CPB Contractors Pty Limited v Celsus Pty Limited (formerly known as SA Health Partnership Nominees Pty Ltd) (No 2) [2018] FCA 2112 (6 December 2018)

FEDERAL COURT OF AUSTRALIA

CPB CONTRACTORS PTY LIMITED
(First Applicant)

HANSEN YUNCKEN PTY LIMITED
(Second Applicant)

V

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

THE MINISTER FOR HEALTH OF SOUTH AUSTRALIA
(Second Respondent)

STATE OF SOUTH AUSTRALIA
(Third Respondent)

JUDGE: Lee J
FILE NO: NSD 1312 of 2017
DATE OF HEARING: 5 & 6 December 2018
DATE OF JUDGMENT: 6 December 2018
REGISTRY: NSW
CATCHWORDS: ARBITRATION – application to vacate temporary stays granted in support of a mandatory stay pursuant to s 8 of the Commercial Arbitration Act 2010 (NSW) – where applicant seeks all issues to be determined by an existing arbitrator appointed as a referee to inquire into and report upon non-arbitral issues
PRACTICE AND PROCEDURE – where non-arbitral matters are ancillary to matters the subject of the mandatory stay – whether appointment of a referee is consistent with the facilitation of the overarching purpose and appropriate in circumstances of legally complex allegations made of serious wrongdoing against the Crown – application for lifting of temporary stays and appointment of referee dismissed
CONSTITUTIONAL LAW (CTH) – Judicial power of Commonwealth – Constitution, Ch III – whether a referee appointed under s 54A of the Federal Court of Australia Act 1976 (Cth) would be impermissibly exercising the judicial power of the Commonwealth – whether the Court in adopting or otherwise acting upon the report would be exercising judicial power or acting inconsistently with its status as a repository of federal jurisdiction

 

THE COURT ORDERS THAT:

  1. The interlocutory application be dismissed.
  2. The second, third and fourth respondents pay any costs associated with the constitutional issues agitated on the interlocutory application. The balance of the costs of the interlocutory application, being the costs relating to discretionary matters, be paid by the applicants.
  3. Any application for leave to appeal be extended to the later of:

(i) 14 days after publication of revised reasons for judgment; or
(ii) 7 February 2019.

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

REASONS FOR JUDGMENT
Revised from the transcript

LEE J:

A THE STORY SO FAR

  1. There is something about the Advent season which apparently stirs these parties to have an argument about the mode or means by which parts of the controversy concerning the building of the Royal Adelaide Hospital ought to be quelled.
  2. In CPB Contractors Pty Limited v Celsus Pty Limited (formerly known as SA Health Partnership Nominees Pty Ltd) [2017] FCA 1620; (2017) 353 ALR 84 (judgment), I set out, in very considerable detail, the issues that arose in relation to delays and defects in the construction of the Royal Adelaide Hospital and the arbitral proceedings that had been commenced. The judgment arose against the background of interlocutory applications filed by the first respondent, the special purpose corporation created for the project (Project Co), the second and third respondents, being the Minister for Health of South Australia and the State of South Australia (collectively, the State) and the fourth respondent, being the independent certifier for the project (IC), seeking a stay of the totality of claims made by the applicants (Builders) pursuant to s 8 of the Commercial Arbitration Act 2010 (NSW) or otherwise on a discretionary basis.
  3. There is no need to repeat the history of the disputation on the arbitration up to the date of my previous orders which is set out in detail in the judgment, particularly at Sections A and B.
  4. The present application filed by the Builders seeks orders which would have the effect of vacating the temporary stays granted in December 2017 of the claims made by the Builders against the State and the IC (as currently outlined in the Builders’ originating application and amended statement of case (ASOC)) and appointing the Hon Kevin Lindgren AM QC as a referee to: (a) hold an inquiry into the claims against the State and the IC in conjunction with the arbitrations currently before Dr Lindgren; and (b) provide a report to the Court in relation to those claims.
  5. The interlocutory application is opposed by the State and the IC who assert: first, that there is a want of power to grant the relief sought; and secondly, even if there is power, a range of discretionary factors require the course proposed by the Builders to be rejected.
  6. The initial question of power is one of some importance which transcends the interests of the parties. On 20 November 2018, a notice pursuant to s 78B of the Judiciary Act 1903 (Cth) was filed by the IC. The notice identifies two issues which are said to give rise to a matter arising under the Constitution or involving its interpretation. The first is whether a referee, in exercising power pursuant to the suggested referral, would be impermissibly exercising the judicial power of the Commonwealth. The secondis whether the Court, in adopting or otherwise acting upon the report following an inquiry by the referee, would be acting inconsistently with its status as a repository of federal jurisdiction, would not be exercising judicial power, “and/or would otherwise be acting in a manner inconsistent with the requirements of Chapter III [of the Constitution]”.
  7. Before coming to the issues of power and discretion, the logical starting point is to provide some context to the application by making findings as to what has occurred in the year that has elapsed since these parties last interrupted their pre-Christmas preparations to engage in interlocutory disputation. Although I am aware of the general caution that the court should avoid the determination of a constitutional issue unless necessary (Attorney-General (NSW) ex rel Tooth and Company Limited v Brewery Employees’ Union of New South Wales [1908] HCA 94; (1908) 6 CLR 469 at 553-554 (Isaacs J)), this is not the first time an argument as to referees such as the present has reared its head, and there is merit in it being the subject of adjudication. Apart from anything else, lengthy written submissions have been filed and hearing the oral argument has taken considerable time requiring the Court, shortly before the long vacation, to sit late into the evening. Additionally, its disposition is relevant to the question of costs on the application.
  8. I propose to deal with the issues that arise on the application under the following headings:

B Post-judgment events and other factual findings
C The issue of power – the constitutional questions
D The principled approach to the exercise of discretion

B POST-JUDGMENT EVENTS AND OTHER FACTUAL FINDINGS

  1. As is evident from the judgment, at the time I made orders granting: (a) a mandatory stay in respect of the claims brought by the Builders against Project Co; (b) a temporary stay in respect of direct claims between the Builders and the State; and (c) a temporary stay in respect of direct claims between the Builders and the IC, the State, Project Co and the Builders were involved in a set of four arbitral proceedings before Dr Lindgren. These four arbitral proceedings related to certain defect claims raised by the State and passed through to the Builders by Project Co (described in the judgment as the Defects Arbitration and the Defects Compensation Arbitration, together the Consolidated Arbitrations)Additionally, after the commencement of the Federal Court proceeding by the Builders, but prior to the determination of the stay applications, as referred to in the judgment at [32], [117]-[123], an arbitral proceeding was commenced by the State against Project Co seeking declarations that claims foreshadowed by the Builders in a document entitled “Notice of Claimed Entitlements” were without merit. Project Co then, in turn, commenced an arbitration against the Builders which sought to pass through those claims for declarations (NOCE Arbitrations).
  2. For reasons that will emerge, it is unnecessary for me to wade into what appears to an outsider to be the almost impenetrable brume of the details of the individual arbitrations. Annexure A to this judgment is a document that was marked “MFI 1” on the interlocutory applications. It describes the relationship between the arbitrations which predated the granting of the stays together with two developments that have occurred since the granting of the stays. I will come back to those developments shortly. What matters is that for present purposes, Annexure A is instructive in identifying (in a way in which the parties agree), the various claims made in this proceeding by the Builders and how the claims, and the factual matters which underlie those claims, are the subject of the various arbitral proceedings. As I found in my earlier judgment at [39], [113], [124] and [126], there is a very substantial overlap of factual matters to be determined in the various arbitral proceedings and those which are the subject of this proceeding.
  3. I referred above to the two developments reflected in Annexure A which have occurred following the granting of the stays; it is necessary for me to explain those developments in a little more detail. On 6 June 2018, the Builders served on Project Co a notice of arbitration commencing the “Builders’ Claims Arbitrations”. On 4 July 2018, Project Co served on the State its notice of arbitration between Project Co and the State by which Project Co “passed on” the Builders’ claims to the State. Dr Lindgren, as is reflected in Annexure A, was appointed to hear these arbitrations. Again, as noted above, there is almost a complete overlap between the claims made by the Builders against the State in the ASOC and in the Builders’ Claims Arbitrations.
  4. About a month before (on 10 May 2018), Project Co commenced an arbitration against the IC, which sought to pass through to the IC those parts of the claims made in the Builders’ Claims Arbitrations which related to the IC (IC Claims Arbitration). It was suggested that this was done in accordance with the process required under cl 5.4 of the construction contract whereby Project Co had subcontracted to the Builders the design and construction of the Hospital (see the judgment at [11(b)]).
  5. The second development was of some significance for the purposes of the present application. Notwithstanding that Project Co were content for Dr Lindgren to be appointed the arbitrator in the IC Claims Arbitration, the IC disagreed. I was informed by senior counsel for the IC that the view was taken that Dr Lindgren would be unsuitable because the Consolidated Arbitrations had been run and heard during 2018 (with the award being currently reserved), and the IC was not a party to, nor did it participate in, the Consolidated Arbitrations before Dr Lindgren. As a consequence, the IC contends that it did not have the opportunity to cross-examine relevant witnesses in relation to the defects or address the arbitrator in relation to them. Apparently, because of this, decision makers within the IC thought it would occasion an unfairness for the IC Claims Arbitration to be conducted by Dr Lindgren. It is very far from self-evident to me why this would have been the case, but it is unnecessary to pursue the underlying merit or helpfulness of the view taken by the IC for present purposes.
  6. In any event, given that Project Co and the IC were unable to agree on Dr Lindgren, Professor John Sharkey was appointed as the arbitrator in the IC Claims Arbitration. Project Co made an application to Dr Lindgren under s 27C of the Commercial Arbitration Act 2011 (SA) seeking to have the IC Claims Arbitration consolidated with the other matters before Dr Lindgren so all claims and proceedings could be heard in the one place at the same time and by the same arbitrator. Consistently with the approach the IC had previously taken, the IC brought a jurisdictional challenge against Project Co’s commencement of the IC Claims Arbitration. The challenge was subsequently heard and upheld by Professor Sharkey (who concluded that he had no “jurisdiction” (that is, power) to determine the disputes because the notice of arbitration had not been given jointly by Project Co and the State, thus rendering it invalid). The State was only informed of the basis for this challenge after the determination had been made. The State had not previously been approached to issue such a notice against the IC.
  7. Senior counsel for the State indicated that the reason why the State would not consent to commencing an arbitration against the IC jointly in its present form is revealed from the terms of the notice of arbitration served on the IC. Amongst other things, in the notice of arbitration dated 10 May 2018, various contentions are set out, including the serious allegation that the IC’s engagement with the State on the project “has been improper and has fundamentally caused the [IC] to lack the independence and fail to act with the honesty, reasonableness and impartiality its role requires … At times, the [IC] has acted more like the agent of the State than as an independent reviewing party”. Given the nature of these allegations, in September 2018, the State advised that it was not in a position to agree to the issuance of a joint notice. It was asserted by the State that the claims made by Project Co in the notice of arbitration (as well as the notices of dispute and notices of arbitration served by the Builders and Project Co in other arbitral proceedings), were lacking in substance and, to the extent that they were discernible, were “unmeritorious and deficient”.
  8. Notwithstanding this, the State indicated a willingness to meet to discuss the proposal to issue a joint notice further, including exploring whether a joint notice in some other form could be agreed. It appears that the correspondence on this topic has rested. As I understand it, leaving aside any agreement following further discussion, the position taken by the State is that it contends that Project Co should have used the dispute process contained in the IC Agreement (being an agreement between Project Co and the State which engaged the IC) as a means to resolve the dispute between the State and Project Co (and, as such, to facilitate Project Co commencing a dispute against the IC unilaterally if need be).
  9. From the Builders’ perspective the practical effect of all of this, was, however, problematical. The upshot being, according to the evidence filed on behalf of the Builders, that as matters presently stand, Project Co is unable to advance an “IC Claims Notice” as required by the construction contract which will potentially impact upon the Builders’ claims against Project Co and may mean that Project Co is only able to advance the claims it makes against the IC through litigation (presumably by way of cross-claim in this proceeding or by way of separate curial proceedings).
  10. More generally, the Builders submit that the orders sought, if made, will facilitate achieving the manifestly desirable result of all parties pursuing all claims inter se in an efficient, timely and orderly manner while minimising the risks of inconsistent outcomes and findings.
  11. The position taken by the Builders in the previous interlocutory dispute was that this desirable end should occur by quelling all disputes curially in this proceeding. Having been unsuccessful in achieving this desired outcome by the orders made following the judgment, the Builders are now seeking to fashion a similar end by the use of different means.
  12. Having identified the background, I now turn to the issues raised by both the IC and the State as to the power of the Court to grant the relief sought by the Builders. That relief is in the following terms:
    1. An order, pursuant to section 23 of the Federal Court of Australia Act 1976 (Cth), that Order 2 of the orders made by the Court on 12 December 2017 be vacated.
    2. Orders, pursuant to section 54A of the Federal Court of Australia Act 1976 (Cth) and/or rules 28.61 and 28.65 of the Federal Court Rules 2011 (Cth), that:

