will be submitted to confidential arbitration in accordance with the UNCITRAL Arbitration Rules then in force. There will be three arbitrators. JLH shall appoint one arbitrator, HPPL shall appoint the other arbitrator and both arbitrators will choose the third Arbitrator. The place of arbitration shall be in Australia and the exact location shall be chosen by HPPL. Each party will be bound by the Arbitrator’s decision.

(iii) A party may not commence court proceedings in relation to any dispute arising out of or in relation to this Deed or the Original Deed or the CS Deed;

(iv) The costs of the arbitrators and the arbitration venue will be borne equally as to half by JLH and the other half by the non JLH party. Each party is responsible for its own costs in connection with the dispute resolution process; and

(v) Despite the existence of a Dispute, the parties must continue to perform their respective obligations under this Deed.

  1. The following year, in November 2010, the parties to the 2009 Deed of Further Settlement entered another deed, the November 2010 Deed of Variation which provided further loan funding to Mr Hancock. Clause 11(ii) of this 2010 deed concerned dispute resolution and was as follows:

Any dispute or claim arising out of or in relation to this Deed which is not resolved within 90 days, will be submitted to confidential arbitration in accordance with the UNCITRAL Arbitration Rules then in force …

  1. The 2010 deed also contained acknowledgements and releases in substantially the same form as in the 2007 CS Deed.
  2. In September 2011, litigation in the Supreme Court of New South Wales was commenced by the applicants and Hope Welker seeking urgent relief in relation to the vesting of the HMH Trust. In October 2011, they made allegations about asserted misconduct of Mrs Rinehart as a trustee of the HMH Trust.
  3. In 2012, demands were made by the applicants that HPPL pay dividends. Upon refusal, the applicants referred such dispute to arbitration under cl 20 of the Hope Downs Deed. The matter went before Mr Fitzgerald QC.
  4. Litigation proceeded in the New South Wales Supreme Court in 2013.
  5. This necessarily incomplete conspectus of the facts gives a sense of the character of the unresolved differences between the parties.
  6. We have described the substantive claims by the applicants up to section 18 of the statement of claim.
  7. The statement of claim contains a number of sections which plead various matters seeking to set aside the various deeds. These are referred to as the validity claims.
  8. The first attack is upon the Hope Downs Deed and the April 2007 Deed. Paragraphs 288 to 290 of the statement of claim concern the underlying purposes of the Hope Downs Deed for Mrs Rinehart and HPPL – broadly to cement the control of Mrs Rinehart over the group. The arbitration clause was the subject of specific pleading in para 288.5 as one of the purposes of Mrs Rinehart and HPPL:

288.5 to preclude, through the HDD arbitration clause, JLH, BHR, HRW, GHFR from conducting any public litigation against GHR or HPPL in which the past misconduct may become publicly known and thereby to:

(a) prevent there being any public scrutiny of the conduct of GHR as trustee of the HMH Trust and trustee of the HFMF Trust;

(b) prevent any public disclosure of the facts pleaded in Sections 8-16 above and thereby protect the reputation of GHR, HPPL and the officers involved in the misconduct pleaded in those sections;

(c) to dissuade BHR and JLH from bringing any action against GHR, HPPL or its officers;

(d) confer on GHR and HPPL the ability to choose the arbitrator, by permitting GHR and HPPL to initiate an action against BHR and JLH, select an arbitrator of their choice and take advantage of the fact that at least BHR and JLH would not have the means to meet the cost of three arbitrators and would therefore be forced into an arbitration with a sole arbitrator of GHR’s or HPPL’s choice.

  1. Paragraphs 289 and 290 plead that the Hope Downs Deed was to the material disadvantage of the applicants in various respects, and to the material advantage of Mrs Rinehart and HPPL. Some focus is given to the arbitration clause in para 289.10 and 290 as follows:

289.10 the Hope Downs Deed purposed to provide for any disputes arising under it to be resolved by arbitration rather than through court proceedings, which was to the material disadvantage of BHR and JLH and to the material advantage of GHR and HPPL for the reasons set out in paragraphs 288.5 above and 290 below.

  1. Inclusion of the HDD arbitration clause in the Hope Downs Deed was to the material disadvantage of BHR and JLH because:

290.1 it imposed a financial burden on BHR and JLH of the cost of commencing and prosecuting an arbitration, by reason of the obligation to pay the fees of any arbitral tribunal in circumstances where such fees could operate as a substantial disincentive for BHR and JLH to commence an arbitration against GHR or HPPL and in circumstances where GHR through HPPL could control and withhold the amount of funds available to BHR and JLH to fund an arbitration;

290.2 it purported to deny BHR and JLH their right and entitlement to seek a determination by an independent judicial officer and the benefits of public scrutiny of claims they may have in relation to the misconduct of GHR as trustee of the HFMF Trust and trustee of the HMH Trust and HPPL’s involvement in GHR’s breaches of duty.

  1. In sections 23 to 30 of the statement of claim, Ms Rinehart’s claims for relief in relation to the Hope Downs Deed and April 2007 Deed are pleaded: false representations as to the need for and benefits of the agreement, fraudulent concealment of the existence of the claims against Mrs Rinehart and HPPL for breaches of trust and duty, misleading and deceptive conduct by the representation made and by material non-disclosure, unconscionable conduct, undue influence, duress, breach of trust and fraud on a power. Various claims for relief are made: declarations that the Hope Downs Deed, the arbitration clause within it, the April 2007 HD Deed and the arbitration clause within it are void, orders restraining the enforcement of the releases and arbitration clauses, and claiming to rescind the Hope Downs Deed, the April 2007 Deed and the arbitration clauses in them.
  2. As will become relevant in due course, it is to be noted that some of the claims for relief are founded on the TP Act and the assertions are made that various conduct of Mrs Rinehart was made in trade and commerce: paras 309-311 and 314-322 (implicitly).
  3. In sections 31 to 37 of the statement of claim, Mr Hancock’s claims for relief in relation to the deeds executed in 2005 and the April 2007 HD Deed are pleaded: misleading and deceptive and unconscionable conduct, false representations, material and fraudulent non-disclosures, unconscionable conduct, undue influence, duress, breach of trust and fraud on a power. Once again, these claims were in part based on assertions that conduct was in trade and commerce: see paras 370, 374, 402 and 413.
  4. In section 38 of the statement of claim, Mr Hancock’s claims for relief in relation to the 2009 and 2010 deeds of variation are pleaded.
  5. In sections 39 to 41, the further claims about the wrongful deployment of the deeds are pleaded.

B. The conclusions of the primary judge

  1. The conclusions of the primary judge were set out in summary form in [21] of her Honour’s reasons. These conclusions were, relevantly, as follows.
  2. First, the CA Act applied because it was picked up by s 79 of the Judiciary Act and because the arbitration agreements provided for domestic commercial arbitrations. We agree with these conclusions of the primary judge.
  3. Secondly, the existence of any relevant arbitration agreement was satisfied by finding an apparently valid agreement; it was not appropriate to make findings on the stay application whether the deeds were entered into in the circumstances alleged by Mr Hancock and Ms Rinehart. We agree with that approach.
  4. Thirdly, determining whether a matter was the subject of an arbitration agreement will generally involve a process of characterisation of the matter without going into the merits of the dispute, though it may be necessary to examine the merits to some degree to ascertain whether there is a relevant matter. Subject to an important qualification as to the expression of principle, we agree with that approach.
  5. Fourthly, and relatedly to the third matter, the primary judge concluded that the relevant arbitration clause should be construed as to its proper scope and meaning, against which the matters in dispute should be assessed and characterised to see whether they were the subject of the arbitration agreement. We agree with the primary judge’s general approach.
  6. Fifthly, upon concluding that the proceedings raised a matter the subject of an apparently valid arbitration agreement, the Court had a discretion whether to hear itself or send to the arbitrator the question of the validity of the arbitration agreement in the proviso. The applicants criticised this, saying the Court was obliged to hear that challenge. We reject that criticism and agree with the primary judge’s approach in principle, though we consider that her Honour erred in the exercise of the discretion.
  7. Sixthly, the primary judge concluded that most of the so-called substantive claims fell within valid arbitration agreements, with the exception of claims against companies that were not parties to any arbitration agreement. We agree with the primary judge’s conclusion.
  8. Seventhly, the primary judge concluded that the so-called validity claims propounded by Ms Rinehart were not the subject of arbitration agreements, but with some exceptions, those of Mr Hancock were; as were the so-called miscellaneous clauses. We disagree with the first of these conclusions of her Honour and broadly agree with the second. Involved in this disagreement is our disagreement on the proper construction (and the approach to such) of the Hope Downs Deed and 2007 HD Deed.
  9. Eighthly, having decided that these matters fell within apparently valid arbitration agreements, the primary judge refused to stay the proceedings and ordered that the Court would hear the attack on the arbitration agreements under the proviso to s 8(1). We disagree with her Honour’s conclusion as to relief. We would stay the proceedings in Court, permitting the arbitrator to deal with all issues including the attack on the arbitration agreements.

C. Whether the arbitration is “commercial” for the purposes of the CA Act?

  1. The primary judge held at [62] that “an arbitration will be a ‘commercial’ arbitration if it involves the resolution of a commercial dispute”. Her Honour explained at [66] that:

… a dispute is aptly described as a commercial dispute where it concerns ownership of commercially valuable assets and entitlements to profits generated by those assets. Typically, such disputes will arise from a relationship based on shared ownership of the relevant assets or contractual agreements concerning entitlements to profits generated by the assets. However, as this case illustrates, a dispute may arise over ownership of valuable commercial assets where those assets form part of a deceased estate or a family trust.

Her Honour held that the dispute the subject of this proceeding would, if referred, be a commercial arbitration within the meaning of the CA Act. Her Honour also held that it was not necessary, as the applicants contended, for it to be demonstrated that the parties were in, or that the dispute arose out of a “commercial relationship”.

  1. The applicants submitted that the primary judge was wrong in respect of her conclusions about the meaning of the phrase “commercial arbitration” and that she was also wrong in holding that it is not necessary to prove the existence, in addition, of a “commercial relationship” between the parties to the dispute. The applicants’ written submissions on the issue occupied almost 30 pages and their oral submissions on the points were extensive. In our view, however, the submissions are wrong and can be dealt with relatively briefly.

Commercial relationship

  1. Neither the 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) (the Model Law) nor the CA Act by their terms provide that the parties to a commercial arbitration must be in a commercial relationship.
  2. The only relevant reference in the CA Act to “commercial relationship” is the following paragraph that appears as a note at the end of s 1 of the CA Act:

Model Law note. The term “commercial” should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business co-operation; carriage of goods or passengers by air, sea, rail or road.

  1. In our view, that note, although forming part of the Act (see s 2(5) of the CA Act), does not, as the applicants contend, provide “that the enquiry into whether or not an arbitration is ‘a commercial arbitration’ is directed first and foremost to the nature of the relationship from which the dispute arises”. That enquiry is not a separate and necessary one on the proper interpretation of s 8(1) of the CA Act, and the primary judge was correct so to find. It may well be that in many circumstances a pre-existing commercial relationship will exist and will make it easy to characterise why a dispute and an arbitration to resolve it are “commercial”. In our view, the submission that a commercial relationship is a necessary prerequisite is not correct for many of the reasons advanced by counsel for Mrs Rinehart and the HPPL parties.
  2. First, s 1 of the CA Act refers to a domestic “commercial arbitration”. As counsel submitted, and we agree, it is significant that s 1 applies the adjective “commercial” to the word “arbitration” – not the relationship from which the dispute has arisen. Given that “[t]he paramount object of [the] Act is to facilitate the fair and final resolution of commercial disputes” it “may be accepted…that a ‘commercial arbitration’ may be understood as an arbitration of a ‘commercial dispute’”.
  3. Secondly, the UNCITRAL Analytical Commentary on the Draft Text of Model Law on International Commercial Arbitration, by reference to which the CA Act is also to be construed, makes it clear that it was never intended that the existence of a commercial relationship was to be a prerequisite to the existence of a commercial arbitration. As counsel for Mrs Rinehart and the HPPL parties submitted, “the Analytical Commentary indicates that disputes between persons who had no relationship prior to the dispute are intended to be covered”, and that, as the Analytical Commentary says, “even ‘non-transactions’ such as claims for damages arising in a commercial context” would be covered: see Analytical Commentary at [18].
  4. Thirdly, if there were an additional and separate requirement to prove the existence of a commercial relationship in order for the CA Act to apply, it would pose a number of problematic, and difficult questions of construction that do not arise from the text of the provision, including: (i) what the term actually means; (ii) must it be the only relationship between the parties?; (iii) what connection is required between the relationship and the dispute? In our view, the legislature never intended the application of s 8(1) of the CA Act to involve the consideration of such arguably existential questions.
  5. Counsel for Ms Rinehart and Mr Hancock conceded, as they were bound to, in oral argument that it is possible for parties in a commercial arbitration properly constituted never to have been, or ever to be in, a pre-existing commercial relationship. The Court posited an example of parties operating their respective rival businesses. In those circumstances, it would be an unusual case in which a competitor would seek a “commercial relationship” with a rival. But if a dispute arises between them because one party injures the other – for example, one damages the property of the other by, say, allowing poison to seep on to its property – and the parties agree to arbitrate the questions of resultant liability and damages, how could it sensibly be argued that such an arbitration is not a “commercial arbitration”? It may be that some relationship is found in the agreement to arbitrate – to resolve the dispute by arbitration in a business-like way.
  6. For those reasons, in our opinion, it is not necessary for parties seeking to invoke s 8(1) of the CA Act to demonstrate the existence of a pre-existing commercial relationship between the parties to the dispute, and the primary judge was clearly correct so to find (at [72] of the reasons).

Commercial arbitration

  1. It was common ground that in order to invoke the proviso in s 8(1) of the CA Act, a court must be relevantly satisfied, if the parties to the proceeding are to be referred to arbitration, that the arbitration would be a “domestic commercial arbitration”. There was no dispute that the arbitration in this case would be “domestic”. But the parties disagreed about whether the dispute is properly to be characterised as “commercial”, as Mrs Rinehart and the HPPL parties submitted, or as a “family” or “trust” dispute, as Ms Rinehart and Mr Hancock submitted.
  2. We would first make the point that the enquiry is not binary. That the dispute may be seen as a family dispute does not mean that it and the arbitration to resolve it are not to be characterised as commercial. That was also the view of the primary judge: see for instance [71] of the reasons. The applicants submitted that the arbitration would not be “commercial” because “this dispute is concerned with rights and obligations arising from two different family trust arrangements”. During oral argument, counsel for Ms Rinehart and Mr Hancock further characterised what he referred to as “the August 2006 conduct” in respect of the Hope Downs deed, and thus the nature of the dispute in that regard, in these terms:

We say that there was oppression by the mother borne upon the children to persuade them to sign a deed which they were told was required for the benefit of the company, but, in fact, a very large part of the objective was to secure releases for the trustee in relation to prior misconduct pertaining to the HFMF and HMH trusts, and there was a taking advantage by the mother of the control that she exercises over the children because of their financial dependence upon her and because of [Ms Rinehart’s] desire to remain a part of [HPPL] with that position being under threat.

  1. The applicants also submitted that the fact that their pleaded case is founded in large part upon conduct or representations “in trade or commerce” within the meaning of s 52 of the TP Act (as pleaded by them) is not necessarily determinative against them on the point. They quote a passage from Concrete Constructions (NSW) Pty Limited v Nelson [1990] HCA 17; 169 CLR 594 at 602 as authority for the proposition that the concept of “in trade or commerce” “encompass[es] conduct in the course of myriad activities which are not of their nature, of a trading or commercial character but which are undertaken in the course of or as incidental to, the carrying on of an overall trading or commercial business” (emphasis added in the submission). They further contend that the conduct of Mrs Rinehart and HPPL alleged was engaged in “for the purpose…of furthering HPPL’s commercial activities” and that accordingly the dispute between the applicants and Mrs Rinehart and HPPL about that conduct was not a “commercial dispute”. The applicants also submitted that the primary judge was wrong to have placed weight on the notion that any arbitration of the dispute between the parties would “be conducted in a commercial manner by all parties having regard to the high financial stakes and the complexity of the issues” (citing the reasons at [560]), because there was no evidence about how the arbitration was to be conducted and because such an approach was “superficial”.
  2. Mrs Rinehart, HPPL and the HPPL respondents submitted that the disputes were quintessentially commercial, relying in particular on a number of factors. First, Ms Rinehart and Mr Hancock “have brought proceedings in a Court of general law jurisdiction with recognised commercial law expertise” pleading claims in “contract, corporations law, misleading or deceptive conduct and equity,” so “the subject matter of the dispute is, in a real sense, valuable commercial assets and the income generated by them” (as the primary judge observed).
  3. Secondly, they submitted that the conduct of Mrs Rinehart and HPPL the subject of the pleaded case in connection with the settlement deeds was conduct “in trade or commerce”. This case was concerned with various activities or transactions between 2005 and 2010 which, of their nature, have a trading or commercial character, citing Concrete Constructions 196 CLR at 603 per Mason CJ, Deane, Dawson and Gaudron JJ.
  4. Thirdly, they submitted that the objective context in which the settlement deeds were entered into bespoke the commercial character of the agreements and the disputes about them.
  5. Fourthly, the deeds focus upon quelling disputes as to title in order that large scale commercial relations with third parties could be undertaken. The quelling of those disputes involved the provision of dividends taken from the profits earned through the commercial relationship with Rio Tinto for the Hope Downs Tenement. And this is a commercial arrangement concerned with significant sums of money paid over a period of time and the maintenance of title for the purpose of a commercial enterprise between HPPL and commercial third parties. Mrs Rinehart and the HPPL parties also pointed out that in 2012 Ms Rinehart and Mr Hancock themselves made a claim in an arbitration (later stayed) before Mr Tony Fitzgerald AC QC pursuant to cl 5 of the Hope Downs Deed relying on HPPL’s obligation to pay distributions. That, they contend, and the fact that the parties to the various deeds, including the applicants, agreed that the various commercial arbitration Acts should apply, indicated an acceptance of the commercial nature of the relationship.
  6. We agree with these submissions. The disputes the subject of the proceeding are “quintessentially” commercial. The word commercial is intended to be given a wide interpretation, as the note from the Model Law makes clear. As Deane J said in Re Ku-ring-gai Co-operative Building Society (No 12) Ltd [1978] FCA 107;36 FLR 134 at 167, in considering the scope of s 52 of the TP Act:

[t]he terms “trade” and “commerce” are not terms of art. They are expressions of fact and terms of common knowledge. While the particular instances that may fall within them will depend upon the varying phrases of development of trade, commerce and commercial communication, the terms are clearly of the widest import….

  1. The case pleaded by Ms Rinehart and Mr Hancock concerns the circumstances in which they entered into numerous agreements, which they now seek to rescind and make void, involving the settlement of disputes as to the ownership of, and entitlement to, assets (including mines and dividends and distributions) worth hundreds of millions of dollars. To adopt the expression of the matter by senior counsel for Mrs Rinehart in oral argument: “…it’s a commercial dispute about the metes and bounds of the disagreement between them and about who owns what”. Properly characterised as a term of the widest import, and as a matter of “fact and common knowledge” it seems to us that the dispute the subject of this proceeding is manifestly “commercial”.
  2. It is, of course, also true to say that in one sense the dispute is capable of being described as one between a mother and her children, about the destruction of a family relationship under the crushing weight of wealth, about the alleged maladministration of family trusts, and about the asserted loss of a large part of an inheritance that the childrens’ grandfather (Mr Lang Hancock) had intended them to have. But, in our opinion, the choice between a dispute being “commercial” on the one hand, or “family” on the other, is not, as the applicants’ submissions imply, a binary one. Such questions of characterisation rarely involve the existence of mutually exclusive categories. Questions of characterisation are not questions of definition. As the plurality of the High Court in Rich v Australian Securities and Investment Commission [2004] HCA 42; 220 CLR 129 at 146 [35] explained when considering the question of whether the purpose of disqualification orders against company directors is to protect the public or punish the directors:

That it may be possible to characterise proceedings as having a purpose of protecting the public is not determinative. And to begin the inquiry from an a priori classification of proceedings as either protective or penal invites error. It invites error primarily because the classification adopted assumes mutual exclusivity of the categories chosen when they are not, and because the classification is itself unstable. To assume mutual exclusivity of the categories is to fall into the same kind of error as was identified in the constitutional context in Actors and Announcers Equity Association v Fontana Films Pty Ltd [1982] HCA 23;(1982) 150 CLR 169 at 192-194. Just as a law may bear several characters, a proceeding may seek relief which, if granted, would protect the public but would also penalise the person against whom it is granted. That a proceeding may bear several characters does not deny that it bears each of those characters, citing Stone, Legal System and Lawyers’ Reasonings, (1964) at 248-252. Moreover, as Hayne J emphasised in Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd[2003] HCA 49; , (2003) 216 CLR 161 at 205-206, [136]those who seek the ‘essential character’ of statutory provisions do not proffer explanations of that process of distillation.

  1. As the primary judge said (at [71] of the reasons), the applicants’ characterisation of the dispute is not necessarily inconsistent with its characterisation as a “commercial dispute”. In our view, to characterise this dispute only as a family dispute or a family trust dispute, which is the view propounded by the applicants, is to ignore the overwhelming commercial nature and circumstances of the dispute.
  2. The applicants’ contention in that regard also fails to deal with the inconvenient fact that their pleading, or a large part of it, is founded on express allegations that the pleaded misrepresentations and conduct were and was made “in trade or commerce” within the meaning of s 52 of the TP Act. Counsel for the applicants have, with respect, misread the reasoning of the plurality in Concrete Constructions. The High Court did not hold that the concept of “in trade or commerce” encompasses conduct which is not of its nature of a trading or commercial character, as the applicants contend in their written submissions. It held the opposite: seeConcrete Constructions 169 CLR at 603. The plurality there held that “the reference to conduct ‘in trade or commerce’ in s 52 can be construed as referring only to conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character”. That is the “narrower” of the alternative constructions, which the plurality said was “preferable” to the construction that they rejected – which is the construction which the applicants mistakenly cite and reply upon.
  3. It follows that in order for the applicants’ pleading to disclose a proper cause of action, the pleaded claims which rely on the TP Act must, by definition, be read to refer to conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a “commercial character”.
  4. This reinforces the conclusion that the dispute is necessarily a “commercial dispute”, there being no contention that the word “commerce” in s 52 of the TP Act (now s 18 of the Australian Consumer Law) has any different or narrower connotation than the word “commercial” in the CA Act.
  5. In our view, the arbitration would be a domestic commercial arbitration.

D. The extent to which the matters in dispute are the subject of an arbitration agreement

  1. This question was the subject of agreed questions 6, 7 and 9.

The proper approach to an application under s 8

  1. The terms of question 7 and the reference to “standard of proof” were and was prompted by debate in the cases concerning provisions such as s 8 as to how the Court should approach the task. Broadly, there have been said to be two approaches. The first approach taken largely by courts in what might be called “Model Law jurisdictions” is to give significant weight to the authority of the arbitrator and to the principle ofKompetenz-Kompetenz recognised by s 16 of the CA Act. Under this approach, the Court does not reach a final view on the balance of probabilities in respect of the matters in s 8, including the scope of the arbitration agreement. If there appears to be a valid arbitration agreement which prima face covers the matters in dispute, the matter should be referred to the arbitrator to deal with questions of jurisdiction, including the scope of the arbitration agreement. With one important qualification, one sees this approach most fully discussed in the comprehensive reasons of Menon CJ writing for the Singapore Court of Appeal in Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57, in Hong Kong: Star (Universal) Co Ltd v Private Company “Triple V” Inc [1995] 2 HKLR 62 at 65 (Court of Appeal) and PCCW Global Ltd v Interactive Communication Service Ltd [2006] HKCA 434; [2007] 1 HKLRD 309 at 320-321 [60] (Court of Appeal) and in first instance courts there: T v Ts [2014] 4 HKLRD 772 at 778 [16] and Ling Yan Temple Ltd v Ng Yook Mau [2010] HKEL 734, in Canada in the British Columbia, Ontario and New Brunswick Courts of Appeal: Gulf Canada Resources Ltd v Arochem International Ltd (1992) 66 BCLR (2d) 113, Dalimpex v Janicki (2003) 228 DLR (4th) 179, and Harrison v UBS Holding Canada Ltd (2014) 418 NBR (2d) 328. Gulf Canada and Dalimpex were specifically approved by the majority of the Supreme Court of Canada in Dell Computer Corp. v Union des consommateurs [2007] SCC 34; 2 SCR 801. There was a caveat in the judgment of the majority in Dell as to the general applicability of the so-called prima facie approach to which we will come and which is of importance to this case. The prima facie approach has also been adopted in New Zealand and Ireland: Ursem v Chung [2014] NZHC 436; NZAR 1123 per Abbott AsJ and P Elliot & Company Ltd (In receivership and liquidation) v FCC Elliot Constructions Ltd [2012] IEHC 361 per Mac Eochaidh J, but cf The ‘Lisheen Mine’ v Mullock & Sons (Shipbrokers) Ltd [2015] IEHC 50 at [114]- [135] per Cregan J.
  2. The second and contrasting approach is that adopted by the English Courts that a full merits hearing will be undertaken as to the existence and scope of the arbitration agreement and that the disputes fall within it: Joint Stock Company “Aeroflot Russian Airlines” v Berezovsky [2013] EWCA Civ 784; [2013] 2 Lloyd’s Rep 242 at 258 [72]-[74].
  3. In dealing with the application of the CA Act the primary judge appeared in one part of her Honour’s judgment to favour the prima facie approach, when her Honour said at [86]:

In my view, the language of ss 8(1) and 16 and the authorities set out above lead to the conclusion that the existence of an apparently valid arbitration agreement is sufficient to satisfy the first of the factual requirements for the general applicability of the commercial arbitration legislation in this case. This will generally be established by the tender of an executed agreement containing a clause which, properly construed, is an arbitration agreement within the meaning of s 7(1).

  1. In dealing, however, with agreed questions 6 and 7, the primary judge expressed herself as applying the balance of probability approach reflected in the views of Aikens LJ for the Court of Appeal in Berezovsky. Her Honour said at [115]:

In my view, the approach in Robotunits is consistent with the approach articulated in Berezovsky, which I respectfully consider to be correct for the reasons given by Aitkens LJ. Thus, in my view, the correct approach is to decide on the balance of probabilities whether, on the proper interpretation of the relevant arbitration agreement, a matter arising in the proceeding falls within the scope of the agreement. This will generally involve a characterisation of the matter, without an assessment of the merits of the disputes arising from the matter. However, 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”. For example, if the application of the release is a matter which falls within the scope of an arbitration agreement, the mere fact that the release’s application is asserted will not justify a finding as to the existence of a matter the subject of the arbitration agreement if there is no sustainable argument that the release potentially operates to bar or preclude the claims the subject of the dispute.

  1. 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 facieapproach 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. However, it is difficult to see how the Court can exercise its power under s 8 without forming a view as to the meaning of the arbitration agreement. Further, it may be that if there is a question of law otherwise affecting the answer to the question of jurisdiction, especially one that is confined, which might be dispositive, it might be less than useful for the Court not to deal with it. In Dell, Deschamps J speaking for the majority (McLachlin CJ, Binnie, Abella, Charron and Rothstein JJ) reflecting this approach said at [2007] 2 SCR 848-849 [84]:

… [t]he court’s expertise in resolving such questions, … the fact that the court is the forum to which the parties apply first when requesting referral and … the rule that an arbitrator’s decision regarding his or her jurisdiction can be reviewed by a court. It allows a legal argument relating to the arbitrator’s jurisdiction to be resolved once and for all, and also allows the parties to avoid duplication of a strictly legal debate. In addition, the danger that a party will obstruct the process by manipulating procedural rules will be reduced, since the court must not, in ruling on the arbitrator’s jurisdiction, consider the facts leading to the application of the arbitration clause.

  1. To understand whether a body of disputes being the “matter”, assessed and characterised (at the necessarily early stage of the proceeding), is the subject of an arbitration agreement, will generally require the Court to form a view as to the legal meaning of the arbitration agreement. Section 8 is an important power the purpose of which is to protect the practical legitimacy and authority of the arbitration process as reflected in the words of s 1C of the CA Act. It involves the referral to arbitration, by a stay of court proceedings. However, it will often not be possible fully to delineate the metes and bounds of a dispute without fully hearing the dispute. To do so, that is to hear the facts to decide the width of the dispute, would undermine the practical and effective operation of s 8. The application must be brought early (not later than when submitting the party’s first statement on the substance of the dispute). The boundaries of the dispute may be unclear, but it will have to be characterised on the material available to be assessed as to whether it can be seen to be the “subject of” the arbitration agreement. That latter assessment will require some stability or clarity as to the meaning of the arbitration agreement. The Court is then required to construe the clause, at least to the point of being satisfied that the disputes forming the matter are the subject of the agreement, or not, as the case may be. That said, and it is relevant to the arguments here, not every legal question need be, or should be, decided by the Court about the rights and obligations of the parties. That too would tend to undermine the practice and effective operation of s 8.
  2. Whilst s 8 uses the word “finds” in the proviso, that should not be taken as a categoric requirement that the Court must hear that issue. It can be accepted that as a general rule, unless there is an established legal basis for refusing to do so, a court should, upon legitimate request, exercise jurisdiction conferred on it. However, s 8 is found in an Act of Parliament the paramount object of which is the facilitation of the work of impartial arbitral tribunals. One of the features of that facilitation is the express recognition of the authority of the arbitral tribunal to rule on its own jurisdiction. This includes, expressly, any objection “with respect to the existence or validity of the arbitration agreement”, including any objection with respect to the existence or validity of the arbitration agreement: s 16(1). Section 8 should be read with s 16(1) and thus, the word “finds” should not be read as requiring that the matters in the proviso cannot be part of the reference to the arbitrator. These considerations are central to the resolution of the issues discussed in sections F, G and H below.
  3. The question will arise as to when the Court should hear the issues in the proviso. We will return to this in more detail in section G below. It is, however, useful at this point to refer to what was said by Colman J in A v B [2006] EWHC 2006 (Comm); [2007] 1 Lloyd’s Rep 237 at 261 [137] in discussing the question whether the Court should hear the application as to whether the arbitration agreement is “null and void etc”:

… [O]nce the existence of an arbitration agreement has been established by the applicant, a stay will be granted unless one of the section 9(4) matters is established. The respondent to the application must therefore make good the existence of one of those matters. If the court is unable to determine whether it is so satisfied on the witness statements before it, consideration has to be given to whether to order a trial of the issue or whether a stay should be granted and the question of substantive jurisdiction under section 9(4) left to the arbitrators. Whether the latter course is adopted may in many cases depend heavily on the extent to which the resolution of that issue will involve findings of fact which impact on substantive rights and obligations of the parties which are already in issue and whether in general the trial can be confined to a relatively circumscribed area of investigation or is likely to extend widely over the substantive matters in dispute between the parties. If the latter is the case the appropriate tribunal to resolve the jurisdictional issues is more likely to be the arbitration tribunal, provided it has Kompetenz-Kompetenz.

  1. There is a further difficulty in the approach of the primary judge in so far as it proceeded beyond a characterisation of the nature of the matter and whether it fell within the arbitration agreement. The requirement of an assessment as to whether there was a “sustainable argument” that the matter falls within the arbitration agreement has its dangers. Of course, if there is no sustainable argument that a matter or dispute can be characterised as falling within the agreement, it should not be referred to arbitration. But difficulties arise if this enquiry becomes one directed to the strength of the case raised by the issue or matter. The importance of this will become more evident in due course in discussing the primary judge’s treatment of some of the provisions of the Hope Downs Deed. It is sufficient to say at this point that it would generally be wrong for the Court to examine an argument in a form of summary disposal application, and, if it were thought that an asserted case, in terms otherwise falling within the scope of the agreement, was sufficiently weak not to be “sustainable”, not to refer the matter to arbitration. That would be to usurp the role of the arbitrator. The Court’s role in s 8 is not to act as a court of summary disposal filtering the matters that are suitable for arbitration.
  2. Thus, we would differ from aspects of her Honour’s expression of the principle. We do agree with her Honour’s approach as to whether there is an apparently valid arbitration agreement against which one undertakes a process of characterisation of the matters in dispute. In particular, we agree with her Honour’s approach of not deciding on a final basis the wide ranging factual matters said to give rise to a right to set aside the deeds in question and the particular issues of the interpretation of releases, covenants and acknowledgements which make up the rights of the parties from the deeds, and precisely how these questions affect the wide-ranging facts in dispute. As will be further discussed, we disagree with her Honour’s treatment of the question of the sustainability or triability of issues in relation to certain arguments.
  3. It is also important to recognise the different issues that may arise on an application under s 8. The proof of an apparently valid arbitration agreement, as here, may be beyond argument. The substantial issue in contest between the parties is whether by reason of the matters pleaded the terms of the deed apply, and from the matters pleaded whether such agreements are “null and void etc”. That the first question (the existence of an apparently valid arbitration agreement) should be proved to the required level to satisfy a court that it has authority to engage the power in s 8 does not mean that the Court should or must embark upon detailed consideration as to the operation of the deeds or as to the attack on the deeds or the arbitration agreements. The need for the existence of an arbitration agreement does not mean that the Court should not take a broad view characterising the disputes to assess whether they are the subject of an arbitration agreement, such enquiry not engaging substantially in the merits of the case.
  4. How these matters work themselves out can be seen in the resolution of the appeals and cross-appeals on this point. The proper approach will be elucidated in the discussion of the parties’ contentions as to the primary judge’s approach. Further, as we discuss below, the correct focus of generality or particularity with which to examine the “matter” the subject of the arbitration agreement will be affected by the proper construction of that agreement.

The 2005 Deed of Obligation and Release, the Hope Downs Deed and the 2007 HD Deed, their arbitration agreements and what matters are the subject thereof

  1. The terms of the relevant arbitration agreements in these deeds are set out at [69] and [79] above. The crucial words in cl 20 are “any dispute under this deed”. The same phrase is found in cl 9 of the 2007 HD Deed. (The Deed of Obligation and Release in 2005 uses the phrase “all disputes hereunder”.)
  2. We leave to section E below the question of the relief sought against entities which were not parties to relevant agreements: RHIO, HDIO, MDI and MDIO under the extended definition of the word “party” in s 2 of the CA Act.
  3. At [553]-[558] of her Honour’s reasons, the primary judge discussed the organisation of the relevant “matters” for the application of s 8(1). Her Honour began with the third parties: RHIO, HDIO, MDI and MDIO, and then organised the disputes into 11 categories, as follows:
    1. The following claims for relief in the originating application are not matters the subject of an arbitration agreement because they are claims made solely against respondents that are not a party to any arbitration agreement:

(a) Prayers 4 and 5 (against RHIO);

(b) Prayers 18 and 19 (against HDIO);

(c) Prayers 32 to 34 (against MDI and MDIO).

  1. There is a matter in the proceeding that comprises the applicants’ claims over the Roy Hills tenements, including the claim for imposition of a constructive trust, an account of profits and equitable compensation. These are the claims made by prayers 1 to 3, 6 and 7 of the originating application. Defined in this way, however, the matter does not fall wholly within the scope of an arbitration agreement because it includes the dispute between the applicants and RHIO as to RHIO’s ownership rights over the Roy Hills tenements.
  2. Mrs Rinehart and HPPL contended that the “validity claims” (or at least some of them) should not be characterised as claims discrete from the “substantive claims”. However, at the outset, it is useful to identify discrete matters by reference to subject and parties affected by the claim or claims for relief.
  3. Following the order of the prayers for relief in the originating application, and the approach set out above concerning the dispute over the Roy Hills tenements, the following matters, which may be the subject of an arbitration agreement, arise in the proceeding:

(1) The disputes between the applicants, Mrs Rinehart and HPPL concerning ownership of the Roy Hills tenements arising from the claims made by prayers 1 to 3, 6 and 7 of the originating application.

(2) The disputes between the applicants, Mrs Rinehart, HPPL and 150 Investments concerning ownership of the HPPL shares arising from prayers 8 to 14, 27 and 28.

(3) The disputes between the applicants, Mrs Rinehart and HPPL concerning ownership of the Hope Downs tenements arising from the claims made by prayers 15 to 17, 20 and 21.

(4) The disputes between the applicants and Mrs Rinehart concerning the 1988 Agreement arising from prayers 22 to 26.

(5) The disputes between the applicants and HPPL concerning the ownership of the Nicholas Downs tenements arising from prayers 29 to 31.

(6) The disputes between the applicants, Mrs Rinehart and HPPL concerning the enforceability of the releases and arbitration clauses in the Hope Downs deed and the April 2007 HD deed, arising from prayer 35.

(7) The disputes between Ms Rinehart, Mrs Rinehart and the HPPL respondents who are signatories to the Hope Downs deed and the April 2007 HD deed concerning the validity of those deeds, arising from prayers 36 and 37.

(8) The disputes between the applicants and Mrs Rinehart concerning her conduct in executing the Hope Downs deed and the April 2007 HD deed, arising from prayers 38 and 39.

(9) The disputes between Mr Hancock, Mrs Rinehart and HPPL concerning the enforceability of the releases and arbitration clauses in the 2005 deeds, the 2007 CS deed, the 2009 deed of further settlement and the 2010 deed of variation, arising from prayers 40 to 43, 45 and 46.

(10) The disputes between Mr Hancock and Mrs Rinehart concerning her conduct in executing the 2007 CS deed, the 2009 deed of further settlement and the 2010 deed of variation, arising from prayers 44 and 47.

(11) The disputes between the applicants, Mrs Rinehart and HPPL concerning the deployment of the Hope Downs deed and the 2007 HD deed, arising from prayers 48 to 51.

  1. In each case, the matter includes the possible application of any relevant contractual release as a defence to the claim, or any other contractual provision which governs or controls the outcome of the disputes.
  2. If it is appropriate to identify, as separate matters in the proceeding, disputes concerning the same subject matter but between different parties (as I have done in connection with the disputes concerning the Roy Hills tenements), then it may be appropriate to identify, as separate matters, disputes between Mr Hancock (independent of Ms Rinehart), Mrs Rinehart and HPPL for the purpose of determining whether those matters are the subject of an arbitration agreement between those parties.
  3. The division of the disputes into these 11 categories, while certainly helpful for organisational purposes, should not deflect attention from looking at the question whether there is a “matter” or “matters” the subject of any arbitration agreement, by the resolution of the central constructional issue in respect of each deed as it relates to s 8 – the meaning of the arbitration agreement in question. The width or narrowness of the scope of the agreement is central to the ascertainment of the matter subject of it. At [93]-[97] of her Honour’s reasons, the primary judge said the following about the word “matter” in s 8:
    1. Article 8(1) of the Model Law, as incorporated into New Zealand law by the First Schedule to the Arbitration Act 1996 (NZ), was considered by Randerson J in Carter Holt Harvey Ltd v Genesis Power Ltd (No 2) [2006] NZHC 114; [2006] 3 NZLR 794. His Honour held at [57]-[58]:

[57] … As noted by Holtzmann and Neuhaus at 302:

[Article 8(1)], which directs courts to refer parties to arbitration, is modelled on Article II(3) of the New York Convention. Thus, like that Convention, the action before the court must be “in” the same “matter” that is the subject of the arbitration agreement and not “merely related” to it or “involved” in it, as some proposed during the debate by the Commission.

[58] The mere fact there may be some connection between the court proceeding and the matter which is the subject of an arbitration agreement is not sufficient to engage Article 8(1). There must be a direct relationship between the matter before the court and the matter which is the subject of the arbitration agreement. Ordinarily, this is likely to arise where the relationship between the two is sufficiently close as to give rise to a material risk of conflicting decisions on fact or law.

  1. A “matter” for the purposes of s 8(1) means some right or liability in dispute which is susceptible of settlement as a discrete controversy: cf Tanning Research Laboratories Inc v O’Brien [1990] HCA 8; (1990) 169 CLR 332 (“Tanning Research”) per Deane and Gaudron JJ; Flint Ink NZ Ltd v Huhtamaki Australia Pty Ltd[2014] VSCA 166; (2014) 289 FLR 30 (“Flint Ink”) at 39 [31] per Warren CJ, at 51-54 [84]-[89] per Nettle JA (as his Honour then was); Amcor Packaging (Australia) Pty Ltd v Baulderstone Pty Ltd [2013] FCA 253 at [44]- [47](“Amcor”), or a claim for relief of a kind proper for determination in a court: Flakt Australia Ltd v Wilkins & Davies Construction Co Ltd (1979) 39 FLR 267; [1979] 2 NSWLR 243 at 250; (1979) 39 FLR 267; nearmap Ltd v Spookfish Pty Ltd [2014] NSWSC 1790 at [65] (“nearmap Ltd”).
  2. A “matter” is something more than a mere issue that falls for decision: cf Tanning Research per Deane and Gaudron JJ.
  3. In Comandate, Allsop J said in construing s 7(2)(b) of the International Arbitration Act:

[235] The phrase “a matter” is apt to be understood at a level of generality by reference to the arbitration agreement. This conforms with the views of all the justices in Tanning Research Laboratories Inc v O’Brien [[1990] HCA 8;] (1990) 169 CLR 332 at 344-45 and 351-52 and McLelland J in Flakt Australia Ltd v Wilkins & Davies Construction Co Ltd [1979] 2 NSWLR 243 at 250. See also Metrocall Inc v Electronic Tracking Systems Pty Ltd [2000] NSWIRComm 136; (2000) 52 NSWLR 1. It is plain that the phrase “a matter” cannot have the full connotation of the phrase in the Constitutional sense: Tanning Research at 351. This is so because it is linked to the terms of the arbitration agreement. It is the matter, the differences between the parties, the controversy between the parties, which, under the agreement, the parties have agreed to submit to arbitration. Thus, some issue may be part of the overall controversy or matter in the sense understood in federal jurisdiction: Fencott v Muller (1983) 152 CLR 570 at 608 and Re Wakim; Ex parte McNally (1999) 198 CLR 511 at 585-86, but not fall within the scope of the arbitration clause. Recognising how the word “matter” is used in Art II Subart 3 and the content of Art II Subart 1, the word “matter” in s 7(2)(b)can be seen to be a reference to the differences between the parties or the controversy that are or is covered by the terms of the arbitration agreement. That is, such part (or all) of the differences that fall within the scope of the arbitration agreement. It is that body of differences which is to be capable of settlement by arbitration.

[238] The above approach conforms to the requirement expressed in Tanning Research to ascertain the “matter” by reference to the subject matter in dispute and the substantive questions for determination in the proceedings and, necessarily, by reference to the scope of the arbitration agreement.