(a) the claims made by:

(i) the Applicants against the Second, Third and Fourth Respondents as outlined in the Originating Application and the Applicants’ Amended Statement of Case dated 12 September 2017; and
(ii) by the First Respondent against the Fourth Respondent in ACICA Case No. 2018-115,

be referred to a referee for inquiry and report;
(b) Dr Lindgren AM QC be appointed as the referee;
(c) the inquiry be conducted in parallel with:

(i) ACICA Case No. 2017-110;
(ii) ACICA Case No. 2017-111;
(iii) ACICA Case No. 2018-119; and
(iv) ACICA Case No. 2018-124,

(collectively, the Consolidated Arbitrations), with evidence in the Consolidated Arbitrations to be treated as evidence in the inquiry (and vice versa); and
(d) Dr Lindgren to provide his written report to the Court at the conclusion of the Consolidated Arbitrations.

C THE ISSUE OF POWER – THE CONSTITUTIONAL QUESTIONS

C.1 Introduction

  1. Whatever else the power contentions of the IC and the State lacked, they did not lack ambition. The consequence of accepting the submissions in their full amplitude would amount to a radical departure from currently accepted understanding relating to the use of referees by the Federal Court, other federal courts, and also state courts exercising federal jurisdiction. The logical end point of the acceptance of the arguments would mean, in a very large number of cases, that both this Court and supreme courts while exercising federal jurisdiction, have, contrary to constitutional requirements, purported to determine disputes otherwise than in accordance with Chapter III of the Constitution.
  2. It is convenient to address the issues by reference to the two constitutional propositions advanced by the IC which I have identified at [6] above. The position taken by the State initially at [42]-[43] in its written submissions was that:

The State supports and relies upon the matters raised by the IC in its submissions in relation to the constitutional law issues. The referral of the proceedings to a referee has the consequence of significantly altering the nature of a hearing that will be afforded by a Chapter III court …
Whatever the practical benefits of reference out may be in a given case, the judicial power of the Commonwealth may not be outsourced either to acting judges or referees.

  1. During the course of oral submissions, the position taken by the State was refined. At best, the State diffidently embraced some of the IC’s submissions. It is useful to focus on the way the IC put the two propositions which are interrelated. The question of whether a referee would be impermissibly exercising the judicial power of the Commonwealth necessarily relates to the question of whether the Court, in acting upon such a report, would be acting inconsistently with the requirements of Chapter III.
  2. It is convenient to commence by examining some relevant history and making some general observations about how the process of appointing referees proceeds in this Court. I will then examine whether or not the two propositions advanced in written submissions (and the more refined argument developed orally) have any merit.

C.2 Referees Generally

Relevant History

  1. In Kadam v MiiResorts Group 1 Pty Ltd (No 4) [2017] FCA 1139; (2017) 252 FCR 298 at Section E [35]-[56] I set out, at some length, the history and relevant statutory framework of the appointment of referees in this Court. It is unnecessary to repeat that excursus for present purposes. Given the arguments advanced by the IC, however, it is necessary to go back to the history in somewhat more detail than was required in Kadam.
  2. An office like that of the modern referee has long antecedents in Chancery. This includes the practice, dating from the 18th century, of referring matters of detail or account “ad computandem” to a master or an arbitrator. As is explained in a thesis submitted to the Department of Law of the London School of Economics by M P Reynolds (Case Flow Management: A Rudimentary Referee Process 1919-70 (London, July 2008)), prior to 1873, references were used in the Court of Chancery and also at common law under the Common Law Procedure Act 1854 (UK). Indeed, prior to the Judicature Act 1873 (UK) reforms, there were also references made by the Judicial Committee of the Privy Council in cases in which Sir Roundell Palmer (who later became Lord Selborne) and Sir Hugh Cairns were involved as counsel, and Lord Chelmsford was presiding.
  3. All of these notable figures and, in particular, Lord Selborne (who became Lord Chancellor in 1872), became involved with the development of the modern notion of referees at the same time as the blending of common law and equitable practice, occasioned by procedural fusion in the United Kingdom (see Reynolds at 42). This timing is not coincidental. The First Report of the Judicature Commissioners (Parliamentary Papers, Session 10 December 1868 – 11 August 1869, No 41340, Vol XXV, 25 March 1869), not only addressed the constitution of courts and the separation and division of jurisdictions, but also made recommendations for the “speedy economical and satisfactory despatch of the judicial business transacted by the courts” (at 4 n 5; see also Reynolds at 40, 47). The Judicature Commissioners had been aware of the more developed practice in equity of referrals and had made brief mention of it in their First Report (Hansard, House of Lords, 13 February 1873, Col. 334-336). As is well-known, Lord Selborne championed the Supreme Court of Judicature Act 1873 (UK); indeed, he described it in his book Memorials Personal and Political 1865-1895 (London, 1898) as “the work of my own hand”: at 298. What is perhaps less well-known is that he referred to the notion of a referee in his speech in the House of Lords on the second reading of the Judicature Bill (see Reynolds at 50). That proposal, which was based on efficiency, cheapness, simplicity and uniformity, was to create a new officer of the Court. In speaking of the office of referee, his Lordship said (Hansard, House of Lords, 13 February 1873, Col. 346):

Your Lordships know that there is a class of cases which the parties may take to the Assizes, and in some instances must take there, and which are yet totally unfit to be tried by a jury at all. The result is that the parties are compelled to take such cases out of court and submit them to arbitration; and as no provision has been made by law for the conduct of these arbitrations, the consequence is that very great expense frequently arises out of them. It was a very valuable recommendation of the Judicature Commission that public officers, to be entitled “Official Referees”, should be attached to the Court, to deal with cases of this kind, and to whom such cases should be sent at once without the useless expensive form of a jury trial.
The Bill proposes that such cases should be sent to reference, even if the parties do not consent, and also provides for the appointment, where the parties may desire it, of special referees. The proposal of the Bill is that they shall determine all questions of fact or account, leaving questions of law to be determined by Divisional Courts. I venture to think that will be found a valuable and important provision.

  1. Pausing here, it is important to note that the proposal of the Judicature Commissioners, reflected in the legislation as enacted, was to create two forms of referees, one “official” and the other “special”. An “official” referee was a paid and permanent officer of the court; the business referred to the official referees was distributed among them in rotation, unless a reference was directed to a particular referee (see Judicature Act s 83, 56 et seq); a “special” referee was one who was agreed on between the parties and remunerated by them, the amount being determined by the court (see Judicature Act s 57). As Reynolds notes at 29:

In naming the new court officer a “referee”, the Judicature Commission deliberately invented a new subordinate judge that would enable High Court judges to function more effectively. At macro-level, the referees reduced the High Court caseload and backlog. At micro level, they revolutionised the judicial process inventing a rudimentary form of caseflow management.

  1. The first official referees were appointed under s 83 of the Judicature Act and following changes to the Rules of the Supreme Court 1883, were given powers equivalent, in many respects, to a High Court judge (including the power to hold a trial in any place, order discovery and production of documents, order costs at interlocutory and judgment stages and give directions: see Reynolds at 30-31; Rules of the Supreme Court 1883 O 36 rr 5, 48 and 50).
  2. The history of the scheme for referrals which thereafter ensued both in the United Kingdom and in Australia has been the subject of detailed examination in a number of decisions, see, in particular, Buckley v Bennell Design & Constructions Proprietary Limited [1913] HCA 32; (1978) 140 CLR 1 at 15-18 (Stephen J); Astor Properties Pty Ltd v L’ Union Des Assurance De Paris (1989) 17 NSWLR 483 at 489-90 (Cole J). There is a tendency to see referees as a relatively recent innovation, responding to the demands of modern commercial litigation spurred on by the revolution in case management which has seen almost every Australian jurisdiction introduce a provision, by either legislation or by way of rules of court, setting out the “overriding” or “overarching” purpose of procedural rules: for more details as to these developments, see Kadam at [1]-[3]. But this would be ahistorical. As Reynolds explains, the creation of the now familiar role of a referee and connected reforms in the late 19th century can be conceptualised as an early form of active case management. Although after its statutory creation, at least in this country, the development of the use of referees went through a prolonged period of stultification (see Buckley at 37 (Jacobs J)), it is no surprise that the process received renewed focus at a time of increased volume of litigation and at a time where the efficient allocation of public resources by courts has come under greater scrutiny.

Referees as Officers of the Court

  1. It is unnecessary to dwell further on the historical evolution of referees in this country save for returning to one aspect of the history upon which the IC places much relevance for the purposes of its argument: the fact that referees (official or otherwise) were once “officers” or deemed to be “officers” of the court, and that is now no longer the case.
  2. At the time of the publication of the first edition of Halsbury’s Laws of England (1907, Vol 1) there were “three official referees, who are barristers of ten years standing … appointed by the Lord Chancellor”: at 483. At the time of Federation, the Arbitration Act 1889 (UK) had restated the provisions relating to the appointment of referees and ss 13, 14 and 15 relevantly provided that any question arising could be referred to an official or special referee or arbitrator who would be, or would be deemed to be, an officer of the court. In this sense they were part of the court and, as was noted in Russell on the Power and Duty of an Arbitrator and the Law of Submissions and Awards (London, 1919, 10th ed) at 508:

Where the legislature has given power to the Court to refer cases or questions for trial, and so delegate its duties without the consent of the parties, it has taken care to restrict such powers not only to particular classes of cases, but to particular persons – viz. to official referees or officers of the Court – and excepting in such classes of cases and references to the officials referred to, to make the power of the Court dependent on the consent of the parties.
(Emphasis added)

  1. The IC places reliance on the fact that referees occupied a position (either permanent or temporary), which, by reason of their status, had the character described by Dixon CJ and McTiernan J in R v Davison [1954] HCA 46; (1954) 90 CLR 353 at 363, as being:

… part of [the Court’s] official system and exercising the authority of an office in the Court.

  1. This position as to the status of referees as officers was the position not only in England and Wales, but also in the Australian colonies. Prior to Federation, most colonies had accepted a process of referral which reflected the Arbitration Act 1889 (UK): see, for example, the Judicature Act 1883 (Vic) ss 29-31 and the Supreme Court Act 1890 (Vic); Arbitration Act 1891 (SA) ss 11-13; Arbitration Act 1892 (Tas) ss 15-18; Arbitration Act 1895 (WA) ss 16-19 and Arbitration Act 1892 (NSW) ss 12-20, the last of which had some bespoke variations.
  2. There were no further changes to the position of referees as officers of the Court in New South Wales until 1984, when amendments were made which had the effect that a referee was no longer deemed to be an officer of the Court: see Xuereb v Viola(1989) 18 NSWLR 453 at 462-3, 465; Najjar v Haines (1991) 25 NSWLR 224 at 246 per Clarke JA.

Referees in the Federal Court

  1. There was no express power for referees to be appointed in this Court until s 54A was inserted into the Federal Court of Australia Act 1976 (Cth) (Act) in 2009 by the Federal Justice System Amendment (Efficiency Measures) Act 2009 (Cth). More detailed regulation of the referral process is now contained in Div 28.6 of the Federal Court Rules 2011 (Cth) (FCR). Referees appointed under the Act are not officials, nor are deemed to be officials, of the Court.
  2. As to how the reference provisions work, the position mirrors the process which had become common in all forms of commercial litigation, particularly in building litigation, in New South Wales over a generation. It provides a process in respect of which the Court retains control at all stages. The Court may appoint a person whom it considers to be appropriate as a referee (FCR 28.62). The Court may give directions about how the inquiry should be conducted on any matter arising in relation to the inquiry. The referee must conduct the inquiry in accordance with any directions given by the Court, but otherwise may conduct the inquiry in any way the referee sees fit, including by taking evidence under oath (FCR 28.65). The referee must provide the Court with a written report setting out the referee’s “opinion on the matter” referred and the reasons for that opinion (FCR 28.61, 28.66). Upon receipt of the report, and upon the application of a party, the Court may take certain steps, including the adoption or rejection of the report (FCR 28.67).
  3. I will come back to the principles which govern the adoption of a referee’s report, as these feature centrally in the submissions made by the State. It is convenient now to turn to the two arguments identified at [6] above: first, that a referee exercising power pursuant to the suggested referral would be impermissibly exercising the judicial power of the Commonwealth; and secondly, that the Court, in adopting or otherwise acting upon the report, would be acting in a manner inconsistent with Chapter III.

C.3 The IC’s First Argument

  1. It has been said that the judicial power of the Commonwealth is insusceptible of precise definition since it is difficult “to point to any essential or constant characteristic” of such power: see Brandy v Human Rights and Equal Opportunity Commission [1995] HCA 10; (1995) 183 CLR 245 at 267. The essential elements of judicial power, like the essential characteristics of a court, “are not attributes plucked from a platonic universe of ideal forms”: see Assistant Commissioner Condon v Pompano Pty Ltd [2013] HCA 7; (2013) 252 CLR 38 at 72 [68] (French CJ). As the High Court explained in Precision Data Holdings Limited v Wills (1991) 173 CLR 167 at 188-189:

[M]any positive features which are essential to the exercise of the power are not by themselves conclusive of it. Thus, although the finding of facts and the making of value judgments, even the formation of an opinion as to the legal rights and obligations of parties, are common ingredients in the exercise of judicial power, they may also be elements in the exercise of administrative and legislative power.

  1. What are described as the “typical features of an exercise for judicial power”, are the quelling of controversies between parties, the determination of existing accrued rights or incurred liabilities, and the conclusive nature of the decision so made in the exercise of the power: see Duncan v New South Wales [2015] HCA 13; (2015) 255 CLR 388 at 408. A consideration of the elements of the judicial process in any given context is informed by the specific judicial function to which the process relates, by common law requirements in relation to the discharge of that function and by the involvement of the courts in established statutory regimes regulating the performance of that function. The requirements of Chapter III cannot be considered only by reference to the characteristics of the function exercised. It is also necessary to consider the process adopted by the court, as well as the independent and impartial character of the court: see TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia [2013] HCA 5; (2013) 251 CLR 533 at 553 [27] (French CJ and Gageler J). It is, of course, open for Parliament to “prescribe the means by which the determination of the Court is to be obtained, and for that purpose may … adopt any existing method of legal procedure or invent a new one”: Re Judiciary Act [1921] HCA 20; (1921) 29 CLR 257 at 266 (Knox CJ, Gavan Duffy, Powers, Rich and Starke JJ).
  2. Obviously enough, there is no particular constitutionally-entrenched mode of fact finding by a Chapter III court. The notion that it is somehow necessary for a Chapter III judge to find facts breaks down at the most basic level: there are cases throughout the Commonwealth of state courts exercising federal jurisdiction every day where the tribunal of fact is a jury. That prospect also exists, of course, in this Court: see Parts III and VI of the Act. Although the argument of the IC accepts that it is not necessary for the licit exercise of judicial power that a judge make the finding of fact necessary to quell a dispute, the IC seeks to draw a distinction between the finding of facts by a judge or jury (as constituting the court) and a referee who under the Act (and now in New South Wales) forms no part of the court.
  3. In making this argument, the IC places significant emphasis on the decision of the High Court in Harris v Caladine [1991] HCA 9; (1991) 172 CLR 84. Accordingly, it is necessary to examine this case in some detail.
  4. Harris v Caladine was a case about the delegation of powers of a federal court. A provision of the Family Law Act 1975 (Cth) empowered the judges of the Family Court to make rules delegating all or any powers of the court to a registrar. The Family Law Rules delegated to registrars certain powers and provided that the court reviewing the exercise of that power was to proceed by way of a hearing de novo.
  5. The appeal concerned a consent order for the settlement of property made by a registrar. The High Court by majority (Mason CJ, Deane, Dawson, Gaudron and McHugh JJ, with Brennan and Toohey JJ dissenting), held that the order was valid and that neither the challenged rule nor section contravened Chapter III of the Constitution. In doing so, Mason CJ and Deane J made a number of observations which are relevant for present purposes. After referring to the fact that judicial power is vested in courts and judicial power is exercisable by judges and not officers of those courts, their Honours noted at 91:

But the ways in which a court may be organized or structured for the purpose of exercising its jurisdiction, powers and functions admit of considerable variation. As Windeyer J. noted in [Kotsis v Kotsis [1970] HCA 61; (1970) 122 CLR 69 at 91], “[a]ccording to the tradition of the common law, a superior court of record is a court sitting in banc for the administration of justice”. However, as his Honour went on to point out:

“In the course of time it became settled that, for some purposes, the jurisdiction of a superior court of common law could be exercised by a single judge. For the due administration of justice courts had officers who in some cases were, and are, empowered to perform specified functions on behalf of the courts to which they belonged.”