  1. A “matter” for the purposes of s 8(1) may or may not comprise the whole dispute in any given court proceeding: Tanning Research per Deane and Gaudron JJ; Flint Ink at 53 [87(c)] per Nettle JA; Casaceli v Natuzzi SpA [2012] FCA 691; (2012) 292 ALR 143 at 158 [48]; Amcor at [45]-[47]. As Beaumont J observed in Administration of Norfolk Island v SMEC Australia Pty Ltd [2004] NFSC 1 at [107] “there may, of course, be more than one ‘matter’ [in the proceeding] and some only of these may be capable of settlement by arbitration”.
  2. No one argued that the above statement contained any error of principle. That said, any overly fine dissection of different “disputes” within a wide-ranging and interlocking controversy may lead to overly refined categorisation or classification of disputes falling within and without the arbitration agreement in question. When looked at holistically, the substance of a dispute in its interconnected character may well fall within the arbitration agreement. It is fundamental to recall, however, that the proper construction of the arbitration agreement is relevant to the focus one applies to the meaning of the word “matter” in any given circumstance. If the proper construction of the agreement requires a focus on individual disputes or requires a certain connection between the necessary resolution of an issue with the operation of an operative document, then close attention will be required to each individual issue or dispute to identify that connection, and so to identify the “matter”. If, on the other hand, the proper construction of the agreement requires a broader focus on the overall dispute more generally characterised, then the “matter” will likewise be broader. This is the significance of what was said in Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; 157 FCR 45 at 105-106 [235], cited by the primary judge at [96] (see [156] above).
  3. Here, at one level, the overall dispute can, without intended disrespect to the parties, be described as follows. The applicants accuse their mother of wholesale breaches of equitable and contractual duties in wrongfully transferring hugely valuable commercial assets from the control of entities that owned the assets significantly for the benefit of the children to entities and ownership structures controlled by Mrs Rinehart. The companies controlled by Mrs Rinehart are said to have been legally complicit in these wrongs. Mrs Rinehart and the companies concerned set up various provisions of the deeds in answer to these claims, deeds that are said to have been entered by the applicants when they were adults and after proper advice. Very often, even if not always, the answer to the claims is said to be a complete answer. The applicants, in turn, deny those matters, and apart from pointing to what they say is the limited operation of the deeds, say that all the deeds should be set aside for various reasons based on equity, common law and statute.
  4. Thus, how one analyses the dispute or disputes, and whether it is legitimate to divide or subdivide the matter into the 11 disputes identified by the primary judge will depend upon the proper construction of the arbitration agreements (the clauses).
  5. After deciding (correctly – see section C above) that the disputes and the arbitration were and was commercial, the primary judge turned to the construction of the arbitration agreements and the question whether the disputes, organised in the way described above, were subject to them.
  6. At [579]-[587] of her Honour’s reasons, the primary judge discussed the principles applicable to the construction of arbitration agreements and the meaning of the phrase any dispute “under this deed”. Her Honour’s conclusions can be summarised as follows. First, the construction placed on cl 20 of the Hope Downs Deed by the New South Wales Court of Appeal in the leading judgment of Bathurst CJ in Rinehart v Welker [2012] NSWCA 95 was the determining authority. Secondly, the decision of the House of Lords inFiona Trust & Holding Corporation v Privalov [2007] UKHL 40; [2008] 1 Lloyd’s Rep 254 should not be followed to the extent that her Honour saw it as stating a rule as to the construction of arbitration agreements different from ordinary principles of construction and interpretation of contracts. In this regard, her Honour followed what Bathurst CJ had said in Rinehart v Welker. Thirdly, and flowing from the first and second matters, the phrase “under this deed” limited arbitral disputes only to disputes the outcome of which was “governed or controlled” by the deed. As we explain below, we cannot agree with this construction. It fails to give the necessary liberal width to the phrase “under the deed” and it fails to focus on the correct phrase, “any dispute under the deed”, and by so doing fails to take account of the consequences of the liberal width of the phrase “any dispute”. The consequence of this narrow construction was that her Honour was required to examine individual disputes to ascertain whether each was “governed or controlled” by the deed.
  7. Before turning to Rinehart v Welker it is appropriate to set out the approach to the proper construction and interpretation of arbitration agreements.
  8. The construction of any arbitration clause in a contract (and such, by the principle of separability and s 16(2) of the CA Act, of an arbitration agreement) is governed by the principles of the common law of Australia attending the construction and interpretation of contracts. The construction and interpretation of written contracts is to be undertaken by an examination of the text of the document in the context of the surrounding circumstances known to the parties, including the purpose and object of the transaction or of the subject matter of the agreement and by assessing how a reasonable person would have understood the language in that context: Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; 210 CLR 181 at 188 [11]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at 461-462 [22]; Zhu v Treasurer of the State of New South Wales [2004] HCA 56; 218 CLR 530 at 559 [82]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at 179 [40]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; 234 CLR 151 at 160 [8] and 174 [53]; Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at 656-657 [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37;256 CLR 104 at 116-117 [46]- [52]; Victoria v Tatts Group Ltd [2016] HCA 5; 328 ALR 564 at 575 [51]; and Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; 343 ALR 58 at 61 [7].
  9. In his Honour’s judgment in Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; 149 CLR 337 at 351, Mason J referred to the speech of Lord Wilberforce in Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 996 that included the following passage:

… when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties.

  1. The assessment of what reasonable persons would have in mind in the situation of the parties can be influenced by what courts have said about such contracts or the market or environment in which they are made. How one approaches the construction and interpretation of contracts may well thus be affected by such considerations. It is not to put a gloss on the High Court cases to which we have referred, but to reflect the expression of principle in them.
  2. In Comandate [2006] FCAFC 192; 157 FCR 45, Allsop J (with whose judgment Finn and Finkelstein JJ agreed) discussed the approach to the construction and interpretation of arbitration clauses, the clause there being a standard form shipping contract used in the international shipping market for the time chartering of vessels. Notwithstanding the different market, context and international character of the clause in that case, the judgment of the Court was to the effect that arbitration clauses should be read against the sensible presumption (in effect a rational assumption of reasonable people) that the parties do not intend the inconvenience of having possible disputes being heard in two places. This approach was not novel. It reflected the reasoning of Gleeson CJ (with whom Meagher and Sheller JJA agreed) in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways (1996) 39 NSWLR 160 at 165-166, where Gleeson CJ used the expression the “correct general approach to problems of this kind”.
  3. The existence of a “correct general approach to problems of this kind” does not imply some legal rule outside the orthodox process of construction; nor does it deny the necessity to construe the words of any particular agreement. But part of the assumed legal context is this correct general approach which is to give expression to the rational assumption of reasonable people by giving liberal width and flexibility where possible to elastic and general words of the contractual submission to arbitration, unless the words in their context should be read more narrowly. One aspect of this is not to approach relational prepositions with fine shades of difference in the legal character of issues, or by ingenuity in legal argument (Gleeson CJ in Francis Travel at 165); another is not to choose or be constrained by narrow metaphor when giving meaning to words of relationship, such as “under” or “arising out of” or “arising from”. None of that, however, is to say that the process is rule-based rather than concerned with the construction of the words in question. Further, there is no particular reason to limit such a sensible assumption to international commerce. There is no reason why parties in domestic arrangements (subject to contextual circumstances) would not be taken to make the very same common-sense assumption. Thus, where one has relational phrases capable of liberal width, it is a mistake to ascribe to such words a narrow meaning, unless some aspect of the constructional process, such as context, requires it.
  4. Before turning to Fiona Trust and the judgment of Bathurst CJ in Rinehart v Welker, three further comments should be made about the correct general approach. First, Gleeson CJ in Francis Travel at 165 approved not only the decision, but also the reasoning of Hirst J in Ethiopian Oilseeds & Pulses Export Corporation v Rio Del Mar Foods Inc [1990] 1 Lloyd’s Rep 86. Although Hirst J was dealing with the phrase “arising out of”, his reasoning is important because it reflected a refusal to be bound by any narrowness of approach which assumed the temporal existence of a contract before something could arise out of it. This temporal vision is not required by the words. This has a distinct resonance when we come to the meaning of “any dispute under the deed” and whether the idea that for a dispute to be under a deed its resolution necessarily assumes the contract’s validity such that the dispute must be governed or controlled by the deed, and whether that construction conforms to the correct general approach, or whether such a construction is unnecessarily narrow and suggested by a narrow spatial metaphor or vision derived from the word “under”.
  5. The second comment is that in coming to the meaning of “under” or “hereunder” the decision of the Court of Appeal (Lord Denning MR and Diplock and Russell LJJ) in Mackender v Feldia AG [1967] 2 QB 590 should be recalled at all times. There, a dispute as to whether an insurance policy could be avoided for breach of the common law duty of non-disclosure was found to be a dispute “under” the contract of insurance. The Court unequivocally held that a claim as to the invalidity of a contract (by avoidance for non-disclosure and illegality) was “under the contract”.
  6. The third comment concerns some features of Comandate. Whilst the focus in that case was on the phrase “arising out of”, there was a rejection of the reasoning of Emmett J in Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (The Kiukiang Career) [1998] FCA 1485; 90 FCR 1 to the extent that it had rejected the approach of the primary judge who had relied on Hirst J in Ethiopian Oilseeds: see Comandate 157 FCR at 92 [183] and [184]. It is also to be noted that in Comandate 157 FCR at 92 [183] Emmett J’s reliance on the decision of French J in Paper Products Pty Ltd v Tomlinsons (Rochdale) Ltd [1993] FCA 494; 43 FCR 439 was part of the reason to say that his Honour’s approach was wrong.
  7. In Paper Products, French J was dealing with a clause being “any dispute… arising under this agreement”. His Honour dealt with an argument that arbitration clauses should be read liberally, but found that the words before him left little room for movement saying at 43 FCR 448:

Case citations and examples could be multiplied but there is little point. When the language of the arbitration clause in question is sufficiently elastic, then the more liberal approach of the courts to which Kirby P and others have referred can have some purchase. A wide construction of such clauses can be supported on the basis advanced by Clarke JA that it is unlikely to have been the intention of the parties to artificially divide their disputes into contractual matters which could be dealt with by an arbitrator and non-contractual matters which would fall to be dealt with in the courts. When, as here, the parties have agreed upon a restricted form of words which in their terms, and as construed in the courts, limit the reference to matters arising ex contractu, there is little room for movement. I am satisfied that neither the trade practices claim, nor the claims for breach of warranty and negligent misstatement can be said to arise out of the agreement. They all arise out of matters which are antecedent to the contract even though they may involve questions which also go to its performance.

(emphasis added)

  1. It is sufficient at this point to say that we disagree with the proposition that (context aside) there is little or no elasticity in the phrase “any dispute … arising under the agreement”, and that they are a “restricted form of words”. They may, in terms, be less widely framed than other words, but they are not restricted.
  2. We turn to Fiona Trust. As we explain below, we do not consider the arguments about Fiona Trust to be critical to the resolution of the appeals. The case is, however, of general importance, and should not be left diminished. The importance of Fiona Trust lies in two respects: first, in relation to the proper construction of arbitration clauses; and secondly, in the expression of the general law principle of separability of arbitration agreements. We here deal with the first of these matters. We deal with the second in due course.
  3. The case concerned the arbitration clause in the well-known time charter form Shelltime 4. There were a number of such charters all containing arbitration clauses dealing with disputes “arising under this charter” and “out of this charter”. The owners asserted that the charters had been procured by bribery and rescinded the charters. When the arbitration clauses were invoked by the charterers in proceedings to determine the efficacy of the rescission, the owners sought to restrain the arbitration proceedings. The charterers then sought a stay of the court proceedings.
  4. The Court of Appeal (Tuckey, Arden and Longmore LJJ, in a judgment delivered by Longmore LJ: Fiona Trust & Holding Corporation v Privalov [2007] EWCA 20; [2007] 2 Lloyd’s Rep 267) examined the major English authorities (appellate and first instance) dealing with differently expressed arbitration clauses. The decision succinctly, but closely, examined different cases and different approaches. Lord Justice Longmore noted that in Heyman v Darwins [1942] AC 356 both Lord Wright (at 385) and Lord Porter (at 399) said that “arising out of” was wider than “arising under”; but that in Union of India v E B Aaby’s Rederi A/S (The Evje) [1975] AC 797both Viscount Dilhorne (at 814H) and Lord Salmon (at 817A) could see no difference between the phrases. His Lordship also referred to Mackender v Feldia and the Court’s view that rescission of a contract was a dispute thereunder. Importantly, Longmore LJ referred to two cases reflecting a narrow and precise approach to the arbitration clauses in question, and he said the following at [2007] 2 Lloyd’s Rep 271:

Fillite (Runcorn) v Aqua-Lift decided that claims for negligent misrepresentation (whether in tort or in contract under the Misrepresentation Act 1967) or for breach of a collateral contract did not fall within an arbitration clause referring any dispute “arising under these heads of agreement”. Slade LJ held (page 76) that the phrase “disputes arising under a contract” was not wide enough to include disputes which do not concern obligations created by or incorporated in that contract. He approved the dicta of Evans J in Overseas Union Insurance Ltd v AA Mutual International Insurance Co Ltd [1988] 2 Lloyd’s Rep 63 at page 67 drawing a distinction between clauses relating to disputes about rights created by the contract itself and clauses showing an intention to refer some wider class of dispute. Nourse LJ agreed saying that the word “under” meant “as a result of and with reference to”. Hollings J agreed with both judgments. Mackender v Feldia was not cited; nor was The Playa Larga. It is difficult to think that if they had been cited the judgments would have been expressed in the terms they were. The contract was moreover a specially negotiated contract for services and was not a common form of commercial agreement.

  1. At 271-72 [17]-[20], Longmore LJ reflected on the unhappy state of litigation in which words of prepositional phrases were pored over with attention being given to an ever-growing number of precedents. In a plea for a fresh start and a broader, more liberal, construction, he said this at 272 [18]:

… Although in the past the words “arising under the contract” have sometimes been given a narrower meaning, that should no longer continue to be so. Since both phrases are used in the present case there is, in any event, no need here to differentiate between them but the proposition that the phrases “under” and “out of” should be widely construed is to my mind strongly supported by Mackender v Feldia.

  1. The appeal to the House of Lords was dismissed and their Lordships took up Longmore LJ’s plea. Lord Hoffmann said the following at [2008] 1 Lloyd’s Rep 256 [6]-[8]:

[6] In approaching the question of construction, it is therefore necessary to inquire into the purpose of the arbitration clause. As to this, I think there can be no doubt. The parties have entered into a relationship, an agreement or what is alleged to be an agreement or what appears on its face to be an agreement, which may give rise to disputes. They want those disputes decided by a tribunal which they have chosen, commonly on the grounds of such matters as its neutrality, expertise and privacy, the availability of legal services at the seat of the arbitration and the unobtrusive efficiency of its supervisory law. Particularly in the case of international contracts, they want a quick and efficient adjudication and do not want to take the risks of delay and, in too many cases, partiality, in proceedings before a national jurisdiction.

[7] If one accepts that this is the purpose of an arbitration clause, its construction must be influenced by whether the parties, as rational businessmen, were likely to have intended that only some of the questions arising out of their relationship were to be submitted to arbitration and others were to be decided by national courts. Could they have intended that the question of whether the contract was repudiated should be decided by arbitration but the question of whether it was induced by misrepresentation should be decided by a court? If, as appears to be generally accepted, there is no rational basis upon which businessmen would be likely to wish to have questions of the validity or enforceability of the contract decided by one tribunal and questions about its performance decided by another, one would need to find very clear language before deciding that they must have had such an intention.

[8] A proper approach to construction therefore requires the court to give effect, so far as the language used by the parties will permit, to the commercial purpose of the arbitration clause. But the same policy of giving effect to the commercial purpose also drives the approach of the courts (and the legislature) to the second question raised in this appeal, namely, whether there is any conceptual reason why parties who have agreed to submit the question of the validity of the contract to arbitration should not be allowed to do so.

(emphasis added)

  1. With respect, nothing in these paragraphs goes beyond the essence of the judgment of Gleeson CJ in Francis Travel; indeed, it is fully in accord with it.
  2. Lord Hoffmann went on at [11] to summarise the differences in approach to the clauses. It is worthy of repetition because the expressions in the cases reflect much of the argument before us. He said at [2008] 1 Lloyd’s Rep 256-257 [11]:

With that background, I turn to the question of construction. Your Lordships were referred to a number of cases in which various forms of words in arbitration clauses have been considered. Some of them draw a distinction between disputes “arising under” and “arising out of” the agreement. In Heyman v Darwins Ltd (1942) 72 Ll L Rep 65; [1942] AC 356 at page 399 Lord Porter said that the former had a narrower meaning than the latter but in Union of India v E B Aaby’s Rederi AS (The Evje) [1974] 2 Lloyd’s Rep 57; [1975] AC 797 Viscount Dilhorne, at page 814, and Lord Salmon, at page 817, said that they could not see the difference between them. Nevertheless, in Overseas Union Insurance Ltd v AA Mutual International Insurance Co Ltd [1988] 2 Lloyd’s Rep 63 at page 67, Evans J said that there was a broad distinction between clauses which referred “only those disputes which may arise regarding the rights and obligations which are created by the contract itself” and those which “show an intention to refer some wider class or classes of disputes”. The former may be said to arise “under” the contract while the latter would arise “in relation to” or “in connection with” the contract. In Fillite (Runcorn) Ltd v Aqua-Lift (1989) 45 BLR 27; (1989) 26 Con LR 66, at page 76, Slade LJ said that the phrase “under a contract” was not wide enough to include disputes which did not concern obligations created by or incorporated in the contract. Nourse LJ gave a judgment to the same effect. The court does not seem to have been referred to Mackender, Hill and White v Feldia AG [1966] 2 Lloyd’s Rep 449; [1967] 2 QB 590, in which a court which included Lord Denning MR and Diplock LJ decided that a clause in an insurance policy submitting disputes “arising thereunder” to a foreign jurisdiction was wide enough to cover the question of whether the contract could be avoided for non-disclosure.

(emphasis added)

  1. Lord Hoffmann eschewed at [12] any analysis of these cases because they contained distinctions which “reflect no credit upon English commercial law”. His Lordship referred to their need “to make a fresh start”. But he did not abandon the process of construction. It was the approach to construction with which he was concerned. In referring to s 7 of the Arbitration Act 1996 (UK) (the equivalent of s 16(2) of the CA Act) Lord Hoffmann said the following at [2008] 1 Lloyd’s Rep 257 [12]:

…But section 7 will not achieve its purpose if the courts adopt an approach to construction which is likely in many cases to defeat those expectations. The approach to construction therefore needs to be re-examined.

  1. At [2008] 1 Lloyd’s Rep 257 [13] he expressed what he saw as the correct approach:

In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction. As Longmore LJ remarked, at para 17: “if any businessman did want to exclude disputes about the validity of a contract, it would be comparatively easy to say so”.

  1. We do not see how this departs from the approach of Gleeson CJ in Francis Travel. Indeed, it is reflective of it. The assumption to be made is identical. To require that language be clear to move the assumption should not be read as a legal rule beyond one that gives work to do for the assumption. It is a text based construction, but one in which the assumption has a real role to play – not the subject of a nod, before fine textual analysis takes place using legal and linguistic ingenuity differentiating prepositional phrases using spatial and temporal metaphors derived from, or imposed on, the words. The assumption of an appropriate common sense contextual framework is not foreign to, but part of, an orthodox approach to construction.
  2. Lord Hope of Craighead, Lord Scott of Foscote, Lord Walker of Gestingthorpe and Lord Brown of Eaton-under-Heywood agreed with Lord Hoffmann.
  3. Lord Hope wrote a concurring speech (with which Lord Brown agreed). His Lordship’s additional comments should not be viewed as qualifying his “entire” agreement with the speech of Lord Hoffmann. After dealing with the clause in question, Lord Hope referred to a number of decisions from Germany, the United States and Australia (Comandate). It is true that the German decision, and perhaps some of the expression in the United States decision can be seen as the expression of a legal rule that to a degree dominates the process of construction, but Lord Hope expressed himself as dealing with construction. He said the following at [2008] 1 Lloyd’s Rep 260 [31]:

In [Comandate]…the Federal Court of Australia said that a liberal approach to the words chosen by the parties was underpinned by the sensible commercial presumption that the parties did not intend the inconvenience of having possible disputes from their transaction being heard in two places, particularly when they were operating in a truly international market. This approach to the issue of construction is now firmly embedded as part of the law of international commerce. I agree with the Court of Appeal that it must now be accepted as part of our law too.

  1. That Lord Hope used the word “presumption” (and not “assumption”) does not reflect the imposition of a legal rule upon the process of construction. We do not see any disconformity between the approach of the House of Lords in Fiona Trust and that of the New South Wales Court of Appeal in Francis Travel or of the Full Court of this Court in Comandate. Neither did the majority of the Western Australian Court of Appeal in Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; 298 ALR 666 at 683-686 [50]- [63]; nor the New South Wales Court of Appeal in United Group Rail Services Ltd v Rail Corporation of New South Wales [2009] NSWCA 177; 74 NSWLR 618 at 622 [3]; Global Partners Fund Ltd v Babcock & Brown Ltd (in Liq) [2010] NSWCA 196; 79 ACSR 383 at 398-399[61]-[66]; and Lipman Pty Ltd v Emergency Services Superannuation Board [2011] NSWCA 163 at [6].
  2. As French CJ and Gageler J said in TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia [2013] HCA 5; 251 CLR 533 at 550 [16] in answer to an argument that Australian arbitration agreements contained an implied term that the authority of the arbitral tribunal is limited to a correct application of the law:

The presumed or imputed intention is ordinarily to the contrary: parties who enter into an arbitration agreement for commercial reasons ordinarily intend all aspects of the defined relationship in respect of which they have agreed to submit disputes to arbitration to be determined by the same tribunal.

Their Honours cite Comandate 157 FCR at 87-93 [162]-[187] and Fiona Trust [2008] Lloyd’s Rep at 256-257 [5]-[14].

  1. It is in this light that the decision of the New South Wales Court of Appeal in Rinehart v Welker is to be examined.
  2. Rinehart v Welker [2012] NSWCA 95 concerned the appeal from the orders of Brereton J (delivered extemporein a duty judge application) refusing to stay the proceedings brought by Ms Rinehart, Mr Hancock and Ms Welker seeking information about the trusts and orders under the Trustees Act 1962 (WA), including the removal of Mrs Rinehart as trustee. The stay application was brought to enforce the dispute resolution clauses in the Hope Downs Deed and the Deed of Obligation and Release. The appeal raised issues of construction and interpretation of the same clauses of the deeds, between the very same parties to the deeds. There was a defence filed on behalf of Mrs Rinehart which put the allegations of misconduct in issue and also relied on provisions of the Hope Downs Deed, in particular cll 6 and 7. The CA Act and s 8 thereof was not the subject of the judgment.
  3. The arguments in Rinehart v Welker [2012] NSWCA 95 were pitched at a number of levels. They relied on the liberal approach based on the assumption referred to in Francis Travel. Reliance was placed on Fiona Trustas reflected in [77] of the judgment of Bathurst CJ:

Senior Counsel for GHR also submitted that fine distinctions between expressions such as “arising out of”, “in connection with” or “arising under” should not be made in this field. In this regard, in addition to the cases relied on in the written submissions, he placed particular reliance on what was said by Lord Hoffmann in Fiona Corporation supra, that there should be a “fresh start” in the construction of arbitration clauses and that they should be construed with a presumption that the parties did not intend their disputes to be dealt with in two separate tribunals.

  1. Also, the submissions focused on the most narrow construction as reflected in [69] of the judgment of Bathurst CJ:

GHR submitted that once the dispute involved the contention that it was not legally open to the respondents to pursue in court the claims made in the amended summons, there was a dispute under the Settlement Deed even giving these words their narrowest meaning. She submitted that once this part of the dispute was a dispute under the Settlement Deed, the whole dispute is a dispute under the Settlement Deed.

  1. The construction and scope of cl 20 of the Hope Downs Deed is dealt with by Bathurst CJ at [114] and following. The Chief Justice commenced with the proposition that the contract is to be construed according to the principles set out in Toll v Alphapharm. So much is both clear and uncontroversial.
  2. Reference was made, without criticism, to the approach set out in Francis TravelComandateGlobal Partners and Lipman. The Chief Justice, however, saw discordance in the approach of the House of Lords in Fiona Trust, saying at [121]-[122]:
    1. It follows that it is not appropriate for this Court to adopt what Lord Hoffman described in Fiona Corporation supra at [12] as a “fresh start” and construe clauses irrespective of the language in accordance with the presumption that the parties are likely to have intended any dispute arising out of the relationship into which they have entered to be decided by the same tribunal unless the language makes it clear certain questions were intended to be excluded: Fiona Corporation supra at [13]. Whilst the presumption that parties intended the same tribunal to resolve all their disputes may justify a liberal approach consistent with the plain meaning of the words in question, the approach suggested by Lord Hoffman is contrary, in my opinion, to the approach laid down by the High Court as to the construction of commercial contracts.
    2. In reaching this conclusion I am conscious that the Court of Appeal in Western Australia in Paharpur Cooling Towers Ltd v Paramount (WA) Ltd [2008] WASCA 110 cited the speech of Lord Hoffman in Fiona Corporation supra with approval, stating at [39] that: “It was inconsistent with the approach taken in Australia”. To the extent their Honours were stating that the approach was reflective of the liberal approach to which I have referred above, that is uncontroversial. However, to the extent their Honours were suggesting a particular rule of construction be applied irrespective of the plain meaning of the words, I am unable to agree.

(emphasis added)

  1. We respectfully cannot agree that Fiona Trust says that arbitration clauses should be construed irrespective of the language used or that it says anything different in substance from Francis Travel and Comandate. We agree with Martin CJ in Cape Lambert in that respect. Lord Hoffmann and Lord Hope were refusing (just as Longmore LJ preferred to approach the matter) to engage in semantic debates about relational prepositional phrases capable of throwing up fine distinctions, often based on the temporal or visual metaphor from the language “under”, “arising under”, “out of”, “arising out of”, “in relation to” and “in connection with”. Context will almost always tell one more about the objectively intended reach of such phrases than textual comparison of words of a general relational character. None of the phrases is linguistically stable or fixed. It may be that past cases decided in recognised markets with stable standard forms admit of, and may demand, necessary textual consistency: Federal Commerce and Navigation Co Ltd v Tradax Export SA (The Maratha Envoy) [1978] AC 1 at 7-8. Far more important, however, is the correct general approach referred to by Gleeson CJ in Francis Travel – that sensible parties do not intend to have possible disputes that may arise heard in two places. Effect is given to that assumption by interpreting words liberally when they permit that to be done. As some of the cases discussed in Fiona Trust (in the Court of Appeal and the House of Lords) reveal, the phrase “under this agreement” is amply able to encompass a dispute concerned with a claim to rescission of the agreement. Seeking to give the phrase some amplitude one would construe the phrase as including a dispute that contained a substantial issue that concerned the exercise of rights or obligations in the agreement, or a dispute that concerned the existence, validity or operation of the agreement as a substantial issue, or a dispute the resolution of which was governed or controlled by the agreement. That is not meant to be a prescriptive definition, but rather an illustration of a liberal reading of an arbitration clause using the correct general approach as an aspect of context in conventional contractual construction that can be found in Francis TravelComandateUnited Group Rail,Global Partners FundLipman and Cape Lambert Resources, and, in our respectful view, Fiona Trust. Disputes governed or controlled by the deed and its operation can be seen as part of the meaning of the phrase, but it is difficult to see why the meaning should be so limited.
  2. Nevertheless, the dispute as to Fiona Trust does not matter. The Chief Justice, in terms, applied the liberal approach. He concluded at [123], however, that the words “under this deed” had “consistently been given a narrower construction than phrases such as ‘arising out of the deed’ or ‘in connection with the deed’”. He referred to Samick Lines Co Ltd v Owners of the Antonis P Lemos [1985] AC 711 at 727, Paper ProductsBTR Engineering (Australia) Ltd v Dana Corporation [2000] VSC 246 at [27] and TCL Airconditioner (Zhongshan) Co Ltd v Castel Electronics Pty Limited [2009] VSC 553 at [34]. He concluded from these authorities at [125] that:

It seems to me that consistent with the authorities to which I have referred, if the outcome of the dispute was governed or controlled by the Settlement Deed, then there would be a dispute under the Settlement Deed irrespective of whether the claimant was invoking or enforcing some right created by the Settlement Deed.

  1. Nothing in The Antonis P Lemos dictates this conclusion. Lord Brandon at the page cited ([1985] AC at 727) stressed the importance of context. So much can be accepted. His Lordship was dealing with another context of the relational reach of prepositional phrases defining in rem Admiralty jurisdiction. Here the context is one which leads to liberality of meaning.
  2. The authorities to which Bathurst CJ referred included the decision of Warren J in BTR Engineering (the particular clause in that case being “a dispute involving their respective rights and obligations under this [agreement]”). Warren J held that the word “under” meant “governed, controlled, or bound by; in accordance with”. This expression of the matter came from the Shorter Oxford Dictionary. With respect, it is a limited and confined meaning not dictated by the word itself. Further, the words, in the claim before Warren J, that preceded the prepositional phrase, “involving their respective rights and obligations” gave some narrower focus to what followed. Nor is it a complete reflection of the dictionary meanings. The dictionary meanings of the word “under” as a preposition are many. They include “controlled, restrained or bound by”; “in a state or condition of; having regard to, taking account of”; and “subject to the authority, control, direction or guidance of”: Shorter Oxford Dictionary (2007), vol 3. We do not find BTR Engineering persuasive.
  3. The decision in TCL Airconditioner v Castel Electronics followed BTR Engineering and is for the above reasons unpersuasive.
  4. To the extent that Bathurst CJ also relied upon the narrow construction of the phrase “any dispute…arising under this agreement” by French J in Paper Products, we disagree with the premise of French J’s conclusion that the words used are “restricted”.
  5. With the utmost respect to Bathurst CJ, the limitation of disputes that are (necessarily) governed or controlled by the deed is narrow, not liberal. It is a construction that does not take account of the breadth of possible meaning of the phrase revealed by either dictionaries or by its context, or by judgments such as the Court of Appeal in Mackender v Feldia and Viscount Dilhorne and Lord Salmon in The Evje, and it is a construction which does not give meaning to a liberal approach to words that are capable of a broader construction. That it is a phrase that may be narrower in meaning than other phrases does not mean that its meaning is narrow.
  6. Though in another universe of discourse, the breadth of potential meaning of “under”, can be seen in the jurisprudence concerned with the phrase in s 76(ii) of the Constitution “arising under a law of the Parliament”: see, eg. Felton v Mulligan [1971] HCA 39; 124 CLR 367. That is not to resort to constitutional jurisprudence in aid of a contractual meaning; it is only to say that one meaning of the word “under” should not necessarily control the meaning of the phrase “dispute under this deed”. The word “under” is capable of varied relational reach, depending on the context. The broader construction which we have suggested above can be taken as an example.
  7. Further, the phrase to be construed is “any dispute under the deed”, not “under the deed”. Just as the relevant prepositional phrase (“under the deed”) should be read liberally, so should any other relevant part of the arbitration agreement if to do otherwise would overly refine and narrow the coverage of the agreement over the parties’ disagreements. The word “dispute” or the phrase “any dispute” in cl 20.2 of the Hope Downs Deed and cl 9 of the 2007 HD Deed can be understood as a disagreement or argument, in its wholeness, a controversy between parties. There is every reason in this context not to confine “dispute” narrowly to issues or parts of a dispute or of a controversy. The primary judge recognised this at [636] in another context. The dispute under the deed, the argument or controversy between the parties, is not limited to arguments about the operative provisions of the deed; it includes a dispute as to whether the deed in which those operative provisions are located has been or is to be rescinded. To construe “dispute” in a way that brings the substantive defence, but not the substantive reply (being two related aspects of the whole dispute), into the purview of the arbitration clause is to construe the clause in a manner to provide for dispute resolution in two places. This is contrary to principle. On the other hand, a construction of “any dispute” as any whole dispute or controversy, reinforces the broader construction of “under this deed”. Indeed, the better way to construe both clauses is not to divide the relevant phrases up into “any dispute” and “under this deed”, but rather to view them as one phrase “any dispute under this deed”. Doing so recognises that if a whole dispute involves not only the defence to a claim, but also the attack on the availability of the defence (viewed as a matter of substance) then that part of the agreement expressed as “under the deed” cannot be limited to disputes (really parts of the dispute) governed or controlled by the operation of the deed itself.
  8. The meaning of “any dispute under this deed” may be narrower than the meaning of other phrases, such as “a dispute in connection with this deed”. So much can be accepted. Nothing in Francis TravelComandate, or Fiona Trust required the meaning of words to be set to one side for a rule. What these cases say is that the correct general approach is to give liberal amplitude to available meaning. That one phrase has a narrower meaning than another, does not mean that the first has a narrow meaning.
  9. Further, the context of these deeds was one that tended to widen, not narrow, the likely operation of the deeds. The context of the three deeds in 2005, 2006 and 2007 was the growing claims of one or more of the children that their mother had committed breaches of trust in dealing with the valuable mining assets. By the time of the execution of the Hope Downs Deed, Mr Hancock had signed releases and acknowledgments in the Deed of Obligation and Release and within months had sought to renege on these by setting aside the arrangement by asserting undue influence. He had apparently said to his sister, Ms Rinehart, that he viewed the Deed of Obligation and Release as a means of extracting money from his mother. One of the fundamental purposes of the Hope Downs Deed was the quelling of disputes about the title to the assets in a context where at least one sibling had expressed the view that he was not bound by an earlier deed, and where such quelling was of great commercial importance to the prospective arrangements with Rio Tinto. The context of the 2007 HD Deed was the same – Mr Hancock had previously asserted that he was not bound by a deed entered into by him two years before. Objectively, the Hope Downs Deed and the 2007 HD Deed had the purpose of quieting disputes about title, as did, on its face, the Deed of Obligation and Release.
  10. Considering the assumption referred to in Francis Travel and Comandate, a liberal construction of an arbitration agreement containing the words “any dispute under this deed” can be seen to cover a dispute which is framed by claims that are said to be met by pleading the deed, which in turn is said to be liable to be set aside for wrongful conduct that does not amount to a plea that the deed never existed whether by a plea of non est factum, or some other circumstance. In these circumstances, the deeds, in their operation if valid, and by reason of their invalidity if not, lie at the heart of the dispute. Reading the words liberally, we cannot see how such a dispute is not to be viewed as a dispute under the deed if those words are read with liberality and with the meaning discussed above. Thus, at this level of abstraction, there is little difficulty in concluding that all the substantive and validity claims fall within any clause framed “any dispute under this deed”.
  11. We are acutely aware that our views differ from those of Bathurst CJ (with whom Young AJA agreed) in Rinehart v Welker. In our respectful view, we are persuaded to the necessary point of clarity that his Honour’s construction is not correct. First, he applied earlier cases in which different phrases were construed and which revealed, in our respectful view, an overly narrow, dictionary-based meaning to an elastic relational phrase. Secondly, the whole phrase “any dispute under this deed” was not the subject of focus, and were it to have been, a liberal construction of “any dispute” as “controversy” would have militated against any narrow relationship between the operation of the deed and the dispute. Thirdly, the objective context of the execution of the Hope Downs Deed and the 2007 HD Deed reinforce the objectively wide meaning to the extent it can be given to the phrase “any dispute under the deed”.
  12. We now turn to the specifics of the deeds, the findings and conclusions of the primary judge and the arguments of the parties.
  13. It is convenient to follow the structure of the primary judge’s reasons from [597]-[661].

Matters subject of cl 14 of the 2005 Deed of Obligation and Release

  1. At [597]-[608], the primary judge concluded that all the substantive claims of Mr Hancock being the prayers for relief 1 to 34 and being the disputes referred to in [556(1)-(5)] (see [155] above) fell within the scope of the arbitration agreement in cl 14 (for the terms of which see [69] above – “all disputes hereunder”) because of the releases said to have been given by Mr Hancock in cll 2 and 3.
  2. The discussion that follows necessarily sees the use of the word “dispute” in the narrow sense employed by the primary judge.
  3. That conclusion was reached by the reasoning that did not seek to give a final view to the scope of the releases; rather, there was a sustainable argument that the deed (assuming it not to have been set aside) provided the answer to Mr Hancock’s claims concerning events prior to 1 April 2005 even if they had not been articulated, because of the width of cll 2 and 3.
  4. These conclusions are the subject of appeal by para 13 of the applicants’ notice of cross-appeal. The first complaint is that the primary judge failed to construe cll 2 and 3 on a final basis and viewed the matter from the perspective of a sustainable argument. For the reasons given earlier, this approach of the primary judge was not in error. She was not obliged to resolve the question whether these provisions were an effective release: that is an aspect of the dispute that was the subject of the arbitration agreement. In our view, these disputes were the subject of the arbitration agreement because the operation of provisions of the deed were said to be an answer to the claims if the deed was not set aside and the dispute was sustainable.
  5. Secondly, it is said that without a finding that there is a sustainable argument that cll 2 and 3 will govern or control the outcome, the dispute cannot be under the deed. This raised the question whether “disputes under the deed” meant only disputes that would, not may, be resolved by the operation of the deed. To limit the clause in this fashion would reveal most starkly a failure to apply the correct general approach referred to by Gleeson CJ in Francis Travel. The primary judge, correctly (subject to the reservations we have about the expression “sustainable argument”) concluded that a sustainable argument that the releases would be an answer to his claims, assuming the deed to be valid, was a dispute under the deed.
  6. Thirdly, it was said that because four of the five matters referred to at [556(1)-(5)] of the judgment included events after 1 April 2005, the releases could not act as a defence. That may be true. The releases, however, may operate at least in relation to essential facts occurring before 1 April 2005. It will be a matter for resolution, but a real and substantial issue as to the effect of the releases is raised such that a decision will be required on the operation of the deed – this is a dispute under the deed.
  7. The primary judge did not separately consider whether the validity claims relating to the 2005 Deed of Obligation and Release were “disputes hereunder”. For the reasons given below as to the validity claims relating to the Hope Downs Deed and the 2007 HD Deed, the validity claims as to the 2005 Deed of Obligation and Release were, and are, part of the dispute that involves the application of the deed.
  8. Further, there is a sustainable argument that (subject of course to the validity of the Hope Downs Deed) cll 6(a), (b) and (c) and 7(b) of that deed released the validity claims in relation to the 2005 Deed of Obligation and Release.

The substantive claims being matters the subject of cl 20.2 of the Hope Downs Deed, and cl 9 of the 2007 HD Deed

Clause 4

  1. At [625]-[630], the primary judge rejected the argument of Mrs Rinehart and HPPL that cl 4 of the deed (the acknowledgment) was the foundation of a sustainable argument that the dispute was covered by cl 20.2. The argument was that cl 4 governed or controlled the outcome for relief by reason of an estoppel by deed. The primary judge referred to the conclusion of Bathurst CJ in Rinehart v Welker that the estoppel was by convention, not by the direct operation of the deed and so the dispute was not governed or controlled by the deed itself. Thus, there was no sustainable argument that cl 4 governs or controls the outcome of any claims for relief.
  2. We disagree with this conclusion. The conclusion is illustrative of the narrowness of the construction placed on the phrase “under the deed” by the primary judge. If, as it should be, the phrase “dispute under the deed” is given a liberal meaning as including disputes in which the operation of the deed is a substantial issue, a dispute in which the deed played a substantial role in the formation of the conventional estoppel would be a dispute under the deed.

Clauses 6(a) and (b)

  1. At [609]-[621] the primary judge rejected the argument that cl 6(a) and (b) of the Hope Downs Deed gave rise to a sustainable argument that the deed operated as a release and covenant not to bring the substantive claims.
  2. Her Honour’s conclusion in this regard focused upon whether there were “claims” as defined in cl 1.1(a) of the Hope Downs Deed. Her Honour referred at [611]-[613] to the consideration given to the clause by the Court of Appeal in Rinehart v Welker and by Bergin CJ in Eq in Hancock v Rinehart [2013] NSWSC 1352; 96 ACSR 76:
    1. In Rinehart v Welker, the Court of Appeal held that clause 1.1(a), although widely expressed, is limited to claims “existing or discontinued or claims which were in existence at the time the [Hope Downs deed] was entered into” (at [137]). In Hancock v Rinehart 2013 (Bergin CJ in Eq), her Honour held that the definition of “Claim” is limited to claims that were “made” (in the sense of “asserted” or “communicated”) at the time the Hope Downs Deed was entered into (at [119]-[122] described as “consummate claims and not inchoate claims”).
    2. At [123], Bergin CJ in Eq referred to para (d) of the definition of “Claim” and said:

These are … in the instance of the unsigned affidavit, claims that were made that were yet to be the subject of signature as required in the court process. They are circumstances and events that have been formulated into claims. They are “existing” claims. I am respectfully of the view that the expression used by the Chief Justice in relation to “claims which had not arisen” in paragraph [142] when read with the conclusions in paragraph [137] of the Chief Justice’s judgment was intended to be a reference to claims that were not in existence, that is, claims that had not been made.

  1. Leave to appeal from Bergin CJ in Eq’s decision was refused on the basis that “Claim” in clause 1.1(a) of the Hope Downs deed meant a “claim for something” rather than a “right to something”: Rinehart v Hancock at [4], [6]-[11].
  2. Then, at [614]-[617], the primary judge referred to the arguments of the parties as to the correctness of these conclusions and to other aspects attending the proper construction of the clause.
  3. At [618]-[621] the primary judge found that there was not a sustainable argument that any of the substantive claims was a “claim” within the meaning of cl 1.1 of the Hope Downs Deed:
    1. Applying the propositions set out above, the HPPL respondents submitted that all of the “substantive claims” were asserted in substance in Mr Hancock’s unsworn affidavit. I accept that this submission is arguable in relation to alleged 1992 to 1994 manipulation of HFMF’s financial position and the 1995 “debt reconstruction”, on the basis that the matters pleaded in paras 128 to 274 of the statement of claim on those subjects are recorded, in substance, in the affidavit. The HPPL respondents did not explain how the other matters pleaded in the “substantive claims” were asserted “in substance” in the affidavit beyond saying that “the broad subject matter” of the unsworn affidavit is the same as the “substantive claims”. I am not satisfied that the unsworn affidavit says anything that could be construed as a reference to the Roy Hills tenements.
    2. There are certain claims made in the unsworn affidavit (whether a claim for something or a right to something) that are “Claims” for the purposes of clause 1.1 of the Hope Downs Deed. For example, as Brereton J found in Hancock v Rinehart 2015 (at [351]), the unsworn affidavit included a claim for accounts of the HMH Trust up to 30 August 2006. At least to that extent, the reference to the unsworn affidavit in the definition of “Claims” is given content.
    3. However, I do not accept that there is a sustainable argument that the statements in the unsworn affidavit that there “should be some redress” and “there must be some redress” are “Claims”. The statements do not amount to a demand for something, or the assertion of a right to something. They are expressions of a belief that “redress” should or must be given for wrongs identified in the affidavit. Further, the language of “redress” does not identify the substance of what might be demanded or of any right which might be asserted. Accordingly, I do not accept that there is a sustainable argument that any of the claims made in this proceeding (being the claims for relief in the originating application as distinct from the “substantive claims”, as defined by the HPPL respondents) were made, in substance or at all, in the unsworn affidavit.
    4. Since the applicants in this proceeding are not making any “Claims” within the meaning of the Hope Downs deed, and Mrs Rinehart and the HPPL respondents did not identify a basis for applying clause 6(b) if the applicants are not making any such “Claims”, I do not consider there to be a sustainable argument that the proceedings are “in respect of the Claims” within the meaning of clause 6(b).
  4. These paragraphs reveal, in our view, a misdirection of the task under s 8 of the CA Act. Here, the primary judge is concluding the dispute under the deed. The assertion was that the deed operated as a release. It was for the arbitrator to resolve the dispute one way or another. It was plainly sustainable that this aspect of the dispute was to be characterised as “under the deed” (even on a narrow construction of the phrase). What is being done here is a form of summary disposal.
  5. In any event, we think that there was a sustainable argument. The meaning of “claim” in cl 1.1 may not require specificity of the kind to which her Honour referred, or at least there was a sustainable argument to that effect. This is especially so when one takes into account that in cl 1.1(d) “claim” is defined by reference to the unsigned draft affidavit itself. There was a sustainable argument that “claim” meant an assertion of an entitlement relating to a particular subject matter in the draft affidavit at least.
  6. Further, we have already expressed the view that the draft affidavit was so broad as to implicitly include Roy Hill. It was a claim alleging wholesale breaches of trust over the assets. The draft affidavit contained assertions that mineral interests, identified and unidentified, had been taken from HFMF for the benefit of HPPL. Roy Hill was expressly articulated later, but squarely fell within and was an articulation of the broad and wide-ranging breaches asserted; or, at the least, there was a sustainable argument to that effect.
  7. If there was (as we are of the view there was) a sustainable argument that all the substantive claims were claims for the purpose of cl 1.1 of the Hope Downs Deed, there was a clearly sustainable argument that Mr Hancock and Ms Rinehart had released and discharged the claims (by cl 6(a)) and irrevocably covenanted not to sue (by cl 6(b)).

Clause 6(c)

Mr Hancock

  1. The primary judge accepted that there was a sustainable argument that cl 6(c) operated to bar and release all claims made by Mr Hancock (through his adoption of the deed in the 2007 HD Deed) based on allegations in the unsworn affidavit, with the exception of the Roy Hill Tenement claim. The apparent basis of this conclusion as to the exception of Roy Hill was her Honour’s view that the Roy Hill Tenement claims were not (arguably) referred to in the unsworn affidavit. We have earlier ([63] above] commented upon the narrowness of this view. But, in any event, cl 6(c)(ii) is wider than this. The proper question was whether the allegation arose in part directly or indirectly out of the subject matter of the “Proceedings” (which included the draft affidavit). In our view, they plainly did so arise. The affidavit asserted wholesale wrongs by Mrs Rinehart in dealing with all trust assets. The Proceedings were effectively for general administration of the trust.
  2. There was a sustainable argument that cl 6(c) (“withdrawing and forever abandoning” allegations) operated as a release in relation to all substantive claims.

Ms Rinehart

  1. The primary judge concluded (at [624]) that cl 6(c) had no relevant operation for any claims made by Ms Rinehart because she had not (whereas her brother had) made any relevant allegation that could be withdrawn. With respect, we cannot agree. Clause 6 applies to “each party hereto”. Whilst linguistically “withdrawal” would often imply knowledge of something already done, here Mr Hancock had made serious allegations on behalf of all the children. The claims were capable of being so understood, even if not yet adopted by the sisters. Further, the claims in the Proceedings, by the definition of claim, included the unsigned draft affidavit. Clause 6(c) bars and releases all claims dependent on allegations arising directly or indirectly from the Proceedings, including the draft affidavit. The width of cl 6(c)(i)-(iii) whether known or unknown and whether presently in contemplation of Ms Rinehart (cl 6(c)(iv) and (v)) found a clearly sustainable argument that cl 6(c) provides a defence to Ms Rinehart’s substantive claims.
  2. Once again, this is an example of one aspect of a whole dispute, being examined on the merits by the primary judge in a form of summary disposal, going beyond the proper task of characterisation of the dispute.
  3. Thus, we are of the view that there is a sustainable argument (subject again to the reservations we have about that phrase) that cl 6(c) founds a defence for all substantive claims (including Roy Hill) against both Mr Hancock and Ms Rinehart. Thus, all the disputes about all substantive claims are “under the deed”.

The substantive claims insofar as they concern RHIO, HDIO, MDI and MDIO

  1. The primary judge concluded that RHIO, HDIO, MDI and MDIO were not within the extended definition of “party” in s 2 of the CA Act, and so her Honour concluded that the claims for relief against them were not “matters the subject of an arbitration agreement because they are claims made solely against respondents that are not party to any arbitration agreement”: [553]. We deal with the argument on s 2 later.
  2. To the extent that any dispute between the applicants and the respondent parties to the arbitration agreement concerns the non-parties’ rights, such will be subject to the arbitration. This is particularly relevant to any dispute about cl 7(b): that the parties to the Hope Downs Deed will not challenge the right of any member of the Hancock Group to any of the Hancock Group Interests at any time.

Clause 7(b)

  1. The definition of “Hancock Group” and “Hancock Group Interests” are (or are at least arguably) wide enough to cover RHIO, HDIO, MDI and MDIO and all the relevant tenements (as to RHIO, see the next paragraph). The primary judge correctly construed cl 7(b) as an unconditional covenant (by the parties to the deed) not to challenge the titles of the Hancock Group. Thus, that aspect of the dispute, between the parties to the deed, was “under the deed”. This was based on the clearly sustainable argument that a covenant not to sue would be set up as a complete defence, as a plea in bar: McDermott v Black [1940] HCA 4; 63 CLR 161 at 186-188.
  2. The primary judge, however, concluded that cl 7(b) did not cover RHIO because it was not in existence at the time of the Hope Downs Deed: [632]. There are two reasons why her Honour should have concluded that there was a sustainable argument that cl 7(b) was wide enough to cover RHIO: first, the futurity of “at any time”, though related to the time of challenge, can be seen then to refer to related bodies corporate at that time; and secondly, to impugn RHIO’s title necessarily involves an impugning of its predecessor in title, HPPL.
  3. Thus, as between the parties to the Hope Downs Deed, there was a sustainable argument that the setting up of a defence under cl 7(b) in relation to all substantive claims was a dispute under the deed.

Ms Rinehart’s cross-appeal as to cll 6(c), 7(b) and (e)

  1. As referred to above, the primary judge concluded that because of the application of cll 7(b) and (e), both Mr Hancock’s and Ms Rinehart’s substantive claims in prayers 8 to 31 were disputes under the deed: [635]-[636].
  2. The cross-appeal (grounds 14-18) attacks these findings. In part, the cross-appeal rests on the submission, which we have already rejected, that it is to be decided “on the balance of probabilities” whether cll 7(b) or (e) (or cll 6(a), (b) or (c), for that matter) apply. In particular, we reject the submission that her Honour was obliged to determine finally the construction and legal effect of cll 6(c), 7(b) and (e).
  3. It was submitted that aspects of the reasoning in the Court of Appeal in Rinehart v Hancock [2013] NSWCA 326, especially at [12] and [13], as to cl 7(a) conclude the matter. There is no substantive reason why those passages in a judgment refusing leave to appeal which did not refer to cases such as El-Mir v Risk [2005] NSWCA 215 or McDermott v Black should be seen to be applicable in a determinative way such that there was no sustainable argument from the operation of cll 7(b) and (e). We do not repeat the reservations we have about the phrase “sustainable argument”.
  4. The cross-appellants also complain that the primary judge failed, in the light of the evidence available, to make an assessment of the sustainability of the utilisation of provisions of the deed as a defence, given the likelihood of the validity claims being successful. It was said that admissible evidence was required to rebut the presumption of undue influence. In this respect, the terms of [666(3)], dealing with the exercise of discretion, should be noted:
    1. Taking these matters into account, the following considerations nevertheless favour a trial on the application of the proviso to the arbitration agreements in the Hope Downs deed and the 2007 HD deed:

(3) If I am wrong in concluding that Ms Rinehart’s claims mentioned in (1) do not fall within the arbitration agreements in the two deeds, the evidence strongly suggests that the deeds were not made on an arms’ length basis in relation to either of the applicants. On the currently available evidence, the deeds were not the product of a commercial negotiation. Nor were the deeds entered after a process of disclosure of information material to the financial consequences of the deeds for the applicants or an opportunity to obtain comprehensive legal and financial advice about the implications of the deeds. In my view, it is striking and troubling that there is no evidence of advice of this kind, except perhaps in relation to the 2005 deed of obligation and release and the absence of such evidence casts significant doubt as to whether the applicants consented to resolve disputes arising in this proceeding by arbitration.

  1. Ms Rinehart and the HPPL parties complain about these findings. For the reasons expressed below, we agree with those complaints. These conclusions go beyond the limits of the proceedings bound by the orders made as to conduct of the hearing and the proper approach to an application under s 8 of the CA Act. The hearing was conducted on the basis that issues such as fully informed consent and undue influence were not to be decided. As the primary judge observed at [145]:

These applications were heard on the express basis that the Court would not make any factual findings about whether the asserted arbitration agreements are vitiated by fraud or other misconduct as a result of the hearings of the applications to date. The agreed questions reflect this limitation on the scope of the matters for decision.

  1. The material before the Court and the structure of the hearing provided no basis for a conclusion that there was no sustainable argument to resist the validity claims.
  2. Further, if the proper approach to the construction of the arbitration clause is taken, all these matters raised by the cross-appellants can be seen as part of the fabric of the overall dispute under the deed.
  3. One further aspect of the debate about cll 6(c), 7(b) and (e) should be noted. The cross-appellants say that these are not releases that are subject of the pleas in bar provision (cl 11). We are satisfied that there is an available construction of cl 11 to the contrary. Nevertheless they are capable of being pleaded in equity: McDermott v Black. But the cross-appellants say that is the operation of Equity, not the deed, so the dispute is not “under the deed”. We do not repeat our views as to this being emblematic of an overly narrow construction of the phrase “under the deed”.

Conclusion as to substantive claims the subject of cl 20.2 of the Hope Downs Deed and cl 9 of the 2007 HD Deed

  1. For the above reasons, we are of the view that all the substantive claims brought by Ms Rinehart and Mr Hancock fall within cll 20.2 and 9 of the two deeds.

The validity claims and the Hope Downs Deed and the 2007 HD Deed

  1. The validity claims were comprised of the relief in prayers 35 to 47, based on the pleading in paras 275 to 506 of the statement of claim and summarised at [556(6)-(10)] by the primary judge. In large part, they are directed towards preventing the respondents from relying on releases, bars, covenants not to sue and arbitration clauses contained in the Hope Downs Deed and 2007 HD Deed. In substantive effect, they are an answer to Mrs Rinehart’s and HPPL’s reliance on the deeds.
  2. Mrs Rinehart and the HPPL parties argued before the primary judge that the validity claims should be viewed as part of the dispute made up of the releases, bars and covenants not to sue, such that the whole dispute (not merely that part of it constituted by the pleas based on the provision of the deeds) came within the arbitration agreement. This was rejected at [645] as follows.

I do not accept that the characterisation of the “validity claims” as matters raised in reply to releases and bars lead to the conclusion that they form part of a dispute “under” the Hope Downs deed. This is because the existence of a dispute “under” the Hope Downs deed depends upon the existence of the deed itself. The Hope Downs deed cannot govern or control the outcome of a dispute about its validity.

  1. We respectfully disagree for three reasons. First, in our view, a construction of “under the deed” as limited to governed and controlled by the deed itself is overly narrow and the product of an incorrect interpretation of the phrase “under the deed”, for the reasons we have earlier expressed. The phrase is wide enough to cover a dispute in which the existence or validity of the deed is put in question.
  2. Secondly, for the reasons we have already expressed, we do not agree that the validity claims amount to separate “disputes” for the purposes of cl 20.2 or cl 9. They are part of the one dispute or controversy.
  3. Thirdly, related to the second point, arguably the claims to set the deeds aside are challenges to the rights of Hancock Group members to Hancock Group Interests and so can be seen to be themselves in breach of and controlled by the Hope Downs Deed. At least, there is a sustainable argument that they can be so characterised.
  4. We are therefore of the view that all the validity claims fall within cll 20.2 and 9 of the Hope Downs Deed and 2007 HD Deed.

The miscellaneous claims about the “deployment” of the Hope Downs Deed and the 2007 HD Deed

  1. In her summary of conclusions at [21(4)(c)], the primary judge concluded that the claims in prayers 48 to 51 and paragraphs 468 to 506 in sections 39 and 41 of the statement of claims were disputes under the deeds. There was no further discussion of these claims in the judgment.
  2. The applicants complain that the use or deployment of these deeds has been to seek to place financial pressure on Ms Rinehart and Mr Hancock, to prevent the litigation being public, to prevent the beneficiaries seeking redress and to harass, threaten and intimidate. They say that this is unconscionable conduct within the meaning of the Australian Consumer Law and is also a collateral abuse of process. Injunctive relief and damages are sought.
  3. This is not a separate dispute; it is part of the one controversy. For the reasons that the validity claims are part of the dispute under these deeds, so are these claims.

The 2009 Deed of Further Settlement and the 2010 Deed of Variation

  1. The 2009 Deed of Further Settlement and the 2010 Deed of Variation were only executed by Mr Hancock, Mrs Rinehart and HPPL. Clause 16 of the 2009 Deed of Further Settlement is set out at [90] above.
  2. The words used in cl 16 are ample: “any dispute or claim arising out of or in relation to this Deed or the CS Deed”. The 2007 CS Deed, being the side agreement to the 2007 HD Deed, was also only executed by Mr Hancock, Mrs Rinehart and HPPL. Clause 15 thereof (a covenant not to sue) was in the following terms:

Each party to this Deed irrevocably covenants not to take any proceedings against any of the other parties to this Deed in relation to any matter arising in any jurisdiction, in respect of the matters the subject of the releases referred to in this Deed and the Hope Downs Deed and withdraws and forever abandons any and all allegations made against any of the other parties to this Deed, including in connection with:

(a) the subject matter of CIV 1327 of 2005;

(b) the allegations contained in JLH’s affidavit or draft affidavit of or around 27 September 2005; and

(c) any combination of the above.

  1. The primary judge (at [652]) concluded that the claims of Mr Hancock that arguably fall within the scope of the Hope Downs Deed also fell within the scope of cl 15 of the 2007 CS Deed. The cross-appellants complain that the primary judge should have come to a final view about the meaning of cl 15. For the reasons we have earlier given, we reject that submission.
  2. The cross-appellants also submitted that the primary judge was wrong in [652] to conclude that merely because a claim falls within the covenant not to sue in cl 15 of the CS Deed, does not mean it is a claim arising out of or in relation to that deed. We reject this submission. It is founded upon the wafer-thin, and unrealistic, distinction between a lack of entitlement to bring a claim and being in breach of contract by bringing a claim. Both are “in relation to” the deed. In our view, the covenant in cl 15 related to all allegations in connection with the allegations in the draft affidavit. These are all the substantive claims in our view.
  3. In dealing with these two deeds, the primary judge descended (because of the arguments put) into the detail and complexity of the claims and the individual deeds.
  4. At [656], the primary judge rejected the argument that the validity claims asserted by Mr Hancock did not fall within cl 16. At least insofar as they are claims of the validity of the 2009 Deed of Further Settlement, they plainly do fall within cl 16. So much was accepted by the cross-appellants.
  5. We have already expressed our view that all validity claims directed to the Hope Downs Deed fall within the arbitration agreement of that deed.
  6. Clause 15 of the 2007 CS Deed was a covenant not to sue in relation to any matter in respect of the matters the subject of release in the Hope Downs Deed (cl 6(a) and (b)) and provided for the withdrawal and abandonment of any and all allegations including in connection with the allegations in the draft affidavit. Given our view as to the width of cl 6(a) and (b) and the arguable release of claims thereunder, the validity claims to the Hope Downs Deed would be a matter in respect of those releases. Thus, the validity and substantive claims about, and covered by, the Hope Downs Deed are disputes or claims arising out of or in relation to the 2007 CS Deed for the purposes of cl 16 of the 2009 Deed of Further Settlement.
  7. Clause 11(ii) of the 2010 Deed of Variation is set out at [91] above (any dispute or claim arising out of or in relation to this deed).
  8. Recital E and cll 8 and 10 of the 2010 Deed of Variation sought to link that deed to the Hope Downs Deed. Recital E made clear that the parties wished to amend the 2007 Loan Agreement and make further funding available to Mr Hancock and for such funding to be repaid from payments due to him under the Hope Downs Deed. Clauses 8 and 10 dealt with this. The primary judge accepted that there was a sustainable argument that cl 11(ii) could be construed as including validity claims against the Hope Downs Deed and the 2007 HD Deed, because of an asserted estoppel from Recital E and cll 8 and 10 preventing Mr Hancock denying the validity of those deeds.
  9. The cross-appellants complain about this conclusion, repeating their submissions as to the need to decide the question finally. For the reasons we have given, we reject this. They further argued that there was no sustainable argument as to the estoppel for various reasons: the lack of a precise statement of fact in the deed, the failure to establish a sustainable argument that the 2010 Deed of Variation is not subject to an equitable right of rescission where the presumption of advancement existed, and where the cross-appellants had sought to adduce evidence suggesting the deed was procured by fraudulent concealment. Those complaints reflect the view of the requirement for a sustainable argument becoming an argument on the merits. The matters raised are properly characterised as apparently coherent arguments plainly falling within the clause. That suffices.
  10. The cross-appellants also complain about the primary judge’s conclusion that cl 11 covers the substantive claims by Mr Hancock. Though her Honour did not make it explicit, the conclusion can be founded upon the substantive claims directed to the 2007 CS Deed and 2009 Deed of Further Settlement being within the scope of cl 16 of the latter. These are in relation to the 2010 Deed of Variation because in cl 3 of the 2010 deed the parties confirmed the 2007 CS Deed and the 2009 Deed of Further Settlement and so they are claims in relation to the 2010 Deed of Variation. We agree for the reasons given that her Honour was correct in relation to her conclusions at [652].
  11. We have earlier expressed the reservation and reluctance with which we depart from Bathurst CJ’s construction of the arbitration agreements using the words and phrases “any dispute under” or “…hereunder”. On the view we take, subject to the issue of the meaning of s 2 of the CA Act, all substantive and validity claims by both Mr Hancock and Ms Rinehart are part of the matter or matters variously the subject of the arbitration agreements in the Hope Downs Deed, the 2007 HD Deed, the 2005 Deed of Obligation and Release, the 2009 Deed of Further Settlement and 2010 Deed of Variation.
  12. If, on the other hand, the construction that Bathurst CJ gave to the clause is correct, a complex position emerges. The validity claims as to the deed using the word “under” would not be the subject of the agreement. The substantive claims to the extent that they can be seen as either released or the subject of a bar (such as in cll 6 and 7 of the Hope Downs Deed) can be seen as governed or controlled by the deed – but only if the deed be valid. Thus, there is force in the cross-appellants’ complaint that even if there is a sustainable argument about the deed providing a defence, that is not the deed governing or controlling the outcome, because the validity claims may cause the deed to be set aside. So either the whole of the claims stand outside the arbitration agreements of the three deeds using “under” or parts of the dispute being the substantive claims as answered by provisions of the deeds stand within the arbitration agreement and the validity claims outside.
  13. On the other hand, cl 16 of the 2009 Deed of Further Settlement and cl 11 of the 2010 Deed of Variation (affecting only Mr Hancock) use the phrase “arising out of or in relation to” deeds. As we have dealt with at [261]-[263] above, by reason of the interconnection between the Hope Downs Deed, the CS Deed and these two deeds, the validity claims would fall within these arbitration clauses. Thus, the narrow construction of “under” would have the validity claims in respect of some deeds not the subject of arbitration agreements, but the same clauses in respect of other deeds the subject of arbitration agreements. This is the very type of result that the common sense assumption and the “correct general approach to problems of this kind” should prevent.

E. (1) Whether any party that is not a party to the deeds and to the arbitration agreements can be referred to arbitration because they claim “through or under” entities who are parties;

(2) Whether the claims against the third party companies are part of the same “matter” within s 8(1) of the CA Act; and

(3) Whether WPPL should be granted leave to intervene

(4) Whether the claims against the third party companies should be stayed under the Court’s general power

Introduction

  1. This section of the reasons deals with the applicants’ claims against RHIO, HDIO, MDIO and MDI. MDI has not appeared in the proceeding and it did not join in the application under s 8(1) of the CA Act. As we have said, MDI did indicate in correspondence that it consented to the substance of the relief sought by the HPPL respondents. The question whether it is able to take the benefit of any conclusions in favour of RHIO, HDIO and MDIO does not arise because of the conclusions we have reached. The claims against RHIO, HDIO and MDIO relate to the Roy Hill Tenements (RHIO), the Hope Downs Tenements (HDIO) and the Mulga Downs Tenement (MDIO) respectively. We have already referred to them (see generally section A) but in this section of the reasons it is necessary to outline the claims in more detail. It is convenient to refer to them as the third party companies. None of the third party companies are parties to a relevant arbitration agreement.
  2. The submissions with respect to the position of third party companies were made by reference to the claims for relief set out in the applicants’ originating application. The nature of these claims against the third party companies follows a pattern, as will become apparent. We should say that the analysis which follows is supported by the allegations in the statement of laim.
  3. In relation to RHIO and the Roy Hill Tenements, the applicants’ claims for relief are as follows:
    1. A declaration that the Thirteenth Respondent (RHIO) holds, and has held since it acquired them, the mining tenements known as ‘Roy Hill’ (the Roy Hill Tenements) on constructive trust for the First Applicant (BHR), the Second Applicant (JLH), the Ninth Respondent (HRW) and the Tenth Respondent (GHFR).

  1. An order that RHIO provide an account of profits to the Applicants in relation to the benefits obtained by it from its ownership, use, possession and exploitation of the Roy Hill Tenements.
  2. In the alternative to order 4, an order that RHIO pay equitable compensation to the Applicants for their loss of opportunity to earn profits from the exploitation of the Roy Hill Tenements.

  1. There are also claims for an account of profits and equitable compensation in relation to the Roy Hill Tenements against Mrs Rinehart (claims 2 and 3) and HPPL (claims 6 and 7). The primary judge held that none of the claims with respect to the Roy Hill Tenements fell within an arbitration agreement. For the reasons given above (at [63], [224] and [225]), we are satisfied (in the sense we have described) that the claims against the parties to the arbitration agreements fall within the arbitration agreements. The consequence of that conclusion is that claims 1 (insofar as it affects Mrs Rinehart and HPPL), 2, 3, 6 and 7 fall within an arbitration agreement.
  2. The third party companies and other appellants submitted that claims 1 (insofar as it affects RHIO), 4 and 5 fall within an arbitration agreement because RHIO is within the extended definition of “party” in s 2(1) of the CA Act. For the reasons which follow, that submission fails. The alternative submission was that the claims against RHIO fall within an arbitration agreement because they are part of the same “matter” which is the subject of the agreement. There are two aspects to this submission. The first aspect is that the claims against RDIO fall within an arbitration agreement. For the reasons which follow, that submission fails. The second aspect is that the dispute between the parties to an arbitration agreement includes a dispute between those parties as to whether the applicants can claim against RDIO. For the reasons which follow, that submission succeeds (see [232]-[235]).
  3. In relation to HDIO and the Hope Downs Tenements, the applicants’ claims for relief are as follows:

  1. A declaration that the Twelfth Respondent (HDIO) holds, and has held since it acquired them, the mining tenements known as ‘Hope Downs’ (collectively, the Hope Downs Tenements) on constructive trust for BHR, JLH, HRW and GHFR.

  1. An order that HDIO provide an account of profits to the Applicants in relation to the benefits obtained by it from the ownership, use, possession and exploitation of the Hope Downs Tenements.
  2. In the alternative to order 18, an order that HDIO pay equitable compensation to the Applicants for their loss of opportunity to earn profits from the exploitation of the Hope Downs Tenements.

  1. Again, there are claims for an account of profits and equitable compensation in relation to the Hope Downs Tenements against Mrs Rinehart (claims 16 and 17) and HPPL (claims 20 and 21). The primary judge held that claims 15, 16, 17, 20 and 21 fell within an arbitration agreement. The claim made in paragraph 15 appears to be a claim against HDIO. Why then did the primary judge hold that it was within an arbitration agreement? We think the answer is that her Honour considered the claim to have a dual aspect partly involving a party to an arbitration agreement and partly involving a non-party to an arbitration agreement. We think that this is what her Honour was saying in the following passages in her Honour’s reasons (at [553][554]):
    1. The following claims for relief in the originating application are not matters the subject of an arbitration agreement because they are claims made solely against respondents that are not a party to any arbitration agreement:

(a) Prayers 4 and 5 (against RHIO);

(b) Prayers 18 and 19 (against HDIO);

(c) Prayers 32 to 34 (against MDI and MDIO).

  1. There is a matter in the proceeding that comprises the applicants’ claims over the Roy Hills tenements, including the claim for imposition of a constructive trust, an account of profits and equitable compensation. These are the claims made by prayers 1 to 3, 6 and 7 of the originating application. Defined in this way, however, the matter does not fall wholly within the scope of an arbitration agreement because it includes the dispute between the applicants and RHIO as to RHIO’s ownership rights over the Roy Hills tenements.
  2. This construction of the primary judge’s reasons is supported by her Honour’s approach in relation to MDIO. In that case, her Honour held that the claim for a declaration of constructive trust was not within an arbitration agreement in circumstances where there was no claim for an account of profits or equitable compensation against Mrs Rinehart or HPPL.
  3. In relation to HDIO, the submissions of the third party companies and other appellants challenging her Honour’s conclusions were the same as they were in relation to RHIO and we reach the same conclusions.
  4. In relation to MDIO and the Mulga Downs Tenement, the claims for relief are as follows:

  1. A declaration that the Fourteenth Respondent (MDI) and the Fifteenth Respondent (MDIO) hold, and have held since they acquired them, their interests in the mining tenements known as ‘Mulga Downs’ (collectively, the Mulga Downs Tenements) on constructive trust for BHR, JLH, HRW and GHFR.
  2. An order that MDI and MDIO provide an account of profits to the Applicants in relation to the benefits obtained by them from their ownership, use, possession and exploitation of the Mulga Downs Tenements.
  3. In the alternative to order 33, an order the MDI and MDIO pay equitable compensation to the Applicants for their loss of opportunity to earn profits from the exploitation of the Mulga Downs Tenements.

  1. As we have said, in the case of the Mulga Downs Tenement, there are no express claims for an account of profits and equitable compensation against Mrs Rinehart or HPPL. The primary judge held that claims 32, 33 and 34 did not fall within an arbitration agreement.
  2. The submissions of the third party companies and other appellants challenging her Honour’s conclusions were the same as they were in relation to RHIO and HDIO and we reach the same conclusions.

The application for leave to intervene by WPPL

  1. Before turning to consider the parties’ submissions, the applications for leave to intervene by WPPL and DFD Rhodes Pty Ltd and Matthew John Keady and Dorothea Margaret Campbell by chain of Executors of the Estate of Donovan Frances Duncan Rhodes (the Rhodes parties) must be addressed. On 7 December 2016, the Chief Justice made identical orders with respect to the respective applications for leave to intervene. Relevantly, those orders were as follows:
    1. The applications by Wright Prospecting Pty Ltd (WPPL) and DFD Rhodes Pty Ltd, and Matthew John Keady and Dorothea Margaret Campbell by chain of Executors of the Estate of Donovan Frances Duncan Rhodes (the DFD Rhodes Parties) to intervene in the hearing of the application for leave to appeal and any appeal be stood over to 13 February 2017 before the bench hearing the application for leave to appeal and the appeal.
    2. On or before 20 January, the applicants for intervention file and serve joint written submissions of no more than 15 pages in font and spacing in accordance with Practice Note APP2 directed to, and only to, the subject matters in [36] and [37] of the submissions of WPLL [sic] of the intervention application.

The order in paragraph 2 refers to paragraphs 36 and 37 of WPPL’s outline of submissions on the intervention application which were filed before the hearing on 7 December 2016. Those paragraphs are in the following terms:

(1) Who are the parties to the arbitration agreements (Agreed Question 8; NOA Grounds 6-7)

  1. On the assumption that HPPL’s application for a permanent stay against WPPL will involve a consideration of whether WPPL’s claims are made “through or under” a party to the arbitration agreements, WPPL would wish to make limited submissions on this question. Those submissions would be aimed at demonstrating that there is no sensible basis to contend that WPPL is required to arbitrate its claims.

(2) What matters are the subject of an arbitration agreement (Agreed Question 9; NOA Grounds 8-9; CA Grounds 9)

  1. WPPL would wish to make limited submissions on the proper characterisation of the “matters” the subject of any arbitration agreements. Those submissions would seek to address both the proper delineation between WPPL’s claims and any “matter” the subject of an arbitration agreement and the implications of competing claims to a proprietary interest in an asset in characterising the arbitral “matters”.
  2. Joint written submissions dated 20 January 2017 were filed in accordance with the order in paragraph 2. The submissions of the Rhodes parties included the following:

41. Unless any party is contending or agitating in this appeal that

  1. the matters which are the subject of this appeal should cause the WASC litigation between the four competing groups of parties to be stayed or that the WASC proceedings are otherwise affected or bound by this appeal (which relates only to the arbitration agreements between BHR, JLH, HPPL and parties related to HPPL),
  2. the Rhodes Parties or WPPL are “statutory parties” under the Act on the basis that they are claiming “through or under” a party to the relevant agreements,
  1. the dispute in the WASC litigation, or parts of it, is a “matter” capable of arbitration, or

d) the WASC proceedings should be cross vested to the Federal Court,

then the Rhodes Parties do not need to make further submissions in this appeal.

  1. At the beginning of the hearing before this Court, counsel for the Rhodes parties advised the Court that following correspondence between the parties, they no longer pressed their application for intervention. The application for leave to intervene by the Rhodes parties was dismissed with no order as to costs.
  2. WPPL pressed its application for leave to intervene. The application is made pursuant to r 9.12 of the Federal Court Rules 2011 (Cth) (“in a proceeding”), or r 36.32 (“in an appeal”). The criteria in each case are broadly the same.
  3. The context in which WPPL makes its application for leave to intervene is as follows. WPPL has instituted two actions against HPPL and HDIO in the Supreme Court of Western Australia. Hamersley WA Pty Ltd is a third party to those actions. Those actions have been consolidated and they are being case managed with another action which has been brought by the Rhodes parties. In the actions by WPPL, it claims royalties payable upon iron ore from the Hope Downs mine and a 50% ownership interest in the Hope Downs Tenements. Counsel for WPPL told the Court that the property is actually a subset of those tenements which are normally referred to as the East Angelas Tenements. The four children were joined to the actions on or about 23 September 2016 and a trial date, which had been set commencing 31 October 2016, was vacated. The four children were joined to the actions because they were considered necessary parties to the actions: see Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [No 7] [2016] WASC 305. On or about 1 November 2016, HPPL and HDIO applied for an order in the actions that the parties or, in the alternative, the defendants, be referred to arbitration pursuant to s 8(1) of the CA Act and certain consequential orders. That application has been adjourned pending the outcome of these applications and appeals. The applicants in this proceeding have applied for an order that WPPL be joined as a party to this proceeding, but that application has been adjourned pending the outcome of these applications and appeals. WPPL submits that HPPL will use the outcome of this appeal, if it is favourable to their interests, to force WPPL to arbitration or to obtain a stay of WPPL’s actions in the Supreme Court of Western Australia.
  4. We consider that leave to intervene on the limited matters identified in paragraph 2 of the orders made by the Chief Justice on 7 December 2016 should be granted. The two matters raise difficult issues upon which we have found the submissions of WPPL of assistance. As is often the case with difficult issues, the precise way in which a proposition is put can be of importance and, in that context, we think that WPPL’s submissions are different from those of the other parties. We do not think that WPPL’s intervention has or had the potential to unreasonably interfere with the ability of the parties to conduct the applications and appeals as they wished.
  5. We made it clear at the hearing and we reiterate it in these reasons that the Court is dealing with the rights and obligations of the parties before it. We are not dealing with the rights and obligations of WPPL.
  6. With respect to the matters upon which we give leave to intervene, WPPL’s submissions were directed to upholding the conclusions of the primary judge. In that respect, they took a similar position to that of the applicants. In the discussion which follows, we do not propose to differentiate between the submissions of WPPL and those of the applicants.

Whether any party that is not a party to the deeds and to the arbitration agreements can be referred to arbitration because they claim “through or under” entities who are parties

  1. “Party” is given an extended meaning under the CA Act and includes a person “claiming through or under a party to the arbitration agreement”: s 2(1). There is an equivalent provision in the International Arbitration Act 1974 (Cth): s 7(4). The third party companies contended before the primary judge that they fell within the extended definition of party, but the primary judge rejected that contention.
  2. The third party companies are respondents to the proceeding brought by the applicants and, although no defences have been filed, they are defending the proceedings. It is clear on the authorities that by advancing a defence, a person may be claiming through or under a party to an arbitration agreement within the extended definition: Tanning Research Laboratories Inc v O’Brien [1990] HCA 8; 169 CLR 332 at 342 per Brennan and Dawson JJ. The third party companies claim that by the defences to the applicants’ claims which they propose to advance, they will be claiming through or under a party or parties to an arbitration agreement. We turn now to consider in more detail than we have considered previously the applicants’ allegations against the third party companies.
  3. HDIO was incorporated on 24 October 1995. It is a wholly owned subsidiary of Hancock Minerals Ltd which company is in turn a wholly owned subsidiary of HPPL. It is said to hold 100% of certain Hope Downs Tenements, and 50% of other Hope Downs Tenements as part of the Hope Downs joint venture with certain Rio Tinto entities. It is said to have acquired the Hope Downs Tenements from HPPL on or about 11 September 1997. Plainly, that was well before the Hope Downs Deed. The applicants’ allegations are detailed and complex, but the effect of them is that as a result of conduct by Mrs Rinehart involving fraud and breaches of fiduciary and other duties, HPPL gained title to the Hope Downs Tenements. The applicants allege that HPPL was knowingly involved in the fraud and breaches of duty and that it participated in “a fraudulent and dishonest design”. The applicants allege that because of these matters, HPPL held only legal title to the Hope Downs Tenements. They allege that HDIO knew of the breaches of fiduciary duty because Mrs Rinehart was a director and the controlling mind of HDIO. As we understand the applicants’ case, it is that HDIO is a knowing recipient of trust property and the property is subject to a constructive trust. An account of profits is sought from HDIO in relation to the benefits received by HDIO during its ownership, possession, use and exploitation of the property. In the alternative, equitable compensation is sought.
  4. RHIO was incorporated on 1 February 2007. That is, after the Hope Downs Deed. It is a wholly owned subsidiary of Roy Hill Holdings Pty Ltd and that company is in turn owned by Hanrine Holdings Pty Ltd, KJTC Pty Ltd and POSCO. Hanrine Holdings Pty Ltd is a wholly owned subsidiary of HPPL. It is said that HDIO acquired the Roy Hill Tenements on 16 November 2007. The applicants’ allegations in relation to Roy Hill Tenements are broadly similar to those that are made in relation to the Hope Downs Tenements, namely, breaches of duty and fraud by Mrs Rinehart, knowing involvement and participation by HPPL and, as a result, HPPL holding only legal title to the Roy Hill Tenements. RHIO is alleged to have known of the breaches of fiduciary duty at the time it received legal title to the Roy Hill tenements because at all material times, Mrs Rinehart was a director of the company. The relief sought by the applicants against RHIO is a declaration of a constructive trust and an account of profits or equitable compensation.
  5. MDIO was incorporated on 6 November 1997. It is a wholly owned subsidiary of Georgina Hancock (1965) Pty Ltd which in turn is a wholly owned subsidiary of HPPL. It is said that MDIO acquired 98% of the Mulga Downs Tenement from HRL on 10 February 2009. HRL became a subsidiary of HPPL in November 1995 and changed its name to Westraint Resources Pty Ltd. The applicants’ pleas in relation to the Mulga Downs Tenement are more complex and not as clear as the applicants’ pleas in relation to the Hope Downs Tenements and the Roy Hill Tenements. On 27 March 1992, HRL held a 100% interest in the Mulga Downs Tenement. Mrs Rinehart, acting in breach of her duties, engaged in conduct which resulted in HPPL obtaining, indirectly, a 100% interest in the Mulga Downs Tenement. That conduct related to the transfer of the shares in HRL from HFMF to HPPL. On 10 February 2009, Mrs Rinehart caused the Mulga Downs Tenement to be transferred from HRL to MDI as to 2 shares, and to MDIO as to 98 shares. The applicants allege that the conduct concerning the Mulga Downs Tenement was in breach of fiduciary duty and pursuant to a dishonest and fraudulent design. The applicants allege, among other things, that both HRL and the Mulga Downs Tenement are held on constructive trust for the beneficiaries of the HFMF Trust. We have already set out the relief sought by the applicants against MDIO.
  6. As we have said, the primary judge held that the third party companies were not claiming through or under any party to an arbitration agreement. We turn now to the primary judge’s reasons for reaching that conclusion.
  7. Her Honour discussed a number of authorities, including Tanning Research Laboratories and the decision of the Victorian Court of Appeal in Flint Ink NZ Ltd v Huhtamaki Australia Pty Ltd and Another [2014] VSCA 166;289 FLR 30. No party on these applications and appeals suggested that her Honour erred in her summary of the relevant authorities.
  8. Her Honour then addressed the two main submissions made by the third party companies and other appellants with respect to HDIO. The first submission was that HDIO was entitled to the benefit of, or entitled to rely on, the express acknowledgement (cl 4), releases (cl 6) and undertakings (cl 7) in the Hope Downs Deed. As a further basis for this submission, HDIO sought to rely on s 11(2) of the Property Law Act 1969 (WA) which is in the following terms:

11. Persons taking who are not parties

(2) Except in the case of a conveyance or other instrument to which subsection (1) applies, where a contract expressly in its terms purports to confer a benefit directly on a person who is not named as a party to the contract, the contract is, subject to subsection (3), enforceable by that person in his own name but —

(a) all defences that would have been available to the defendant in an action or proceeding in a court of competent jurisdiction to enforce the contract had the plaintiff in the action or proceeding been named as a party to the contract, shall be so available;

(b) each person named as a party to the contract shall be joined as a party to the action or proceeding; and

(c) such defendant in the action or proceeding shall be entitled to enforce as against such plaintiff, all the obligations that in the terms of the contract are imposed on the plaintiff for the benefit of the defendant.

  1. The primary judge rejected these submissions. She did not think that HDIO could rely on the Hope Downs Deed because it was not a party to the deed and she did not think that s 11(2) had been engaged because she did not accept that there was a sustainable argument that cl 4 or any other provision of the Hope Downs Deed “expressly in its terms purports to confer a benefit directly on” HDIO. Her Honour noted that the submission that s 11(2) applied was not developed before her. On the appeals, these submissions were repeated without any significant elaboration. In connection with s 11(2), the Court was referred to The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; 225 FLR 1 at [3333][3373]; Jaddcal Pty Ltd v Minson (No 3) [2011] WASC 362 at 370-377 [47]- [54]; Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; 44 WAR 1 at 669-672 [3438]-[3450] per Carr AJA, and in connection with HDIO’s alleged right to rely directly on cl 4 of the Hope Downs Deed, the Court was referred to Airberg Pty Ltd v Cut Price Deli Pty Ltd (unreported, Federal Court of Australia, Lindgren J, 3 August 1998) and Global Brand Marketing Inc v YD Pty Limited [2010] FCA 323 at [34]- [35], [49]. Again, in the absence of any developed argument with respect to s 11(2), we would take the same approach as the primary judge. In any event, even if cl 4 confers a benefit within s 11(2), it does not follow that HDIO can invoke the arbitration clause which in its terms refers to the parties to the deed.
  2. The second main submission which was put to the primary judge was that HDIO was claiming through or under HPPL (which was a party to the Hope Downs Deed) because it can take the benefit of a defence available to HPPL, being the release claimed in the deed. In other words, the submission was that in order for the applicants to succeed against HDIO, they must impeach the title of HPPL in the sense of establishing that the beneficial title lies elsewhere. HDIO will take the benefit of a defence available to HPPL being the releases in the Hope Downs Deed. Her Honour rejected this submission. With respect, her Honour’s reasons for doing so are more clearly expressed when she comes to deal with RHIO and MDIO than they are when she is dealing with HDIO.
  3. With respect to RHIO, the same two submissions were made and were rejected by the primary judge. In relation to the first submission, the primary judge noted that RHIO was incorporated after the Hope Downs Deed and, therefore, was not a part of the “Hancock Group” within cl 7(b) at the time of the deed. As to the second submission, the primary judge said the following (at [539]):

… However, if RHIO defends the claims against it on the basis that the Hope Downs deed extinguished a previously existing constructive trust, in my view, RHIO would not be relying on a defence which would have been available to HPPL under the Hope Downs deed. Rather, it is relying on the circumstances in which RHIO acquired title to the tenements.