  1. After then referring to various developments relating to the appointment of masters, their Honours went on to say at 91-92:

Although they are developments which have taken place since 1900, they serve to confirm what we have already said, namely, that a court may be organized or structured in a wide variety of ways for the purpose of exercising its jurisdiction. A court may, for example, be authorized to refer a case or an issue to arbitration or to assessors for examination and report.
(emphasis added)

  1. Later on in their reasons, in dealing with various matters relating to delegation, Mason CJ and Deane J went on to say at 95:

It seems to us that, so long as two conditions are observed, the delegation of some part of the jurisdiction, powers and functions of the Family Court as a federal court to its officers is permissible and consistent with the control and supervision of the Family Court’s jurisdiction by its judges. The first condition is that the delegation must not be to an extent where it can no longer properly be said that, as a practical as well as a theoretical matter, the judges constitute the court. This means that the judges must continue to bear the major responsibility for the exercise of judicial power at least in relation to the more important aspects of contested matters. The second condition is that the delegation must not be inconsistent with the obligation of a court to act judicially and that the decisions of the officers of the court in the exercise of their delegated jurisdiction, powers and functions must be subject to review or appeal by a judge or judges of the court. For present purposes it is sufficient for us to say that, if the exercise of delegated jurisdiction, powers and functions by a court officer is subject to review or appeal by a judge or judges of the court on questions of both fact and law, we consider that the delegation will be valid. Certainly, if the review is by way of hearing de novo, the delegation will be valid. The importance of insisting on the existence of review by a judge or an appeal to a judge is that this procedure guarantees that a litigant may have recourse to a hearing and a determination by a judge. In other words, a litigant can avail him or herself of the judicial independence which is the hallmark of the class of court presently under consideration.

  1. As noted above, Brennan J dissented. But in doing so, at 109-110, his Honour also referred to the judgment of Windeyer J in Kotsis, where his Honour said at 68:

In my view what is not legitimate is for a Supreme Court invested with federal jurisdiction under the Constitution to entrust the determination of the rights of parties, in regard to any matter great or small, to persons who are not the court. The ascertainment of facts by the direction of the court is an essentially different thing from determining rights.
(Emphasis added).

  1. Justice Brennan then went on to identify the possibility that it could be said his view imposed undue restrictions on the court’s power of delegation and an undue burden on judges. At 111, his Honour noted a reply to this criticism could be that “there are some remedies for alleviating the burden”. These included “the adoption of procedures of reference and report”.
  2. Justice Gaudron, who, as noted above, constituted part of the majority, noted that delegation of judicial power can be effected only in a manner that is consistent with the structure and organisation of the court and with the power having been vested in the court. Her Honour noted, however, at 151, that it did not follow:

… that a power or function can be delegated only to a person who is part of the organizational structure of the court. Indeed, the taking of evidence on commission outside the jurisdiction is a familiar example of a function that is delegated to a person who is not a part of the organization of a court. Whether a power or function may be delegated to a person outside the court structure is a matter to be determined by a number of considerations, the most important of which are the subject matter and the nature of the power or function.

  1. Two matters worth emphasising emerge from the above extracts from Harris v Caladine. The first is the narrower point, that even in Brennan J’s view, the notion of a reference was permissible notwithstanding the difficulties his Honour found with the delegation under the Family Law Act, the subject of the appeal.
  2. The second is reinforcement of the broader notion that the requirements of Chapter III cannot be understood as a series of free standing axioms taken from previous cases which can be applied in a logical sequence in a different case in respect of a different piece of legislation: see also Pompano at 94 [137] (Hayne, Crennan, Kiefel and Bell JJ). Rather, it is necessary to have regard to the specific legislation in question and the historical context in which it sits.
  3. Guarding against Judge Cardozo’s warning of “pushing a principle to ‘the limit of its logic’” (see Pompano at 94 [137] quoting The Nature of the Judicial Process (London, 1921) at 51), it is useful then to turn to a consideration of this broader principle in the specific context of the referee process. The logical starting point is the judgment of Mason P (with whom Gleeson CJ and Priestley JA agreed) in Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631, which considered whether the adoption of a referee’s report by the Supreme Court pursuant to what was then Pt 72 of the Supreme Court Rules 1970 (NSW), would be precluded by Chapter III in circumstances where the Supreme Court was exercising federal jurisdiction.
  4. The appellants in Multicon sought to argue that the requirements of Chapter III meant that a hearing de novo on all issues of fact and law would be required. Mason P reviewed the decision in Harris v Caladine in some detail and noted that it was only McHugh J, as part of the majority, who stipulated that where there had been a delegation of judicial power by a Federal Court, there was a right to a hearing de novo before a judicial officer. Although not referring to the fact that in Harris v Caladine both Mason CJ and Deane J (in the majority) and Brennan J (in the minority) had referred approvingly to procedures of “reference and report” (at 91-92 and 111 respectively), Mason P at 641-642 observed:

The upshot is that, even if [Harris v Caladine] applies to State courts, it is doubtful whether the [principles regarding the adoption of a report] would contravene its mandate. It is to be remembered that a referee’s opinion has no effect unless and until the court chooses to adopt it: Najjar v Haines (1991) 25 NSWLR 224 at 246 and 270. And [Super Pty Ltd v SJP Formwork (Australia) Pty Ltd (1992) 29 NSWLR 549] emphasises the breadth of the power of “review” implicit in the power to reject … There is much to be said for the view that Pt 72 – r 13 in particular – effectively modifies the common law of judicial evidence, albeit in a manner consistent with fair procedure and the proper exercise of Federal judicial power: cf Peacock v Newtown Marrickville & General Co-operative Building Society No 4 Ltd [1943] HCA 13; (1943) 67 CLR 25 at 35-36, 46, 55-56; Milicevic v Campbell (1975) 132 CLR 307; Sorby v Commonwealth [1983] HCA 10; (1983) 152 CLR 281 at 298-299, 308. It follows that, when one turns to the application of Super in this particular case, it is far from clear that any breach of the principles in [Harris v Caladine] would be involved even if Rolfe J had been sitting as a judge of the Federal Court.

  1. I stressed above the need to have regard to consideration of the proper exercise of judicial power in the particular statutory context in which consideration of the principled exercise of judicial power takes place. As I have already explained, the appointment of referees and the adoption of their reports was an established feature of courts both in the United Kingdom and in the Australian colonies prior to Federation. It is unnecessary to dwell in this case on the differences between various regimes for reference (one approach, for example, was for matters to be referred to referees and arbitrators to be “tried” with the resulting award or report taking effect unless set aside by the court: see s 66 of the Supreme Court Act 1935 (SA); other regimes, including that considered by Mason P in Multicon and that mandated by s 54A of the Act, provide that a report resulting from a reference is not considered binding in any sense and does not take effect as an order of the court).
  2. What presently matters is that the Act (and the FCR created pursuant to the Act) create a procedure, which has as a central aspect, the necessity for the Court to control and delimit the process and the further necessity for the report of the referee to be adopted in whole or part before it has any legal effect. Put another way, the process provides for the referee, under the control of a judge, participating in a “special mode of trial” (see Hogg Law of Arbitration (1936) cited in Buckley at 15 (Stephen J)). The procedure reserves to the Court a discretionary power to determine whether the Court should accept a referee’s findings. The principle emerging from the cases (to which I will return below), that the Court will generally show a degree of deference to a referee in respect of factual findings in particular, does not detract from the proposition that the Court remains, at all stages, in control of the proceedings.
  3. The statutory regime with which we are concerned under the Act is not simply a provision allowing the “delegation of the trial”. The more proximate progenitor of the provisions relating to referees in the Act (and the time when the deeming provision for referees to be “officers” was removed in relation to references in New South Wales) is the regime introduced by the Supreme Court (Commercial Arbitration) Amendment Act 1984 (NSW). In Xuereb v Viola (1989) 18 NSWLR 453 at 462, Cole J explained that under the previous provisions relating to the appointment of referees, references “by the court to referees were properly regarded as a delegation of the trial or an issue in the trial for a person who is regarded as an officer of the court”. Whereas the reference process following the 1984 legislative change, had a number of characteristics which merit identification. These included that: (a) the statutory provision made “no reference to a trial by the referee” at 565G; (b) the referee is “not bound by the rules of evidence” but may conduct the reference as the referee sees fit: at 465G-466A; (c) “there is no longer any provision which equates the opinion of the referee to the finding of a jury”, rather “the court must consider whether to adopt, vary or reject the report in whole or part”: see 466D-E; (d) “the report is of no legal consequence unless and/or until it is adopted”: see 466D-E; (e) “it is the court which makes finding of fact in law, either explicitly or implicitly, by adopting the report”: see 466D-E; (f) the referee was not required to conduct the inquiry as if it were a trial by a judge (see 466D-E); and (g) “the referee is not making a finding of fact or law and is not determining any issue”: see 466D-E.
  4. When these characteristics of the process (as replicated in the Act) are understood, the flaw in the first argument advanced by the IC becomes evident.
  5. The IC contends that the real ratio of Harris v Caladine is that the Parliament could validly authorise the conferral of Commonwealth judicial power on a registrar who was an officer of the relevant Court even though those officers do not have the tenure protections of judges appointed under s 72 of the Constitution. It further asserts that Harris v Caladine does not stand for the proposition that Commonwealth judicial power may be vested in a person who is neither a judge nor an officer of a court referred to in s 71. This latter assertion may be accepted, but for this argument to be decisive, it presupposes that what is happening is the vesting of judicial power in the referee.
  6. This is simply not so. The task undertaken by the referee lacks the most basic characteristic of the exercise of judicial power, that is, quelling a controversy between parties by determining rights or liabilities in a manner that is authoritative, conclusive or binding (although upon adoption it may be the basis of the ultimate judgment or orders of the Court): see Najjar v Haines (1991) 25 NSWLR 224 at 246G per Clarke JA, 269C per Rogers AJA.
  7. As noted above, at all stages of the process, the referee is not a delegate. The referee is, however, required to comply with the directions of the Court and, although the referee is allowed a latitude in the way in which he or she conducts the process, is the subject of control and directions by the Court. It follows that the referee does not exercise judicial power, whether delegated or otherwise. It cannot be the case that forming views or expressing opinions on matters of fact or law which may be germane to the resolving of the controversy means judicial power is necessarily being exercised: see Luton v Lessels [2002] HCA 13; (2002) 210 CLR 333 at 345 [21] per Gleeson CJ; Albarran v Companies Auditors and Liquidators Disciplinary Board [2007] HCA 23;(2007) 231 CLR 350 at 360-362 [25]- [29] per Gleeson CJ, Gummow, Hayne, Callinan, Heydon and Crennan JJ.
  8. The process merely constitutes a licit alternative procedure by which the court may receive evidence and make findings of fact or law implicitly through the adoption of the report. When this is appreciated, the point made by the IC that referees were previously either officers of the court or deemed to be so, does not have any real significance, as the referee is not conferred with judicial power in a manner consistent with Chapter III.
  9. Moreover, for the sake of completeness, it is worth mentioning that the fact referees had a particular status needs to be understood in the historical context. Unlike in the United Kingdom, in New South Wales, at least, there were no official referees, and the legacy in the court rules of some of the various states referring to “special referees” reflects the fact that referees, although deemed to be an officer of the court, were persons who were not of the court. The provisions in legislative regimes in the various states deeming a referee as an officer of the court were described by Stephen J in Buckley as meaning they were simply “part of the machinery of the court” (at 18). They reflected the fact that under those regimes the references were “nothing more than a delegation of the trial to an officer of the court; hence the need, where the delegate was not already such an officer, to deem him one”: see Buckley at 18.