  1. With respect to MDI and MDIO, the submissions and approach of the primary judge were relevantly the same as they were with respect to RHIO. As to the second submission, the primary judge said that the fact that it would be said that MDI and MDIO obtained the tenement from HRL and that potentially HRL’s beneficial interest was confirmed or otherwise protected by the Hope Downs Deed, did not mean MDI and MDIO were relying on a derivative defence. Her Honour said that rather, their defence arose entirely from their position as transferees of interests in the tenements from HRL.
  2. It seems to us that what her Honour was saying may be put in two ways, either as alternative or cumulative matters. First, that the fact that in the course of defending the applicants’ proceeding against them, each of the third party companies may, or will, raise the effect of the deeds on the transferor’s title (ie., either HPPL or HRL) does not mean that they are relying on a defence they have derived from the transferor (ie., a derivative defence). Secondly, or in the alternative, as a matter of characterisation, the key feature of their defence to the applicants’ claim is not the effect of the deeds on the transferor’s title, but rather their position as transferees.
  3. The third party companies and the other appellants advanced three submissions on the appeal. First, they submitted that the relationship between a subsidiary company (eg., HDIO, RHIO and MDIO) and its parent company (eg., HPPL, Westraint Resources Pty Ltd) is sufficient to establish that the former company is claiming through or under the latter company. Secondly, they submitted that cl 7(b) of the Hope Downs Deed, which was an undertaking by the parties to the deed not to challenge the right of any member of the Hancock Group to any of the Hancock Group Interests at any time, entitles HPPL to obtain an injunction to restrain the applicants from pursuing the third party companies and entitles those companies to a stay of the proceedings while the injunction is being pursued. It is submitted that this ability to obtain a stay derives from a party to the arbitration agreement. Thirdly, they submitted that an essential element of their respective defences is that they obtained clear title from the transferors and at least one reason for that is the releases and other covenants in the deeds. Those releases and covenants are defences which are or were exercisable by parties to the arbitration agreements.
  4. The first two submissions must be rejected and can be dealt with relatively briefly. The third submission is the burden of the appeals with respect to the extended definition of “party”.
  5. In support of their first submission, the third party companies and other appellants relied on the decision in RousselUclaf v GD Searle & Co Ltd and Anor [1978] 1 Lloyd’s Rep 225. In that case, Graham J held that a company which was a wholly owned subsidiary of a party to an arbitration agreement and which sold that party’s products under its direction in the United Kingdom was claiming through or under the party to the arbitration. His Lordship said at [1978] 1 Lloyd’s Rep 231:

The argument does not admit of much elaboration, but I see no reason why these words in the Act should be construed so narrowly as to exclude a wholly-owned subsidiary company claiming, as here, a right to sell patented articles which it has obtained from and been ordered to sell by its parent. Of course, if the arbitration proceedings so decide, it may eventually turn out that the parent company is at fault and not entitled to sell the articles in question at all; and, if so, the subsidiary will be equally at fault. But, if the parent is blameless, it seems only common sense that the subsidiary should be equally blameless. The two parties and their actions are, in my judgment, so closely related on the facts in this case that it would be right to hold that the subsidiary can establish that it is within the purview of the arbitration clause, on the basis that it is “claiming through or under” the parent to do what it is in fact doing whether ultimately held to be wrongful or not.

  1. The Court of Appeal said that the decision in Roussel-Uclaf v GD Searle was wrongly decided on this point in City of London v Sancheti [2009] 1 Lloyd’s Rep 117. Collins LJ (with whom Laws and Richards LJJ agreed) said at [2009] 1 Lloyd’s Rep 122 [33]-[34]:

33. In Mustill & Boyd, Commercial Arbitration, 2nd Edition (1989), it is said (at page 137) that the decision can perhaps be explained on the basis of agency, and otherwise it is difficult to see how the subsidiary could have taken any part in the arbitration, and elsewhere (at page 472) the decision is described as “curious”. In Grupo Torras SA v Sheikh Fahad Mohammed Al-Sabah [1995] 1 Lloyd’s Rep 374 Mance J (as he then was) said (at page 451) that he did not find it easy to extract any principle from the reasoning.

34. … But even without such a distinction I do not consider that Roussel-Uclaf v GD Searle & Co Ltd assists Mr Sancheti. In my judgment, it was wrongly decided on this point and should not be followed. A stay under section 9 can only be obtained against a party to an arbitration agreement or a person claiming through or under such a party and a mere legal or commercial connection is not sufficient.

  1. In Tanning Research Laboratories, the High Court held that the liquidator of a company was claiming through or under a party to an arbitration agreement when he sought to rely on grounds of defence which were available to the company and that company was a party to an arbitration agreement with the plaintiff. Brennan and Dawson JJ (with whom Toohey J agreed) noted that that factual decision had not arisen before and they referred to previous cases where the courts had held that a person was claiming through or under a party to an arbitration agreement. Their Honours said at 169 CLR 341-342:

In statutes similar to s. 7 of the Act, the phrase “through or under a party” or its equivalent has been construed to apply to, inter alios, a trustee of a bankrupt’s estate (Piercy v. Young), an assignee of a debt arising out of a contract containing an arbitration clause (The “Leage”), a company being a subsidiary of a parent company which is party to an arbitration agreement (Roussel-Uclaf v. Searle; but cf. Mount Cook (Northland) v. Swedish Motors) and a company being a parent of a subsidiary company which is party to an arbitration agreement when claims are brought against both companies based on the same facts: J.J. Ryan & Sons v. Rhone Poulenc Textile. S.A.

(citations omitted)

  1. In Flint Ink, Nettle JA sitting as a member of the Victorian Court of Appeal, followed Roussel-Uclaf v GD Searle to the extent of saying that if the rights of the person and the rights of the party to the arbitration agreement are closely related, then the former is “claiming through or under” the latter. His Honour said at 289 FLR 50 [74]:

It follows in my view that Huhtamaki Australia is claiming through or under Huhtamaki NZ in the sense identified in Tanning. In terms of the test propounded by Brennan and Dawson JJ in Tanning, Huhtamaki Australia is so claiming because essential elements of its cause of action against Flint Ink are that Flint Ink breached its agreement with Huhtamaki NZ or breached a duty of care to Huhtamaki NZ which is alleged to have arisen out of the agreement. Equally, in terms of the test favoured by Deane and Gaudron JJ, Huhtamaki Australia is claiming through or under Huhtamaki NZ because the matter principally in controversy between Huhtamaki Australia and Flint Ink is whether Flint Ink breached its agreement with Huhtamaki NZ or breached its alleged duty of care to Huhtamaki NZ. So, too, in terms of Graham J’s analysis in Roussel-Uclaf, Huhtamaki Australia is claiming through or under Huhtamaki NZ because, on the facts of the case, Huhtamaki Australia’s rights against Flint Ink are so closely related to Huhtamaki NZ’s rights against Flint Ink that is right to hold that Huhtamaki Australia is ‘claiming through or under’ Huhtamaki NZ.

As far as we can see, the Victorian Court of Appeal was not referred to City of London v Sancheti.

  1. In BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd and Another [2008] FCA 551 168 FCR 169 at 176-177 [14]- [15], Finkelstein J made it clear that there are two requirements, not just one, before the extended definition of “party” is satisfied and they are that there is a relationship of sufficient proximity between the party to the arbitration agreement and that the person claiming through or under that party and the claim or defence must be derived from that party. A similar point was made by Bergin CJ in Eq in nearmap Ltd v Spookfish Pty Ltd [2014] NSWSC 1790 at [45].
  2. With respect, we would not follow Roussel-Uclaf v GD Searle. Not only has it not been followed in England, but it seems to us to be inconsistent with the two decisions mentioned in the previous paragraph. It was not, as was submitted by the third party companies and other appellants, approved by Brennan and Dawson JJ in Tanning Research Laboratories. In the passage set out above (at [306]), their Honours were merely listing examples of circumstances in which the courts had previously held that a person was claiming through or under a party to an arbitration agreement. Furthermore, we note that in that passage, their Honours also referred to an authority which distinguished Roussel-Uclaf v GD SearleMount Cook (Northland) Ltd v Swedish Motor Ltd [1986] 1 NZLR 720. Most importantly, in our respectful opinion, the principles identified by Brennan and Dawson JJ are not consistent with the adoption of such a test. In what in our respectful view is the critical passage in their reasons dealing with this issue, their Honours said at 169 CLR 342:

In the first place, as sub-s. (2) speaks of both parties to an arbitration agreement, a person who claims through or under a party may be either a person seeking to enforce or a person seeking to resist the enforcement of an alleged contractual right. The subject of the claim may be either a cause of action or a ground of defence. Next, the prepositions “through” and “under” convey the notion of a derivative cause of action or ground of defence, that is to say, a cause of action or ground of defence derived from the party. In other words, an essential element of the cause of action or defence must be or must have been vested in or exercisable by the party before the person claiming through or under the party can rely on the cause of action or ground of defence. A liquidator may be a person claiming through or under a company because the causes of action or grounds of defence on which he relies are vested in or exercisable by the company; a trustee in bankruptcy may be such a person because the causes of action or grounds of defence on which he relies were vested in or exercisable by the bankrupt.

(emphasis added)

  1. Gaudron and Deane JJ wrote separate joint reasons. Their Honours agreed with the other members of the Court in the result, but expressed themselves differently, although whether the differences are material differences is not a matter which needs to be addressed. Their Honours said at 169 CLR 353:

Section 7(2) of the Act is concerned with “proceedings [which] involve the determination of a matter … capable of settlement by arbitration”. Its operation is thus not confined to proceedings in which the parties seek the same relief as might have been sought in arbitration proceedings. Because s. 7(2) has this wider operation, the question whether a person is claiming through or under a party to the arbitration agreement is necessarily to be answered by reference to the subject matter in controversy rather than the formal nature of the proceedings or the precise legal character of the person initiating or defending the proceedings.

… In so doing, the liquidator stands precisely in the position in which Hawaiian would have stood if it were in a position to require and did require a determination of the amount, if any, of its enforceable indebtedness to T.R.L. So standing, the liquidator claims the benefit of the defences and answers which would otherwise have been available to Hawaiian, and thus claims through or under Hawaiian….

  1. We do not think a person is claiming through or under another person merely because they are in a close relationship or because their respective rights are “closely related”.
  2. The second submission of the third party companies and other appellants seems to be a reformulation of the argument put below based on Airberg v Cut Price Deli. It seems to us that it must be rejected. Even if it be assumed that HPPL could, based on cl 7(b) of the Hope Downs Deed, seek an injunction restraining the applicants from proceeding against the third party companies, that is a right in HPPL, not in any of the third party companies. It is true that that might form the basis for an application for a stay by the third party companies, but there is no right to a stay and whether or not a stay is granted may be influenced by a whole range of considerations. In any event, we do not think that the possibility or even likelihood of a stay being granted can be characterised as a defence in the hands of the applicant for a stay. Beyond that, it is a Trident General Insurance Co Limited v McNiece Bros Proprietary Limited [1988] HCA 44; 165 CLR 107 issue, if we may call it that, and that issue was not developed on the appeals.
  3. The third submission is at the heart of the matter. The third party companies and other appellants contend that they will be claiming through or under a party to an arbitration agreement because they will be relying on a defence of such a party, being the releases and other covenants in the deeds, which defence has the following characteristics: it is an essential element of the defence and it is exercisable by the party to the arbitration agreement.
  4. For their part, the applicants submitted that the third party companies have not foreshadowed a defence derived from a party to an arbitration agreement. The “persons” claiming under the extended definition and the “parties” to the arbitration agreements might be closely related, but that in itself is not sufficient.
  5. The applicants also submitted that the third party companies do not derive a defence from a party to an arbitration agreement because the constructive trust which they allege against the third party companies in this case is a remedial constructive trust rather than an institutional constructive trust: see Bathurst City Council v PWC Properties Pty Limited [1998] HCA 59; 195 CLR 566 at 584-585 [40]- [41]. We find that submission somewhat surprising, having regard to the allegations in the statement of claim, but, in any event, it is not clear to us how a digression into this area of the law advances the matter, particularly as it is a key allegation of the applicants that the transferors at no stage held the beneficial interest in the relevant tenements.
  6. The applicants submitted that its argument that the third party companies are not “claiming” through or under a party to an arbitration agreement is supported by the fact that the liability of a knowing assistant or knowing recipient is direct and not indirect or derivative. The nature or quantum of liability of a defaulting fiduciary and a knowing assistant or knowing recipient need not necessarily coincide. Although a knowing assistant or recipient’s liability may be described as accessorial liability, that only means that an element of the liability is a breach of fiduciary duty. As the applicants correctly submitted, these propositions in the case of a knowing assistant are supported by the decision of the High Court in Michael Wilson & Partners Limited v Nicholls and Others [2011] HCA 48; 244 CLR 427 at 455-458 [100][106] per Gummow A-CJ, Hayne, Crennan and Bell JJ. We agree with the applicants that there is no reason why a similar analysis does not apply in the case of a knowing recipient. In our opinion, the nature of a knowing recipient’s liability does support the conclusion that the third party companies are not claiming through or under the defaulting fiduciaries.
  7. We return to the sentences which we have emphasised in the passage from the joint reasons of Brennan and Dawson JJ set out above (at [309]). As was the case in Tanning Research Laboratories, we are not aware of any prior authorities which have addressed the situation before this Court. The third party companies and other appellants relied on the second of the two sentences and submitted that, in this case, they will rely on a defence which a party to an arbitration agreement has a right to exercise and which includes as an essential element, the releases and other covenants in the deeds. We reject this submission. We would not have thought that the third party companies have a derivative defence in the ordinary sense of that term. We recognise that the cases have made it clear that the extended definition of “party” is not restricted to cases where there has been an assignment or other means of transfer, but it is relevant that there is no legal relationship between the party to the arbitration agreement and the third party companies relevant to the defence. The fact that they are related parties might explain why the transfer of property took place, but is in itself not sufficient. The only relationship is purely factual, being the transfer of the property from a party to an arbitration agreement to a third party company. Furthermore, we do not consider that the releases and other covenants in the deeds are an essential element of the defences of a party to the arbitration agreements and of the third party companies in the relevant sense. It may be accepted that, as a matter of fact, they are highly likely to raise the defences, but they are not bound to do so. A defaulting fiduciary and a knowing recipient may raise different defences and just as the liability of a knowing recipient is not derivative (see Michael Wilson & Partners at 244 CLR 455-458 [100]-[106]), neither are their defences.
  8. For these reasons, we do not think that the third party companies are claiming through or under a party to an arbitration agreement within the extended definition of party in s 2(1) of the CA Act. Although the primary judge expressed herself differently, we think that her Honour’s approach to the matter is similar to the approach which we think should be taken.
  9. It is not to the point to consider whether the above approach is consistent with the approach taken by the Victorian Court of Appeal in Flint Ink because this Court must follow Tanning Research Laboratories. We would note, however, that Flint Ink involved a cause of action by the third party, Huhtamaki Australia, against the party to the arbitration agreement (Flint Ink NZ) with some unique features. The only acts of breach by Flint Ink NZ were said to be those directed towards Huhtamaki NZ (the other party to the arbitration agreement) (see Warren CJ at 289 FLR 38 [26]) and to found its cause of action, Huhtamaki Australia relied on contractual and common law obligations owed by Flint Ink NZ to Huhtamaki NZAs Nettle JA put it, Huhtamaki Australia’s third party claim was “critically dependent upon and derivative from the contractual and common law obligations alleged to have been owed by Flint Ink to Huhtamaki NZ” (at 289 FLR 50 [76]; see also Mandie JA at 289 FLR 50 [148]). To the extent that the case cannot be distinguished by reference to those matters, we would respectfully decline to follow it.
  10. In each appeal, the applicants filed a notice of contention which contained the following grounds:

  1. The primary judge’s finding that neither HDIO, RHIO, MDI nor MDIO is a “party” to any relevant arbitration agreement (Judgment [535], [540], [541]) should be upheld for the additional reason that, in the absence of a filed defence from any of those parties or any evidence as to their proposed defences, there is no adequate basis for a finding that any of those parties will defend the claims against it “through or under” a party to any relevant arbitration agreement, and therefore no basis for a finding that any of those parties falls within the definition of a “party” in the uniform commercial arbitration legislation.
  2. The primary judge’s finding that MDI is not a “party” to any relevant arbitration agreement (Judgment [541]) should be upheld for the additional reason that MDI, having not entered an appearance in the proceeding, has not made any written or oral representation as to how it proposes to defend the claims against it, thus there is no basis for finding that it will defend the claims against it “through or under” a party to any relevant arbitration agreement.

  1. It is not strictly necessary for us to deal with these contentions. We can indicate that had it been necessary to do so, we would reject the second ground. The applications for orders under s 8(1) of the CA Act were brought at an appropriate stage in the proceeding and we refer back to what we have said as to the proper approach to an application under s 8 (at [141]-[152]).
  2. We have already addressed the matter raised in the third ground.
  3. In our opinion, HDIO, RHIO and MDIO are not or would not be claiming through or under HPPL or one of its other related parties. On that basis, the claims for relief against those companies would not be stayed under s 8(1) of the CA Act. What should happen to them bearing in mind that as a result of this Court’s decision, there will be no proviso hearing and there will be a stay under s 8(1) of the CA Act in relation to the balance of the applicants’ claims? Before the primary judge, the third party companies and other appellants argued that even if they are wrong and the conclusion is that the third party companies did not fall within the extended definition, then nevertheless the proceeding against them should be stayed pending the arbitration. The primary judge did not address the argument, almost certainly because of the order her Honour ultimately made. We will address the argument after addressing the next issue.

Whether the claims against the third party companies are part of the same “matter” within s 8(1) of the CA Act

  1. It is important at the outset to distinguish between two propositions. The first proposition is that the claims of a party to an arbitration agreement against a non-party fall within an arbitration clause and an unwilling party or an unwilling non-party can be required to bring those claims or defend them in an arbitration. The second proposition is that the parties to an arbitration agreement are in dispute and that dispute falls within the arbitration agreement and includes a dispute about whether one of the parties can bring or make claims against nonparties. The burden of the appellants’ submissions was directed at the second proposition and not the first. However, we will address the first proposition for the sake of completeness.
  2. The primary judge said at [553] of her Honour’s reasons that the claims made solely against the third party companies were not the subject of an arbitration agreement because they are claims made against respondents that are not parties to any arbitration agreement. That addresses the first proposition because it involves pursuing the claims in the arbitration against the third parties. In our respectful opinion, her Honour was correct.
  3. Section 7 of the CA Act defines an “arbitration agreement” for the purposes of the Act as an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship whether contractual or not. The provisions of the Hope Downs Deed are set out above (at [79]). Those provisions and, in particular, cl 20 make it clear that the dispute which is the subject of the arbitration agreement is a dispute between the parties to the deed.
  4. Section 8(1) of the CA Act directs attention to whether the action before the Court is brought “in a matter which is the subject of an arbitration agreement”. In Tanning Research Laboratories, Gaudron and Deane JJ (at 169 CLR 351) said that a matter does not necessarily encompass all the claims within the scope of the controversy in the court proceedings and in addressing the phrase “matter … capable of settlement by arbitration” in the International Arbitration Act, said it requires “some subject matter, some right or liability in controversy which, if not co-extensive with the subject matter in controversy in the court proceedings, is at least susceptible of settlement as a discrete controversy”. In Comandate Allsop J said of the word, “matter” in s 7(2) of the International Arbitration Act the following at 157 FCR 106-107 [235] and [238]:
    1. … the word “matter” in s 7(2)(b) can be seen to be a reference to the differences between the parties or the controversy that are or is covered by the terms of the arbitration agreement. That is, such part (or all) of the differences that fall within the scope of the arbitration agreement. It is that body of differences which is to be capable of settlement by arbitration.

  1. … The above approach conforms to the requirement expressed in Tanning Research 169 CLR 332 to ascertain the “matter” by reference to the subject matter in dispute and the substantive questions for determination in the proceedings and, necessarily, by reference to the scope of the arbitration agreement. …

The “body of differences” in this case are the differences between the parties to the arbitration agreement and they do not include the applicants’ actual pursuit of claims against the third party companies.

  1. However, none of the foregoing is to say that there cannot be a dispute between the parties to an arbitration agreement about or concerning the right of one of the parties to pursue claims against a non-party. This is the second proposition. A party to an agreement containing an arbitration agreement may have an enforceable contractual right to prevent the other party from pursuing claims for relief against a non-party. A dispute between the parties as to the existence of that right may be a dispute within an arbitration clause. To illustrate this point, we take the applicants’ claims against HDIO as an example. The HPPL and other parties to the Hope Downs Deed contend that by cl 7(b) the applicants have promised not to challenge the right of, among others, HDIO to, among other interests, the Hope Downs Tenements. The applicants purport to do that in claims 15, 18 and 19, and HPPL and Mrs Rinehart, for example, dispute their right to do that. We are satisfied to the required level that that dispute is a dispute between the parties under the deed. The HPPL and other parties to the Hope Downs Deed submitted that the same point can be made with respect to other clauses in the various deeds, but we do not need to address those clauses. The point is sufficiently made by reference to cl 7(b) of the Hope Downs Deed. We would also observe that the fact that there may need to be some elaboration in the arbitration of the relief claimed by HPPL and Mrs Rinehart does not detract from these conclusions.
  2. As to RHIO, we agree with the submissions of the appellants that there is an arguable case to the required level to the same effect as there is with HDIO, even though RHIO was incorporated after the execution of the Hope Downs Deed. As we have already said at [234], clause 7(b) refers to a challenge to the right of any member of the Hancock Group to any Hancock Group Interests at any time and it is arguable that that includes future members of the Hancock Group. It is also arguable to the required level that even if the Hancock Group does not include future members, the challenge to RDIO’s title necessarily involves impugning the title of RDIO’s predecessor in title, HPPL. It may be said (as the appellants submitted) that such a construction makes commercial sense and it cannot have been objectively intended that the operation of cl 7(b) would depend on whether there was a change in the member of the HPPL Group which held the relevant tenements. As we have explained in Section D, the fact that there are arguments, even cogent arguments, to the contrary does not detract from the conclusion that there is a dispute between the parties under the deed.
  3. As to MDIO, similar arguments apply as those we have identified with respect to RHIO.
  4. In our opinion, whilst the dispute between the applicants and the third party companies is not within an arbitration agreement, there is a dispute between the parties to the agreements which is within the arbitration agreements about the applicants’ right or ability to pursue claims for relief against the third party companies.

Whether the claims against the third party companies should be stayed under the Court’s general power

  1. At [160]-[163] of her Honour’s reasons, the primary judge concluded that the Court had a general power to control its own proceedings which extended to ordering a stay of its own proceedings. Her Honour referred to Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 193 at 203 (per French J, who had referred to Bowen CJ in Hughes Motor Services Pty Ltd v Wang Computers Pty Ltd [1978] FCA 49; (1978) 35 FLR 346 at 351, who in turn had referred to the Full Court in Grollo Darwin Management Pty Ltd v Victor Plaster Products Pty Ltd [1978] FCA 17; (1978) 33 FLR 170, and to Toohey J in Muller v Fencott [1981] FCA 129;(1981) 53 FLR 184 at 189) and to Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547; 100 FCR 420.
  2. In Recyclers, Merkel J said at [2000] FCA 547; 100 FCR 420 [65]-[66]:
    1. 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 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 at 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.
    2. 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).
  3. These principles were not the subject of debate on appeal. They appear basal and correct.
  4. These principles were applied by Jagot J in Casaceli v Natuzzi S.p.A. [2012] FCA 691; 292 ALR 143 at 158-159[48]- [49] where the “principal” claims were to be the subject of arbitration and the other claims were stayed.
  5. We have decided that there should be a stay of the proceeding under s 8(1) of the CA Act as to all of the claims, except for the actual claims against the third party companies. The dispute between the applicants and the HPPL and other parties to the arbitration agreements as to whether the applicants can claim relief against the third party companies is within the arbitration agreements. That means that the only claims not within the stay to be granted under s 8(1) of the CA Act are the actual claims against the third party companies. If both the arbitration and the legal proceedings with respect to these claims proceed at the same time, then there is a risk of inconsistent findings and the incurring of unnecessary expense. The claims which will proceed to arbitration are fairly described as the principal claims, and, in the exercise of the Court’s general power to control its own proceedings, in the interests of justice and to avoid unnecessary expense, the actual claims against the third party companies should be stayed to permit the arbitration to proceed first.

F Whether the applicants have engaged the proviso to s 8(1) by a relevant attack on the arbitration agreements

G Whether the power to refer any attack on the arbitration agreements to arbitration is mandatory or discretionary

H To the extent that the power to refer any attack on the arbitration agreements to arbitration is discretionary, how that discretion should be exercised

  1. These questions raise a number of issues, including the meaning of the phrase “null and void, inoperative, or incapable of being performed”, the principle of separability (or, as sometimes referred to, the principle of severability), the character of the necessary attack on the arbitration agreement for the proviso to s 8(1) (being the words following from “unless” in the last two lines) to be engaged, and the principle of competence of the arbitral tribunal.
  2. The primary judge dealt with some of these questions in answering agreed questions 10 and 12 at [116]-[145] and agreed question 11 at [662]-[668]. Her Honour began with agreed question 10 (at [116]-[124]) and concluded, correctly in our view for the reasons at [141]-[152] above and as discussed below, that the Court was not necessarily required to deal with the proviso, the arbitral tribunal can be allowed to deal with it.
  3. In answering question 12 (at [125]-[140]), the primary judge concluded that the phrase “null and void, inoperative or incapable of being performed” encompassed claims that the agreement was affected by undue influence, duress, unconscionability, fraudulent concealment, misrepresentation, misleading and deceptive conduct and fraud on a power. (It is necessary to read [125]-[140] in conjunction with [662] to recognise that all these types of claims were found by her Honour to be capable of falling within the proviso.)
  4. At [662]-[668], in dealing with question 11, the primary judge concluded that there were relevant attacks on the arbitration clauses that should be heard by the Court: this applied to the Hope Downs Deed, the 2007 HD Deed, the 2005 Deed of Obligation and Release, the 2009 Deed of Further Agreement and the 2010 Deed of Variation. We disagree with her Honour’s approach to the answering of question 11, though we do not disagree with many of the statements of principle to which her Honour referred.

Separability

  1. It is necessary to begin by discussing the doctrine of separability. To a degree it underpinned questions 10, 11 and 12 dealt with by the primary judge although there was no question placed before her Honour about it.
  2. Subsections 16(1), (2) and (3) of the CA Act are in the following terms:

(1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.

(2) For that purpose, an arbitration clause which forms part of a contract is to be treated as an agreement independent of the other terms of the contract.

(3) A decision by the arbitral tribunal that the contract is null and void does not of itself entail the invalidity of the arbitration clause.

  1. These provisions (based on Art 16(1) of the Model Law) embody two related principles. The first is the principle of separability reflected in s 16(2). The separability principle is a rule, reached and laid down pragmatically, rather than logically, by courts in common law and civil law jurisdictions over decades and found in arbitral rules and conventions, that the agreement to arbitrate in the arbitration clause and the substantive agreement in which one finds the clause should be viewed as separate and distinct agreements. The invalidity of the main contract does not necessarily entail the invalidity of the arbitration clause. One significance of the doctrine is that an attack by one party on the validity of the whole agreement is not taken necessarily to be an attack on the arbitration agreement (which is separate). The importance of this is that the arbitrator has authority to decide that the (separate) substantive agreement is invalid or void or voidable, without, by such a conclusion, destroying his or her own authority to act as an arbitrator. Thus, the doctrine (as we discuss below) requires that there be a distinct and separate attack on the arbitration clause itself for the validity of the arbitration agreement (arbitration clause) to be brought into question. We will come shortly to the significance of this for the appeal.
  2. The New York Convention of 1958 did not contain any provision concerning separability, but the principle was well-known before the creation of the Model Law in 1985. Article 18(2) of the European Convention Providing a Uniform Law on Arbitration done at Strasbourg 20 January 1966 stated that “[a] ruling that the contract is invalid shall not entail ipso jure the nullity of the arbitration agreement contained within it”: see van den Berg AJ, The New York Arbitration Convention of 1958 (Kluwer, 1981) at 146.
  3. In 1963, the French Cour de Cassation in Gosset recognised the principle in broad terms (referred to in Blackaby N and Partasides C, Redfern and Hunter on International Arbitration (6th ed, Oxford, 2015) at 105 [2.106]):

In international arbitration, the agreement to arbitrate, whether concluded separately or included in the contract to which it relates, is always save in exceptional circumstances…completely autonomous in law, which excludes the possibility of it being affected by the possible invalidity of the main contract.

  1. In 1967, the United States Supreme Court in Prima Paint Co v Flood Conklin Manufacturing Corporation [1967] USSC 172; 388 US 395 (1967) at 402-406 recognised the principle in State and federal courts.
  2. Article 16(1) of the Model Law was based on Arts 21(1) and (2) of the UNCITRAL Arbitration Rules 1976:
  1. The second principle within s 16(1) is the principle of competence (sometimes referred to as the principle of kompetenz-kompetenz or compétence-compétence) of the arbitrator, not just to decide upon the validity of the main agreement, but also to decide upon the existence or validity of the arbitration agreement – that is on his or her own authority to decide. We will come to the significance of this second aspect of the principle in due course when we discuss whether the Court must, or should, deal with any separate attack on the arbitration clause, and when we discuss the Constitutional validity of s 8(1) of the CA Act. For clarity, we will refer to the first aspect of Art 16(1) as the separability principle, and to the second as the competence principle.
  2. The relationship of these aspects of the separability and competence principles can be seen in s 16(1), (2) and (3) of the CA Act: subs (1) deals with competence to decide jurisdiction, whether partial (ie the scope or reach of the arbitration agreement) or total (the existence or validity of the arbitration agreement); subs (2) expresses the related foundation for subs (1) of the independence (separateness or autonomy) of the arbitration agreement; and subs (3) expresses the lack of consequence, through separateness, of a decision as to the invalidity of the main contract upon the arbitration clause within it.  The inter-relationship of these aspects of the principles can be seen in the wholeness of the drafting in Art 16(1) of the Model Law.
  3. The separability principle that founded the authority or competence of the arbitrator to decide upon the validity of the main agreement was not fully accepted into Anglo-Australian general law until the 1990s.  The views expressed by the House of Lords in Heyman at [1942] AC 366-367, 382-383 and 395 (though obiter dicta) were to the effect that the invalidity of the whole agreement (for example by its avoidance ab initio) necessarily destroyed the arbitration clause as part of it, and so the arbitrator’s authority to decide this question.  In 1991, in delivering the leading judgment for the majority (Clarke and Handley JJA) in IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466, Clarke JA said at 485:

    … Particular reliance was placed in these submissions upon the power now granted to the court under s 87 of the Act to declare contracts void ab initio.  The significance of this power is that the effect of a declaration that a contract, which contains an arbitration clause, is void ab initio is that there was never a contractually valid submission to arbitration: see Heyman v Darwins, Ltd [1942] AC 356 at 367, 383 and 395 and Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 364.

    The received doctrine is that for this reason an arbitrator has no jurisdiction to determine whether or not a contract containing the arbitration clause under which he was appointed was, or should be declared to have been, void ab initio.  If, the argument proceeds, that is the well-recognised law then an intention to grant to an arbitrator power to exercise extensive powers, including the power to declare the contract void ab initio, should not be attributed to the parties.

  4. In 1994, the New South Wales Court of Appeal (in a bench that included Clarke JA) in Ferris v Plaister (1994) 34 NSWLR 474 unanimously disavowed IBM.  We will not cite the comprehensive judgments of the members of the Court of Appeal (Kirby P, Mahoney and Clarke JJA). It suffices to say that the reversal by Clarke JA of his own views was based on the recognition of the powerful statements on the doctrine of separability in cases such as Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corporation Ltd [1981] AC 909 at 980 per Lord Diplock and 998 per Lord Scarman and on the influential and comprehensive judgment of Steyn J (as his Honour then was) in Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co Ltd [1992] Lloyds Rep 81. The further course of the matter in England and the vindication of Steyn J’s views by the Court of Appeal was described in the reasons of Allsop J in Comandate 157 FCR at 102-103 [221]-[222], which we need not repeat. The reference to the judgment of Mason J in Codelfa, by Clarke JA in IBM should not be understood as revealing High Court authority inconsistent with Ferris v Plaister for the reasons given by Allsop J in Comandate 157 FCR at 103-104 [225]-[227].
  5. This change of view by the New South Wales Court of Appeal brought their expression of the principle into conformity with that by judges of this Court in QH Tours Ltd v Ship Design and Management (Aust) Pty Ltd (1991) 33 FCR 227 per Foster J and Morton v Baker (unreported, Federal Court of Australia, Einfeld J, 25 March 1993).
  6. The reasons of Steyn J and of the Court of Appeal in Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co Ltd [1993] QB 701 referred to the influential article by Judge Schwebel “The Severability of the Arbitration Agreement” in International Arbitration (1987), pp 1-60. That paper, as noted by Leggatt LJ in the Court of Appeal: [1993] QB at 717, not only pointed out the lineage of the doctrine in the United States to the Arbitration Act 1925, but also pointed out the important feature of it that to set aside the arbitration agreement requires a direct and particular attack on that agreement.
  7. The doctrine of separability was statutorily recognised in England by s 7 of the Arbitration Act 1996 which provides:

    Unless otherwise agreed by the parties, an arbitration agreement which forms or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement.

  8. Meanwhile, in 1989, the Commonwealth Parliament gave the Model Law the force of law in the International Arbitration Act 1974 (Cth) in which Art 16 embodied the principles of separability and competence.
  9. In 2007, the House of Lords dealt with s 7 of the Arbitration Act 1996 (UK) and the separability principle in Fiona Trust. Lord Hoffmann addressed the question at [2008] 1 Lloyd’s Rep 257 [17]-[19] of his reasons. His Lordship recognised (at [17]) that there may be cases in which the ground of invalidity of the main agreement is identical to that of the arbitration agreement. He gave the examples of forgery and of a complete lack of authority to enter any agreement at all. But he noted, importantly, that the arbitration agreement was invalid not because the main agreement was invalid, but because the signature on the separate arbitration agreement was either forged or placed there without authority. However, a lack of authority may be limited to the main agreement. Lord Hoffmann’s discussion at [2008] 1 Lloyd’s Rep 257 [18] recognised that the question as to whether there is or is not a separate attack on the arbitration clause depended on the nature of the complaint, and a clear understanding of it:

    On the other hand, if (as in this case) the allegation is that the agent exceeded his authority by entering into a main agreement in terms which were not authorised or for improper reasons, that is not necessarily an attack on the arbitration agreement.  It would have to be shown that whatever the terms of the main agreement or the reasons for which the agent concluded it, he would have had no authority to ente4r into an arbitration agreement.  Even if the allegation is that there was no concluded agreement (for example, that terms of the main agreement remained to be agreed) that is not necessarily an attack on the arbitration agreement.  If the arbitration clause has been agreed, the parties will be presumed to have intended the question of whether there was a concluded main agreement to be decided by arbitration.

  10. The facts in Fiona Trust concerned bribery of the person charged with responsibility for entry into such contracts in order to obtain favourable terms for charterers. At [2008] 1 Lloyd’s Rep 258 [19], Lord Hoffmann said:

    … But that does not show that he was bribed to enter into the arbitration agreement.  It would have been remarkable for him to enter into any charter without an arbitration agreement, whatever its other terms had been.  Mr Butcher QC, who appeared for the owners, said that but for the bribery, the owners would not have entered into any charter with the charterers and therefore would not have entered into an arbitration agreement. But that is in my opinion exactly the kind of argument which section 7 was intended to prevent. It amounts to saying that because the main agreement and the arbitration agreement were bound up with each other, the invalidity of the main agreement should result in the invalidity of the arbitration agreement. The one should fall with the other because they would never have been separately concluded. But section 7 in my opinion means that they must be treated as having been separately concluded and the arbitration agreement can be invalidated only on a ground which relates to the arbitration agreement and is not merely a consequence of the invalidity of the main agreement.

  11. Lord Hope dealt with responsibility at [32]-[35] of his reasons in like terms. His Lordship gave as an example impersonation or forgery as “unlikely to be severable from the arbitration clause”: see [2008] 1 Lloyd’s Rep 260 [34]. His Lordship put the matter with great clarity at [2008] 1 Lloyd’s Rep 260-261[35] as follows:

    That is not this case, however.  The appellants’ argument was not that there was no contract at all, but that they were entitled to rescind the contract including the arbitration agreement because the contract was induced by bribery.  Allegations of that kind, if sound, may affect the validity of the main agreement.  But they do not undermine the validity of the arbitration agreement as a distinct agreement.  The doctrine of separability requires direct impeachment of the arbitration agreement before it can be set aside.  This is an exacting test.  The argument must be based on facts which are specific to the arbitration agreement.  Allegations that are parasitical to a challenge to the validity to the main agreement will not do.  That being the situation in this case, the agreement to go to arbitration must be given effect.

    (emphasis added)

  12. The points made by Lord Hoffmann and Lord Hope are central to the arguments here.  It can be accepted that there may be allegations or complaints about the validity of the main agreement in question that are relevant to any attack on the arbitration agreement.  But this is not because of any argument based on causation that since the main agreement is invalid, so is the arbitration agreement; rather it is because the nature of the allegation is that it stands as an independent ground of impeachment of the separate arbitration agreement directly related to the arbitration agreement. In a valuable passage in Joseph D, Jurisdiction and Arbitration Agreements and their Enforcement (3rd ed, Sweet and Maxwell, 2015) at 127-129 [4.40] there is a discussion of examples of circumstances where the same ground can be seen to impeach both the main agreement and the arbitration agreement: non est factum, illegality of a kind that is directed to the arbitration agreement such as a consumer protection statute, lack of signature and some kind of fundamental mistake (about the arbitration agreement). Fraud, if fundamentally impeaching any consent, may be independently directed to the arbitration agreement: see Credit Suisse First Boston (Europe) Ltd v Seagate Trading Co Ltd [1999] 1 Lloyd’s Rep 784 at 797. In El Nasharty v J Sainsbury PLC [2007] EWHC 2618 (Comm); [2008] 1 Lloyd’s Rep 360, however, duress not specifically directed to the arbitration clause was not sufficient to prevent a stay. The fact that the main agreement may be vulnerable to avoidance because of misrepresentation, unconscionable behaviour, or non-disclosure will not amount to a distinct and separate attack on the arbitration agreement.
  13. The doctrine of separability recognised by s 16 of the CA Act was in fact part of the common law of Australia as enunciated by the Court of Appeal of New South Wales in Ferris v Plaister and the Full Court of this Court in Comandate.  That position conforms with the common law of England enunciated at least since the Court of Appeal in Harbour Assurance and with the recognised position in many civil law countries.Is there an attack on the arbitration clause here?

    “null and void”

  14. Mrs Rinehart and the HPPL interests submitted that there was no relevant attack on the arbitration agreement here for the purposes of s 8 for at least two reasons: first, that the pleading did not disclose a separate and distinct attack on the arbitration agreements in question; and, secondly, that “null and void” was a narrow expression meaning devoid of legal effect (at all, or at least at the time the Court becomes seised of the issue) and the pleading did not assert this.
  15. We will come to the pleading in due course.
  16. At [128]-[136] of her Honour’s reasons, the primary judge helpfully set out the following as to the approaches of the commentators, this Court and the American and English courts:

    128         In Comandate, Allsop J at [209]-[214] referred to international commentary and case law as follows:

    As to the phrase “null and void”, two major texts on the New York Convention and the Model Law: van den Berg AJ, [The New York Arbitration Convention of 1958 (Kluwer, 1981)] and [Holtzmann and Neuhaus commentary] respectively, reveal that there was very little discussion about the meaning of the phrase in the meetings and Working Groups leading to the two instruments: see generally van den Berg AJ, op cit at 154-161 and [Holtzmann and Neuhaus commentary] at 302-307. At 156, van den Berg says the following about the phrase:

    The words may be interpreted as referring to those cases where the arbitration agreement is affected by some invalidity right from the beginning. It would then cover matters such as the lack of consent due to misrepresentation, duress, fraud or undue influence.

    It may be added that the words ‘null and void’ etc. would also apply the question of capacity of a party to agree to arbitration, which question is to be decided under his personal law or another law which a court may hold applicable to this issue according to its conflict rules.

    Mustill M and Boyd S, Commercial Arbitration (Butterworths, 1989) at 464 express the view that the phrase ‘null and void’ includes circumstances not only where the arbitration agreement has never come into existence, such as when there was no concluded bargain, but also the case where an arbitration agreement has come into existence but has become void ab initio, eg by rescission on the ground of misrepresentation. These comments concerned s 1 of the Arbitration Act 1975 (UK) which contained the following in respect of granting a stay of court proceedings:

    … the court, unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings.

    Professor Merkin, on the other hand, in Arbitration Law (LLP, 2004) at [8.32] says 63 that an arbitration agreement is not null and void if it is merely voidable, at least until it has been avoided.

    The authors of Russell on Arbitration (22nd ed, Sweet and Maxwell, 2003) made the following comment about [when] the phrase as it appears in s 9 of the Arbitration Act 1996 (UK) [will apply] at 302:

    The court is satisfied that the arbitration agreement is null and void. This will be the case where the arbitration agreement (as opposed to the main contract) was never entered into or where it was entered into but has subsequently been found to have been void ab initio, …

    Section 9 of the Arbitration Act 1996 (UK) is relevantly in the following terms:

    On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.

    The United States courts appear to take a narrow view of the content of “null and void” conformable with a perceived declared policy in the New York Convention of enforceability of agreements to arbitrate. In Chloe Z Fishing Co Inc v Odyssey Re (London) Ltd 109 F Supp 2d 1236 (2000) (SD Cal 2000) Gonzalez J, applying Oriental Commercial and Shipping Co (UK) Ltd v Rosseel NV 609 F Supp 75 (1985) (SDNY 1985), said at 1241:

    [U]nder Article II, § 3, an agreement to arbitrate is ‘null and void’ only when it is subject to internationally recognised defenses such as duress, mistake, fraud, or waiver, or when it contravenes fundamental policies of the forum nation.

    129         Allsop J did not determine whether a contention that an arbitration agreement is liable to be declared void under s 87 of the Trade Practices Act was sufficient to engage the “null and void” proviso, or whether it was necessary for the arbitration agreement to be “null and void” at the time of the application for the stay.

    130         In Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v Lauro 712 F. 2d 50 (3rd Cir, 1983) at [19], the Court discussed the interpretation of the “null and void”, and said:

    [W]e conclude that the meaning of Article 11 section 3 which is most consistent with the overall purposes of the Convention is that an agreement to arbitrate is “null and void” only (1) where it is subject to an internationally recognized defence such as duress, mistake, fraud or waiver … or (2) when it contravenes fundamental policies of the forum State. The “null and void” language must be read narrowly, for the signatory nations have jointly declared a general policy of enforceability of agreements to arbitrate.

    131         In Bautista v Star Cruises 396 F. 3d 1289 (11th Cir, 2005) at 1294-1295, the Eleventh Circuit Court of Appeal held that:

    The [New York] Convention’s ‘null and void’ clause … limits the bases upon which an international arbitration agreement may be challenged to standard breach-of-contract defences. … [The ‘null and void’ clause] “must be interpreted to encompass only those situations – such as fraud, mistake, duress, and waiver – that can be applied neutrally on an international scale”.

    132         The term “null and void” has also been considered by the English courts. Lightman J cited US case law in Albon in construing s 9(1) and (4) of the Arbitration Act at [18]:

    My construction of s 9(1) is entirely in accord with s 9(4) and (again subject only to minor qualifications) with the authorities on that section. Section 9(4) assumes that an arbitration agreement has been concluded and it provides for the situation where issues arise whether that concluded agreement is or may be in law ‘null and void, inoperative or incapable of being performed’. In this context ‘null and void’ means ‘devoid of legal effect’. This is made clear by the decision in 1983 of the United States Court of Appeals for the Third Circuit in Rhone Mediterranee Compagnia v Achille Lauro (1983) 712 F.2d 50.