C.4 The IC’s Second Argument

  1. The IC and the State also assert that the Court, in adopting a report, would “act inconsistently with its status as a repository for Federal jurisdiction” and would not be exercising judicial power, but, rather, acting inconsistently with the requirements of Chapter III.
  2. Of course, the examination of the merit of this second argument starts from the logical premise that I have already rejected the first proposition. I have determined that this Court, in dealing with a report under s 54A of the Act, exercises judicial power and does so in a manner consistent with its role as a Chapter III court. As I have explained, there is nothing the Court does in making an order which purports to give the referee’s report, by its own force, a status as an order of the court or to operate such as to bind the parties. It follows that the broad contention that adopting a report would require this Court to act inconsistently with its status as a repository of federal jurisdiction must be rejected.
  3. It is then necessary to deal with the more refined and attenuated argument which emerged in oral submissions by the State as a variant of the way in which the second proposition was initially put in the written submissions.
  4. The argument went somewhat like this: even if the reference process does not necessarily amount to a referee illicitly exercising judicial power as a matter of constitutional theory, the principles that have arisen in relation to the adoption of reports, prior to the introduction of s 54A of the Act but since applied by this Court, have meant that the implicit finding of facts contemplated by the process of adoption, is one which is inimical to the principled exercise of judicial power.
  5. The IC and the State make the point that s 54A(3)(a) of the Act, which provides for the “adoption” of the report and the procedure mandated by FCR Div 28.6, needs to be read in a particular context. When those provisions were introduced into the Act and enacted as part of the FCR, the nature of what was meant by “adoption” was well known. That process had various characteristics, which had been identified in Super Pty Ltd v SJP Formwork Pty Ltd (1992) 29 NSWLR 549 and other cases, and which were the subject of collection and summary by McDougall J in Chocolate Factory Apartments v Westpoint Finance [2005] NSWSC 784 at [7]. They are as follows:

(1) An application under Pt 72 r 13 is not an appeal either by way of hearing de novo or by way of rehearing.
(2) The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised.
(3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest.
(4) In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh.
(5) Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report.
(6) If the referee’s report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than “unsafe and unsatisfactory”.
(7) Generally, the referee’s findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence.
(8) The purpose of Pt 72 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based.
(9) The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire.
(10) Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub para (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.
(11) Referees should give reasons for their opinion so as to enable the parties, the Court and the disinterested observer to know that the conclusion is not arbitrary, or influenced by improper considerations; but that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved. The reasoning process must be sufficiently disclosed so that the Court can be satisfied that the conclusions are based upon such an intellectual exercise.
(12) The right to be heard does not involve the right to be heard twice.
(13) A question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised “by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it”. The real question is far more limited: “to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence”.
(14) Where, although the referee’s reasons on their face appear adequate, the party challenging the report contends that they are not adequate because there was very significant evidence against the referee’s findings with which the referee did not at all deal, examination of the evidence may be undertaken to show that the reasons were in fact inadequate because they omitted any reference to significant evidence.
(15) Where the court decides that the reasons are flawed, either on their face or because they have been shown not to deal with important matters, the court has a choice. It may decline to adopt the report. Or it may itself look at the detail of the evidence to decide whether or not the expense of further proceedings before the referee (which would be the consequence of non adoption) is justified.

  1. What is suggested by the IC and the State is that these principles, collected from a number of earlier authorities, were well established and regarded as authoritative at the time of the introduction of s 54A of the Act. Hence, like the position in New South Wales, although this Court has a discretion in relation to the adoption of a referee’s report, there is a strong disposition in favour of adoption. That is said to be problematical because the approach to fact finding does not reflect a conscientious effort by a judge exercising judicial power to determine “the truth of the matter”, but, rather, merely accepting uncritically a finding made by another unless the finding has established attributes of unreasonableness or misapprehension. Such a mode of fact-finding, it is said, is inimical to the principled exercise of judicial power.
  2. It is beyond the scope of this judgment to address large philosophical questions as to the role of truth in the adversarial system. Having said that, one might be forgiven for tarrying a moment to quote a judgment which Lord Selborne described as “one of the ablest judgments of one of the ablest Judges who ever sat in this Court” (Minet v Morgan (1873) 8 Ch App 361 at 368), by Vice Chancellor Knight-Bruce who, in Pearse v Pearse [1846] EngR 1195; (1846) 1 De G & Sm 12 at 28-29; [1846] EngR 1195;63 ER 950 at 957, famously said:

The discovery and vindication and establishment of truth are main purposes certainly of the existence of Courts of Justice; still, for the obtaining of these objects, which, however valuable and important, cannot be usefully pursued without moderation, cannot be either usefully or creditably pursued unfairly or gained by unfair means, not every channel is or ought to be open to them. The practical inefficacy of torture is not, I suppose, the most weighty objection to that mode of examination … Truth, like all other good things, may be loved unwisely – may be pursued too keenly – may cost too much.

  1. The notion that it is necessary that a court should strive for objective truth by a judge determining all facts himself or herself may be considered laudable in the abstract, but it is tempered by the nature of the adversarial process in civil proceedings, by which the parties choose the evidence marshalled and also by the reality that the common law process has long adopted different modes of fact-finding other than a judge deciding all issues of fact and law. It cannot be correct that there is some sort of constitutionally entrenched requirement for a judge to consider subjectively all evidentiary material or hear argument on every issue relevant to determining a controversy.
  2. There is nothing odd or ahistorical about the fact that a court would have a disposition in implicitly finding facts found by a referee in a report unless it reached a particular level of satisfaction that it ought not to so find. One of the curiosities of the argument on this application, was that the State of South Australia asserted, in effect, that a state court exercising federal jurisdiction could not adopt a process of finding facts such as provided for under the Act and yet an analogous procedure adopted by the Supreme Court of South Australia, involved less de novo scrutiny in adopting awards of an “arbitrator”. At the time the Supreme Court Act 1935 (SA) was introduced, s 67 provided that an award following a referral to an arbitrator was equivalent to the “verdict of a jury”. As noted at [54] above, the current s 66 of the Supreme Court Act 1935 (SA) deals with trial of issues by an arbitrator and provides, by s 66(4), that “(t)he court will, unless good reason is shown to the contrary, adopt the award of the arbitrator as its judgment on the action or issues referred”.
  3. To digress for a moment, there have been a number of references in previous referral provisions (including those provisions which had an existence prior to the High Court’s decision in Harris v Caladine) that provided, in effect, that the report of a referee ought to be treated in the same way as the verdict of a jury. The High Court must have been aware of such provisions when, as noted above, references were made in that case to the notion that the referral of issues to a referee and later adoption by the court was not inconsistent with the requirements of Chapter III. Needless to say, notions of perversity which are bound up with rejecting the verdict of a jury (see, for example, Hall v Swan [2009] NSWCA 371) are, to say the least, no more restrictive to the ascertainment of some notion of objective truth than what might be described as the Chocolate Factory approach to implicit fact-finding.
  4. Returning to the argument advanced by the State and the IC, a further contention was advanced based on FCR 28.67(2), which provides that in proceedings on a report, a “party must not adduce in the Court evidence given in an inquiry”. This was said by the IC at “the very least” to “manifest a policy that, ordinarily, evidence that was before the referee would not be adduced at an adoption hearing” and that even if it were open to the Court to grant leave to overcome that prohibition, such a discretion to grant leave, would be one exercised “in light of the policy that normally evidence is not permitted to be adduced”. As I noted during the course of argument, for my part, I very much doubt that FCR 28.67(2) can be valid (or at least have any operation) in circumstances where the adduction of evidence as to what was before a referee on an inquiry was relevant to a fact in issue on the adoption hearing. An example might be that there was an alleged patent misapprehension by the referee because evidence existed which demonstrated a particular fact relied upon by the referee in forming an opinion did not, in truth, exist, and uncontested evidence was before the referee to that effect. Such evidence would clearly be admissible pursuant to s 56(1) of the Evidence Act 1995 (Cth) which provides that “[e]xcept as otherwise provided by [this] Act, evidence that is relevant in a proceeding is admissible in the proceeding”. Apart from this, in an appropriate case, even assuming the rule was valid, if it was necessary that such evidence be adduced in order to fulfil the judicial task of dealing with an issue raised on an adoption hearing, compliance with FCR 28.67(2) could be the subject of dispensation: see, for example, FCR 1.32 or 1.34.
  5. There is nothing about the procedure of adopting a report which requires this Court to act inconsistently with its status as a repository of federal jurisdiction. It follows, in my view, there is no substance in either of the constitutional arguments raised by the IC and the State. Having concluded that there is no inhibition on the power to grant the relief sought by the applicant, I now turn to the issue of whether that relief should be granted in the principled exercise of discretion.

D THE PRINCIPLED APPROACH TO THE EXERCISE OF DISCRETION

D.1 Relevant Discretionary Factors and Consideration of their Weight

  1. In Kadam at 312 [57]-[58], I said the following:

It follows that in considering whether to make … a reference, the starting (and in many cases the finishing) point will be the consideration of the overarching purpose. Of course, s 37M(2) gives some guidance as to how this is done by setting out a number of objectives which, without limiting s 37M(1), comprise the following:

(a) the just determination of all proceedings before the Court (s 37M(2)(a)) (Justice Factor);
(b) the efficient use of the judicial and administrative resources available for the purposes of the Court, and the efficient disposal of the Court’s overall caseload (ss 37M(2)(b)-(c)) (Efficiency Factor);
(c) the disposal of the proceedings in a timely manner (s 37M(2)(d) (Timeliness Factor); and
(d) the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute (s 37M(2)(e)) (Cost-effectiveness Factor).

As can be seen, these four factors reflect what might be described as both party-centric and the macro considerations in relation to the administration of justice… They are not, however, exclusive considerations and the considerations in s 37M(2) should not be treated as ‘tick box’; a wider evaluative process is to be undertaken: see Irwin v Irwin [2016] FCA 1565 at [37] per Charlesworth J.

  1. The submissions of the Builders were appropriately directed to these factors. In particular, it was submitted that the referral sought will provide for: (a) the just determination of this proceeding, alongside the allied issues to be resolved currently before Dr Lindgren; (b) the efficient use of judicial administrative resources and the disposal of the proceeding in a timely manner, as it would enable the dispute to be determined at the same time as the arbitration, rather than having to be determined much later by the court; and (c) the resolution of the proceeding in a cost effective manner, as there will be cost efficiencies in having all matters, including all issues between the Builders and other parties, the subject of findings by Dr Lindgren.
  2. In addition, it was said that the possibility of an order being made to refer issues to Dr Lindgren as a court-appointed referee was raised by the Court during the stay application proceedings in December 2017 and that the Builders had foreshadowed the application with Dr Lindgren, who indicated that he would consent to an appointment if so ordered.
  3. In short, given the factual and legal overlap evident from Annexure A to these reasons, it is asserted that it makes great sense for the various claims which find reflection in both the ASOC and the various arbitrations to all be before Dr Lindgren. It is said that the only exceptions to the case maintained by the Builders in the proceeding which are not the subject of issues already required to be determined by Dr Lindgren in the extant arbitrations, are the negligent misstatement case summarised in the ASOC at [63]-[77] and the unconscionable conduct case summarised at ASOC [69] and, in any event, that the underlying factual matters relevant to the determination of those claims overlap, to a very great extent, with the factual contentions which arise in relation to various other claims before Dr Lindgren.
  4. In response, there are a range of arguments advanced on behalf of the IC and the State. The first is what is said to be a procedural obstacle, and then the IC and the State point to a range of substantive issues which are said to be powerful discretionary considerations militating against the relief sought.
  5. Dealing first with the procedural issue, all parties accept the broad notion that the temporary stays were interlocutory orders which can be revisited if there is a fundamental, or at least material, change in the basis upon which the stays were granted. However, the State submits that in order for the stay of the claims to be lifted, the Builders must show that there is “a material change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the court on the hearing of the original application”, that would justify the stay being lifted: see Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46; Waters v Commonwealth of Australia (Australian Taxation Office)[2017] FCA 312 at [50]- [53]. It is said that in the present case the Builders have not satisfied either of the requirements of Brimaud or otherwise advanced a proper justification for the temporary stays to be lifted and, indeed, there is no such justification. Additionally, it is asserted that the issue of a referee could have been raised at either the earlier hearing or, alternatively, an application could have been made prior to the commencement of the Consolidated Arbitrations in front of Dr Lindgren.
  6. Although there does need to be some change of circumstance and there has been no compelling explanation proffered by the Builders as to why this application could not have been made somewhat earlier, if not immediately after the issue relating to the IC Claim Arbitration arose, it seems to me the question of whether or not I should grant the relief is one which should be approached by reference to the duty of the Court to facilitate the just resolution of this dispute according to law and as quickly, inexpensively and efficiently as possible: see s 37M(3) of the Act.
  7. It follows that if I was otherwise of the view that it was in accordance with the overarching purpose to now lift the temporary stays, I would not regard it as an insuperable barrier that there has been a failure to establish that there was a change of circumstances of particular significance or there was some tardiness in making the application (conscious though I am of the hesitancy of the court to revisit earlier interlocutory decisions except for where there is a sound reason).
  8. Turning to the substantive issues raised in resisting the referral, the State makes a number of arguments which can, conveniently, be placed into seven categories.
  9. First, and importantly, it is said that the Builders’ claims against the State are ancillary to the matters the subject of Project Co’s stay (see judgment at [111(a)], [122]). This remains the case and no application has been made to have that permanent stay lifted.
  10. Secondly, the arbitrator’s award in those arbitrations which are currently before Dr Lindgren will be largely determinative of the claims made in this proceeding against the State (judgment at [111(b)], [122]). It was said that this factor has particular resonance in view of the fact that it is common ground that there is an “almost complete overlap” between the claims made against the State in the ASOC and those made in the Builders’ Claims Arbitrations. As I have already noted, this is evident from Annexure A. It is said in this respect that the Builders have not descended to the detail of identifying any significant factual assertions in the ASOC that remain for determination following the conclusion of the Builders’ Claims Arbitrations in relation to the claim made against the State.
  11. Thirdly, it is said that there will be no costs or time savings in the lifting of the stay because all evidence relevant to the claims in the ASOC, including all expert evidence, will be heard and determinations in respect of it will be reached in the Builders’ Claims Arbitrations.
  12. Fourthly, it is said, consistently with what had previously been found in the judgment, that a temporary stay of the monetary claim is unlikely to visit any significant prejudice on the Builders.
  13. Fifthly, there is the willingness of the State to submit to the arbitral process and the fact that the Builders are able to pursue its claims in the Builders’ Claims Arbitrations and the parties have sought to progress these arbitrations together with the NOCE Arbitrations. This is said to point to the lack of utility of the stay being lifted.
  14. Sixthly, it is said that the Court ought not to refer out the Builders’ claims as those claims have not been properly pleaded and if the stay is lifted are likely to be the subject of interlocutory arguments advanced by the State and also the IC.
  15. Seventhly, any referral will cause the State prejudice because any referred proceedings and the arbitrations will be subject to two very different regimes post-hearing such that they may ultimately result in different outcomes. It is said that the final nature of the arbitration – subject to the rights of challenge in the South Australian Supreme Court under the Commercial Arbitration Act 2011 (SA) – can be contrasted with the ability of the Court to deal with the report following the referral “as it thinks fit”. It is conceivable inconsistent conclusions could be reached by the Supreme Court and this Court.
  16. The submissions of the IC as to why discretion should not be exercised were somewhat more diffuse and in some respects broader. But it is convenient to mention them only to the extent that they do not already fall neatly within the categories I have already identified.
  17. The first matter raised by the IC is that the proposed reference involves a novel issue of law inappropriate for the reference procedure. The second is that the proposed reference includes very serious allegations which are inappropriate for referral. The third is that the confidential nature of the arbitration makes a concurrent hearing of the arbitrations and reference unworkable. The fourth is that the proposed reference is contrary to what is described as the “open justice” principle. The fifth is that the proposed reference is inappropriate for proceedings that may involve witnesses seeking to invoke the privilege against self-incrimination. The sixth is that it is inappropriate for the reference to be heard concurrently with what is said by the IC to be “in substance a part-heard arbitration”. The seventh is that a reference is inappropriate where issues of proportionate liability might arise. The eighth is that the usual mode of trial in the Federal Court is by judge alone. The ninth is that the reference is not by the consent of the parties and it is objected to; and the tenth is that there is no evidence as to the speed with which the reference might be heard and determined.
  18. It is convenient for me to sweep away those matters raised by both the State and the IC which I consider to be either irrelevant or of such marginal significance that they do not weigh heavily in the discretionary analysis. As to those raised by the State:

(1) First, it seems to me that the submission that there will be no cost or time savings in lifting the stay, is incorrect, at least as a matter of theory. If all factual and legal matters were able to be determined by Dr Lindgren, it is likely that the entire justiciable controversy between the parties is likely to be resolved at an earlier time and at less cost. Having said this, I accept that the vast bulk of factual issues at least between the State and the Builders will be resolved in the course of determining the extant arbitrations currently before Dr Lindgren. This is a matter to which I will return below.
(2) Secondly, as to the point that the temporary stays are unlikely to visit any prejudice on the Builders, this is true but somewhat misses the point. The fact is that the Builders seek to facilitate a regime where matters are resolved with the greatest degree of efficiency and that, really, is the whole point of the application. This consideration transcends the notion of prejudice to the parties (although prejudice would, of course, be a relevant factor in the evaluative assessment).
(3) Thirdly, as to the willingness of the State to undertake to submit to the arbitral process, and the fact that the arbitrations are ongoing and will resolve most issues, is clearly important and does bear upon the utility of the stay against the State being lifted, but that has more to do with the issues that will be determined, rather than the willingness of the State to participate in the process.
(4) Fourthly, the issue of the prejudice raised by both the State and the IC as to the possibility of the two different regimes post-hearing that may ultimately result in very different outcomes is not a matter which I regard as one of any real significance. As I raised during the course of oral argument, the notion that it will be necessary to bring an application under s 27J of the Commercial Arbitration Act in the Supreme Court of South Australia is one that I do not accept. If an application is to be made pursuant to s 27J, I do not understand why there is any inhibition in bringing such an application in a separate proceeding in the South Australian registry of the Federal Court. It is necessary to explain this conclusion in a little detail. Section 79 of the Judiciary Act 1903 (Cth) is intended to facilitate the exercise of federal jurisdiction by the application of a “coherent body of law” consisting of Commonwealth law and, where applicable, the laws of the States and Territories in which such jurisdiction is being exercised: Northern Territory of Australia v GPAO [1999] HCA 8; (1999) 196 CLR 553 at 588 [80] (Gleeson CJ and Gummow J). A fundamental component of all parties’ arguments in this court is that any controversy arising out of the arbitrations (including any dispute over an error of law) arises out of the same substratum of facts and which is to be quelled by either the arbitrations or in the exercise of Chapter III judicial power. Obviously enough, even though the provisions of the Commercial Arbitration Act refers to a “court” which, save in limited circumstances, is the Supreme Court of South Australia (see s 2 (1); Acts Interpretation Act 1915 (SA) s 4(1)), it is well established that a State cannot limit the way in which federal jurisdiction is to be exercised. There does not seem to me to be any reason why, in accordance with principle, the s 27J argument could not be determined by this Court exercising federal jurisdiction in South Australia: see Australian Securities and Investments Commission v Edensor Nominees Pty Limited [2001] HCA 1; (2001) 204 CLR 559 at 586-588 [55]- [59]. Accordingly, the prejudice seems to me, if it exists, to be very minor and related to the commencement of a separate proceeding and the logistical difficulty in having this proceeding transferred to the South Australian District Registry to be heard together with any such additional proceeding.
(5) Fifthly, as to the argument that this Court should not refer out the claims as they have not been properly pleaded, again this does not seem to me to be a real difficulty. If the matter was referred to Dr Lindgren, he would be required to ensure that any issues between the parties were determined in a way that afforded procedural fairness. To the extent that there needed to be further identification of the material facts and particulars relied upon to make out particular allegations, it would be within the power of the referee to make whatever directions he regarded as necessary and appropriate to facilitate procedural fairness being provided. This point was also raised by the State, at an earlier stage, as a reason why the hearing of this interlocutory application ought to be delayed. In my view, it would have been inimical to the overarching purpose for there to be an adjournment in order for the Builders to prepare a statement of claim in circumstances where it may be that, in the event the matter was referred, the referee would regard it as more cost-effective and appropriate for any pleading and particularisation to be done in a way which would best facilitate the joint conduct of the arbitrations and the reference.

  1. Turning to the matters raised by the IC, which again I do not consider have any real substance:

(6) Sixthly, the notion of the proposed reference is inappropriate where proceedings before the referee may involve a privilege against self-incrimination, does not give sufficient account to the fact that a regime could be put in place whereby the referee could ensure that directions could be sought by the referee pursuant to powers conferred upon him if some unforeseen difficulty arose in this regard.
(7) Seventhly, the fact that there is a proportionate liability claim raised, does not seem to me to bear upon the matter at all. Each of the arbitration agreements make provision as to how the arbitrator is, to the extent permitted by law, to have regard to the proportionate liability legislation but, absent agreement, the position would be different in respect of the balance of the issues to the extent that they arise on the referred issues. Why this would cause some sort of insuperable problem was never really articulated.
(8) Eighthly, the fact that the reference is not by the consent of the parties is, in my view, of little weight. Although it might be appropriate for the court to give some weight to the fact that one or other party opposes the reference, ultimately the decision is guided by whether it facilitates the overarching purpose and recent developments have shown an increasing disinclination to place any significant emphasis on the attitude of the parties in such matters.
(9) Ninthly, although the usual mode of trial in the Federal Court is by judge alone and principles of open justice apply, it seems that there was somewhat of a tension between this argument advanced and the fact that the IC contends that the current parties to the arbitrations will be unlikely to agree to confidentiality being waived in relation to the current arbitrations. Open justice is an important principle, as is the usual mode of trial adopted in this Court. In Optiver Australia Pty Ltd v Tibra Trading Pty Ltd [2012] FCA 558; (2012) 203 FCR 520 at 530 [34], 534-535 [49]-[50], these considerations were the subject of consideration by Rares J, although the consideration of the issue of open justice considerations was heavily fact dependent.

  1. I now turn to the issues which seem to me to be of more significance and, when taken together, are decisive on the application.
  2. The reason why the temporary stays were ordered in the first place is that they were ancillary to the matters the subject of Project Co’s permanent stay. No application has been made to lift the permanent stay, although an order is sought that the claims made by Project Co against the IC in ACICA case number 2018-115 (being the IC Claims Arbitration) also be referred for inquiry and report. Although the factual matters underlying the claims as between Project Co and the IC, as I previously indicated, will be the subject of factual inquiry during the course of the arbitrations, the claims themselves, that is the claims as between Project Co and the IC, are not before the court in this proceeding or in any other proceedings. Additionally, while the claims were made in the proposed arbitration, the present position is that the arbitrator ruled that he had no jurisdiction to determine them. Although I have some sympathy for the pragmatism in trying to fashion a solution to the problem that has arisen by the State not consenting to commencing an arbitration against the IC in its present form, or a form containing all the claims which the Builders and Project Co seek to pursue so that the IC Claims Arbitration might proceed, this is ultimately the consequence of the particular detailed contractual regime which is a feature of this project.
  3. The existence of this contractual regime is important. I dealt with the contracts and the arbitration agreements in Section B.1 of my judgment. They were structured in a deliberate way whereby there was no direct contractual obligations between the Builders and the State or the Builders and the IC to determine disputes between them by way of arbitration. This reflected the mutual contractual intention to put in place a process where the State contracted with Project Co to provide the project, leaving it to Project Co to arrange for the financing, design and construction and the provision of services.
  4. These contractual arrangements have consequences. There is a bargain agreed between Project Co and the State whereby the issues that have arisen are to be worked out in accordance with the dispute resolution processes provided for in those agreements. In a way, the fact that Project Co has been unable to put in place the IC Claims Arbitration successfully is, as Mr Hyde submitted, more of a problem for Project Co than anyone else. In circumstances where there was no (and could be no) attempt to revisit the mandatory stay in respect of claims brought by the Builders against Project Co, this is an important factor in that the stays the subject of this application were ancillary to the granting of that mandatory stay.
  5. Additionally, it cannot be gainsaid that this is a case of some real significance. As the IC submits, the Builders are relying on a novel legal point in seeking damages exceeding $795 million against the IC. In doing so, it has made an allegation in the following terms (ACOC at [83]):

…each of the State and/or the IC has caused economic loss to the builder (or, alternatively – the builder … by unlawful means and/or, alternatively, deliberately sought to inflict economic harm upon the builder …

  1. As I previously indicated, the case made against the State is of unlawful conduct, being the intentional and wrongful infliction of economic loss on the Builders. These are not insignificant allegations, particularly made against the Crown.
  2. It appears to be common ground that the High Court is yet to determine whether a stand-alone action for causing loss by unlawful means exists in Australia. The Builders accept that the law in this regard is “developing”. They are correct to do so. InConstruction, Forestry, Mining and Energy Union v Boral Resources (Vic) Pty Ltd [2014] VSCA 348; (2014) 45 VR 571, the Victorian Court of Appeal referred to the cause of action proposed by the Builders and said at 577 [31]:

As already noted, the question of the existence of the broader tort has been the subject of consideration by the High Court. To date, that court has declined to decide whether the broader tort should be recognised as part of Australian law. The definitive decision which the appellant seeks – that the broader tort is not part of the common law of Australia – is a decision which could only be made by the High Court. That is especially so in view of the asserted corollary, that is, that rejection of the broader tort would entail the de-recognition of the tort of intimidation, the existence of which has been recognised by the High Court as recently as October this year.