    133         In Albon, the question was whether the relevant agreement was a forgery. Following Albon, the English courts have largely construed the meaning of “null and void” to be “devoid of legal effect”. For example, in Hashwani v Jivraj [2010] EWCA Civ 712; [2011] 1 All ER 50; [2010] 2 Lloyd’s Rep 534, the Court of Appeal held that an arbitration agreement was void by reason of the operation of the (now repealed) Employment Equality (Religion and Belief) Regulations 2003 (UK). These regulations provided that a term of a contract was void where it contravened the prohibitions set out in the Regulations.

    134         Similarly in Accentuate Ltd v Asigra Inc [2009] EWHC 2655 (QB); [2009] 2 All ER (Comm) 738; [2009] 2 Lloyd’s Rep 599, Tugendhat J lifted a stay based on the argument that the arbitration agreement between the parties was null and void because it purported to apply a foreign law (the law of Ontario) which did not give effect to mandatory provisions of the law of the European Union, namely, an agent’s entitlement to compensation under the Commercial Agents (Council Directive) Regulations 1993 (UK) (implementing the European Union’s EC Directive 86/653).

    135         In Sun Life Assurance Company of Canada v CX Reinsurance Company Ltd [2003] EWCA Civ 283; [2004] Lloyd’s Rep IR 58, the English Court of Appeal found an arbitration clause to be null and void because the wider agreement, of which the arbitration agreement was part, was never formally signed. The common intention of the parties was that they were negotiating on the basis that the agreement would require authorised signatures to indicate each company’s assent. Since these signatures had never been obtained, following the orthodox rules of contract, the parties were never bound and the arbitration clause did not apply (at [38] and [45]).

    136         In Golden Ocean, Popplewell J summarised the relevant principles as follows (at [59(3)]):

    If s 9(1) is fulfilled, s 9(4) requires the court to grant a stay unless satisfied that the arbitration agreement is null and void, inoperative or incapable of having effect. Examples of disputes which will engage this subsection are where C alleges that the arbitration agreement is vitiated by fraud or misrepresentation, or that the agreement is void for illegality, mistake or duress.

  1. The primary judge dealt with the question of “null and void”, in particular in relation to the TP Act, at [128]-[140] of her Honour’s reasons. Her Honour concluded as follows at [137]-[140]:

    137         Based on these authorities, in my view, an arbitration agreement vitiated by fraud or misrepresentation, or made under duress or undue influence, will be “null and void” within the meaning of s 8(1). In those cases, the validity of the agreement is liable to be impugned from its commencement (subject to questions such as affirmation or waiver) with the result that the arbitrator’s jurisdiction may be found never to have existed.

    138         In this case, the applicants seek relief under the Trade Practices Act based on conduct alleged to amount to fraudulent concealment of relevant facts: see, for example, paras 369 and 378 of the statement of claim, concerning the 2005 deed of obligation and release. The relief sought includes orders pursuant to s 87(2)(a) declaring arbitration agreements void, for example, clause 14 of the 2005 deed of obligation and release (originating application prayer 40.2) and clause 20 of the Hope Downs deed (originating application prayer 37.1).

    139         The power under s 87(2)(a) of the Trade Practices Act to declare a contract void ab initio does no more than confer a power to make a declaration in accordance with the legal validity of the contract: Trade Practices Commission v Milreis Pty Ltd (1977) 29 FLR 144; (1977) 14 ALR 623 at 638-639 and 645-646. Thus, the claim for statutory relief requires a finding that a relevant agreement is vitiated, from its inception, by fraud.

    140         Accordingly, I am satisfied that, in an appropriate case, the proviso in s 8(1) can apply to a claim for a declaration pursuant to s 87(2)(a) of the Trade Practices Act that an arbitration agreement is void ab initio.

  2. It was submitted that her Honour erred in concluding that the phrase was wide enough to encompass the effect of a (later) declaration by reason of a vitiating factor going to the commencement of the agreement.
  3. There is a degree of imprecision in the expressions of principle in the commentary and cases set out by the primary judge.  There can, it is true, be seen to be a logical difference between an agreement having no effect in that it never existed because of, say, forgery or utter and complete lack of authority and an agreement vitiated from the outset by some legally relevant consideration such as fraud, duress, unconscionability, undue influence, misrepresentation, such that the law will either recognise or perform an act of avoidance, after which the agreement is taken no longer to be, or to have been, in existence.  We are not dealing, however, with logic, we are dealing with the meaning of words that have their origins in an international instrument affecting different legal systems and different legal traditions.
  4. Article 8 of the Model Law and s 8 of the CA Act must be read with Art 16 and s 16, respectively. As a matter of construction, the word “finds” in Art 8 and s 8 does not mandate that the Court hear the question whether the arbitration agreement is “null and void, inoperative or incapable of being performed”. We refer to what we have said at [147]-[148] above.
  5. The competence principle that is reflected in Art 16(1) and s 16(1) was discussed by Lord Collins of Mapesbury JSC in Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46; [2011] 1 AC 763 at 829-835 [79]-[98]. It has its modern origins in what was said by Devlin J in Christopher Brown Ltd v Genossenschaft Österreichischer [1954] 1 QB 8 at 12-13. For a general discussion of the principle, see Born G, International Commercial Arbitration (2nd ed, Wolters Kluwer, 2014) vol 1, ch 7.
  6. The expression of the principle in Art 16 and s 16 is amply wide enough to encompass an objection to jurisdiction on the basis that the arbitration agreement did not come into existence. The article and section use the word “existence”. It should not be narrowly read to exclude from the word “existence” the question whether the agreement ever existed at all. Conformably with the competence principle, there are well-known examples of tribunals hearing questions of the basal existence or not of the arbitration agreement. Examples include the arbitration tribunals in DallahChristopher BrownChina Minmetals Materials Import and Export Co Ltd v Chi Mei Corpn 334 F 3d 274 (3d Cir, 2003) discussed in Dallah by Lord Collins at [92]. For a recent example, see Yegiazaryan v Smagin [2016] EWCA Civ 1290; [2017] 1 Lloyd’s Rep 102.
  7. Further, the competence principle does not exclude the Court from reviewing any decision that may be made by the arbitral tribunal.  In his valuable discussion of the competence principle in Dallah, Lord Collins made this point.
  8. The proviso in Art 8 and s 8 is dealing with circumstances when the Court will not stay the proceedings and in that way refer the dispute to arbitration, because it finds that the agreement is null and void or inoperative or not capable of being performed. The scope of the proviso may be affected by understanding whether it is mandatory for the Court to hear the proviso question. As we have said, we do not consider that s 8 should be so read. There are, however, passages in some cases that suggest that if the arbitration agreement is separately impeached (so as to satisfy the separability principle) and that attack is to the effect that it was never formed or is now void, such should only be heard by the Court. In Harbour Assurance at [1992] 1 Lloyd’s Rep 86, Steyn J (as he then was) said:

    … if there is an issue as to whether the arbitration agreement exists, that issue can only be resolved by the Court. For example, if the issue is whether a party ever assented to a contract containing an arbitration clause, the issue of lack of consensus impeaches the arbitration agreement itself. Similarly, the arbitration agreement itself can be directly impeached on the ground that the arbitration agreement itself is void for vagueness, void for mistake, avoided on the ground of misrepresentation, duress and so forth. All such disputes fall outside the arbitrator’s jurisdiction. …

    See also on appeal: Harbour Assurance [1993] QB at 712D (Ralph Gibson LJ) and cf at
    717G, 718D per Leggatt LJ and 723 per Hoffmann LJ.  See also the discussion of the matter by Allsop J in Comandate 157 FCR at 99 to 101 [206]-[217] and especially at [216] and the cases there referred to.

  9. It can be seen both as a practical mistake and as contrary to the statute (s 16(1)) to conclude that, if the question is (by the framing of a separate attack on the arbitration agreement) whether the arbitration agreement is in existence or is invalid or is void, the arbitral tribunal in the agreement attacked cannot (as opposed to should not in the circumstances) hear the challenge.
  10. It is a practical mistake for the reasons expressed by Devlin J in Christopher Brown [1954] 1 QB at 12-13. It can be accepted that the view of the tribunal is not final. (We will return to this issue when we deal with the Constitutional question.)
  11. The practical consequences of the contrary view are that any challenge framed to attack the existence of the arbitration agreement, whether because it was never formed, or has been avoided, would demand that the Court rule on the arbitrator’s jurisdiction in advance.  Depending upon the factual circumstances, this would, or may, impede the arbitral process, depending on the relationship of the grounds of the separate attack on the arbitration agreement to the grounds of and issues in the arbitration.
  12. The contrary view would also require s 16(1) of the CA Act to be significantly read down, which not only does violence to the words, but which is contrary to, or inconsistent with, the competence principle that the provision was embodying.
  13. This approach is in accordance with the tenor of international jurisprudence on Art 8(1) discussed in Born, op cit vol 1, §7.03(A)(2), noting expressly p 1095.
  14. The real issue in any case is whether the Court should hear the separate attack or permit the arbitral tribunal to hear it, by staying its own proceeding.  The proper answer to this question will depend on the nature of the attack and all the circumstances.
  15. Thus, the words of Art 8 and s 8 should be read and given content against the background, first, that the Court is not required to decide the matters in the proviso; secondly, that the competence principle is wide enough to permit the arbitral tribunal to decide any question of jurisdiction, including whether the arbitration agreement came into existence; and, thirdly, that that decision by the arbitral tribunal is not final, the Court having the final say on the question. A further consideration is that s 8 should, conformably with its language, be construed to facilitate, not impede, the process of arbitration: s 1C(1) of the CA Act.
  16. There is no textual reason to limit the Court’s authority under the proviso to circumstances where the agreement is, at the time the Court is seized of the matter, already null and void.  A Court may find that an arbitration agreement is null and void by finding that it should be so considered by avoiding it for reasons which vitiate it ab initio.  This can be labelled avoiding a voidable agreement, but the ultimate conclusion is that the agreement is not in existence.  We would not construe an international instrument as turning on the difficult and contentious distinction of “void” and “voidable”. One only needs to reflect upon what Dixon J said in Posner v Collector for Inter-State Destitute Persons (Victoria) [1946] HCA 50; 74 CLR 461 at 483 (albeit about administrative decisions) to understand the unsatisfactoriness of an approach to construction that relied on a clear distinction between “void” and “voidable”:

    … [W]hen a party is entitled as of right upon a proper proceeding to have an order set aside or quashed, he may safely ignore it, at all events, for most purposes. It is, accordingly, natural to speak of it as a nullity whether it is void or voidable, and, indeed, it appears almost customary to do so. Further, the observation of Sir Frederick Pollock about the use of the word “void” in relation to contracts is even more true of its use in connection with orders and judgments:  “The use of the word void proves nothing, for it is to be found in cases where there has never been any doubt that the contract is only voidable. And as applied to other subject-matters it has been held to mean only voidable in formal instruments and even Acts of Parliament” (Principles of Contract, 10th ed. (1936), p. 56).

  17. There is as good reason not to refer a dispute to an arbitrator if the arbitration agreement was brought about by deception as there is if the execution of the agreement was a forgery or made utterly without authority.  The relevant question is whether the Court should embark on that hearing.
  18. We do not consider that the above expression of the matter is contrary to anything in the jurisprudence of other Courts.  The phrase “null and void” is to be limited as the Third and Eleventh Circuits said in Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v Lauro, 712 F. 2d 50 (3rd Cir, 1983) and Bautista v Star Cruises 396 F. 3d 1289 (11th Cir 2005) to circumstances where it is commonly internationally recognised that the consequence of the vitiating consideration is to nullify or render void a contract, such as in the consequence of duress, mistake, fraud, or fundamental policies. What is unnecessary to such a recognition, however, is some strict temporal limitation that the state of nullity or voidness already be in existence at the time the Court becomes seized of the issue.
  19. The cases relied on by Mrs Rinehart and the HPPL interests to draw that distinction do not do so.  They are concerned as much with the question of proof and, when, as a matter of discretion, the Court should order a separate trial of the matter: Golden Ocean Groups Ltd v Humpuss Intermoda Transportasi Tbk Ltd [2013] EWHC 1240 (Comm); 2 Lloyd’s Rep 421 at 436-440[54]-[59], JSC BTA Bank v Ablyazov [2011] EWHC 587 (Comm); 2 Lloyd’s Rep 129 at [47]-[50], and Berezovsky at [2013] 1 Lloyd’s Rep 259 [80].
  20. The submission was put that the words “null and void” should be construed so as to avoid the vice of a de facto determination of the substantive claims under the guise of a preliminary determination of the validity of the arbitration agreements.  We agree wholeheartedly that this result is to be avoided, if it can be.  It should be a powerful, indeed, likely overwhelming, consideration in any choice made by the Court as to whether to hear a trial of the proviso issue or to leave it to the arbitral tribunal to deal with.  But construing the words narrowly is not necessarily directly related to that sensible objective.  There may, for instance, be an attack on the arbitration agreement properly distinct that satisfies the separability principle and that is founded on a mixture of fraud and unconscionability which may be seen to make voidable the agreement which has nothing to do with the main dispute.  It may be entirely sensible for the Court to hear such an attack.  If the submission of Mrs Rinehart and the HPPL parties be correct, however, that circumstance would not fall within the proviso – a consequence that would be surprising.  It would answer the description of the Court finding that the agreement is void.
  21. Thus, we do not consider that the primary judge erred in relation to her Honour’s construction of the phrase “null and void” or her conclusion as to what claims fell within the proviso.  The phrase is intended to encompass assertion by the relevant law that the arbitration does not exist, in that it is found to be “null and void”.  That meaning does not turn on the unstable distinction between void and voidable.  Any such distinction, depending on the circumstances, may well affect whether the Court or the arbitral tribunal is the more appropriate venue for a consideration of the validity of the arbitration.The pleading
  22. At [99]-[105] above, we have described the validity claims.  It is unnecessary to set out the repetitive and formulaic pleading any further than we have already.  There is no allegation of lack of consent.  There are, of course, ample and repetitive allegations of being misled and of unconscionable conduct, of fraudulent concealment, and undue influence and duress, together with assertions that rescission has been effected or that it is relief to which there is an entitlement.
  23. It is doubtful whether there can be said to be any independent attack whatsoever on the arbitration agreement.  Virtually the entirety of the validity claims are directed without discrimination to both the main agreement and the arbitration agreements.  There are only two matters (identified in paras 288 and 290 of the pleading – see [99] and [100] above) which can possibly be seen as directed to the arbitration agreements distinctly and specifically: that there was some misrepresentation or lack of disclosure (though the matter is not clearly pleaded) concerning the fact that the arbitration process would be private (and so lack “public scrutiny”) and that the process would have to be paid for.  On one view, these are descriptions of the arbitral process not the foundation for any attack on the arbitration agreements.  We are, however, prepared to proceed on the basis that the pleading, together with the argument before us, somehow wove these considerations into an attack on the arbitration agreements, distinct from all the other complaints made against the deeds.
  24. All the other factual elements of the attacks on the various deeds are unrelated to the arbitration agreements and relate to the substantive aspects of the deeds and their disadvantages.
  25. Thus, to the extent that there can be said to be any separate attack on the arbitration agreements, such attack is limited to the asserted misleading of Ms Rinehart and Mr Hancock by not telling them that the arbitration process would be private and would have to be paid for, unlike court process, or by saying that the arbitration process was in their best interests, notwithstanding these features.  All the other factual complaints are directed to the substantive deeds and are not separately directed to the arbitration clauses.
  26. Thus, any such attack is in narrow compass.The question of who should hear any attack on the arbitration agreement
  27. We would not depart from anything said by Colman J in A v B referred to at [148] above.  That passage is of considerable assistance because it throws up the point that it is a practical question not a logical question with which we are dealing.
  28. We have come to views different in important respects from the views of the primary judge.  As is clear from what we have said earlier, we disagree with her Honour’s construction of the arbitration clauses.  That is because, with the utmost respect, we are persuaded (to the relevant extent of departing from his view about the same clause) that the construction given by Bathurst CJ to the relevant clauses was wrong.  The conclusion to which the primary judge came as to the meaning of the clauses in question meant that the nature of the “matters” the subject of the clauses using the words “under” or “hereunder” was narrow.  This led to a significant division of issue falling within and outside the arbitration agreements, and considerable complexity in the judgment and in the submissions on appeal.  In such circumstances there is a much greater likelihood that a court will retain the hearing of issues that concern the validity of the arbitration agreement given the extent of issues that will, in any event, have to be heard in the Court.
  29. A further disagreement that we have with the primary judge is the extent to which her Honour found that there was an independent impeachment of the arbitration agreements.  At [126]-[127] of her Honour’s reasons, the primary judge set out the correct approach from the separability principle of needing to identify an identifiably separate attack on the arbitration agreement.  However, at [662]-[663], the primary judge concluded that the arbitration agreements had been impeached on all bases of the validity claims. For the reasons we have given we cannot agree.  With the exception of the two matters to which we have referred, all the complaints that found the validity claims are wholly directed to the validity of the deeds and are, to use Lord Hope’s phrase, parasitical to that and are not specific or distinctive to the arbitration agreements.
  30. This means that it is unnecessary to deal with the primary judge’s exercise of discretion to the effect that the Court should hear the proviso application about the arbitration agreements.  Thus, we must consider the question afresh. In our view the relevant considerations are in short compass.  The separate attack is ill-formulated, resting on the narrow foundation identified above.  As such it has an inherent lack of apparent strength given that the two features are well-understood characteristics of commercial arbitration.  Further it may conceivably in argument (though we do not think it validly should) become entangled in matters of complaint against the substance and validity of the deeds, or at least the context of these matters.  The parties to the litigation have displayed an intensity of application to every matter in dispute that makes us consider that the prospect of holding the parties to a short hearing centred upon these two issues is unlikely.
  31. For these reasons, we think it preferable to allow the proviso question to be permitted to be determined by the arbitrator. Such an approach also conforms to the significant legal policy reflected in s 1C of the CA Act.I The Constitutional validity of s 8(1) of the CA Act
  1. The Constitutional issue is directly related to the constructional issue as to whether s 8(1) of the CA Act requires the Court to hear the proviso issue. If, as we consider is the case, s 8(1) does not require that to occur, it was submitted that any discretion to permit the arbitrator to decide the question of jurisdiction would be to permit the arbitrator, indeed to confer power upon the arbitrator, to decide a question in the exercise of judicial power. No submission was put that s 16 is unconstitutional. No notice was given to the Attorneys-General under s 78B of the Judiciary Act of any such argument.
  2. The CA Act is a State Act.  Section 79 of the Judiciary Act will pick up the provisions of the CA Act which confer powers on courts or which govern or regulate the power of a court: Rizeq v Western Australia [2017] HCA 23; 91 ALJR 707 at 729 [103]. Section 8(1) is one such section. Section 16, on the other hand, applies of its own force as State law.
  3. The ultimate source of the arbitrator’s power to decide matters in dispute between the parties is contractual: TCL Air Conditioner. Section 16(1), reflecting the common law competence principle, is also a source of statutory authority. If the Court exercises its power under s 8(1) it does not refer or move anything in court to the arbitrator. Rather, it stays its own proceedings, leaving the parties to deal with an arbitrator where one party asserts that the arbitrator has contractual authority to deal with the question and the other party denies that proposition.
  4. The common law, at least since Christopher Brown, has seen the wisdom of permitting the arbitrator to deal with the question of his or her jurisdiction, though always open to being reviewed by the Court.
  5. The arbitrator in those circumstances is not exercising judicial power.  He or she is a person purportedly appointed to a position by contractual agreement of others, who concludes that he or she cannot proceed with the appointment because of the invalidity of the arbitration agreement.  If he or she decides that there is no jurisdiction, he or she has either correctly or incorrectly concluded that the reference was without foundation.  If that is the wrong conclusion it was submitted that the CA Act had no mechanism to appeal or review that conclusion that the arbitration agreement was null and void. (This was in contrast to a conclusion that there was jurisdiction, a conclusion which could be reviewed under s 16(9), s 34(2)(a)(i) or s 36(1)(a)(i)). Thus, it was submitted the arbitrator’s view was unreviewable, so final, and so an exercise of judicial power. The matter is discussed in Born op cit vol 1 § 7.03[A][4](a) at 1101-1105.  He expresses the view that a conclusion of jurisdiction should be embodied in a preliminary award, rather than the arbitrator merely declining to entertain the matter.  The authority for such a preliminary award would be Art 16(1), and, depending upon the reasons why the arbitration agreement was found by the arbitrator to be null and void, possibly the contract (entered into but since avoided) containing an implication of authority deriving from the competence principle at common law.  There are suggestions in Singaporean, Hong Kong and Kenyan decisions referred to by Born op cit vol 1 at 1104 fn 323 that the arbitrator’s view is final and is not subject to review.  In our view, for the kinds of considerations of justice to which Born refers, it cannot be that an incorrect denial of arbitral jurisdiction by an arbitrator cannot be corrected. It may be, as Born suggests, that Art 34(2)(a)(iv) is wide enough to encompass this question.  In our view, it would need the clearest and most emphatic words in legislation (or the Model Law) to lead to the conclusion that the Court could not review such a conclusion, for instance on an application for declaratory relief. Section 5 of the CA Act provides, of course, that “[i]n matters governed by this Act, no Court must intervene except where so provided by this Act”.  We would not view that provision as clear enough to destroy what should be seen as a feature of the competence principle and an aspect of supporting, not impeding, the arbitral process – review by the Court of the question of authority of the arbitrator where authority has been denied.  This could be done by an application for declaratory relief that a tribunal did have jurisdiction, if the tribunal decided that it did not.
  6. We see no invalidity in s 8(1) if it be construed, as we consider it should be, as not requiring the Court to hear the proviso application, at least before the arbitrator does.

    J.        The applications by the applicants to amend their notices of contention and to adduce fresh evidence

    Introduction

  7. The applicants made an application to this Court for leave to amend their Notices of Contention in the two appeals and two applications to adduce fresh evidence.
  8. The applicants also challenged the primary judge’s decision to refuse to allow them to re‑open their case to adduce further evidence.  That challenge raises similar issues to at least one of the applications referred to in the preceding paragraph and it is convenient to deal with it in this section of our reasons.Background
  9. It seems to us that all of the applications relate, in one way or another, to the primary judge’s reasons for deciding that there should be a trial on the application of the proviso to the arbitration agreements in the various deeds.  Her Honour took a number of matters into account in reaching her decision.  Two matters are presently relevant and they are the public nature of a trial in this Court compared with a confidential mediation and (to a point) the merits of the applicants’ claims as to the invalidity of the deeds.
  10. After pointing out six matters that her Honour considered supported the conclusion that the appellants raised serious challenges to the applicants’ claims of undue influence, duress and other species of misconduct (at [664]), her Honour said, as to the two matters we have identified, the following (at [666]):

    666         Taking these matters into account, the following considerations nevertheless favour a trial on the application of the proviso to the arbitration agreements in the Hope Downs deed and the 2007 HD deed:

    (3)          If I am wrong in concluding that Ms Rinehart’s claims mentioned in (1) do not fall within the arbitration agreements in the two deeds, the evidence strongly suggests that the deeds were not made on an arms’ length basis in relation to either of the applicants. On the currently available evidence, the deeds were not the product of a commercial negotiation. Nor were the deeds entered after a process of disclosure of information material to the financial consequences of the deeds for the applicants or an opportunity to obtain comprehensive legal and financial advice about the implications of the deeds. In my view, it is striking and troubling that there is no evidence of advice of this kind, except perhaps in relation to the 2005 deed of obligation and release and the absence of such evidence casts significant doubt as to whether the applicants consented to resolve disputes arising in this proceeding by arbitration.

    (5)          It is necessary to balance the possible prejudice to the applicants of arbitral proceedings to which they are ultimately found not to have consented, against the possible prejudice to the respondents of Court proceedings on the application of the proviso which would undermine any right which they may ultimately be found to have had to resolution of the disputes by arbitration. In each case, the prejudice will be substantial. However, in my view, the possible prejudice to the respondents may be mitigated in Court proceedings, particularly by appropriate, confidentiality orders. On the other hand, the inherent prejudice involved in submitting to an inevitably lengthy non-consensual arbitration cannot be addressed

    The application to amend the notice of contention and the first application to adduce fresh evidence

  11. We refused this application during the course of the hearing and these are our reasons for doing so.
  12. The applicants sought leave to amend their Notices of Contention to add a new para 4.7 as follows:

    4.           The primary judge’s exercise of discretion in favour of ordering a trial on the question whether each of the arbitration agreements relied on by the First and Second respondents (aside from the Porteous settlement deed) is “null and void, inoperative or incapable of being performed” within the meaning of section 8(1) of the Commercial Arbitration Act 2010 (NSW) (NSW Act) or the Commercial Arbitration Act 2012 (WA) (WA Act) (Judgment [666] – [668]) should be upheld on the basis that

    4.7          by reason of the joinder of the First and Second Respondents to proceedings in the Supreme Court of Western Australia, some of the most serious allegations made against the Appellants will be made in open court in any event, which attenuates the asserted prejudice to the Appellants of conducting a proviso hearing, and tilts the balance of prejudice to the parties further in favour of the First and Second Respondents (Judgment [666(5)]).

  13. The first application to adduce fresh evidence which, in effect, accompanied the application to amend the notices of contention was narrowed down in the course of oral submissions so that what the applicants sought to do was tender Exhibit TRP2 to the affidavit of Mr Timothy Randolph Price sworn on 21 October 2016.  That Exhibit is a further amended substituted statement of claim in the consolidated actions in the Supreme Court of Western Australia and it is dated 30 September 2016.  The Court’s attention was directed to para 78 which is in the following terms:

    Alternatively if as Bianca Rinehart and John Hancock allege in Federal Court proceeding NSD1124/2014, entry into the 1995 Deed was undertaken pursuant to a fraudulent and dishonest design perpetrated by HPPL together with Mrs Georgina Rinehart from on or about 9 March 1993 until transferred to HPPL on or about 26 July 1996 as set out in paragraph 79 below, the East Angelas ELs were an asset or interest of WPPL as to 50% and as to the balance were an asset of the person or persons who were beneficially entitled to them by reason of them having been acquired originally by HML for itself and WPPL in equal shares and were held by HDL on trust for WPPL and that person or those persons.

  14. As we understood the applicants’ submission, it is that this evidence showed that there was even less reason to be concerned about the allegations in this proceeding being made public as a matter of prejudice to the appellants because the allegations will, in any event, be aired in the Supreme Court of Western Australia.
  15. The joinder of the children to the Western Australian actions and the filing of the further amended substituted statement of claim occurred after her Honour delivered her decision and she could not have taken them into account.  This is not a matter which can be raised by a notice of contention.  As far as the evidence is concerned, it did not take the matter very far and we already had evidence about the Western Australian actions in connection with the application for leave to intervene by WPPL.The application by the applicants to the primary judge to re-open their case to adduce further evidence.
  16. On 18 May 2016, the applicants made an application to re-open their case to adduce further evidence.  The primary judge heard the application immediately before she delivered judgment on 26 May 2016.  Her Honour refused the application saying that it was not in the interests of justice to allow it.  The applicants challenge this decision in their notices of cross-Appeal (ground 18) and notices of contention (ground 5).  The further evidence which the applicants wished to adduce became available to them by reason of proceedings in the Supreme Court of New South Wales and it was not available to them earlier.  The evidence consisted of letters from legal advisers to Mrs Rinehart in August 2006 about the execution by her of the Hope Downs Deed.  Two of the letters were dated 21 August 2006 and 22 August 2006 respectively.  The applicants referred in particular to para 2 of the letter dated 21 August 2006 and submitted that it showed that whereas Bianca Rinehart was being told that there was urgency in the signing of the Hope Downs Deed, there was in fact no urgency.  The applicants also referred to paras 11 and 12 of the advice dated 22 August 2006 and submitted that those paragraphs showed that Mrs Rinehart was advised that she should not execute the Settlement Deed and if she did so, she would be acting in breach of her duties and obligations as trustee as set out in the Trust Deed.  It is important to note that these are allegations at this stage.  These matters were said by the applicants to be relevant to the exercise of the discretion whether to order a trial on the application of the proviso.  They were said to tend to negate the six matters her Honour found to support the conclusion that the appellants raised serious challenges to the claims of undue influence, duress and other species of misconduct and to bolster the findings her Honour made in [666(3)].
  17. We reject the challenge to her Honour’s decision not to allow the applicants to re-open their case.  The applicants have not identified a House v King [1936] HCA 40; 55 CLR 499 error. Furthermore, to receive the evidence would be contrary to the order the primary judge made on 15 April 2015 (see [240] above).
  18. As far as the re-exercise of the discretion is concerned, we have dealt with that in Section H.  Furthermore, it is simply not relevant to hear detailed evidence in order to engage in fine assessments of the strengths of particular allegations.The second application by the applicants to adduce fresh evidence
  19. The applicants have received further documents of a similar nature to those which it sought to advance on their application to re-open their case.  In particular, they wish to tender the email dated 18 August 2006 which is referred to in the letter dated 21 August 2006.
  20. The application should be refused.  The fresh evidence is not relevant to the exercise of the discretion which we have addressed in Section H.  Again, we make the point that it is not relevant to the exercise of the discretion to hear detailed evidence in order to engage in fine assessments of the strengths of particular allegations.K        Orders
  21. For the above reasons, we are of the view that the applications for leave to appeal should be granted, the appeals allowed, and the cross-appeals and notice of contentions dismissed. In lieu of the orders of the primary judge, we would order the proceedings brought by the applicants be stayed under s 8(1) of the CA Act, save and except for those claims made against those entities that are not parties to the arbitration agreement, being HDIO, RHIO, MDI and MDIO (the twelfth through to fifteenth respondents in the underlying proceedings). However, given that the claims against these parties are fundamentally adjectival to those involving the parties to the arbitration agreements, we would also stay these claims as necessary to do so in the interests of justice.
  22. We set out below the orders that we presently consider should be made. If any party considers we have overlooked any matter or wishes to put anything on the form of the orders, then he, she or it has leave within 14 days and after consultation with the other parties to the litigation, to file an index of no more than one page in length of topics said to be appropriate for further submissions.  This leave is not an invitation for re-argument, but is a reflection of the complexity of this appeal should we have overlooked anything.  The Court will then list the matter, if appropriate, for argument.
  23. The substantive orders that we would make are as follows:

    1.Leave to appeal be granted.

    2.The appeals be allowed.

    3.The cross-appeals be dismissed.

    4.The notice of contentions be dismissed.

    5.The orders of the Court made on 26 May 2016 be set aside and in lieu thereof order that the proceedings brought in the Court by the applicants being NSD1124/2014 be stayed under s 8(1) of the Commercial Arbitration Act pending any arbitral reference between the parties or until further order, save and except for those claims made against those entities that are not parties to the arbitration agreement, being Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd and Mulga Downs Iron Ore Pty Ltd.

    6.The claims made by the applicants in the underlying proceedings against Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd and Mulga Downs Iron Ore Pty Ltd be stayed on the same terms as the stay in order 5.

    7.Subject to the stays in order 5 and 6 above, the matter be remitted to the primary judge for any application properly available in the light of the stays.

    8.The respondents pay the appellants’ costs of appeal including the costs of the application for leave to appeal, subject to Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd and Mulga Downs Iron Ore Pty Ltd paying the costs related to the question as to whether those entities are parties to the arbitration agreement pursuant to s 2 of the CA Act.

    9.Leave be granted nunc pro tunc to Wright Prospecting Pty Ltd to intervene on the condition that they bear their own costs of intervention.

     

For No 2: https://doylesarbitrationlawyers.com/hancock-prospecting-pty-ltd-v-rinehart-no-2-2017-fcafc-208/

Mahanagar Telephone Nigam Ltd. v. M/S. Applied Electronics Ltd. [2016] INSC 830 (24 November 2016)

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO(S). 11584 OF 2016 (Arising out of SLP(C) Nos. 2865 OF 2015)

MAHANAGAR TELEPHONE NIGAM LTD. Appellant

VERSUS

M/S. APPLIED ELECTRONICS LTD. Respondent

Dipak Misra, J.

1. Leave granted.

2. The present appeal, by special leave, calls in question the legal tenability of the order dated 28th July, 2014 passed by the High Court of Delhi wherein a Division Bench in CM No. 15530 of 2013 placing reliance on Satpal P. Malhotra & Ors. vs. Puneet Malhotra & Ors. that has followed the decision in MCD vs. International Security & Intelligence Agency Ltd. has expressed the view that the Code of Civil Procedure, 1908 (for short ‘the CPC’) would be applicable to the proceedings under the Arbitration and Conciliation Act, 1996 (for short ‘the 1996 Act). Be it stated, while expressing the view that the CPC is applicable to an appeal preferred under Section 37 of the Act, the High Court has in the impugned order opined that the cross objection preferred by the respondent herein was maintainable and accordingly entertained the same after condoning the delay.

3. Assailing the said order, it is submitted by Mr. N.K. Kaul, learned Additional Solicitor General, appearing for the appellant, that the scheme of the 1996 Act does not grant any space or make any provision as regards the applicability of CPC unlike the Arbitration Act, 1940 (for short ‘the 1940 Act’) and in the absence of any express provision, the legislative intendment is not to make it applicable. It is his further submission that Sections 5, 34, 37 and 50 of the 1996 Act constitute a complete code and it clearly provides the measures for adjudging or deciding the validity of an award or even to adjudge the defensibility of an interim order. It is urged by him that recourse to any other mode under the CPC to challenge an order or the award passed under the Act would create an anomalous situation and frustrate the intention of the legislature.

4. Learned senior counsel would submit that the pronouncement in the ITI Ltd. vs. Siemens Public Communications Network Ltd. holds that the applicability of CPC is not prohibited and, therefore, Section 5 of the 1996 Act would not be attracted and the High Court can exercise the revisional power to rectify an order passed by the District Court, but the said verdict runs counter to the decision of the larger Bench rendered in SBP & Co. vs. Patel Engineering Ltd. & Anr. and other decisions, namely, Pandey & Co. Builders (P) Ltd. vs. State of Bihar & Anr. and Fuerst Day Lawson Ltd. vs. Jindal Exports Ltd.

According to Mr. Kaul, the aggrieved person can prefer an appeal under Section 37 exercising his independent right but cannot be allowed to take recourse to file cross objection to advance his right that has been denied to him by the Court in exercise of power under Section 34 of the 1996 Act. For the said purpose he has drawn immense inspiration from the authority in Jamshed Hormusji Wadia vs. Board of Trustees, Port of Mumbai & Anr.

5. Mr. Arun Kumar Varma, learned senior counsel appearing for the respondent, per contra, would contend that the decision rendered in ITI Ltd. (supra) is absolutely unquestionable and a binding precedent on this Court. According to him, the principle stated in Jamshed Hormusji Wadia (supra) is not applicable, inasmuch as it deals with an appeal preferred after obtaining special leave under Article 136 of the Constitution. It is further propounded by him that the High Court of Bombay as well as the High Court of Delhi has correctly relied on the principle enunciated by the three-judge Bench in International Security Inteligence Agency Ltd. (supra).

6. In course of hearing, we have been apprised that the decision rendered by the High Court of Bombay has been challenged before this Court and leave has been granted, and the matter is pending for adjudication. However, we intend to express our view with regard to the submissions advanced at the Bar. The statement of objects and reasons of the 1996 Act read as follows:-

“The law on arbitration in India is at present substantially contained in three enactments, namely, the Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. It is widely felt that the 1940 Act, which contains the general law of arbitration, has become outdated. The Law Commission of India, several representative bodies of trade and industry and experts in the field of arbitration have pro-posed amendments to this Act to make it more responsive to contemporary requirements. It is also recognised that our economic reforms may not become fully effective if the law dealing with settlement of both domestic and international commercial disputes remains out of tune with such reforms. Like arbitration, conciliation is also getting increasing worldwide recognition as an instrument for settlement of disputes. There is, however, no general law on the subject in India.

2. The United Nations Commission on International Trade Law (UNCITRAL) adopted in 1985 the Model Law on International Commercial Arbitration. The General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice. The UNCITRAL also adopted in 1980 a set of Conciliation Rules. The General Assembly of the United Nations has recommended the use of these Rules in cases where the disputes arise in the context of international commercial relations and the parties seek amicable settlement of their disputes by recourse to conciliation. An important feature of the said UNCITRAL Model Law and Rules is that they have harmonised concepts on arbitration and conciliation of different legal systems of the world and thus contain provisions which are designed for universal application.

3. Though the said UNCITRAL Model Law and Rules are intended to deal with international commercial arbitration and conciliation, they could, with appropriate modifications, serve as a model for legislation on domestic arbitration and conciliation. The present Bill seeks to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and to define the law relating to conciliation, taking into account the said UNCITRAL Model Law and Rules.

4. The main objectives of the Bill are as under:–

(i) to comprehensively cover international and commercial arbitration and conciliation as also domestic arbitration and conciliation;

(ii) to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration;

(iii) to provide that the arbitral tribunal gives reasons for its arbitral award;

(iv) to ensure that the arbitral tribunal remains within the limits of its jurisdiction;

(v) to minimise the supervisory role of courts in the arbitral process;

(vi) to permit an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes;

(vii) to provide that every final arbitral award is enforced in the same manner as if it were a decree of the court;

(viii) to provide that a settlement agreement reached by the parties as a result of conciliation proceedings will have the same status and effect as an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal; and

(ix) to provide that, for purposes of enforcement of foreign awards, every arbitral award made in a country to which one of the two international Conventions relating to foreign arbitral awards to which India is a party applies, will be treated as a foreign award.

5. The Bill seeks to achieve the above objects.”

7. Section 5 of the 1996 Act provides the extent of judicial intervention. It reads as follows:- “Extent of judicial intervention.-Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.” The aforesaid provision is specific and has a definite purpose.

The language employed in the aforesaid provision provides the exclusive path for judicial intervention and does not countenance any other method. The same would be clearly demonstrable when we appreciate the scheme of the Act.

8. Section 9 of the 1996 Act provides for interim measures etc. by Court. Section 11 of the 1996 Act deals with appointment of Arbitrators. Chapter 4 that contains Sections 16 & 17 deals with jurisdiction of the Arbitral Tribunals. Section 34 provides for application for setting aside arbitral Award. Section 37 stipulates about the appealable orders. It reads as follows:-

“37. Appealable orders-

(1) An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:-

(a) refusing to refer the parties to arbitration under section 8;

(b) granting or refusing to grant any measure under section 9;

(c) setting aside or refusing to set aside an arbitral award under section 34.

(2) An appeal shall also lie to a Court from an order granting of the arbitral tribunal.-

(a) accepting the plea referred in sub-section (2) or sub-section (3) of section 16; or

(b) granting or refusing to grant an interim measure under section 17.

(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.”

9. Part II of the 1996 Act provides for enforcement of certain Foreign Awards. Section 50 of the said part provides for appealable orders. The said provision reads as follows:-

“50. Appealable orders.-

(1) An appeal shall lie from the order refusing to-

(a) refer the parties to arbitration under section 45;

(b) enforce a foreign award under section 48, to the court authorised by law to hear appeals from such order.

(2) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.”

10. Relying on the aforesaid provisions, it is proponed by Mr. Kaul that it is a complete code from all angles and hence, the CPC would not have any application and once CPC is not applicable, entertaining a cross objection under Order XLI Rule 22 is totally impermissible. In this context, we may usefully refer to Section 41(a) of the 1940 Act. The said provision dealt with procedure and powers of court. For the sake of completeness, we extract the same:-

“41 Procedure and powers of Court – Subject to the provisions of this Act and of rules made thereunder –

 (a) the provisions of the Code of Civil Procedure, 1908, shall apply to all proceedings before the Court, and to all appeals, under this Act, and

(b) ……

11. On a perusal of the said provision, in juxtaposition with the provisions contained in 1996 Act, it seems to us that the legislature has intentionally not kept any provision pertaining to the applicability of the CPC. On the contrary, Section 5 of 1996 Act lays the postulate, that notwithstanding anything contained in any other law for the time being in force in matters covered by Part I, no judicial authority shall intervene except so provided wherever under this Act.

12. In ITI Ltd. (supra) the assail was to the judgment and order of the 10th Additional City Civil Judge, Bangalore passed in a Misc. Appeal. The said appeal was preferred against an interim order passed by the arbitral tribunal. The principal question that emerged for consideration before this court is whether a revision petition under Section 115 of the CPC lies to the High Court against an order made by the Civil Court in an appeal preferred under Section 37 of the Act.

It is necessary to note here that the appellant therein instead of moving the High Court had approached this court directly. Be that as it may. Hegde, J in his opinion, analysing the scope of Section 5 has opined thus:- “We also do not find much force in the argument of learned counsel for the appellant based on Section 5 of the Act. It is to be noted that it is under this Part, namely, Part I of the Act that Section 37(1) of the Act is found, which provides for an appeal to a civil court. The term ’Court’ referred to in the said provision is defined under Section 2(e) of the Act. From the said definition, it is clear that the appeal is not to any designated person but to a civil court.

In such a situation, the proceedings before such court will have to be controlled by the provisions of the Code, therefore, the remedy by way of a revision under Section 115 of the Code will not amount to a judicial intervention not provided for by Part I of the Act. To put it in other words, when the Act under Section 37 provided for an appeal to the civil court and the application of Code not having been expressly barred, the revisional jurisdiction of the High Court gets attracted. If that be so, the bar under Section 5 will not be attracted because conferment of appellate power on the civil court in Part I of the Act attracts the provisions of the Code also.”

13. Thereafter the learned judge has expressed as follows:- “For the aforesaid reasons, while holding that this Court in an appropriate case would entertain an appeal directly against the judgment in first appeal, we hold that the High Court also has the jurisdiction to entertain a revision petition, therefore, in the facts and circumstances of this case, we direct the appellant to first approach the High Court. For the said reasons, this appeal fails and the same is hereby dismissed. We, however, make it clear that should the appellant present a revision petition within 30 days from today, the same will be entertained by the High Court without going into the question of limitation, if any.”

14. Dharmadhikari, J in his concurring opinion stated that:- “Provisions of Section 37 of the Act of 1996 bar second appeal and not revision under Section 115 of the Code of Civil Procedure. The power of appeal under Section 37(2) of the Act against order of the Arbitral Tribunal granting or refusing to grant an interim measure is conferred on the court. “Court” is defined in Section 2(e) meaning the “Principal civil court of original jurisdiction” which has “jurisdiction to decide the question forming the subject matter of the arbitration if the same had been the subject-matter of the suit”. The power of appeal having conferred on a civil court all procedural provisions contained in the Code would apply to the proceedings in appeal. Such proceedings in appeal are not open to second appeal as the same is clearly barred under sub- section(3) of Section 37.

But I agree with the conclusion reached by Brother Hegde, J. that the supervisory and revisional jurisdiction of the High Court under Section 115 of the Code of Civil Procedure is neither expressly nor impliedly barred either by the provisions of Section 37 or Section 19(1) of the Act. Section 19(1) under Chapter V of Part I of the Act merely states that the Arbitral Tribunal shall not be bound by the Code of Civil Procedure. The said action has no application to the proceedings before the civil court in exercise of powers in appeal under Section 39(2) of the Act.”

15. In International Security & Intelligence Agency Ltd. (supra), a three- Judge bench was dealing with maintainability of a cross objection under Order XLI Rule 22 of the CPC. It is apt to mention here that the controversy arose in the context of 1940 Act. While dealing with the same, the three-Judge bench ruled thus:-

“14. Right of appeal is creature of statute. There is no inherent right of appeal. No appeal can be filed, heard or determined on merits unless the statute confers right on the appellant and power on the Court to do so. Section 39 of the Act confers right to file appeal, in so far as the orders passed under this Act are concerned, only against such of the orders as fall within one or other of the descriptions given in clauses (i) to (vi) of sub-Section (1) of Section 39.

The Parliament has taken care to specifically exclude any other appeal being filed, against any order passed under the Act but not covered by clauses (I) to (vi) abovesaid, by inserting the expression “and from no others” in the text of sub-Section (1). Clause (a) of Section 41 extends applicability of all the provisions contained in the Code of Civil Procedure, 1908 to (i) all proceedings before the Court under the Act, and (ii) to all the appeals, under the Act. However, the applicability of such of the provisions of the Code of Civil Procedure shall be excluded as may be inconsistent with the provisions of the Act and/or of rules made thereunder. A bare reading of these provisions show that in all the appeals filed under Section 39, the provisions of the Code of Civil Procedure, 1908 would be applicable. This would include the applicability of Order 41 including the right to take any cross objection under Rule 22 thereof to appeals under Section 39 of the Act.

15. Right to prefer cross objection partakes of the right to prefer an appeal. When the impugned decree or order is partly in favour of one party and partly in favour of the other, one party may rest contended by his partial success with a view to giving a quietus to the litigation. However, he may like to exercise his right of appeal if he finds that the other party was not interested in burying the hatchet and proposed to keep the lis alive by pursuing the same before the appellate forum. He too may in such circumstances exercise his right to file appeal by taking cross objection. Thus taking any cross objection to the decree or order impugned is the exercise of right of appeal though such right is exercised in the form of taking cross objection. The substantive right is the right of appeal; the form of cross objection is a matter of procedure.

20. Once we hold that by taking cross objection what is being exercised is the right of appeal itself, it follows that the subject-matter of cross objection and the relief sought therein must conform to the requirement of Section 39(1). In other words, a cross objection can be preferred if the applicant could have sought for the same relief by filing an appeal in conformity with the provisions of Section 39(1) of the Act. If the subject- matter of the cross objection is to impugn such an order which does not fall within the purview of any of the categories contemplated by clauses (i) to (vi) of sub-Section (1) of Section 39 of the Act, the cross objection shall not be maintainable.”

16. After so stating, the Court adverted to the fate of cross- objections if the appeal itself is held not competent or not maintainable. We are not concerned with the aforesaid delineation and, therefore, construe it inessential to advert to the said facet. Suffice it to mention that the decision was rendered in the backdrop of 1940 Act and hence, it is distinguishable.

17. In Pandey & Co. Builders (P) Ltd. (supra), the Court reproduced a passage from the treatise “Law and Practice of Arbitration and Conciliation” wherein the learned authors have stated thus:- “In the context of this Act, Section 37(3) barring second appeal against an appellate order under Section 37(1) and (2) is really superfluous. This Act has not enacted any provision analogous to s 41 of the previous Act. It is radically different from the Act of 1940. Therefore, the Code of Civil Procedure 1908 proprio vigore does not apply to the proceedings before the court in its original or appellate jurisdiction.

Section 5 imposes a blanket ban on judicial intervention of any type in the arbitral process except ‘where so provided under Part I of this Act. Pursuant to this provision, Section 37(1) provides appeals against certain orders of the court, while s 37(2) provides appeal against certain orders of the arbitral tribunal. However, Section 37(3) prohibits a second appeal against the appellate order under Section 37(1) and (2). However, in view of the provisions of s 5, a second appeal against the appellate order under s 37(1) and (2) would not be permissible, even if s 37(3) had not been enacted. It was, therefore, not really necessary to enact this provision, and it seems to have been enacted by way of abundant caution.”

18. We may immediately state that Mr. Kaul has commended the said passage to highlight that the same has been given the stamp of approval by this Court. We have referred to the said passage only to emphasise the effect and impact of Section 5 of 1996 Act. In the said decision, it has also been ruled that even if the bar under Section 37(3) of 1996 Act would not have been provided by the legislature, Section 5 would have been adequate enough to bar a second appeal.

19. In Fuerst Day Lawson Limited (supra), the issue that arose for consideration is whether an order, though not appealable under Section 50 of the 1996 Act, could nevertheless be subject to appeal under the relevant provisions of the Letters Patent of the High Court. We are absolutely conscious that the said judgment was delivered in the context of Part II of the Act. Section 5, as noticed earlier, does not relate to Part II. However, analysing various authorities relating to maintainability of Letters Patent Appeal, the court pointed out the distinction between the language of the 1940 Act and the 1996 Act. In this context, it is profitable to quote para 89 in its entirety:-

“89. It is thus, to be seen that Arbitration Act, 1940, from its inception and right through to 2004 (in P.S. Sathappan) was held to be a self- contained code. Now, if the Arbitration Act, 1940 was held to be a self- contained code, on matters pertaining to arbitration, the Arbitration and Conciliation Act, 1996, which consolidates, amends and designs the law relating to arbitration to bring it, as much as possible, in harmony with the UNCITRAL Model must be held only to be more so. Once it is held that the Arbitration Act is a self-contained code and exhaustive, then it must also be held, using the lucid expression of Tulzapurkar, J., that it carried with it “a negative import that only such acts as are mentioned in the Act are permissible to be done and acts or things not mentioned therein are not permissible to be done”. In other words, a letters patent appeal would be excluded by the application of the one of the general principles that where the special Act sets out a self-contained code the applicability of the general law procedure would be impliedly excluded.”

20. Slightly earlier, we have mentioned that the court has referred to a series of decisions with regard to the maintainability of a Letters Patent Appeal. The two-Judge Bench has referred to the Constitution Bench decision in P.S. Sathappan (dead) by Lrs. vs. Andhra bank Ltd. And Others[8] and other decisions. In paragraph 36 of the judgment, the Court has culled out certain principles. For the present case, the sub clause (vii) of paragraph 36 is significant. It reads as follows:

“36(vii) The exception to the aforementioned rule is where the special Act sets out a self-contained code and in that event the applicability of the general law procedure would be impliedly excluded. The express provision need not refer to or use the words “letters patent” but if on a reading of the provision it is clear that all further appeals are barred then even a letters patent appeal would be barred.”

21. It is interesting to note that in ITI Ltd. (supra) the two-Judge bench has held that solely because a second appeal is not maintainable, it would not debar the exercise of jurisdiction under Section 115 of the CPC, because under Section 115 of the CPC the court exercises its power of supervisory or revisional jurisdiction.

22. In Patel Engineering Ltd. (supra) the majority, while dealing with the power under Articles 226 and 227 of the Constitution, has ruled that:- “45. It is seen that some High Courts have proceeded on the basis that any order passed by an arbitral tribunal during arbitration, would be capable of being challenged under Article 226 or 227 of the Constitution of India. We see no warrant for such an approach. Section 37 makes certain orders of the arbitral tribunal appealable.

Under Section 34, the aggrieved party has an avenue for ventilating his grievances against the award including any in-between orders that might have been passed by the arbitral tribunal acting under Section 16 of the Act. The party aggrieved by any order of the arbitral tribunal, unless has a right of appeal under Section 37 of the Act, has to wait until the award is passed by the Tribunal. This appears to be the scheme of the Act.

The arbitral tribunal is after all, the creature of a contract between the parties, the arbitration agreement, even though if the occasion arises, the Chief Justice may constitute it based on the contract between the parties. But that would not alter the status of the arbitral tribunal. It will still be a forum chosen by the parties by agreement. We, therefore, disapprove of the stand adopted by some of the High Courts that any order passed by the arbitral tribunal is capable of being corrected by the High Court under Article 226 or 227 of the Constitution of India. Such an intervention by the High Courts is not permissible.

46. The object of minimizing judicial intervention while the matter is in the process of being arbitrated upon, will certainly be defeated if the High Court could be approached under Article 227 of the Constitution of India or under Article 226 of the Constitution of India against every order made by the arbitral tribunal. Therefore, it is necessary to indicate that once the arbitration has commenced in the arbitral tribunal, parties have to wait until the award is pronounced unless, of course, a right of appeal is available to them under Section 37 of the Act even at an earlier stage.”

23. We are absolutely conscious that the principle stated in the aforesaid verdict pertaining to interference of exercise of jurisdiction was in relation to any order passed by the arbitral tribunal. However, we have referred to the same to exposit and underline the stress on the minimal intervention of the court. In essence it has to be remembered that the concept of dispute resolution under the law of arbitration, rests on the fulcrum of promptitude.

24. In ITI Ltd. (supra), it has been held that the jurisdiction of the civil court to which a right to decide a lis between the parties has been conferred can only be taken away by a statute in specific terms and exclusion of such right cannot be inferred because there is always a strong presumption, that the civil courts have the jurisdiction to decide all questions of civil nature and on that basis the court held that it cannot draw inference merely because the Act has not provided CPC to be applicable and thus it should be held that the CPC is inapplicable.

25. In Fuerst Day Lawson Ltd. (supra), the two-Judge Bench placing reliance on a series of authorities has drawn a distinction between the 1940 Act and 1996 Act and has opined that once the 1996 Act is regarded as a self contained and exhaustive code, it should be held that it carries with it a negative import that only such acts either mentioned in the Act are permissible to be done and acts or things not mentioned therein are not permissible to done. The 1996 Act, as it manifests, provides restrictions for challenging the award. It also lays the postulate to assail the award and thus emphasis is on expeditious disposal.

It does not permit a second appeal to be entertained as per the language employed in Section 37(3) and also under Section 5 of the 1996 Act. The two-Judge Bench has reproduced a lucid expression of Tulzapurkar, J. to make home the point ? “a negative import that only such acts as are mentioned in the Act are permissible to be done and acts or things not mentioned therein are not permissible to be done”.

26. In Arun Dev Upadhyaya vs. Integrated Sales Service Ltd. and Anr.[9], the issue that arose for consideration is whether an arbitration appeal was maintainable from an order passed by the learned single Judge pertaining to execution of the award. It was urged before the Division Bench of the High Court, that an appeal under Clause 10 was not available in arbitration matters and Section 13 of the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Courts Act, 2015 would not be applicable to an arbitration appeal. The High Court opined that the appeal was maintainable. A two-Judge Bench of the Court analyzing various provisions and the earlier precedents came to hold that:-

“23. The aforesaid provision clearly lays down that a forum is created, i.e., Commercial Appellate Division. Section 50(1)(b) of the 1996 Act provides for an appeal. Section 50(1)(b) has not been amended by the Act that has come into force on 23.10.2015. Thus, an appeal under Section 50(1)(b) of the 1996 Act before the Division Bench is maintainable. 24. Thus analysed, we find that the impugned judgment of the learned Single Judge under Section 50(1)(b) of the 1996 Act is passed in the original side of the High Court. Be that as it may, under Section 13 of the Act, the single Judge has taken the decision.

Section 13 bars an appeal under Letters Patent unless an appeal is provided under the 1996 Act. Such an appeal is provided under Section 50 of the Act. The Letters Patent Appeal could not have been invoked if Section 50 of the 1996 Act would not have provided for an appeal. But it does provide for an appeal. A conspectus reading of Sections 5 and 13 of the Act and Section 50 of the 1996 Act which has remained unamended leads to the irresistible conclusion that a Letters Patent Appeal is maintainable before the Division Bench. It has to be treated as an appeal under Section 50(1) (b) of the 1996 Act and has to be adjudicated within the said parameters.”

The said decision was rendered in respect of appeal under Section 50 which occurs in Part II but emphasis has been laid with regard to adjudication of an appeal within the parameters of Section 50(1)(b) of the 1996 Act.

27. As is manifest, a person grieved by the award can file objection under Section 34 of the 1996 Act, and if aggrieved on the order passed thereon, can prefer an appeal. The court can set aside the award or deal with the award as provided by the 1996 Act. If a corrective measure is thought of, it has to be done in accordance with the provision as contained in Section 37 of the 1996 Act, for Section 37(1) stipulates for an appeal in case of any grievance which would include setting aside of an arbitral award under Section 34 of the Act.

28. Section 5 which commences with a non-obstante clause clearly stipulates that no judicial authority shall interfere except where so provided in Part 1 of the 1996 Act. As we perceive, the 1996 Act is a complete Code and Section 5 in categorical terms along with other provisions, lead to a definite conclusion that no other provision can be attracted. Thus, the application of CPC is not conceived of and, therefore, as a natural corollary, the cross-objection cannot be entertained. Though we express our view in the present manner, the judgment rendered in ITI Ltd. (supra) is a binding precedent. The three- Judge Bench decision in International Security & Intelligence Agency Ltd. (supra) can be distinguished as that is under the 1940 Act which has Section 41 which clearly states that the procedure of CPC would be applicable to appeals. The analysis made in ITI Ltd. (supra) to the effect that merely because the 1996 Act does not provide CPC to be applicable, it should not be inferred that the Code is inapplicable seems to be incorrect, for the scheme of the 1996 Act clearly envisages otherwise and the legislative intendment also so postulates.

29. As we are unable to follow the view expressed in ITI Ltd. (supra) and we are of the considered opinion that the said decision deserves to be re- considered by a larger Bench. Let the papers be placed before the Hon’ble the Chief Justice of India for constitution of an appropriate larger Bench.

30. The interim order to continue.

……………………….J. (DIPAK MISRA)

……………………….J. (AMITAVA ROY)

NEW DELHI

November 24, 2016

UDP Holdings Pty Ltd v Esposito Holdings Pty Ltd (No 2) [2018] VSC 741

IN THE SUPREME COURT OF VICTORIA

MELBOURNE COMMERCIAL COURT

ARBITRATION LIST 

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

AND

5 STAR FOODS PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVERS AND MANAGERS APPOINTED) (ACN 005 714 616)

(Applicants)

V

ESPOSITO HOLDINGS PTY LTD (ACN 079 763 303)

AND

ANTONIO PATRICK ESPOSITO

(Respondents)

 

JUDGE: Croft J

HELD: Melbourne

DATE OF HEARING: 5 October, 25 October and 22 November 2018

DATE OF JUDGMENT: 7 December 2018

ARBITRATION – PRACTICE AND PROCEDURE – International arbitration – Enforcement of arbitral award – Application to set aside arbitral award – Extent of reasonable opportunity to present the party’s case – Corporacion Tranacional de Inversiones, SA de CV v STET International SpA (1999) 45 OR (3d) 183 – Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109; (2013) 304 ALR 468 – No special rules of procedure for a self-represented party – Overarching test of fairness – 0927613 BC Ltd v 0941187 BC Ltd [2015] BCCA 457 – Capacity – No universal test for determining whether a person is capable of managing own affairs – Murphy v Doman (as Representative of the Estate of the late Min Simpson) [2003] NSWCA 249; (2003) 58 NSWLR 51 – Public policy ground for setting aside arbitral award – Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd [2016] VSC 326 – TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387; 232 FCR 361 – International Arbitration Act 1974 (Cth), ss 2D, 16, 18C – UNCITRAL Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985 and amended by the United Nations Commission on International Trade Law on 7 July 2006, arts 18, 19, 34.

HIS HONOUR:

Introduction

1 These are two proceedings before the Court in relation to an Interim Award dated 21 September 2018 and a Final Award dated 1 October 2018 made by The Hon Stephen Charles AO QC as Arbitrator (collectively, the “Award”). The parties to the Award are Esposito Holdings Pty Ltd (Claimant/First Respondent by Counterclaim/Seller) and UDP Holdings Pty Ltd (First Respondent/Claimant by Counterclaim/Buyer) and William Yan Sui Hui (Second Respondent/Claimant by Counterclaim/Buyer Guarantor) and 5 Star Foods Pty Ltd (Third Respondent/Company) and Antonio Patrick Esposito (Second Respondent by Counterclaim). Not all parties to the arbitration the subject of the Award were represented or took part in these proceedings. Nevertheless, critical parties were represented and these proceedings were heard and are determined on this basis.

2 The two proceedings before the Court are:

(1) an Application for Recognition and Enforcement of the Award (SCI 2018 01606) (“the recognition and enforcement proceeding”); and

(2) the Application to set aside the Award (SCI 2018 02146) (“the setting aside proceeding”).

3 The application in the recognition and enforcement proceeding is made under Article 35 of Schedule 2 of the International Arbitration Act 1974 (Cth) (“the Act”) for recognition and enforcement of an award made in an international commercial arbitration. The applicants in these proceedings has relied upon r 9.11 of Ch II of the Supreme Court (Miscellaneous Civil Proceedings) Rules 2018 for the procedure for seeking enforcement. The reference to article 35 is a reference to this provision in the 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) (“the Model Law”). These provisions of the Model Law have the force of law in Australia as a result of the application of s 16 of the Act.

4 The setting aside proceeding is brought relying upon the provisions of articles 34(2)(a)(ii) and (b)(ii) of the Model Law. Procedurally, it is an application to set aside an award under r 9.10 of Ch II of the Supreme Court rules to which reference has been made.

5 In respect of both proceedings, Part II of the Act does not apply. This is because the Award is not a “foreign award” as defined in the Act (see s 3). The arbitration agreement pursuant to which the Award is made specified that the seat of the arbitration is Australia. The place of the arbitration was Melbourne, in accordance with the provisions of the arbitration retainer agreement. The arbitration was, however, an international arbitration because the place of business of the Second Respondent to the arbitration was Hong Kong. This position is not affected because the arbitration was conducted in Melbourne and the Award made in Melbourne.

Background

6 It is neither necessary nor appropriate in the context of these proceedings to say a great deal about the facts and circumstances, the substantive matters, to which the arbitration has been directed. Nevertheless, it is helpful to note, in general terms, the nature of the matters the subject of arbitration as the Arbitrator put it (before he went into further detail by way of background):

As I have already noted, this arbitration relates to disputes arising under a Share Sale Agreement executed on 11 December 2013, under which the Seller agreed to sell and the Buyer, UDP Holdings Pty Ltd (Receivers and Managers appointed) (subject to a Deed of Company Arrangement), agreed to purchase all of the issued shares in 5 Star Foods Pty Ltd (Receivers and Managers appointed) (subject to a Deed of Company Arrangement) … . Mr Hui guaranteed to the Seller the performance of the Buyer’s obligations under the Agreement. The Share Sale Agreement was subsequently amended by three deeds dated 17 December 2013, 31 December 2013 and 21 January 2014.

7 This Court has previously issued subpoenas to produce documents in this arbitration and there is also a related proceeding in the Court seeking indemnity under an insurance policy, which is stayed pending the outcome of the arbitration. The arbitration has also been the subject of proceedings in the Federal Court of Australia, which involved the partial setting aside of a partial award made by an arbitrator subsequently removed.

8 The final hearing of the arbitration took place on 22 June 2018, 6, 9–12 and 16–17 July 2018 and 6–7 August 2018 before the Arbitrator. An “interim award” was given on 21 September 2018 and, following a short hearing on 26 September 2018 in relation to the form of the award, the “final award” was made on 1 October 2018. As has been indicated, this interim award and this final award are, for the purposes of these proceedings, conveniently referred to as the “Award”. This follows as it is apparent from the terms of the final award, it needs to be read with both the partial award; and also with the orders made by the Federal Court.

9 To be quite clear, it should be noted that the final award is headed “Final Award – First and Third Respondents” (that is, the first and third respondents in the arbitration proceedings — which are the applicants in the recognition and enforcement proceeding) because the Arbitrator made a separate final award in favour of the second respondent, who was separately represented at the final hearing. There is, however, nothing in the separate final award in favour of the second respondent that affects in any way the final award in favour of the applicants in the recognition and enforcement proceeding. Accordingly, the application in the recognition and enforcement proceeding and the application in the setting aside proceeding does not concern the separate final award in favour of the second respondent to which reference has been made.

10 At the hearing of the application in the recognition and enforcement proceeding on 5 October 2018, orders were made as sought by the applicants for the recognition and enforcement of the Award; orders that contained a “self-executing” provision for enforcement unless, by 4:00pm on 26 October 2018, further orders had been made as a result of a hearing and further submissions in opposition to such a course. Following a hearing on 25 October 2018, further orders were made extending the “self-executing” provision until 4pm on 23 November 2018. As indicated, the further hearing did occur on 22 November 2018, with opposition in the form of the application in the setting aside proceeding. At the conclusion of this hearing, the decision of the Court was reserved and, consequently, further orders again were made staying the “self-executing” provisions of the orders made in the recognition and enforcement proceeding. It follows that, were the setting aside proceeding to be successful, then no orders would operate for the purpose of recognition and enforcement; but that if the Award were not set aside, then orders for recognition and enforcement would follow. Consequently, attention is now directed in these reasons to the setting aside proceeding.

Legislation

11 As indicated previously, the provisions of the Act govern the arbitration. The following provisions are either directly or contextually important.

12 Section 2D of the Act provides:

Objects of this ActThe objects of this Act are:

(a) to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes; and

(b) to facilitate the use of arbitration agreements made in relation to international trade and commerce; and

(c) to facilitate the recognition and enforcement of arbitral awards made in relation to international trade and commerce;

(e) to give effect to the UNCITRAL Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985 and amended by the United Nations Commission on International Trade Law on 7 July 2006; and

The international provenance of the Act and its drawing upon the wellsprings of international law, rather than the domestic law of any particular country, is reinforced by the provisions of s 17 of the Act, which provide:

Interpretation of Model Law―use of extrinsic material(1) For the purposes of interpreting the Model Law, reference may be made to the documents of:

(a) the United Nations Commission on International Trade Law; and

(b) its working group for the preparation of the Model Law;

relating to the Model Law.

(2) Subsection (1) does not affect the application of section 15AB of the Acts Interpretation Act 1901 for the purposes of interpreting this Part [III].

13 Section 39 of the Act provides:

Matters to which court must have regard(1) This section applies where:

(a) a court is considering:

(vi) performing any other functions or exercising any other powers under this Act, or the Model Law as in force under subsection 16(1) of this Act;

(2) The court or authority must, in doing so, have regard to:

(a) the objects of the Act; and

(b) the fact that:

(i) arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes; and

(ii) awards are intended to provide certainty and finality.

14 As noted previously s 16(1) of the Act provides that the Model Law has the force of law in Australia.

15 Article 34 of the Model Law provides:

Application for setting aside as exclusive recourse against arbitral award(1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article.

(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:

(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

(b) the court finds that:

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

These provisions, articles 34(2)(a)(ii) and 34(2)(b)(ii), are relied upon for the purpose of the setting aside application.

16 Article 18 of the Model Law provides:

Equal treatment of partiesThe parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.

The provisions of article 18 of the Model Law are explained and qualified for the purposes of Australian law by s 18C of the Act, which provides:

For the purposes of article 18 of the Model Law, a party to arbitral proceedings is taken to have been given a full opportunity to present the party’s case if the party is given a reasonable opportunity to present the party’s case.

These provisions, both those contained in the Model Law and the Act, are specifically relied upon in the setting aside application.

17 Section 19 of the Act provides:

Without limiting the generality of Articles … 34(2)(b)(ii) … of the Model Law, it is declared, for the avoidance of any doubt, that, for the purposes of those Articles, an award is in conflict with, or is contrary to, the public policy of Australia if:…

(b) a breach of the rules of natural justice occurred in connection with the making of the interim measure or award.

Application of the legislation – including the Model Law

18 The international provenance of the Act has already been mentioned, with particular reference to the provisions of s 2D and s 17. This aspect of the legislation and the consequent need to construe its provisions in the context of accepted international principles, rather than from the perspective of domestic law, has been emphasised in many cases, particularly more recently by the Court of Appeal in Subway Systems Australia Pty Ltd v Ireland and also in Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd. Applying these principles in the present context, it is important not to lose sight of the position that the Model Law permits very limited recourse against arbitral awards and, in particular, does not permit merits appeals. This was emphasised by the Full Court of the Federal Court of Australia in TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (“TCL”). In so doing, the Full Federal Court (Allsop CJ, Middleton and Foster JJ) said:

  1. Grounds 4 to 7 took up five pages of the notice of appeal. In effect, these paragraphs were a comprehensive re-agitation of the arguments made before the primary judge as to the inadequacies of the factual findings of the arbitrators. Grounds 4, 5 and 6 concerned the asserted lack of evidence for the three critical findings: the 14% Starting Point Finding, the Uplift Finding and the Lost Sales Finding, respectively. Ground 7 dealt with the hearing rule ground, that, in the light of Mr Acton’s conceded lack of expertise, it could not reasonably be anticipated that the arbitrators would make findings as to loss other than ones based on, or in accordance with, Mr Williams’ evidence.
  2. All of grounds 4 to 7 were without merit. They involved the dressing up of complaints about the factual findings into a claim concerning asserted procedural unfairness. The primary judge (as he himself recognised) went more deeply into the facts than was necessary for the proper and efficient resolution of the matter. That is not said by way of criticism of the primary judge, who undertook a careful, and correct, analysis of the facts. Rather, it is said to make clear that nothing in the IAA [the International Arbitration Act 1974 (Cth)] is likely to permit a party to an arbitration award to spend three days before a judge arguing about the factual findings made by experienced arbitrators after a 10-day hearing, when the substance of the complaint is the evidential foundation for, and reasoning process towards, facts as found.

Referring to the TCL case in Amasya Enterprises Pty Ltd v Asta Development (Aust) Pty Ltd, I said:

  1. In TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (“TCL”), the Full Federal Court said that an arbitral award will not be set aside or refused recognition or enforcement under arts 34 and 36 of the Model Law—

unless there is demonstrated real unfairness or real practical injustice in how the international litigation or dispute resolution was conducted or resolved, by reference to established principles of natural justice or procedural fairness. The demonstration of real unfairness or real practical injustice will generally be able to be expressed, and demonstrated, with tolerable clarity and expedition.

19 Similarly, in Sauber Motorsport AG v Giedo van der Garde BV, the Court of Appeal emphasised that courts should not entertain a disguised attack on factual findings or legal conclusions of an arbitrator “dressed up as a complaint about natural justice”. A setting aside application is not to be abused by a party who, with the benefit of hindsight, wished it had pleaded or presented its case in a different way before the arbitrator; a point emphasised by the Singapore Court of Appeal in BLC v BLB. Significant restraint must be exercised in considering and determining a challenge to an award under article 34 of the Model Law; it is not an occasion for a merits review, as was emphasised in Sino Dragon Trading Ltd v Noble Resources International Pte Ltd.

Reasonable opportunity to present the party’s case

Extent of opportunity required

20 Article 18 of the Model Law is the “golden rule” of arbitration — it must be fair. Even without the qualification introduced by s 18C of the Act, to which reference has been made, to the effect that the expression “a full opportunity” should be read as “a reasonable opportunity” of a party to present its case, it has been held that the phrase “a full opportunity” to present a party’s case does not mean that that party “is entitled to present any case it pleases, any time it pleases”. Moreover, the right to “a full opportunity” does not entitle a party to obstruct the arbitral proceedings by dilatory tactics.

21 Additionally, it must be kept in mind that the provisions of article 18 of the Model Law do not operate in a vacuum, thus context and practical circumstances and consequences are of critical importance. Though will not be true in all cases, a typical context is that the court is dealing with a significant international commercial dispute between well-represented and “well-heeled” commercial operators and, additionally, that the parties have chosen arbitration as the relevant dispute mechanism, which necessarily entails some compromise in the choice of procedures dictated by efficiency and expedition. The context in this respect is, of course, case specific, but it is a reasonable generalisation that international commercial disputes and international commercial arbitration are more likely than not to be occurring in such circumstances.

22 As indicated in Amasya Enterprises Pty Ltd v Asta Development (Aust) Pty Ltd, the purpose of the article 18 provisions of the Model Law are conveniently stated by the Ontario Superior Court of Justice in Corporacion Tranacional de Inversiones, SA de CV v STET International SpA:

The purpose of Art 18 is to protect a party from egregious and injudicious conduct by [an arbitral tribunal]. It is not intended to protect a party from its own failures or strategic choices.

Thus, as indicated in Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd (“Gujarat”), there is a distinction between, on the one hand, a party having no opportunity to address a point, or its opponent’s case, and, on the other hand, a party failing to recognise or take the opportunity which exists. Thus, the failure on the part of a party to take an opportunity to address a point or the case of its opponent does not result in any breach of the Model Law or of the rules of natural justice, more generally.

23 Moreover, the conduct of the complainant party is potentially relevant more broadly. Although article 18 is a mandatory provision of the Model Law and is not, at least generally, subject to the operation of the waiver of right to object provisions of article 4, “[n]evertheless, the conduct of the party who complains of a lack of procedural fairness or a lack of equality is relevant to any asserted inability to present its case or any asserted lack of opportunity in that respect”.

24 Where it is alleged that a “new” matter has been raised by the arbitral tribunal, the applicable principle is, as stated in Gujarat that “if the tribunal thinks that the parties have missed the real point, which has not been raised as an issue, it must warn the parties and give them an opportunity to address the point”. More particularly, the obligation of the arbitral tribunal is to provide a fair opportunity for the party to address any issues raised by the tribunal on all of the essential building blocks in the tribunal’s conclusion on the issue.

25 Thus, putting the position with respect to article 18 in more general terms, a party is entitled to both an affirmative and responsive opportunity to be heard — which means an opportunity to be heard on its case and to respond to the case put against it. And the latter, responsive aspect, includes being given adequate and actual notice of that adverse case. Moreover, it is clear that any claimed denial of procedural fairness will not sound as a breach of article 18 unless there is at least a possibility of a successful or more successful outcome for the party alleging a breach.

Legal representation

26 The most recent case put before the Court in these proceedings in relation to the issue of legal representation in an arbitration proceeding is a decision of the Court of Appeal for British Columbia in 0927613 BC Ltd v 0941187 BC Ltd. The respondent to the arbitration the subject of that appeal was legally represented at the outset, but came to be represented by an individual by the time of the hearing. The lawyer ceased to act for the respondent because it could not afford the fees. The respondent did not attend the arbitral hearing and an award was made against it. At first instance, the award was set aside on the basis of a denial of natural justice, the trial judge reasoning that the arbitrator had to give “special consideration” to the position of the respondent as a self-represented party. The trial judge held that the arbitrator had three procedural obligations: (a) a duty to consult with both parties as to the hearing dates; (b) a duty to give the respondent full opportunity to present its case; and (c) a duty to explain to the individual representing the respondent “the procedural situation in which he found himself”.

27 On appeal, the British Columbia Court of Appeal found that even if those three procedural obligations enunciated by the trial judge applied, they were met on the facts of the case. As to the asserted procedural obligations, the Court of Appeal said:

  1. There are no special rules of procedure for a self-represented party in an arbitration proceeding beyond the basic procedural requirements for any arbitration: an impartial arbitrator, procedural fairness of notice, and a fair or reasonable opportunity to make submissions and to respond to the other side’s case. As this Court noted in Burnaby (City) v Oh, 2011 BCCA 222 at para 36, self-represented litigants do not have ‘some kind of special status’ that allows them to ignore rules of procedure. In Murphy v Wynne, 2012 BCCA 113 at para 16, Madam Justice Neilson, relying on comments of Mr Justice Chiasson in Stark v Vancouver School District No 39, 2012 BCCA 41 (in Chambers) and Shebib v Victoria (City), 2012 BCCA 42 (in Chambers), observed that ‘[w]hile it is important unrepresented litigants have a full opportunity to avail themselves of our court processes, all litigants must keep within the bounds of those processes’. These comments in my view apply equally to an arbitration forum that has been chosen by the parties for the resolution of their dispute.
  2. In the context of a court proceeding, the Canadian Judicial Council in its Statement of Principles on Self-Represented Litigants and Accused Persons, (Ottawa: Canadian Judicial Council, 2006) mandates fairness so as to ensure ‘equality according to law’ in the sense of giving every litigant a fair opportunity to present their case. It also, however, imposes an obligation on self-represented parties to be respectful and familiarize themselves with the relevant practices and procedures of the court process. These principles, in my view, apply equally to the arbitration process. While some latitude is to be given to self-represented parties who may not understand or be unfamiliar with the arbitration process, an arbitrator, like a judge, is not required to ensure that a self-represented party participate in a proceeding if that party chooses not to do so. In short, an arbitrator does not have any special obligations to a self-represented party beyond the natural justice requirements owed to any party. The overarching test is fairness.

Thus, this decision affirms that a self-represented party who chooses not to attend the arbitral hearing cannot be said to have been denied natural justice. It also affirms that there are no special rules or obligations that apply when a party is not represented by a lawyer in an arbitral proceeding.

28 The applicants in the setting aside proceeding made reference to the review of the authorities with respect to self-represented litigants in the decision of the Court of Appeal in Downes v Maxwell Richard Rhys & Co Pty Ltd (in liq). Although this decision was referred to by the applicants in the context of submissions with respect to “public policy” grounds, it is also relevant in relation to this aspect of these proceedings. In my view, the position put by the British Columbia Court of Appeal and the Victorian Court of Appeal with respect to the treatment of unrepresented litigants is not different in substance, though, of course, the Victorian decision is in a litigation context. However, the British Columbia Court of Appeal does not appear to distinguish the requirements for fair treatment of unrepresented litigants in arbitral proceedings from the position in litigation, indeed, quite the contrary. Thus, it is, in my view, clear from these authorities that, as indicated by the British Columbia Court of Appeal, “the overarching test is fairness”. It is, however, implicit in both appellate decisions and the authorities which they examine, that the fairness test is contextual and depends upon the facts and circumstances and the nature of the proceedings in which the test is to be applied.

29 Moreover, in the case of arbitral proceedings, there is the further consideration that they depend upon and arise from the arbitration agreement made between the parties. Thus, the additional dimension in arbitral proceedings, as compared to litigation in domestic courts, is that there is an obligation on a party to an arbitration agreement, whether express or implied, or confirmed or separately imposed by statute, to facilitate, or at least not obstruct, the arbitral process. Consequently, it follows that a party cannot be permitted to frustrate arbitral proceedings or, by its own acts or omissions, seek to produce a situation where the arbitral award may be impugned. In any event, as discussed in the reasons which follow, I am of the opinion that the Arbitrator made every reasonable effort to properly assist Mr Esposito in the conduct of the arbitral proceedings and that there is no basis for any suggestion that the fact that the applicants were not legally represented provides any basis for finding any breach of article 18 of the Model Law.

Incapacity

30 The applicants, in seeking to challenge the Award sought to raise, as an aspect of the allegation that they were unable to present their case to the arbitral tribunal, the issue of Mr Esposito’s capacity; both with respect to his decision, agreement or election to proceed with the substantive hearing and also his ability to conduct the applicants’ case in the course of the arbitration.

31 At the outset, it should be observed that the setting aside application is not an application under article 34(2)(a)(i), a provision with respect to “a party to the arbitration agreement” being “under some incapacity”. Without venturing into the operation of article 34(2)(a)(i) and the possible varieties of incapacity within the scope of the operation of that paragraph, it is apposite to say something with respect to the treatment given by the law to incapacity on the basis of a mental state; the type of incapacity relied upon by the applicants.

32 The law presumes mental capacity unless and until the contrary is proved. This is made clear, with reference to Australian and English authority, by the New South Wales Court of Appeal in Murphy v Doman (as Representative of the Estate of the late Min Simpson), where Handley JA (with whom Meagher and Tobias JJA relevantly agreed):

  1. … There is no universal test for determining whether a person is capable of managing his own affairs. In Gibbons v Wright [1954] HCA 17; (1954) 91 CLR 423, 437-438 Dixon CJ, Kitto and Taylor JJ said:

‘The law does not prescribe any fixed standard of sanity as requisite for the validity of all transactions. It requires, in relation to each particular matter or piece of business transacted, that each party shall have such soundness of mind as to be capable of understanding the general nature of what he is doing by his participation … the mental capacity required by the law in respect of any instrument is relative to the particular transaction which is being effected by means of the instrument, and may be described as the capacity to understand the nature of that transaction when it is explained.’

  1. The definition of an incompetent person in the District Court Rules reflects the earlier law. See Martin v Azzopardi (1973) 20 FLR 345 at 347 per Fox J. Fox J referred to evidence that the plaintiff was incapable of managing his own affairs and continued (at 348): ‘If, and as soon as, the plaintiff was in this condition he would be unable to retain a solicitor. That is to say, he would not have the mental capacity to understand the nature of the acts or transactions which he would be authorizing.’
  2. The cases do not consider the level of mental capacity required to be a ‘competent’ litigant in person but it cannot be less than that required to instruct a solicitor. It should be greater because a litigant in person has to manage court proceedings in an unfamiliar and stressful situation.
  3. There is a presumption of sanity which applies unless and until the contrary is proved. Attorney General v Parnther [1792] EngR 2455; (1792) 3 Bro CC 441 at 443; [1792] EngR 2455; 29 ER 632 at 634; M’Naghten’s Case [1843] EngR 875; (1843) 10 Cl & Fin 200 at 210; 8 ER 718 at 722. This means, in modern terms, that there is a presumption that a person of full age is capable of managing his or her affairs.

True it is that this is a presumption of the domestic law of Australia, but, having regard to the nature of the issue and the principles applied, there seems no reason to think that the same principles ought not to apply in the arbitral context where an arbitration is subject to a legal regime of international provenance, such as the Model Law.

33 The particular issues to which the asserted incapacity is directed are, first, as an explanation why Mr Esposito did not seek an adjournment and did not complain to the Arbitrator about anything that occurred during the hearing about which he now complains and, secondly, it would appear that the asserted incapacity is sought to be used to support a suggestion that the Arbitrator ought to have adjourned the hearing on his own motion, even absent a request to do so from Mr Esposito. In my view, for the reasons which follow, Mr Esposito has both failed to establish that he was suffering from any incapacity, either at all or which the law would recognise, and thus there is no explanation for why Mr Esposito did not seek an adjournment or did not complain to the Arbitrator about anything that occurred during the hearing about which he now complains, other than that he chose, in a considered and conscious way, not to do so. Moreover, there is no basis for any suggestion that the Arbitrator might reasonably have thought it necessary to insist upon an adjournment on his own motion.

34 In any event, none of the matters upon which Mr Esposito sought to rely in terms of evidence or the circumstances and his behaviour with respect to the arbitral proceedings provides any support for his claim of incapacity in whichever dimension it might be said to arise.

35 The only matter relied upon by the applicants as to Mr Esposito’s asserted incapacity during the hearing is his own opinion to that effect. I accept that there is real doubt as to whether his opinion in this respect is admissible, but it is not necessary, for present purposes, to finally determine that position because, even if that opinion were received as evidence, it should, in my view, be given no weight. Mr Esposito has no relevant experience or expertise to enable him to give such an opinion and his “observations” as to his own mental state would appear to be problematic from an evidentiary point of view. There is no expert opinion in relation to the issue; and, in particular, there is none from the period 22 June 2018 to 7 August 2018, during which time the final hearing before the arbitral tribunal was conducted. Neither is there any current expert opinion that seeks to express a retrospective view as to Mr Esposito’s mental state in that period, and nor is there any evidence from which this Court might draw an inference of mental incapacity.

36 Moreover, the expert opinion and medical reports that Mr Esposito seeks to tender are inadmissible hearsay. The authors of the opinions are not called, have not given evidence in accordance with the rules and practice notes about expert evidence, and they are not available for cross-examination. In any event, this evidence — even if admissible — also confirms Mr Esposito’s sanity and competence. The evidence in this respect is, in my view, quite clear.

37 Mr Le Bas, psychiatrist, said, on 26 March 2018, that in the period he saw Mr Esposito, between 6 November 2017 and 4 December 2017: “I believe he was competent to give instructions and appeared, from superficial evidence, to be making rational decisions”.

38 Additionally, Dr Hill said, on 26 March 2018, that when he last spoke to Mr Esposito on 21 March 2018, he “appeared to be coherent, lucid and could follow logic”. The medical certificate that Dr Hill gave Mr Esposito on 14 March 2018 sought only to have him excused from legal processes for a period of one month. The discharge summary from the Monash Medical Centre said that on discharge Mr Esposito’s insight was “reasonable” and his judgement was “reasonable”, and he had “no delusions or hallucination”. Rather, the assertion now made by Mr Esposito about his hospital admission shortly before the hearing is entirely vague and unspecific and seems, at most, to be related to a physical condition and not a mental condition. Moreover, no hospital records or reports are produced. It should also be observed that nothing about his hospital admission was communicated to the Arbitrator.

39 Having regard to these matters, I accept that the best evidence as to Mr Esposito’s state of mind is the transcript and a review of the statements made, questions asked and answers given by him in the arbitration hearing. These show that he was lucid, logical, rational, insightful, measured and thoughtful throughout the hearing. The inference from that material is clear, namely, that he was sane and competent. The inference of capacity is also supported by the facts that: 

(a) Mr Esposito had, on 12 May 2018, signed a detailed witness statement in support of his case;

(b) Mr Esposito had given instructions for the filing of the written “Kaplan opening”;

(c) Mr Esposito’s legal representatives appeared at the Kaplan opening without raising an issue about the quality of their instructions; and

(d) when his legal representatives corresponded with the arbitral tribunal and the parties about their withdrawal, nothing was said by them about any incapacity.

40 Consequently, it is clear, in my view, that on the material available to the Arbitrator, there was no basis on which he might have found or thought that Mr Esposito lacked capacity. The only inference available to or reasonably drawn by the Arbitrator was, in my view, that Mr Esposito was sane and competent and able to decide whether he was able to conduct the applicants’ case in the arbitration or to seek an adjournment. Indeed, that remains the view of this Court. Thus, there is no basis for any suggestion that the Arbitrator should have adjourned the arbitral hearing on his own motion, even absent a request from Mr Esposito to do so.

Sufficient time, “right” to adjournment and natural justice

Contextual matters

41 As submitted by the respondents, I accept that the following matters of context are of importance in relation to these issues.

42 The first is that, from the commencement of the arbitration to the day before the hearing, the applicants had legal representation comprising solicitors and junior and senior counsel. It was with the benefit of that legal representation that the applicants: (a) prepared their pleadings and thus formulated their case; (b) prepared their evidence; (c) prepared a written submission for the Kaplan opening; and (d) made strategic decisions about the conduct of the arbitration.

43 Secondly, directions were made in the arbitration for the filing, or the extension of time for the filing, of evidence by the applicants on five separate occasions between December 2016 and April 2018. The applicants only complied with the last set of directions which were made.

44 Thirdly, the matter was set down for final hearing in March 2018 by directions made in October 2017. That hearing date was extended, on the applicants’ application, in February 2018 and, again, in April 2018.

45 Fourthly, when, on 4 April 2018, the hearing date was extended for the second time, the Arbitrator did two things. First, he required the applicants’ solicitor to provide written confirmation that they were satisfied that they held adequate funds to allow the matter to proceed to final hearing. Secondly, the Arbitrator expressly told the parties that no further adjournments could be countenanced. Given the protracted history of the arbitration and the repeated delays on the part of the applicants — as indicated above — those were, the respondents submit, appropriate directions to make and they were unqualified as one would expect in the circumstances of the applicants’ conduct up until that point.

46 Having regard to the procedural history of the arbitration to which reference has been made, the Court could hardly dissent from the respondents’ submissions as to the appropriateness of the Arbitrator’s directions in the circumstances; though, in proceedings such as this, it is not appropriate for the Court to become involved in a commentary on the detailed exercise by an arbitrator of his or her management of the arbitral proceedings. At this point it should be observed, as did the respondents in their submissions, that equal treatment of the parties to the arbitration required that there be a final hearing. In addition to the obligations of the parties to cooperate and to facilitate the arbitration process to which they had agreed in the arbitration agreement, an arbitrator is also under an obligation to manage the proceedings as efficiently and expeditiously as possible — and, of course, to deliver an enforceable award in a timely fashion.

Alleged failure to adjourn the hearing

47 The applicants contend that they were denied natural justice by reason of the fact that the final hearing was not adjourned. Their claim is that Mr Esposito was denied sufficient time and opportunity to prepare their case. The respondents, on the other hand, make a number of points which, in my view, have not been answered satisfactorily by the applicants and which indicate that the claim that the applicants were denied natural justice on this basis is completely without foundation. I turn to the matters raised, in turn.

48 First, no application for adjournment of the hearing was made or even hinted at by Mr Esposito. The final hearing in the arbitration was conducted over a long period of time and with active involvement by the applicants. There was, clearly, ample opportunity to apply for an adjournment if it was thought to be necessary.

49 Secondly, the assertions made about the conduct of the applicants’ former legal representatives is not a matter of relevance, much less for determination, in these proceedings. The fact of the matter is that these legal representatives withdrew the day before the hearing and all that follows from this is the question whether or not that withdrawal resulted in the applicants not having a reasonable opportunity to present their case. The position is that extensive written submissions and evidence — including purported expert opinion evidence — was put on by the applicants before those legal representatives withdrew; and this material was apparently relied upon at the final hearing of the arbitration by the applicants.

50 Thirdly, and in any event, the Arbitrator expressly raised the question of readiness to proceed with Mr Esposito at the outset:

MR CHARLES: Right. Yes. And, Mr Esposito, you’re in the difficult position that your legal counsel withdrew very recently. Are you ready to proceed now?MR ESPOSITO: Yes.

Mr Esposito positively confirmed that he was ready to proceed with the final hearing. I accept the submissions of the respondents that it beggars belief that Mr Esposito was incapable of articulating any difficulty of the kind now asserted.

51 Fourthly, an application for adjournment would properly have been rejected by the Arbitrator in any event. As indicated previously, the final hearing in the arbitration had been adjourned twice previously at the request of the applicants. The arbitration, commenced by the applicants, had been on foot for more than three years, during which time very considerable amounts of money had been spent on legal fees. It appears that the applicants had simply run out of money to the point that they had needed to call upon their solicitor mortgage lender to finance representation. As indicated previously, the final hearing was set for 6 July 2018; all parties had been given more than reasonable notice of the hearing date and, in any event, equal treatment of the parties, among other things, required that the final hearing could not be delayed indefinitely.

52 Fifthly, although the applicants were in fact represented for almost all of the long life of the arbitration, there is, as indicated in the preceding reasons, no right to legal or even competent representation in arbitration. Mr Esposito’s own evidence is that he was told numerous times, from March 2018 onwards, about the need to pay for his legal representation. Combined with warnings given by the Arbitrator about there being no further adjournments, it was obvious that if the applicants failed to fund their representation, then Mr Esposito would need to conduct the case at the hearing. It was for the applicants to make such arrangements as they considered necessary to make sure Mr Esposito had adequate time to prepare. If Mr Esposito did not adequately prepare, that was brought about by his failure to do so, not by reason of anything done by any other party.

53 Sixthly, there is no material that suggests that an adjournment would have made any difference. The applicants lacked the funds to pay for legal representation, and Mr Esposito does not say otherwise. No assertion is made in submissions by the applicants that Mr Esposito wanted to, or would have, obtained alternative legal representation. No assertion is made in the materials that the case would or could have been conducted any differently by Mr Esposito with more time.

54 These matters would, without more, indicate that there is simply no basis for the applicants’ contention that there has been a denial of natural justice because no adjournment was granted and that there was insufficient time to prepare. This position is, in my view, reaffirmed when consideration is given to a further aspect of these matters upon which the applicants sought to rely — namely, that the conduct of the final hearing by the Arbitrator illustrates that Mr Esposito did not have sufficient opportunity to present the applicants’ case. On this basis, I now turn to allegations about the conduct of the final hearing.

Allegations about the conduct of the final hearing

55 The applicants make numerous points about the conduct of the hearing, seemingly for the purpose of seeking to illustrate that Mr Esposito did not have sufficient opportunity to present his case. Many of the points are answered by repeating the points already made in the preceding reasons: particularly that it was for the applicants to make such arrangements as they needed to make to ensure that they took advantage of the opportunity given to them to present their case at the final hearing and that they were in fact represented for almost all of the arbitration proceedings back to the commencement of those proceedings some years previously. Thus it is, in my view, true to say that any failure to make arrangements for the final hearing was a failure attributable solely to the applicants.

56 Additionally, it must be kept in mind that all of the material in the arbitration — the tribunal book, submissions and the like — was provided to the applicants through their legal representatives at the time they were provided. The applicants can have been in no doubt that the opportunity they were being given to present their case was at the final hearing commencing on 6 July 2018. It was for them to decide how they wished to take advantage of that opportunity. Thus, the allegations made in relation to the tribunal book and the Kaplan opening — both as to the written and oral submissions — not being available to the applicants are simply misconceived and wrong; at least to the extent that they seek to place responsibility in this respect on anyone but themselves.

57 In addition to these matters, the Arbitrator explained to Mr Esposito that he would have an opportunity to read the materials before he responded and asked counsel for the respondents to cover matters already covered in the Kaplan opening in detail for Mr Esposito’s benefit. That was done as requested by the Arbitrator and, in all the circumstances, I accept that that was all that was required. Further, Mr Esposito was asked whether he was happy with the course proposed, and he replied:

MR ESPOSITO: Yes. Definitely. Yes.

58 In relation to the allegation about receipt of the joint expert report, the Arbitrator told Mr Esposito he would need to read it carefully, but that the time for the joint evidence was ten days away. Mr Esposito responded:

MR ESPOSITO: I understand. Thank you.

59 Also, the allegation concerning Ms Wright’s expert report is also misconceived. The applicants had legal representation at the time they decided not to put on a responding expert report as to the detail of the work done by Ms Wright. Rather, what the applicants elected to do, again at the time they had legal representation, was to file an expert report by Dr Hauser. Mr Esposito’s position at the hearing was that Ms Wright’s report was irrelevant because her assumptions were wrong.

60 The allegation about Mr Slattery is also misconceived. At the time the applicants had legal representation, they elected not to put on answering evidence and did not give notice that they required Mr Slattery for cross-examination. On the first day of the hearing, in opening, counsel for the respondents expressly drew attention to Mr Slattery’s evidence. Mr Esposito’s response was to say that he wanted to cross-examine Mr Slattery. Despite that course not previously having been foreshadowed by the applicants when they were represented, Mr Slattery was made available for cross-examination, four days later.

61 The allegation by the applicants about not being warned about the consequences of not cross-examining Mr Murray also goes nowhere. There was nothing in the Award that suggests that the Arbitrator made anything — whether positive or negative — of the failure to cross-examine Mr Murray. The reason is, as the respondents contend, obvious. Mr Esposito’s own witness — Mr Lindh — ultimately agreed with Mr Murray’s evidence that the accounts for October 2013 to January 2014 were not in the data room.

62 The further allegation about the failure to give Mr Esposito an opportunity to call additional witnesses — such as representatives from Rothschild, Rabobank and Mr Chan — at the final hearing is misconceived. Directions had been made by the Arbitrator, well in advance of the final hearing, for the filing of written evidence. Written evidence from the proposed additional witnesses was not received, nor was it ever suggested or foreshadowed. It is clear, in my view, that for Mr Esposito to seek suddenly to introduce new oral evidence on topics not pleaded would have been to deny the respondents a reasonable opportunity to respond to that evidence; not a permissible position in light of the article 18 requirements, or more generally.

63 In support of the particular allegations made by the applicants with respect to the calling of representatives of Rothschild, Rabobank and Mr Chan, reference is made to the transcript of the final hearing. Regrettably, it must be observed that these references — and the one direct quote of the Arbitrator — are selective and do not, absent the full context of the discussion between the Arbitrator and Mr Esposito, provide the full picture by any means. Placed in context, the transcript demonstrates, in my view, exemplary conduct on the part of the Arbitrator in trying as best he could, within the proper bounds of maintaining his impartiality and even-handedness, to assist Mr Esposito in presenting the case of the applicants and responding to the case against them. Moreover, having regard to the allegations made by the applicants in relation to the conduct by the Arbitrator of the final hearing, I think it is desirable to provide, in the attached Schedule to these reasons, extracts of the final hearing transcript in the arbitration, including some of those parts relevant to these particular allegations, and more generally.

Allegations about the Arbitrator’s “own issue”

64 This is also another issue raised by the applicants; but, for the reasons which follow, is of no assistance to them in the present application. The so-called Arbitrator’s “own issue” is, in general terms, that the Arbitrator enunciated a construction of the provisions of the Share Sale Agreement with respect to the operation of cl 7.6 and its interaction with cl 17.2, which was not the subject of submissions and that, consequently, the applicants were deprived of the opportunity to make submissions in favour of a contrary construction.

65 The fallacy in these allegations was exposed in the submissions of the respondents which proceed, at the outset, with an assumption — for the purposes of argument only — that the Arbitrator’s approach to the operation of these provisions and their interaction was his “own issue”. Thus, they say that on the last day of the hearing, at the conclusion of closing submissions by the respondents, the Arbitrator summarised the respondents’ position in relation to these provisions for the benefit of Mr Esposito and before Mr Esposito made any closing submissions. As part of that summary, the Arbitrator said:

Now, the buyer’s argument is, had the buyer been told of these things before completion, there is no question but that they would have terminated the contract then and there and would have asked for repayment of any of the sums that had been paid and, independently of any claim to damages, just a simple termination of the contract, and sums of the order of 60-plus million had been paid and they were entitled to them back. And, insofar as that claim is concerned, then the buyer says that that’s not something which is affected by any limitation on the right to claim damages for breach of warranty, which is contained in the later arguments under clauses 15, 16 and 17. It’s a right which could only have been lost if it existed at completion.In some way, you might argue that there had been a waiver of it or matters of that kind, and to any response of that kind, the case that will be made by the buyer is that they didn’t become aware of these things until it was too late for them to terminate the contract: they were stuck with it. Any attempt at repudiation two months afterwards at a time when you had all the money and were spending it would have been quite fruitless, so that the limitations that apply in clauses 15, and 16 and 17 have simply no relevance to the claim made under 7.6.

[Emphasis added by respondents.]

Thus, it is quite clear that Mr Esposito was given an opportunity to address the points that were made.

66 Finally, a pertinent point is made by the respondents that, in any event, the applicants misread paragraph 76 of the Award. That paragraph is directed to the effect of cl 17.2 of the Share Sign Agreement. There is nothing in the Award — particularly in terms of the relief awarded — that suggests that the Arbitrator approached the case on the basis that the respondents were then seeking to rescind the contract or were seeking declarations and relief on that basis. This is made quite plain by paragraph 85 of the Award and by the terms of the relief awarded. To the extent the Arbitrator considered that the respondents might have been able to rescind the contract, that was not a necessary step in his reasoning or in the relief granted.

Public policy

67 The public policy grounds relied upon by the applicants in the setting aside proceeding were articulated in general terms as follows:

7.1 In respect to Article 34(2)(ii), it has been held that:(a) The ‘public policy’ ground is directed towards contraventions of ‘fundamental principles of justice and morality’ of Victoria.

(b) The requirement that parties in arbitrations be accorded procedural fairness or natural justice within the meaning of those terms in the relevant legislative context is part of the public policy of Victoria and Australia.

68 Particular reliance is placed by the applicants in relation to these grounds on the decision in Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd. Particular reference is made to the following passage in that case:

  1. The ‘unable to present its case’ and ‘public policy’ grounds were argued together and as alternatives to one another in these proceedings. In my view, and for the reasons that follow, there is no practical difference between these two grounds in the way in which they relate to natural justice and procedural fairness in the circumstances of this case. Nevertheless, it is important to note that these grounds are conceptually different. The ‘public policy’ ground is directed towards contraventions of ‘fundamental principles of justice and morality’ of Victoria. By contrast, the ‘unable to present its case’ ground focuses on whether the party seeking to set aside the award has been accorded procedural fairness. As the following reasons show, this point may be a distinction without a difference in the present context because the requirement that parties in arbitrations be accorded procedural fairness or natural justice within the meaning of those terms in the relevant legislative context is part of the public policy of Victoria, and for that matter, Australia. In accordance with the approach adopted by the parties then, I will consider the ‘unable to present its case’ ground and the ‘public policy’ ground together.

A passage which should also be read with the following further passage in that case:

  1. A breach of s 18 of the Act in the making of an arbitral award may also result in the award being set aside or recognition or enforcement being refused on public policy grounds. In TCL, the Full Federal Court conducted a comprehensive review of the ‘public policy’ ground under arts 34(2)(b)(ii) and 36(1)(b)(ii) of the Model Law. Allsop CJ, Middleton and Foster JJ considered the restrictive interpretation to be given to this ground and made extensive reference to the legislative history of the Model Law and to international jurisprudence, including leading authorities from the Asia-Pacific region. For present purposes it is sufficient to recall the crux of this discussion, namely that ‘public policy’ is ‘limited to the fundamental principles of justice and morality of the state, recognising the international dimension of the context’.

69 The public policy grounds relied upon by the applicants were, as in the Amasya case, argued and sought to be supported by reference to the matters relied upon as establishing a breach of article 18 and flowing from that other bases for setting the Award aside. As, for the preceding reasons, I have found that there has been no breach of article 18 and hence none of these other bases for setting aside have been established, it follows that the public policy ground relied upon by the applicants must also fail.

Conclusion and orders

70 For the preceding reasons, the applicants have failed to establish any basis in support of their application in the setting aside proceeding which must, accordingly, be dismissed.

71 It follows that the stay of orders previously made in the recognition and enforcement proceeding should be removed and the orders for recognition and enforcement operate accordingly.

72 The parties are to bring in orders as indicated. I otherwise reserve the question of costs and will hear the parties further on this issue.

 

Please click here for:

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

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

Mango Boulevard Pty Ltd v Mio Art Pty Ltd [2018] QCA 39

SUPREME COURT OF QUEENSLAND

 

PARTIES:

MANGO BOULEVARD PTY LTD AS TRUSTEE FOR THE MANGO BOULEVARD UNIT TRUST (ACN 101 544 601) (Appellant)

V

MIO ART PTY LTD AS TRUSTEE FOR THE SPENCER FAMILY TRUST (ACN 121 010 875) (Respondent)

ROBERT WILLIAM WHITTON AS TRUSTEE IN BANKRUPTCY OF THE BANKRUPT ESTATE OF SILVANA PEROVICH (Respondent)

 

FILE NO/S: 

  • Appeal No 6003 of 2017
  • SC No 9991 of 2016
  • SC No 1383 of 2017

DIVISION: Court of Appeal

PROCEEDING: General Civil Appeal

ORIGINATING COURT: Supreme Court at Brisbane – [2017] QSC 87 (Jackson J)

DELIVERED ON: 20 March 2018

DELIVERED AT: Brisbane

HEARING DATE: 27 September 2017

JUDGES: Fraser and Morrison and McMurdo JJA

ORDERS:

  1. The appeal is dismissed
  2. The appellant is to pay the respondent’s costs of the appeal, to be assessed on the standard basis

CATCHWORDS:

ARBITRATION – CONDUCT OF THE ARBITRATION PROCEEDINGS – POWERS, DUTIES AND DISCRETION OF ARBITRATOR – DUTY TO OBSERVE RULES OF NATURAL JUSTICE – where there was a dispute between the two sides of a joint venture for the development of land – where the joint venture was formed pursuant to a Share Sale Agreement (SSA) – where the SSA contained a formula by which the price for shares was to be fixed according to the value of the land – where the arbitrator found that the value of the land ought to be calculated as the SSA provided but also with real life market considerations in mind – where the appellant alleged this finding had not been sought by the parties – where the arbitrator used that finding as a basis for rejecting the evidence of three of the appellant’s expert witnesses – whether the arbitrator afforded the appellant a reasonable opportunity to respond to or answer the arbitrator’s use of that finding

ARBITRATION – CONDUCT OF THE ARBITRATION PROCEEDINGS – POWERS, DUTIES AND DISCRETION OF ARBITRATOR – DUTY TO OBSERVE RULES OF NATURAL JUSTICE – where it was contended that the arbitrator’s reasoning was based upon a finding notwithstanding that it was not a basis pleaded or argued by the respondents – where it was submitted that the arbitrator’s introduction of his own methodological approach to value involved a fundamental departure from the requirements of procedural fairness – whether the award was in conflict with the public policy of the State

 

  1. FRASER JA:  I have had the advantage of reading the reasons of Morrison JA and McMurdo JA.  For the reasons given by McMurdo JA, I too agree with the orders proposed by Morrison JA.
  2. MORRISON JA:  The appellant (Mango Boulevard) and the respondent (Mio Art) were parties to a Share Sale Agreement under which an Arbitrator was appointed.  The Arbitrator made Part 1 of his Award on 29 June 2016 and Part 2 on 8 December 2016.  The question of costs has not yet been decided.
  3. Mango Boulevard applied to set aside both Parts of the Arbitrator’s award.  In general terms the basis for the application was that the Arbitrator failed to accord procedural fairness or acted in breach of the rules of natural justice in a number of respects, which constituted grounds for finding that Mango Boulevard was unable to present its case, or the award is in conflict with the public policy of this State.
  4. That application was dismissed by the learned primary judge.  Mango Boulevard has appealed that decision.
  5. The grounds of appeal concern more limited questions than were raised before the learned primary judge.  They are that:

    (a)          the learned primary judge erred in not finding that the Arbitrator had conducted or resolved the arbitration in a manner that caused real unfairness or real practical injustice to the appellant in circumstances where:

    (i)          the Arbitrator had made a finding that had not been sought by any of the parties to the arbitration to the effect that “prudent or rational developers would not buy such a Property [being the property the subject of the arbitration] unless they reasonably believed they could make a profit of 30% to 45% on all costs (inclusive of the actual purchase price of it)”;

    (ii)         that finding by the Arbitrator was based on evidence elicited orally by the Arbitrator from expert witnesses where:

    (A)     that evidence was said by the Arbitrator to be relevant to the possible valuation of the property on the basis of en-globo land sales:

    (B)     the appellant submitted that en-globo land sales were irrelevant;

    (C)     the Arbitrator ultimately accepted the appellant’s submission that en-globo land sales were irrelevant subject to two qualifications that are not relevant;

    (iii)        the Arbitrator used the finding described in paragraph (a)(i) as part of his reasoning for deciding the inputs into the calculation of value that was the question for determination in the arbitration, notwithstanding that this was not a basis pleaded or argued by the respondents;

    (iv)         the Arbitrator used that finding as a basis for rejecting the evidence of three of the appellant’s expert witnesses as to the necessary inputs notwithstanding that:

    (A)     this was not a basis for rejecting those experts’ evidence contended for by the respondents;

    (B)     the finding, or the possible finding, or an implication of the finding for the expert’s opinion, was not put by the Arbitrator or the respondent to any of those experts when they gave evidence;

    (C)     the Arbitrator did not raise the finding or possible finding with the appellant as relevant to whether the appellants’ experts should be accepted on the relevant inputs during or before the hearing of evidence;

    (v)          the Arbitrator did not afford the appellant a reasonable opportunity to respond to or answer the Arbitrator’s use of that finding as the basis for:

    (A)     deciding the inputs into the calculation of value;

    (B)     rejecting the evidence of three of the appellant’s expert witnesses as to the necessary inputs;

    (vi)         a substantial reason of the Arbitrator for rejecting the evidence of Mr Cox, an expert witness for the appellant, was that Mr Cox had not taken into account the application of the expectation of a prudent or reasonable developer of a 30 per cent or more profit on cost to the “real cost base” (which the Arbitrator never quantified) notwithstanding that:

    (A)     the respondents did not raise the point with Mr Cox when Mr Cox gave evidence;

    (B)     the Arbitrator did not raise the point with Mr Cox when Mr Cox gave evidence;

    (C)     the Arbitrator did not raise the point with appellant when Mr Cox gave evidence or at any time during or before the hearing of evidence;

    (b)          on the basis of the error in ground (a), the learned primary judge erred in not finding that the arbitral awards delivered by the Arbitrator on 29 June 2016 and 8 December 2016 should be set aside pursuant to ss 34(2)(a)(ii), 34(2)(a)(iv) or 34(2)(b) of the Commercial Arbitration Act 2013 (Qld).

  6. For reasons which follow I would dismiss the appeal.

    Background and approach of the learned primary judge

  7. The Share Sale Agreement provided for the valuation methodology in cl 4.1, cl 4.3 and cl 4.4, which relevantly provided:

    “4.1         The purchase price of the Shares shall be calculated as the greater of:

    (a)          the difference between the purchase price of the Property set out in the Contract and the improved market value of the Property immediately after the Effective Date less $2,000,000.00; or

    (b)          $5,000,000.00; …

    4.3          For the purpose of clause 4.1(a), the valuation of the Property shall be a market valuation. …

    4.4          The Valuer shall value the Property on the assumptions that:

    (a)          Development Permits have been issued in respect of the whole Property which authorise the development of the Property on substantially similar terms to the terms of the Preliminary Approval, including substantially similar:

    (i)      MCU;

    (ii)     density per hectare;

    (iii)     yield; and

    (iv)     conditions;

    (b)          the Project would achieve a Profit on Cost Percentage return of 25% (“Valuation”).

    4.5          The cost of the Valuation shall be borne by Mango Boulevard.”

  8. Clause 8.3 then provided that the Arbitrator “… in reaching a decision as to the value of the Property, must adopt the same methodology as provided in clause 4.4”.
  9. Thus, cl 4.4 provided that in ascertaining the “improved market value of the Property immediately after the Effective Date” under cl 4.1, and the “market valuation” of the Property under cl 4.3, the Arbitrator was required to make the agreed assumptions, particularly that the Project would achieve a Profit on Cost percentage return of 25 per cent.
  10. The Arbitrator found that the methodology to be applied was a variant of the residual value method, in accordance with the decision of PD McMurdo J in Mio Art Pty Ltd v Mango Boulevard Pty Ltd (No 2) and the Court of Appeal in Mango Boulevard Pty Ltd v Mio Art Pty Ltd.  The essential aspect of that finding is in paras [103]-[104] of Part 1 of the Award, as follows:

    “[103]  Real life market considerations, that is, commercial reality, has another role to play in the making of the market valuation under the SSA. If the adoption of the selected amounts in respect of an item or items of cost and the financial return on them produces an improbable and counter-intuitive commercial result on the known indisputable facts, for example that the Respondent actually paid $22,000,000 for the Property and incurred other substantial expenses in respect of it before the Effective Date, and that competent and prudent or rational developers would not buy such a Property unless they reasonably believed they could make a profit of 30% to 45% on all costs (inclusive of the actual purchase price of it), then there will be reason to question, and it would be in conformity with the contractual requirement of a market valuation, that there be at least a serious questioning and scrutiny of those inputs and income on them. In other words, a market valuation requires more than a simple acceptance of a computer generated number on the basis of one only highly contestable set of costs and income.

    [104]       In substance then I accept that the residual cash flow method, or the variant of it for which the SSA provides, is the method of valuation which must be adopted here. But that method certainly does not preclude, indeed the requirement of a market valuation requires, a testing on the bases of various sensitivities, of the result for which the parties contend, and, if found improbable by reference to the market, a revisiting and testing of the inputs and outputs producing that improbability. That is not to ignore the ultimate requirement of a profit of 25% on the assumptions required to be made. It is simply to measure against the evidence, all relevant market considerations operating on the Effective Date, including expectations and requirements of profit then.”

  11. Before the learned primary judge, Mango Boulevard contended that the Arbitrator had thereby departed from the methodology stipulated under the Share Sale Agreement.  That contention was rejected, the learned primary judge finding that the Arbitrator did not abandon the residual value method, but was not obliged to approach the question of value with his eyes closed as to the effect of the margin of profit and risk upon the value:

    “[76]    … my own view substantially accords with his view, that it is inevitable that a commercially aware person approaching the question of value through a residual value method of analysis must assess the reliability of the inputs and outputs of such a model with an eye to the hurdle or target rate of profit and risk. That the SSA requires a profit on cost percentage return of 25 percent to be deployed in ascertaining value for the contractual price formula does not necessarily prohibit the valuer or the arbitrator from any awareness of the likely parameters in arriving at the otherwise market driven components of the calculation.

    [77]        The effect of the arbitrator’s approach was that he accepted that when it came time to calculate value in accordance with the contractual price formula and methodology he was required to deploy 25 percent as the agreed rate for the “Profit on Cost percentage return”, using the contractual definitions, but up until that point he was not required to distort the inputs for the calculation of value if that would not have been the rate of profit on cost in an on market transaction.”

  12. Ultimately the learned primary judge held that even if the Arbitrator had been wrong in law to take the approach he did, that was not an excess of jurisdiction that would engage the Commercial Arbitration Act 2013 (Qld).
  13. Those findings and conclusion are not challenged on this appeal.
  14. As the learned primary judge pointed out in respect of the point agitated on the appeal, Mango Boulevard’s submissions centred on the Arbitrator’s reasoning as exposed in the following passages of Part 1 of the Award:

    “Real life market considerations, that is, commercial reality, has another role to play in the making of the market valuation under the SSA.  If the adoption of the selected amounts in respect of an item or items of cost and the financial return on them produces an improbable and counter-intuitive commercial result on the known indisputable facts, for example that the Respondent actually paid $22,000,000 for the Property and incurred other substantial expenses in respect of it before the Effective Date, and that competent and prudent or rational developers would not buy such a Property unless they reasonably believed they could make a profit of 30% to 45% on all costs (inclusive of the actual purchase price of it), then there will be reason to question, and it would be in conformity with the contractual requirement of a market valuation, that there be at least a serious questioning and scrutiny of those inputs and income on them.  In other words, a market valuation requires more than a simple acceptance of a computer generated number on the basis of one only highly contestable set of costs and income.”

    and

    “Good valuation practice, in my opinion, also required that when the result as deduced by Mr Cox, as I hold it to be, was counter-intuitive and improbable, the valuation (and the opinions of the experts upon which the valuer depends) need to be revisited and questioned.  Mr Cox did not do that.  As Mr Davis agreed, “any prudent investor never makes an investment on the bases of one calculation.  There would be multiple sensitivities normally” [my emphasis].  I thought Mr Cox on occasions in cross-examination rather argumentative than entirely responsive.  The point is not that the Respondent’s figures did not show a profit of 25% upon the basis of the somewhat artificial method of valuation required by the SSA.  Rather, the point is that, a prudent developer and purchaser would not have entered into a contract for the purchase of the Property at the time of the SSA and afterwards as I find, unless it could develop it and sell it for a profit on all of its costs (including, of course, the purchase price, holding charges, duties, opportunity costs and experts fees) of 30% or more.  On the Respondent’s inputs and outputs, even ignoring the real and ascertainable costs, a profit of that nature was not remotely possible.”

  15. The Arbitrator utilised that line of reasoning in his assessment of the evidence of various witnesses, but principally that of Mango Boulevard’s valuer, Mr Cox.  That assessment is reflected in the following passages of Part 1 of the Award:

    “In my opinion, informed people in the market would not have done, and acted upon the, as I find, unconvincing calculations that Mr Ovenden, Mr Cox, and to some extent Mr Thomas, now make about density, yield, and demand.  There is a further reason why I reject the results and the components of those results.  It is that their numbers, quantities and prices would produce an implausible, a non-market result having regard to two realities: the prudent investor/developer would be looking for a profit of more than 30%, indeed up to 45%; and the Respondent’s case, based upon its experts’ calculations cannot produce a profit of anything remotely of that order on its actual minimum expenditure of $22,000,000 plus holding and other substantial costs incurred before the Effective Date.  Much of this was clear before the Respondent closed its case.”

    and

    “A further reason why I do not accept a deal of Mr Cox’s evidence, and his conclusion on value, is his inattention to, and ultimate failure to question how it could be, adopting the yields, outputs and inputs that he did, and on the generally indisputable facts that the Respondent:

    (i)          provided $22,000,000 for, and in respect of, the purchase of the land in August 2004;

    (ii)         had holding (e.g. rates and land tax) and opportunity costs on it from then until the Effective Date;

    (iii)        engaged and paid undisclosed but further substantial sums to professionals and consultants (lobbyists included) to prove up its potential, and to obtain development approval for the Property;

    (iv)         was not proved or claimed to be either an imprudent or inexperienced purchaser/developer and contractor, indeed was as the Respondent’s Counsel properly accepted, a “rational” developer;

    (v)          as such would ordinarily look for a profit of more than (as I find) 30%;

    that the Project would not yield a profit of anything like that percentage.  (Mr Davis calculated the profit on the inputs and income of which he was instructed at only about 17%.)”

  16. The learned primary judge referred to Mango Boulevard’s contentions that in circumstances where Mio Art did not raise the point, the Arbitrator did not raise it with Mr Cox, nor with Counsel for Mango Boulevard.  His Honour accepted that in court proceedings it might be expected that a point of such significance in rejecting a valuer’s evidence would be raised with the valuer, and with the party relying on that valuer’s evidence.  His Honour pointed out that whilst the arbitration was conducted in many ways like commercial litigation, it was not a court proceeding.
  17. His Honour relied upon Trustees of Rotoaira Forest Trust v Attorney-General, a decision under the analogue legislation in New Zealand.  The issue there was the scope of the cases as presented to the arbitrator, rather than fairness to a witness, the contention being that the arbitrators had adopted their own model of valuation in breach of natural justice.  In particular his Honour relied upon what Fisher J said:

    “… an arbitrator is not bound to slavishly adopt the position advocated by one party or the other.  It will usually be no cause for surprise that arbitrators make their own assessments of evidentiary weight and credibility, pick and choose between different aspects of an expert’s evidence, reshuffle the way in which different concepts have been combined, make their own value judgments between the extremes presented, and exercise reasonable latitude in drawing their own conclusions from the material presented.”

  1. The learned primary judge accepted that Mr Cox should have been asked to comment upon why he failed to consider whether his results were implausible against a general market expected return of 30 per cent, and whether that failure undermined his conclusions.  Further, that the failure to ask him was a breach of natural justice, if counsel for Mio Art failed to do so.
  2. However, observing that those questions were merely two of many factors articulated by the Arbitrator for rejecting Mr Cox’s evidence, his Honour was not persuaded that the error amounted to or caused real practical injustice to Mango Boulevard, such as to form the basis of a review on an application to set aside the award under s 34 of the Commercial Arbitration Act2013 (Qld).  In so finding his Honour relied upon a passage by Neazor J in Burne v Young:

    “The question comes down to whether the arbitrator, whose function is to hear and decide, has any obligation to say to a witness words to the effect ‘this is the conclusion I presently expect to draw from what you have said; do you want to say more about the point?’  If there was such an obligation litigation of any kind would be likely to be prolonged, and the decision maker would at least appear to be drawn into the arena by ensuring that the limit of every witness’ knowledge of the matter had been defined.”

  3. His Honour’s reference to real practical injustice was an evident reference to what was said by the Full Federal Court in TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd, and adopted in Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd, namely that an arbitral award will not be set aside under s 34:

    “unless there is demonstrated real unfairness or real practical injustice in how the international litigation or dispute resolution was conducted or resolved, by reference to established principles of natural justice or procedural fairness.  The demonstration of real unfairness or real practical injustice will generally be able to be expressed, and demonstrated, with tolerable clarity and expedition.”

    Submissions

    Mango Boulevard submissions

  4. For Mango Boulevard, Mr D Kelly QC, appearing with Mr Hodge, submitted that the learned primary judge fell into error by not setting aside the award for denial of procedural fairness.  The substance of that contention was:

    (a)          the Arbitrator adopted a chain of reasoning which was premised on an issue which had not been raised by any party in their pleadings, expert reports, cross examination or written and oral submissions;

    (b)          this issue was variously described by the Arbitrator (who was not himself an expert) as one involving “prudent valuation practice” and “good valuation practice”;

    (c)          the Arbitrator reasoned that: (i) “prudent or rational developers would not buy such a Property unless they reasonably believed they could make a profit of 30% to 45% on all costs (inclusive of the actual purchase price of it)”; and (ii) therefore, the inputs determined by reference to the opinions of the experts ought to be capable of producing a 30 per cent to 45 per cent profit on all costs;

    (d)          that issue was relied upon by the Arbitrator as a substantial reason for rejecting, not just the evidence of Mango Boulevard’s valuer (Mr Cox), but also the evidence of the town planner (Mr Ovenden) and engineer (Mr Thomas); however it was not put to any of those experts;

    (e)          the learned primary judge limited his consideration of the Arbitrator’s chain of reasoning to but one aspect of Mango Boulevard’s complaints, which was that the Arbitrator, despite  finding that Mr Cox should have applied the Arbitrator’s concept of prudent valuation practice and “good valuation practice”, had never raised this issue with Mr Cox;

    (f)          the learned primary judge relevantly found that “the sting of the Arbitrator’s reasoning … was that Mr Cox should have taken something into account, but did not did [sic] so, and that reasoning was taken into account in a substantial way in rejecting his evidence”; that substantial reliance was sufficient, in itself, to demonstrate real practical injustice;

    (g)          the learned primary judge correctly observed that “This is a finding of a serious kind against a professional person who is instructed to prepare his report and to give evidence as an expert … An expert witness should be given an opportunity to answer a criticism that they have not done so;”

    (h)          the learned primary judge concluded that despite it being “… at least arguable that the failure to [give that opportunity] was a breach of the rules of natural justice”, he was “left unpersuaded that the posited error amounted to or caused real practical injustice” to Mango Boulevard; and

    (i)          it should have been held that the Arbitrator failed to provide a fair hearing.

  5. Mango Boulevard relied upon s 34(2)(a)(ii) and s 34(2)(b)(ii) of the Commercial Arbitration Act 2013 (Qld) which materially provided:

    “(2)         An arbitral award may be set aside by the Court only if –

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

    (ii)     the party making the application … was otherwise unable to present the party’s case; or

    (b)          the Court finds that –

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

  6. It was submitted that natural justice and procedural fairness arise under both limbs, and a breach of the rules of natural justice is one that causes real practical injustice.  In this context it is not necessary to prove that there would have been a different outcome had the hearing been fair.  It is sufficient to show that the denial of procedural fairness deprived Mango Boulevard of the possibility of a successful outcome.

  7. Further, it is well accepted in the context of arbitrations that a party is denied a reasonable opportunity of presenting its case where the Arbitrator introduces a new idea of his own on which the parties have not been able to comment or adduce evidence.  If the Arbitrator intended to raise and rely upon his own issue, he was obliged to fairly reveal the issue so that the parties could, as a minimum requirement of procedural fairness, be given a full opportunity to understand, test and rebut the issue.  The obligation on the Arbitrator is to provide a fair opportunity to address his arguments on all of the essential building blocks in his conclusion.
  8. Real unfairness or practical prejudice was submitted to be evident from a number of features, including:

    (a)          the finding at para [103] of the award was not sought by the parties;

    (b)          the finding was based on evidence elicited in response to questions as to the en-globo valuation method, which was found to be irrelevant;

    (c)          the finding was not the subject of pleadings, nor considered by the experts in the context of the residual value method, nor the subject of submissions;

    (d)          the finding was used as a basis for rejecting the evidence of the experts, even though that was not sought by Mio Art; no experts addressed the method of valuation or analysis in the finding; and

    (e)          Mango Boulevard was not given a proper opportunity to address the proposed use of the finding.

    Mio Art submissions

  9. For Mio Art, Mr Douglas QC, appearing with Mr D Keane and Mr Colditz of Counsel, submitted that there was no failure to provide procedural fairness, but even if there was, it was not enough to set aside the award.  There was evidence, particularly elicited by the Arbitrator, as to the margin for profits and risk that a prudent developer would have required in transactions of the nature in question in 2007.  The Arbitrator raised these matters with the parties and in particular Senior Counsel for Mango Boulevard.  In particular, it was submitted that the evidence, as set out in [91] of the Judgment, makes it clear that the issue of what percentage return a prudent developer would be looking for in the market, as it existed in 2007, was a matter which was raised by the Arbitrator with the valuation experts for both parties, including Mr Cox and counsel.
  10. It was further submitted that Mr Cox did not purport to give valuation evidence as to what the expectations of prudent developers were when purchasing en-globo blocks of land of the nature in question in these proceedings.  His analysis was a comparable sales analysis of subdivided blocks of land based upon surrounding properties.  When confronted with the Arbitrator’s views on using market expectations as a basis of checking the calculation performed pursuant to the contractual formula, Senior Counsel for Mango Boulevard relied upon Mr Cox’s answers which evidenced the limited nature of the evidence he gave.  In light of the Arbitrator’s interest in the point Mango Boulevard could not just ignore it.  They could have sought to obtain leave to call further evidence on the subject from a valuer, but no such application was made.
  11. Further, the Arbitrator’s rejection of the evidence of Messrs Ovenden, Cox and Thomas was based upon the fact that the calculations which they had made in relation to density yield and demand were unconvincing.
  12. It was submitted that the Arbitrator concluded that calculations based upon Mango Boulevard’s density yield and demand figures (which meant that the land was worth approximately $12 million and which was significantly less than what was paid for it in 2003) were flawed, and based upon yields which were not in accordance with the relevant planning instruments.  His reference to the fact that a prudent investor/developer would be looking for a profit of 30 per cent to 45 per cent, and the fact that Mango Boulevard’s figures could not produce a profit of that order on its minimum expenditure of $22 million plus holding and other substantial costs, was used by the Arbitrator as a further reason as to why he was correct in his conclusions that the figures which had been used for the calculations by Mango Boulevard’s experts were not commercially realistic.
  13. There was no reason to interfere with the findings of the learned primary judge.  There was no real unfairness or practical injustice.  The fact that the critical finding was not sought by any of the parties is irrelevant as the Arbitrator was entitled to take his own course.  The Arbitrator’s questions and findings were not limited to the en-globo valuation method, and he was entitled to compare the ultimate result of the calculations by Mango Boulevard’s experts with commercial reality.  It was irrelevant that the Arbitrator did not raise with the experts the use he intended to make of the answers he obtained.  The issue itself was raised with the experts and the parties during the hearing.

    Discussion

  14. Notwithstanding the various ways in which Mango Boulevard’s contentions were put, they came down to this: the Arbitrator relied upon a view as to the impact upon the testing of the inputs in the valuation process by reference to what an expected market return would be, unimpeded by the Share Sale Agreement; that view was not pleaded, not put by Mio Art and not raised with Mr Cox; therefore there was a denial of natural justice.
  15. In order to properly consider the points raised it is necessary to make a relatively close assessment of the course of the arbitration, and in particular those parts where it might be suggested that the point should have been raised but was not, or alternatively where it was mentioned.  For that purpose it can be accepted that the point was not pleaded, and was raised by the arbitrator.

    Question raised by the Arbitrator

  16. The expert valuers gave evidence on 23 and 24 April 2015.  On 23 April, Mr Robertson was in the course of his cross-examination when he was asked whether he had taken the 25 per cent return into account in using the comparable sales method.  He responded:

    “MR ROBERTSON:  I’ve assumed that … a purchaser of that land is going to be paying a bit more, because it’s below commercial rate for a return and so … they would be able to pay a little bit more than what strictly a developer looking at a, say, 45 per cent return would pay for that land.”

  17. Asked to explain what he meant, Mr Robertson said:

    “MR ROBERTSON:  Well, if the comparable sales are such that you … come to X amount, and then you come to an amount that you think that the person who’s looking for 25 per cent return will pay.  And then, if you like, if you want to find the commercial rate you would then deduct a further amount – another percentage – that would reflect … what a normal person in commercial conditions, not taking into account the 25 per cent would pay.”

  18. Mr Robertson was pressed to explain further, using a hypothetical example of an arms’ length market purchase at $100 million:

    “MR ROBERTSON:  Okay.  So they’re looking at about a 45 per cent return.  … normal developers look for between 40 and 50 per cent for a project of this size.  So … you would think that that’s what they’ve paid for – based on that.  They would pay a little bit more if they were only looking for 25 per cent.

    MR CALLINAN:  So you’re saying that the market would want a 40 per cent, so that 100 million … would enable the purchaser, after developing the property, to make 40 per cent.  Is that what you’re saying?

    MR ROBERTSON:  That’s assuming that he has bought it on that basis of … if he wants to get 40 per cent return.  This was a normal market transaction and he’s expecting a 40 per cent return, he … he’s paying $100 million.  But … if you’re hypothesising that this developer only wants 25 per cent, he obviously can pay more for the land …”

  19. The following day the Arbitrator posed a question as to the return that developers were seeking in 2007.  Given what had been said by Mr Robertson the day before it may be fairly assumed that the Arbitrator’s question was prompted by his evidence.  The question was in these terms:

    “Mr Robertson, this gentlemen … may only be relevant if the in globo (sic) comparable sales are relevant, and they’re asked subject to that question being determined, but was there within … the business of buying and developing land, in particular residential land in large areas – a generally accepted profit component for which participants would look?  I mean, here the contract requires a 25 per cent profit factor, but was there a standard profit that developers were looking for?  And what was the competition in the business at the time? … For example, if there are a lot of competition for large parcels of residential land, one might expect that developers might be content with a lower profit margin.  I don’t know.  In about January 2007, do you know what developers were looking for? … no doubt it would depend upon different developers and access to finance and all sorts of things, but …”

  20. The transcript at that point suggests that there may have been thought to be an objection to the question from Senior Counsel for Mango Boulevard but it was immediately made clear that there was no objection, and that was confirmed shortly thereafter.
  21. Mr Roberston responded: “… and it also varied with the size, what type of project it was”.  He then agreed that the profit also varied with the capacity of the particular purchaser, and continued: “…. your basic hundred lot-type subdivision, something like that, or 120 lot, is looking at about 25 per cent return, and then if you’re looking for, say, a 10-year project like this one, you’re looking at … 45 per cent – looking at somewhere in that area.”
  22. The Arbitrator asked for clarification in respect of sales about 35 hectares (of which there were some) and Mr Robertson responded: “35 hectares is still a significant-size development, and they would be looking at 35 to 40.”
  23. Re-examination by Senior Counsel for Mio Art then proceeded with a question directed at the price that might be paid for the land, depending on the desired profit.  The example used was based on paying $14 million where the profit was 45 per cent, and Mr Robertson accepted the Arbitrator’s point that “more could be paid if the profit was only 25%”.
  24. Mr Cox was then called.  His adopted method of valuation was based on the residual cash flow method, which he said was dictated by the share sale agreement.  Once his evidence in chief was completed the Arbitrator asked him a question similar to that asked of Mr Robertson:

    “MR CALLINAN:  Yes.  Now, can you tell me this, and it may very well vary, but in about, say, January 2007 do you have any knowledge or feeling from your expertise for what the profit expectations were of substantial in globo developers?

    MR COX:  Yes, … the standard size developed were below 25 per cent, say 20 per cent.  And as the developments became larger, approaching the size of the subject, … that profit margin increased because of the increased risk.  And … I couldn’t give you a precise figure, I couldn’t.  But 45 sounds a lot to me, 45 per cent.

    MR CALLINAN:  But it would be more than 25.  Is that right?

    MR COX:  I suspect it would be, yes.

    MR CALLINAN:  Well, I thought that’s what you just said, that the market would have been looking for more than 25 … having regard to the site.  Tell me if I’m wrong.

    MR COX:  No, I’m – I agree.  That’s the way I see it.  Yes.”

  25. Mr Cox accepted that the application of the formula in the Share Sale Agreement produced a negative value for the land, which as he agreed, could not be right as a matter of reality.  The passage is important in my view because of what was asked and the response:

    “MR CALLINAN:  Well, you’ve reached, in effect, applying the 25 per cent formula, a negative value for the land.

    MR COX:  Yes, yes.

    MR CALLINAN:  And you say, and I understand that, that it’s dictated by the formula.  But we know that as at January 2007 this land improved … by the planning permit.

    MR COX:  Yes.

    MR CALLINAN:  It did have a value.

    MR COX:  Yes.

    MR CALLINAN:  Nobody is going to give it away.

    MR COX:  Yes, yes.

    MR CALLINAN:  Or say, “Look, you can have my land if you get – if you – – – ”

    MR COX:  I understand.  Everything has got a value and nothing has got a negative value.

    MR CALLINAN:  I mean, but it just … as a matter of reality, that can’t be right.

    MR COX:  Yes.  No, it’s – as I’ve said there, it’s hypothetical.  It’s theoretical.  Yes.

    MR CALLINAN:  I know, I know.  Well, does that give you concern for the validity – I mean, I – I’m not pointing to any apparent errors or anything like that, but doesn’t that make you question … what you’ve employed in reaching your result?  We know, in fact, that a developer would pay something for the land.

    MR COX:  I was not requested to do that – – –

    MR CALLINAN:  No, I know weren’t asked to do that.  I know that.  I know that.

    MR COX:  So I – as I say, I came to a revenue, being the top line, and I’m very confident with that figure.

    MR CALLINAN:  I understand your methodology.

    MR COX:  So someone else then applied the model, and out of that model came a negative value.  And I believe it’s a function of the – – –

    MR CALLINAN:  Formula – contractual formula.

    MR COX:  But the construction and development costs with so much expense of earth moving and earth works – and a lot of that land on the northern side was low lying adjacent to Hays Inlet and – there’s a creek there, Saltwater Creek.  So that involved costs that are greater than the average cost per lot for a subdivision.  And I think that probably, in the model, was one of the large contributors to bringing the value down.

  1. The Arbitrator returned to the question of the return that might be sought by developers, in the course of which Senior Counsel for Mango Boulevard made it clear that there was no objection to the question being explored, that “on one view, it’s relevant”, and that he would “make submissions later about its irrelevance”:

    “MR CALLINAN:  Well, I suppose if, in fact, as you say, the method dictated by the contract is only a check method – or is a secondary method, a check method … in the real world of the marketplace, … what do you think would be an appropriate – if you were … unconstrained by the contract, an appropriate profit to compare it, that a developer would be looking for buying this land in January 2007?  And I understand there will be argument about this, Mr Sofronoff, … do you object to the question?

    MR SOFRONOFF:  I don’t object to information coming out.  I can make submissions later about its irrelevance but – so, please – – –

    MR CALLINAN:  Thank you.  All right.

    MR SOFRONOFF:  And on one view, it’s relevant to – – –

    MR CALLINAN:  Yes, quite, quite.  I mean, I’ve got no view about it.  … at the end of the day, I’ve got to decide what the proper valuation is … in accordance with the contract.  But it will be no secret I’m struggling with that at the moment, Mr Cox.  But do you have a view about what a smart developer or a prudent developer would do – would be looking for?  Or do they, in practice, not look for that and they just use a kind of an intuitive judgment?

    MR COX:  I’m reluctant to make a pronouncement as to value or rates or discount unless I have thoroughly researched the market … or my findings are market-based.  Now, I haven’t got the luxury of being able to tell you, and give evidence to you why my opinion to – to answer your question as such.  I can only say I have never heard of 45 per cent before.  It’s a huge amount.  I think it would be more than the 25 per cent because this was a major lengthy project with a lot of outlays having to be thrown at it.  And all that reflects risk, and up goes that profit factor.  So it would be – I would – intuitively I say it’s around 30, 35 per cent, but I wouldn’t commit myself to that unless I had evidence of that.”

    Hearing 11 August 2015

  2. The parties served their written submissions in 2015, Mio Art on 19 May and Mango Boulevard on 23 June.  As the arbitration approached the point of addresses the Arbitrator convened a directions hearing on 11 August 2015.  The transcript reveals the Arbitrator raising various issues for the parties to address subsequently, covering about 14 topics.  The further hearing was adjourned to September, for addresses.

    Hearing 1 September 2015

  3. On 1 September 2015, oral submissions commenced.  It is evident from the transcript that considerable time was spent debating the nature and scope of the Arbitrator’s task in conducting the valuation.
  4. The submissions also turned to some sensitivities that had been produced by Korda Mentha on behalf of Mango Boulevard, largely because the Arbitrator had previously intimated that they might be of assistance.  As to those sensitivities the Arbitrator posed a question as to whether he could use them to test the veracity of the experts’ inputs and outputs, or, as the Arbitrator put it, “the improbability that all of your figures are right”:

    “If I were to form the view that they, among other things, demonstrate that something isn’t right with your conclusion – that your value – not because it’s a negative value but because, on your figures, it would be far, far less than 25 per cent, put it that way, particularly when you take into account the realities of the cost to you of a minimum of 27 million.  You remember that was the starting point.  Or it was a bit less than that – I think it was 25 – which was 22 factored up to the affected date.  It would not be unorthodox or wrong, would it, to say, “Well, having regard to those calculations and other matters, I don’t think your costs or your prices can be right; one or both of them.””

  5. Senior Counsel for Mango Boulevard addressed that question saying that if that were the case then: (i) further submissions would be required, and (ii) unlike a trial where one party bore an onus of proof, since the exercise was to determine a value that would signify that the parties had not “given you the material upon which you can do that, [and] then we have to do that before you can conclude that you can’t decline a value”.  It was finally put this way:

    “It would remain to be seen after you had formed your views and if you had unfortunately come to that view that there was a gap caused by your disinclination to be satisfied, then either we could each point to material that persuades you to the contrary, point to material that you could otherwise use or then we would have to address the problem that arises in an arbitration like this, caused by what by definition would be a vacuum in the evidence in a crucial respect.  And I would like to look at the authorities on that if it arises but I would expect, just thinking it through as a matter of principle, that we would then have to proceed accordingly to give you material upon which you could work.”

    Hearing 10 February 2016

  6. On 10 February 2016, the Arbitrator conducted a directions hearing at which Mango Boulevard was represented by Mr D Kelly QC.  During the hearing some issues were raised by the Arbitrator, including:

    (a)          that Mango Boulevard had a Jones v Dunkel inference to meet regarding all experts;

    (b)          in response to a question from Mr Kelly QC as to what the inferences were, the Arbitrator said that there was a possible finding that Mango Boulevard’s income and costs inputs were wrong because they produced a non-commercial result which does not reflect a prudent market view of a 35 to 40 per cent return;

    (c)          the Arbitrator said that he thought well before the close of Mango Boulevard’s case, its expert said 30 per cent or so was the market expectation;

    (d)          the Arbitrator said he thought the correctness of the assumptions was an issue, and that anything under 30 per cent is not what the market place would do; and

    (e)          the Arbitrator mentioned his not wanting to follow the formula slavishly without considering whether the result produced is sensible and commercial.

  7. The Court was provided with a list of issues that was prepared by Mango Boulevard after that hearing.  Mr Kelly QC conceded that the list relevantly reflected what was raised by the Arbitrator.  The first three items on that list are as follows:

    “1.          What consideration, if any, should there be of a “normal” profit margin for a prudent developer and is such consideration compatible with applying the methodology required by the SSA and determining the dispute the subject of the submission to arbitration?

    2.           Is the development unprofitable or imprudent according to the evidence of Mango’s expert witnesses?

    3.           Does the residual cash flow method have to produce a plausible result and what does it mean for a result to be plausible?”

  8. The further hearing was set for 23 February 2016.

    Hearing 23 February 2016

  9. On 23 February 2016, the issues were raised again.  Senior Counsel for Mango Boulevard said that he had been given the list of the issues raised by the Arbitrator and that it would be helpful if they were outlined by the Arbitrator, who said:

    “MR CALLINAN:  The particular matter that concerns me is this.  According to admissible material, Mr Sofronoff, you had 15 people, many of them skilled and experts, looking at this property and dealing with this property between the share sale agreement and the effective dates.  Not one of them was called.  Now, included in that group is, for example, AC Nielson who were expert market consultants.  It all appears from, you know, the best evidence, contemporaneous written material emanating from you.  I infer from the material it is admissible and leading up to the date, the effective date, that Mr Atkinson, his absence is not explained, was in charge of this and was dealing with the council.  Now, that does give rise to the possibility, and I emphasise possibility, of inferences.

    If you allay that with the fact that you are not only the purchase under the share sale agreement, but you are experienced developers and you are experienced contractors.  And you had the right to do the contracting and to do the – and to pursue the application and the development without tender.  Yet nobody – nobody – from your side has given evidence about any of those matters.  Also, before the close of the evidence, in your case it emerged, as a matter of rather begrudging concession on my impression and present, that no prudent developer would undertake this – would purchase this property without a return of at least 30 per cent.  The evidence was a range of 30 to 45 per cent.  But putting at 30 per cent.

    Now, your client is a developer, by inference an experienced developer.  He didn’t along and say, for example, “Look, we realised by the time of the effective date that we had made an imprudent development.  We made a non-market development.”  Now, you have to think about the implications of that.”

  10. The Arbitrator then raised the figures for the returns mentioned in the evidence, making the point that they were not near a 25 per cent profit:

    “MR CALLINAN:  But it’s a minus number.  It’s more than a bull’s roar away from 25 per cent profit.  Now, I’ve already said to you that I think that the appropriate method of valuation is residual cash flow.  That’s my interpretation of a contract.  I don’t need to consider estoppel because I think that’s right.  Although it’s perhaps a slightly adapted form of conventional residual cash flow method, because I’m not sure about all of the items and whether they would all be treated in the same way in a conventional one.  But in any event, the contract governs the categories of items but not the amounts of the items.  Now, I think the words “improved market value” and “market value” do have work to do, and that work is to make sure that the result of the various inputs and outputs is in accordance with proper market considerations.  So residual cash flow, but it has to produce a plausible result.  That’s my tentative view about the construction.

    MR SOFRONOFF:  I understand.

    MR CALLINAN:  So these are matters that you have to consider.  Now, it might well be that I find both valuers’ evidence unacceptable.  You have to consider that and Mr Douglas has to consider that.”

  11. The further hearing was adjourned.

    Hearing 15 April 2016

  12. When the hearing resumed for addresses on 15 April 2016, the issues raised by the Arbitrator were the subject of submissions.  Senior Counsel for Mango Boulevard and the Arbitrator debated what the evidence from each valuer was.  That included the passages from the evidence of Mr Robertson and Mr Cox set out in paragraphs [38], [39], [42] and [43] above.
  13. Then there was an exchange as to what the Arbitrator might do in terms of accepting or rejecting the valuers’ evidence.  The Arbitrator warned that Mango Boulevard should not proceed on the basis that Mr Cox’s evidence would be accepted, just as Mio Art should not proceed on the basis that Mr Robertson would be accepted.  The Arbitrator then posed this question:

    “I would have thought it was part of any valuer’s general knowledge and understanding of the market.  Any valuer who presumes to give evidence in relation to the value of the site or value of sites to have a knowledge of what the market looked for in terms of profit.  You have to – you need to understand, with respect, that I may well find that the evidence demonstrates that the prudent developer would be looking for a minimum of 30 per cent.  Now, you say I can’t do that.  Are there any other reasons why I can’t do that in your submission?”

  14. Shortly thereafter, the Arbitrator set out the proposition in these terms:

    “MR CALLINAN:  A minimum.  And then the next proposition is assume that I were to construe the SA; that, yes, it requires a discounted cashflow method of valuation; and it’s a qualified method because you’ve got to disregard something that would almost always be taken otherwise into account: the 22 million plus holding costs.  So you disregard that.  So it’s an adapted form of cashflow method.  But it also has to produce – it’s quite specific as to what items of costs and what items of output must be taken into account but, of course, it doesn’t prescribe and it can’t prescribe how much each of those inputs and outputs would be.  But say I were to take the view that the words “improved market value” and “market value” in the contract have work to do, such inputs and outputs as the experts adopt must produce a plausible market value.  And a plausible market value would be one that takes account of what the market normally looks for, which is a profit of more than 30 per cent.

    MR SOFRONOFF:  Are you – Mr Callinan, are you putting to me that – yes, I’m sorry.  I should hear everything so I follow it.

    MR CALLINAN:  No, no.  It’s the proposition that you have to examine the results and a prudent valuer, any competent valuer, would look at the inputs and outputs and say, “This result can’t be right because on the known facts the developer did pay 22 million.”  By the effective date, it probably spent closer to 30 than 22 but whatever sum it is.  But still the project on the inputs and outputs which I’ve been given can’t even make – can’t even make, what, 11 or 15 per cent.  I’ve forgotten what it is, but you understand the proposition.

    Now, it’s a matter of construction of the share sale agreement but one possible construction is that whatever – whatever results or whatever inputs and outputs do not produce a plausible market value or a probable market value even perhaps, they can’t be right.”

  15. Senior Counsel for Mango Boulevard responded with a series of points:

    (a)          the only evidence on the point from Mr Robertson was from someone without the relevant expertise to give the opinion;

    (b)          as to the proposition that a prudent developer would expect a profit of 30 per cent, that involves adopting an interpretation of the contract contrary to its proper construction; the contract required two assumptions (i) a 25 per cent profit and the parties were stuck with that for the purpose of valuation, and (ii) that the development approval was obtained instantly and cost nothing; the clause is not a dictum to a valuer to arrive at a market value or a real world value, and if it did arrive at a real world, that was a coincidence;

    (c)          when the Arbitrator said that he was posing that it be a “test of the inputs and outputs using the formula in the real world”, that the task was to make findings on the basis of the evidence as to cost and revenue, and then plug those figures into the formula; cost and revenue were proved, and then those figures could be applied using the 25 per cent profit margin; that “then there’s no room left for the expectation of a prudent developer’s profit margin to operate”;

    (d)          that he understood the proposition that the Arbitrator was posing and “grappling with”;

    (e)          the formula in the contract was an artificial formula but it bound both sides and “one can’t read it to conform with the reality so that a plausible figure is arrived at in favour of the claimant but then one ignores the fact that that interpretation means that the prudent developer has entered into a contract in which the assumed return of a prudent developer will never be achieved”;

    (f)          in considering the formula there was no room for considering what a developer would wish to achieve by way of profit because that consideration cannot affect costs or revenue;

    (g)          the evidence did not support such a finding;

    (h)          there was no reason to think that the developer was trying to achieve a profit margin greater than 25 per cent;

    (i)          it did not matter that a prudent developer might seek to make a profit greater than 25 per cent; what his client expected to make by way of profit was irrelevant; it was not pleaded nor adverted to; and

    (j)           to approach the matter by reference to whether a plausible result had been achieved was “arguing from the wrong direction”.

  16. In the course of that debate the Arbitrator responded to a comment by Senior Counsel for Mango Boulevard, namely “I fear I’m not getting anywhere, and I don’t want to waste everybody’s time”:

    “MR CALLINAN:  Well, I don’t want to be too argumentative with you, but I want to give you a full opportunity.

    MR SOFRONOFF:  No.  No.  I’m grateful for it, Mr Callinan.  I don’t object or resent it at all, but I’m concerned that I don’t keep making the same point over and over.”

  17. The passages referred to above reveal a series of occasions when the Arbitrator’s issue was identified, raised with witnesses on both sides without objection, and answered by Mango Boulevard.
  18. First, when the evidence as to a developer’s normal return was first addressed it was by Mr Robertson, who was then cross-examined about it by Senior Counsel for Mango Boulevard and the Arbitrator.  There was no objection from Mango Boulevard, Senior Counsel expressly saying he did not mind if the witness was asked that line of questions.
  19. Secondly, Mr Cox was cross-examined by the Arbitrator about what significance could be drawn from the fact that the application of the stipulated 25 per cent return produced a negative value for the land, and whether that gave concern as to the validity of the result.  Once again Senior Counsel for Mango Boulevard said there was no objection to the evidence.  The position taken was that it was, on one view, relevant, but that submissions about its irrelevance would be made later.
  20. The importance of the passages in paragraphs [42] and [43] above is that Mr Cox was asked to explain how he dealt with the fact that the application of the formula in the Share Sale Agreement produced a negative value for the land, something which he agreed lacked reality.  More specifically, he was asked to explain whether that fact caused him concern for the validity of his result, and whether it made him “question … what you’ve employed in reaching your result”.   Having said that he was not instructed to do that, and that the formula in the agreement constrained the result, he then answered by reference to some of the inputs (revenue, constructions costs and development costs) which were “greater than the average cost per lot for a subdivision”.  The next question concerned what a market return or profit might be if the agreement did not constrain the exercise.
  21. In my view it is plain that Mr Cox understood that he was being asked whether either of two facts, namely (i) the lack of reality in a negative value being produced by the strict application of the formula, and (ii) the fact that the expected market return was greater than the 25 per cent used in the formula, did or should have caused him to question the validity of his result or the factors employed by him in reaching that result.  Those factors were the inputs such as revenue and outlays such as the costs of the project, all of which reflected the risk and, as he accepted, resulted in a required return higher than 25 per cent.
  1. Further, in my view, by the exchanges on the subsequent occasions, as revealed below, Senior Counsel understood the thrust of the questions as well.  Indeed, as by the responses referred to in paragraph [57] above, Senior Counsel was at pains to assure the Arbitrator that he understood the point, and was answering it.
  2. Thirdly, over four months later when the first round of submissions commenced, the Arbitrator raised questions concerning the testing of the valuers’ inputs by the fact that the normal return was at odds with that in the Share Sale Agreement.  Senior Counsel for Mango Boulevard acknowledged that if that was a path to be taken by the Arbitrator then one response was that further submissions would be required, and (possibly) further evidence would be required.
  3. Fourthly, five months later again the Arbitrator specifically raised, as an issue to be addressed, that there was a possible finding that Mango Boulevard’s income and costs inputs were wrong because they produced a non-commercial (or implausible) result which does not reflect a prudent market view of a 35 to 40 per cent return.  That issue was identified to the lead Senior Counsel for Mango Boulevard, in the form of a note which raised the consideration of a “normal” profit margin for a prudent developer and whether that consideration was compatible with the methodology under the Share Sale Agreement, whether the residual cash flow method had to produce a plausible result and what was required for the result to be plausible.
  4. Fifthly, at the next hearing some two weeks later, Senior Counsel for Mango Boulevard invited an explanation of the issues from the Arbitrator, who did so, mentioning the disparity with a normal developers’ return, the impact on assessing the valuers’ inputs and outputs, and the need for a plausible result on the residual cash flow method.
  5. Sixthly, seven weeks later submissions resumed, at which point the issues were debated.  The Arbitrator warned that neither side should proceed on the basis that their expert would necessarily be accepted, and that he might find that a prudent developer would seek a return higher than the 25 per cent in the agreement.  Senior Counsel said that he understood the point being made, but responded with specific points to answer the issue, including: (i) there was no acceptable evidentiary basis for such a finding; (ii) in any event it was irrelevant as the Share Sale Agreement specified what course to take, and that bound the parties; and (iii) the agreement precluded that it be a “test of the inputs and outputs using the formula in the real world”, as it imposed a return of 25 per cent.
  6. The matters addressed at the hearings referred to above reveal that the evidentiary foundation for the proposition relied upon by the Arbitrator, and the process of reasoning to test the valuers’ inputs by that method, were raised with Mango Boulevard, and the subject of detailed responses by Senior Counsel for that party.  The exchanges between Senior Counsel for Mango Boulevard and the Arbitrator leave no doubt that the point raised by the Arbitrator was fully understood, as were the options involved in responding, namely by way of further submissions and adducing further evidence on the point.  That was the position at a time when, had it been so desired, Mango Boulevard’s case could have been reopened and further evidence given by Mr Cox or other relevant witnesses.  No such application was made, Senior Counsel for Mango Boulevard attacking the proposition based on the proper construction of the Share Sale Agreement, the lack of an evidentiary foundation, and the irrelevance of the approach.
  7. In the circumstances, the failure to plead the point in issue can be put to aside.  This was a case where the parties accepted that the point was alive, and chose to answer it in ways that suited them.  In particular, Mango Boulevard eschewed any objection to the point being agitated, and, having identified that further evidence might be necessary, chose to answer with legal submissions largely directed to its irrelevance.
  8. In Part 1 of the Award the Arbitrator gave a number of reasons why he did not accept the evidence of Mr Cox.  They included:

    (a)          the failure to adequately take into account the need to promote and brand the project;

    (b)          he tended to treat as almost conclusive of the question of price and saleability of small allotments, an absence of such sales in the immediate vicinity at the Effective Date; but did so without reference to the “exhaustive” work done by marketing consultants before the Effective Date;

    (c)          he tended to understate yield and demand for smaller sites; his approach to density, yield and demand was “unconvincing”;

    (d)          he could and should have made himself familiar with details of Mio Art’s negotiating positions and results in respect of the Project, both before and after the Effective Date; instead he managed to “insulate himself” from highly relevant matters;

    (e)          Mr Cox was not more persuasive than Mr Robertson in respect of the inputs adopted for the valuation approach; he “lacked consistency, and was unable or reluctant to engage on matters on which I think he should have”;

    (f)          his failure to ascertain the history of attempts to amalgamate the parcels of one particular sale rendered him liable to criticism; his approach to his use of that sale was “unsatisfactory”;

    (g)          he took into account sales which, the Arbitrator found, were not comparable; he also failed to take into account one relevant sale; and

    (h)          his reasoning as to comparable sales was rejected because he did not have due regard to the fact that the market was rising, and placed undue weight on the factor of price on the size of allotments, and too little weight on factors such as amenity and location; as well, on other matters he was unimpressive and unpersuasive, and failed to take fully into account the trend towards smaller allotments and tenements, and the council’s desire for, and insistence on that.

  9. The Arbitrator expressly said that the impugned issue was a “further reason” for rejecting Mr Cox’s approach:

    “There is a further reason why I reject the results and the components of those results.  It is that their numbers, quantities and prices would produce an implausible, a non-market result having regard to two realities: the prudent investor/developer would be looking for a profit of more than 30%, indeed up to 45%; and the Respondent’s case, based upon its experts’ calculations cannot produce a profit of anything remotely of that order on its actual minimum expenditure of $22,000,000 plus holding and other substantial costs incurred before the Effective Date.  Much of this was clear before the Respondent closed its case.  …  Mr Robertson, who I prefer on this point, was generally consistent.  He said the market would want more than 30%.  Mr Cox was quite unconvincing when he said that he would need to “thoroughly research” the market before pronouncing on a market expectation of a profit.  In my opinion, any valuer of a substantial area of land in subdivision, or to be subdivided, should have a good knowledge of, or be at least conversant with, the likely level of market expectations of profit: even so, (intuitively) he effectively conceded 30 to 35%.  I reject any suggestion that knowledge of this topic is not within the ordinary expertise of a competent land valuer.”

  10. Thus it cannot be said, in my respectful view, that the impugned issue was the substantive reason why Mr Cox’s evidence was rejected.  There were many more reasons than that.
  11. I pause to say something about the rejection of the evidence of Mr Ovenden and Mr Thomas, Mango Boulevard’s town planner and engineer.  Mango Boulevard’s contention was that the Arbitrator rejected their evidence by applying the same issue to their approach, although it was conceded that there were other bases upon which their evidence was rejected.  In my view the contention cannot be accepted.  First, there were a number of reasons advanced as to why the Arbitrator did not rely upon the evidence of each of Mr Ovenden, and Mr Thomas.  Secondly, they were simply responsible for various inputs into the valuation opinion, which was only advanced by Mr Cox.  Neither Mr Ovenden nor Mr Thomas was qualified to give valuation evidence.  The impugned issue is concerned with valuation methodology.
  12. It will be apparent from the reasons earlier that I am unable to agree with the learned primary judge’s conclusion in paragraph [104] of the reasons below.  In my respectful view, Mr Cox was asked the substance of the relevant point.
  13. However, even if one accepted that the Arbitrator did not squarely give Mr Cox a chance to answer the proposition that his valuation should be affected by the implausibility revealed by its comparison to a general developer’s return of 30 per cent or 40 per cent, I do not consider that an injustice was perpetrated upon Mango Boulevard.  There are a number of reasons for that conclusion.
  14. First, the issue was raised with Mr Cox in terms sufficiently clear that he could respond, albeit that his instructions as to the method of valuation required his strict adherence to the formula in the Share Sale Agreement.  As the passages in paragraphs [42] to [43] above reveal, Mr Cox understood that he was being asked whether he should have questioned his result in light of (i) the lack of reality in a negative value being produced by the strict application of the formula, and (ii) the fact that the expected market return was greater than the 25 per cent used in the formula.
  15. Secondly, Senior Counsel made it clear that there was no objection to the point being raised.
  16. Thirdly, whatever Mr Cox understood, there is no reason to conclude that the point was misunderstood by Senior Counsel for Mango Boulevard.  The exchanges set out in paragraphs [46] to [57] above reveal no misunderstanding and a considered response.
  17. Fourthly, there was ample opportunity for Mango Boulevard to seek to recall Mr Cox and have him give further evidence.  That no attempt was made to do so leads one to infer that there was no response that he could make that would be helpful to Mango Boulevard’s position.
  18. In Amasya Croft J adopted what was said in TCL:

    “In TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (“TCL”), the Full Federal Court said that an arbitral award will not be set aside or refused recognition or enforcement under arts 34 and 36 of the Model Law—

    ‘unless there is demonstrated real unfairness or real practical injustice in how the international litigation or dispute resolution was conducted or resolved, by reference to established principles of natural justice or procedural fairness.  The demonstration of real unfairness or real practical injustice will generally be able to be expressed, and demonstrated, with tolerable clarity and expedition.’”

  19. Contrary to Mango Boulevard’s contentions, it is not possible to conclude that there has been real unfairness or real practical prejudice in this case.  Mango Boulevard understood the point and chose to respond to it in a particular way, which, as it happened, did not include recalling Mr Cox.  That was a forensic choice made by Mango Boulevard.
  20. Mango Boulevard were not denied a reasonable opportunity to present its case.  What is required in terms of a reasonable opportunity to present the case is a question of fact and degree, and it is not intended to protect a party from its own failures or strategic choices, as was said in Amasya:

    “In my view, the words “reasonable” and “full” as they are used in s 18 of the Act and art 18 of the Model Law respectively impose the same standard.  What is required is that the arbitral process be fair and that each party be given a reasonable opportunity to present its case.  This position is consistent with what was said by the Hong Kong Court of Appeal in Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1)—namely that the term ‘full opportunity’ in art 18 of the Model Law ‘cannot mean that a party is entitled to present any case it pleases, any time it pleases, no matter how long the presentation should take.’  This position is made express in s 18C of the International Act which provides that, for the purposes of art 18 of the Model Law, a party is ‘taken to have been given a full opportunity to present the party’s case if the party is given a reasonable opportunity to present the party’s case.’

    The purpose of the requirement in art 18 of the Model Law is as stated by the Ontario Superior Court of Justice in Corporacion Transnacional de Inversiones SA de CV v STET International SpA: ‘The purpose of art 18 is to protect a party from egregious and injudicious conduct by … [an arbitral tribunal].  It is not intended to protect a party from its own failures or strategic choices.’”

  21. Mango Boulevard had a reasonable opportunity to present its case, and did so in the way it determined was appropriate.
  22. To set aside the award would effectively be to “bail out parties who have made choices that they might come to regret, or offer them a second chance to canvass the merits of their respective cases”, where there is no basis to do so.
  23. In my view, the ground of appeal lacks merit.

    Disposition of the appeal

  24. I would propose the following orders:

    1.           The appeal is dismissed.

    2.           The appellant is to pay the respondent’s costs of the appeal, to be assessed on the standard basis.

  25. McMURDO JA:  The detailed reasons for judgment of Morrison JA allow me to state my reasons more briefly in agreeing with the orders which he proposes.
  26. This was a dispute between the two sides of a joint venture for the development of land.  The joint venture was formed in July 2003, pursuant to a number of agreements which included the so called Share Sale Agreement (“the SSA”).  The joint venture vehicle was Kinsella Heights Developments Pty Ltd (“Kinsella”), which, on the date of the SSA, was entitled to become the registered proprietor of the subject land for a cost of $22 million.  Kinsella had been wholly owned by the respondents’ side of this dispute.  By the SSA, they agreed to sell half of their shares in Kinsella to the appellant company.
  27. The SSA contained a formula by which the price for those shares was to be fixed.  Under that formula, the value of the land, with the benefit of certain development permits which were yet to be obtained, was to be a factor in the calculation of that price.  The higher was that value, the higher was to be the price to be paid by the appellant.
  28. In particular, by cl 4.1 of the SSA, the price of the shares was to be calculated as the greater of:

    “(a)         The difference between the purchase price of the Property set out in the Contract [$22 million] and the improved market value of the Property immediately after the Effective Date less $2,000,000; or

    (b)          $5,000,000.”

  29. It was agreed that Kinsella would seek a preliminary approval for a material change of use of the land.  The purchase price for the shares was not to be paid until that preliminary approval was obtained, which was defined as the “Effective Date”.
  30. The SSA provided for a sequence of steps by which the value of the Property was to be fixed for the purposes of cl 4.1, if that could not be agreed.  The land was to be independently valued, and a party who was dissatisfied with that valuation could obtain an alternative valuation.  If those two valuations differed by more than 10 per cent, a party could require the dispute about value to be mediated, or failing a resolution by that means, to be submitted to arbitration.
  31. In an earlier proceeding, I held that in the events which had occurred, the parties were obliged to participate in such mediation, and failing a resolution, in an arbitration to be undertaken under the SSA.  In that judgment, I was required to construe the terms of the SSA which prescribed the methodology by which the land was to be valued.  Those provisions applied to any valuation in the course of the dispute resolution steps to which the parties had agreed, including a valuation by an arbitrator.  An appeal against that judgment was dismissed, this Court agreeing with my interpretation of the relevant provisions of the SSA.
  32. By cl 4.4 of the SSA, the land was to be valued upon certain assumptions.  It was to be assumed that development permits had been issued in respect of the land, authorising its development on substantially similar terms to those of the preliminary approval.  It was to be further assumed that “the Project would achieve a Profit on Cost Percentage return of 25%.”
  33. The expression “Profit on Cost Percentage” was defined to be the profit of the project, being its income less its “Cost”, expressed as a percentage of that cost.  The term “Costs” was defined by another provision to include the $22 million to be paid by Kinsella for the land.  But as was common ground before me, that sum was not to be included in calculating the Profit on Cost percentage under cl 4.4.
  34. In my judgment, I described the methodology of valuation, agreed within the SSA, as follows:

    “The value was to be calculated by assessing the likely income, from which the total amount of the developer’s costs could then be ascertained given the assumed profit percentage.  Once the total costs were ascertained, the assessed (or assumed) development costs apart from the cost of the acquisition of the land were to be subtracted from the total costs, resulting in the amount which the hypothetical developer would be prepared to pay for the purchase of the land, or in other words, the market value.”

  1. Consequently, the valuation process, according to the SSA, was one in which the ultimate value would be the result of the valuer’s (or arbitrator’s) assessments of the likely income and development costs.  Once those assessments were made, the valuation of the land was then a matter of calculation, rather than professional judgment.  An agreed value would inevitably follow, because of the required assumption of a profit on cost percentage return of 25 per cent.
  2. By the terms of other agreements between the joint venturers, made contemporaneously with the SSA, the appellant’s side was to fund the joint venture project.  The appellant’s participation in the joint venture proceeded upon an apparent acceptance that the sum of $22 million was not substantially more than the value of the land in July 2003.  But what was to be valued under cl 4.1 of the SSA was its value at a later date and with certain development permits and subject to certain other assumptions, including that of a certain profit margin.  By cl 4.1, the parties anticipated that the value assessed in that way might be more or less than $29 million.
  3. The reasoning of the arbitrator, which is challenged in this proceeding, sufficiently appears from these passages of the arbitrator’s first award:

    “101.    It follows that the task for the valuer and the arbitrator is to determine the market value after making the assumptions that the SSA requires as to what items are costs, and income, and a profit of 25% which is in substance, to undertake a [variant of a] residual cash flow valuation. What I have said and what follows are, I think, consistent with the reasoning of PD McMurdo J at first instance in Mio Art Pty Ltd v Mango Boulevard Pty Ltd (No 2) and the Court of Appeal in Mango Boulevard Pty Ltd v Mio Art Pty Ltd, to which I am bound to, and do, defer.

    102.        The work that the words “market value”, “market valuation”, and “improved market value” have to do is to ensure that the quantum of each of the items of costs and selling prices of lots to be assumed, is calculated on a proper and commercial, that is to say “market”, basis … Further, because a market result, a “market value”, must be determined (subject to an agreed profit of 25% and not some other “market” percentage profit), the costs and profit selected by the expert valuers must be capable of and produce a market value, that is, a market price upon which prudent parties would agree.

    103.        Real life market considerations, that is, commercial reality, has another role to play in the making of the market valuation under the SSA. If the adoption of the selected amounts in respect of an item or items of cost and the financial return on them produces an improbable and counter-intuitive commercial result on the known indisputable facts, for example that the Respondent actually paid $22,000,000 for the Property and incurred other substantial expenses in respect of it before the Effective Date, and that competent and prudent or rational developers would not buy such a Property unless they reasonably believed they could make a profit of 30% to 45% on all costs (inclusive of the actual purchase price of it), then there will be reason to question, and it would be in conformity with the contractual requirement of a market valuation, that there be at least a serious questioning and scrutiny of those inputs and income on them. …

    104.        In substance then I accept that the residual cash flow method, or the variant of it for which the SSA provides, is the method of valuation which must be adopted here. But that method certainly does not preclude, indeed the requirement of a market valuation requires, a testing on the bases of various sensitivities, of the result for which the parties contend, and, if found improbable by reference to the market, a revisiting and testing of the inputs and outputs producing that improbability. That is not to ignore the ultimate requirement of a profit of 25% on the assumptions required to be made. It is simply to measure against the evidence, all relevant market considerations operating on the Effective Date, including expectations and requirements of profit then.” (footnotes omitted)

  4. Before the primary judge in this proceeding, the appellant argued that the arbitrator’s reasoning in those passages was inconsistent with the requirements of the SSA and that it departed so far from them, that the arbitrator dealt with a dispute which was not contemplated by or within the terms of the submission to arbitration. The primary judge held that there was no departure from the requirements of the SSA and that, in any event, an error of law of that kind would not have meant that the award had dealt with something other than the dispute which the arbitrator was to resolve. The second of those conclusions could not be doubted. Understandably therefore, that argument is not pursued by the appellant in this Court. It is unnecessary then for this Court to consider whether the arbitrator’s reasoning involved a legal error by departing from the SSA. There was no challenge to the awards, under s 34A of the Commercial Arbitration Act 2013 (Qld), on the ground of an error of law.
  5. The appellant’s challenge to the awards is upon the bases provided by s 34(2)(a)(ii) and s 34(2)(b)(ii) of that Act. As the primary judge noted, these grounds to set aside an arbitral award must be read in the context of the Act in question and the so called Model Law upon which it is based.  I respectfully agree with the primary judge’s observations as follows:

    “[84] The applicant submits that the arbitrator’s introduction of his own methodological approach to value, as it was described, involved a fundamental departure from the requirements of procedural fairness. Procedural fairness, as such, is not an express ground to set aside an arbitral award under s 34. Not surprisingly, however, it is considered to be a factor that may engage the ground that a party was unable fairly to present their case or the ground that an award is in conflict with the public policy of the State.

    [85]         However, it is necessary to bear in mind that those statutory grounds under s 34 are not satisfied, per se, by a failure to accord procedural fairness or any breach of the rules of natural justice as applied in other fields of discourse of the law. The context here is whether a statutory ground to set aside an arbitral award based on the Model Law is made out. In particular, s 18 of the CAA provides:

    “The parties must be treated with equality and each party must be given a reasonable opportunity of presenting the party’s case.

    Note—

    This section differs from the Model Law to the extent that it requires a party to be given a ‘reasonable’, instead of ‘full’, opportunity of presenting the party’s case.””

  6. In TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd (“TCL”), the Full Court of the Federal Court (Allsop CJ, Middleton and Foster JJ) considered a challenge, not unlike the present one, to an arbitrator’s award under the equivalent provisions of the International Arbitration Act 1974 (Cth). In an extensive discussion of the “public policy” ground under article 34(2)(b)(ii) (and article 36(1)(b)(ii)) of the Model Law (replicated in the provisions so numbered in the Queensland statute), the Full Court said that the rules of natural justice are within the conception of the public policy within those provisions.  But the Court said that “the weight of authority is clearly to give a narrow meaning to public policy” in this context.  Amongst the many authorities to which the Court referred were the judgments of Bokhary PJ and Sir Anthony Mason, sitting in the Court of Final Appeal of Hong Kong, in Hebei Import & Export Corporation v Polytek Engineering Co Ltd.  In a passage which was quoted in TCL,  Bokhary PJ said that “the award must be so fundamentally offensive to [a] jurisdiction’s notions of justice that, despite its being a party to the Convention, it cannot reasonably be expected to overlook the objection.”  In another passage quoted in TCL, Sir Anthony Mason said that the public policy ground is limited to cases where the award is “contrary to the fundamental conceptions of morality and justice” of the forum.  As the primary judge in the present case discussed, that narrow view of the public policy ground has been applied to a domestic award under the equivalent Victorian Act in Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd.

  7. In TCL, the court said that an award should not be set aside under article 34 of the Model Law unless there was “demonstrated real unfairness or real practical injustice in how the international litigation or dispute resolution was conducted or resolved, by reference to established principles of natural justice or procedural fairness”.  That statement was endorsed by the Victorian Court of Appeal in Sauber Motorsport AG v Giedo van der Garde BV & Ors.  It was applied to a domestic arbitration in Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd, by the same judge (Croft J) in Blanalko Pty Ltd v Lysaght Building Solutions Pty Ltd (t/as Highline Commercial Constructions) and Cameron Australasia Pty Ltd v AED Oil Ltd and by Hammerschlag J in Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd.

  8. In essence, the appellant’s complaint is that it was not given an opportunity to present a case in respect of the reasoning of the arbitrator which I have set out above at [100].  It was the arbitrator and not the parties who considered that this reasoning was apt.  It was raised only after the evidence had closed and it was not put to any of the witnesses whose evidence about likely income or development costs was said to be affected by that reasoning.  Those witnesses were the appellant’s valuer, its town planner and its engineer.  As is correctly submitted for the appellant, the arbitrator applied that reasoning as providing some of the justification for rejecting the evidence of those witnesses, in that he considered that their opinions could not have been correct because, according to their opinions, a profit on all costs (including the $22 million paid for the land) which was in the range of 30 to 45 per cent would not have resulted.  Further, if the arbitrator’s reasoning was arguably inconsistent with the relevant terms of the SSA, the lack of any evidence to address that reasoning was yet more understandable.
  9. However, the arbitrator clearly raised the possibility of this reasoning during the final addresses and it could not be said that ultimately, the appellant was denied an opportunity to argue a case in response to it.  At a hearing on 10 February 2016, the arbitrator raised the possibility of this reasoning.  After that hearing, a list of issues was prepared by the appellant’s legal representatives, which shows a clear understanding of what was being suggested by the arbitrator.  There followed the hearing of 23 February 2016, at which the arbitrator again clearly described an approach which became the subject reasoning.  On 15 April 2016, the appellant by its counsel made oral submissions on the subject.  Ultimately therefore, the question was able to be addressed by submissions which were made some weeks after the subject was first raised by the arbitrator.
  10. It must be accepted that this reasoning was not put to the appellant’s witnesses.  The valuer was asked some questions about the rate of return ordinarily expected by developers for a project such as this one.  But he was not asked to reconsider his evidence having regard to that rate of return and the price which had been paid for the land.  However, it does not follow that there was such a denial of procedural fairness that a ground is established for setting aside the award.
  11. The hearing did not conclude until two months had passed from the time at which the arbitrator raised the prospect of this reasoning.  The appellant well understood what the arbitrator had in mind.  Yet the appellant did not attempt to lead further evidence and, in particular, to recall any of these witnesses.  It could be inferred that the appellant saw no benefit from doing so.  But in any event, it was not denied the opportunity to do so.  Although this arbitration had been conducted with many of the procedural steps of a commercial case in court, it would have been open to the appellant to seek to recall these witnesses.  Indeed, even in a case in court, that course would have been difficult to resist.  Unsurprisingly, the appellant did not endeavour to advance that case by recalling any of its witnesses.  The proposed reasoning was to be answered not by arguments from a witness, but by submissions which addressed the proper interpretation and application of the SSA.
  12. In my conclusion, the appellant was able to present its case, which it chose to do by oral argument at the hearing on 15 April 2016. No ground is established under s 34(2)(a)(ii). Nor was the award in conflict with the public policy of this State, to provide a ground under s 34(2)(b)(iii).
  13. For these reasons, I agree with the orders proposed by Morrison JA.