  1. Balanced against this is that the Builders point to the fact that the principles applicable in adoption hearings means that the court takes a somewhat different view in relation to adoption of findings of law to findings of fact. On any adoption hearing, the Court is likely to receive detailed submissions of law and will be required, in a judgment, to consider and determine these legal issues. Accordingly, an anterior reference would not result in any lack of analysis of legal questions (at primary judge level) if it later came to an intermediate appellate court or the High Court dealing with the novel cause of action in due course.
  2. This point has substance up to a point. No doubt the court would be greatly assisted by reasons provided by someone of the eminence of Dr Lindgren, if he was to be appointed a referee as to legal questions as well as factual issues; but as intermediate courts and the High Court have repeatedly emphasised, it is the duty of a single judge to make such findings of fact as are necessary to ensure that there be an effective rehearing on appeal, if necessary, particularly in the context of there being developments in the law by the application of the law to those facts as found. There is an inevitability about both issues of fact and law relevant to the determination of this novel claim to be hotly contested. It seems to me, given this forensic reality, it is preferable that the facts be found by a judicial officer who will then need to apply them to the law in this novel and potentially complex area of legal discourse. This conclusion weighs in the discretionary balance against the relief that the Builders seek.
  3. An even more significant factor, however, seems to me to be the seriousness of the claims made. This goes well beyond the quantum of the claim (although this is also a relevant factor); what is more significant, is the nature of what is alleged and against whom it is alleged.
  4. I was referred to a number of cases which stood for the proposition that where there are allegations of serious wrongdoing, a court should be chary in referring matters to a referee. It is unnecessary to refer to all these authorities as I think the current practice is captured by Einstein J in CPC Energy Pty Limited v Bellevarde Construction Pty Limited [2006] NSWSC 1120 at [22], where his Honour said:

On the question of whether the hearing of the balance of the issues to be determined on trial should be referred out or determined by the Court, this is in truth a matter for the List Judge in case managing the proceedings. Having said that it must be acknowledged that as a general matter, there are particularly strong reasons why the Court would not refer out questions of fraud except in exceptional circumstances. However albeit rarely, the Court has exercised the discretion by referring even proceedings raising questions of fraud to a referee…

  1. Of course, Rares J’s decision in Optiver, to which I have already made reference, is an example of this occurring. Having noted this, it is well to remember that were two factors present which made the case for a hearing before a judge in Optiver less compelling than might have otherwise been the case in other matters where allegations of serious wrongdoing were advanced. The first factor, not present here, is that a substantial part of the evidence in Optiver would have been required to be taken in either closed court or in circumstances where the subject matter of the evidence was said to be confidential (hence an observer or a member of the public would be left in the dark as to what points were being made). The second factor is, however, also present here, where the proposed reference is to an eminent former judge.
  2. This is not to say that there is some inflexible rule that where serious allegations are made it is always inappropriate for such cases to be referred to a referee. I have recently referred in Australian Securities & Investments Commission v AMP Financial Planning Pty Ltd [2018] FCA 1708 to the possibility of a referee determining relevant facts in a civil penalty proceeding (albeit not the question of whether or not there has been the contravention of a norm giving rise to the civil penalty). On balance, however, the seriousness of the allegations made in the present case, weighs considerably against the granting of the reference.
  3. Connected to this point are broader public interest considerations. Although not directly applicable to the orders sought on the present application, it is not insignificant that in Part VAA Div 2 of the Act (dealing with suppression and non-publication orders), the Court is required to take into account that a “primary objective of the administration of justice is to safeguard the public interest in open justice”. Open justice is basic to the functioning of this Court as an arm of government. Arguments concerning open justice seem to me to be brought into sharper focus the more serious the allegation; a fortiori when such allegations relate to governmental matters and, more particularly, concern a matter of such intense public interest as an allegation of wrongdoing by the executive government in relation to the State’s most significant and expensive infrastructure project. Although the adoption hearing will be in open court, for reasons I already explained, this will not amount to a rehearing of the evidence, and in the particular circumstances of this case, I do not consider this to be sufficient in a case of this type and, in particular, with the political dimension to which I have made reference.

D.2 Conclusion on the Exercise of Discretion

  1. I have considerable sympathy for the attempt made by the Builders to attempt to fashion a pragmatic way in which all issues can be resolved efficiently. The fact is, however, that as the State submits, almost all of the factual controversy between the State and the Builders will already be the subject of findings by the current determination of the arbitral proceedings before Dr Lindgren. The perceived problem caused by the failure to be able to have the IC participate, so that the resolution of all issues is achieved in a way which will be binding on all parties, is one which is a function of the particular contractual regime which was agreed between the parties.
  2. Having mentioned this last point, for the sake of completeness, I should deal with the point made that the IC was not a party to the Consolidated Arbitrations and did not participate in the arbitral proceedings that have already been heard before Dr Lindgren. As the IC submits, it did not have the opportunity to cross-examine relevant witnesses in relation to defects or address the arbitrator in relation to them. In such circumstances, it was submitted that a reference to a part-heard arbitrator of the Builders’ claims against the IC gives rise to an appreciable risk of denial of procedural fairness. As I have already touched on above, I think this argument is overstated. Obviously enough, it would be open to the referee to fashion a procedure which ensures that there is no want of procedural fairness occasioned to the IC. But the fact is that Dr Lindgren has now already proceeded to hear the Consolidated Arbitrations and heard submissions. It might be a somewhat clumsy process for the IC to go before Dr Lindgren and now be involved while not having participated in the earlier hearing, although I do not think this would be anything like an insuperable problem. This argument does not feature materially in the discretionary mix.
  3. Ultimately, it comes back to an exercise of discretion having regard to the overarching purpose and the matters to which I have made reference in the previous section of these reasons. In my view, particularly given the matters referred to at [96]-[108], the proper exercise of discretion weighs against relief being granted to lift the temporary stays and refer out the matters identified in the interlocutory application to Dr Lindgren. In these circumstances, the appropriate course is to dismiss the interlocutory application and I will make orders accordingly. Given that these are lengthy ex tempore reasons delivered late in the evening and shortly before the long vacation, it is appropriate to extend time for any application for leave to appeal until after the delivery of revised reasons early in the New Year. I will now determine costs after hearing from the parties orally and for reasons which will be evident from the transcript.

L v. M [2016] HKCFI 1368; HCCT 16/2016 (10 August 2016)

IN THE COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO 16 OF 2016

L – Plaintiff
(Respondent in the Arbitration)

V

M – Defendant
(Claimant in the Arbitration)

 

BEFORE: Hon Mimmie Chan J in Chambers
DATE OF HEARING: 13 July 2016
DATE OF DECISION: 10 August 2016

 

DECISION

Introduction

1. On 31 March 2015, M as Claimant issued a Notice of Arbitration (“NOA”) in respect of its dispute with L, and its claim for US$20,154,892.27 to be paid by L as the balance of the purchase price of TV kits sold and delivered by M to L (“Claim”). The Claim was submitted to the HKIAC for arbitration (“Arbitration”), by reference to a Mutual Claims Settlement Agreement dated 2 February 2015 (“MCSA”) made between M, L and ME and the arbitration agreement contained in clause 8 thereof.

2. Arbitrators were appointed in accordance with the HKIAC Administered Arbitration Rules (“HKIAC Rules”). In its Answer to the NOA, L challenged the jurisdiction of the arbitral Tribunal, on the basis that the Claim is not a matter which is the subject of an arbitration agreement.

3. In an Interim Award dated 28 January 2016 (“Award”), the Tribunal ruled that it has jurisdiction to deal with the Claim under the MCSA. On 5 April 2016, L applied to this Court under s 34(1)(3) of the Arbitration Ordinance Cap 609 (“Ordinance”) for a decision on the Tribunal’s jurisdiction, and to seek a declaration that the Claim does not fall within the arbitration clause pursuant to which the Claim was referred to arbitration.

Background

4. L agreed to purchase and M agreed to sell to L what were described as TV kits (“Goods”), which were kits of parts for television sets, which kits were then used by L to assemble into televisions, for sale and distribution in the European Union. According to L, the agreement was made orally on 21 May 2013, evidenced by and recorded in a document entitled “Agreement from Meeting M-L on 21 May 2013” (“Minutes”) which was signed by the representatives of L and M in Shenzhen. This sale and purchase agreement is accordingly made partly orally, and partly evidenced in writing (“Master Agreement”). The Minutes set out (inter alia) the parts to be supplied, the specifications, the unit cost, the shipment plan which covered June and July 2013, and additional order quantities which may be placed from June to August 2013.

5. It is not disputed by the parties that pursuant to the Master Agreement, L placed its first purchase order with M in May 2013, and that L had continued to place orders for the Goods after August 2013 (the timeframe contemplated under the Master Agreement), until April 2014. L claims that all these orders were governed solely by the Master Agreement, which did not contain any provision for the resolution of disputes, whether by arbitration, or by any other form. The evidence from L, which is not disputed by M, is that the parties never discussed dispute resolution at all, when the Master Agreement was made in May 2013.

6. In October 2013, a document entitled “Memorandum of Understanding” was signed between L and M (“MOU”). What is not disputed is that by then, it was agreed between the parties that some components necessary for the manufacture of the television kits, including TV panels, chassis and power boards (“Parts”), would be sourced by L from its own suppliers, and would be supplied to M for use in its production of the Goods for delivery under the Master Agreement. It was also agreed that the Parts would be invoiced to M’s affiliated or associated company, ME, for payment to be made by M/ME to L.

7. The MOU sets out various terms and conditions relating to the supply of items for the Goods and of the Parts, and contains a dispute resolution clause (clause 21), which provides:

“This MOU shall be governed by the laws of Hong Kong. In the event that any dispute between the Parties arising in connection with this MOU cannot be resolved within a period of thirty (30) days on the basis of mutual consultation, then either of the Parties may refer such dispute to Hong Kong International Arbitration Centre for arbitration in English under the arbitration rules of Hong Kong International Arbitration Centers.”

8. In the NOA, M claims (in paragraph 8) that the terms of the agreement made between L and M for the sale and purchase of the Goods were summarized in the MOU. On its part, L claims (in paragraph 30 of the Answer) that the MOU only relates to the supply of the Parts.

9. It is further undisputed that as the parties’ relationship progressed, other documents were signed in December 2013, January 2014 and April 2014, relating to the method of payment of the Goods and the Parts. In December 2013, a document entitled “Guarantee and Mutual Claims Settlement Agreement” (for convenience only, referred to hereinafter as “Guarantee”) was signed by L, M and ME. It recites as follows:

“Herewith the parties agreed to settle mutual claims as follows.

L is supplying components, predominantly panel/open cell parts to ME. At 30 November 2013, there is a confirmed amount outstanding from ME to L of US$9,835,505.92. The payment of this amount is due as Appendix 1.

Same time, (M) is supplying L with TV sets/kits. At 30 November 2013, the confirmed outstanding amount from L to (M) is US$19,944,112.68. The payment of this amount is due as Appendix 2.

L has open account limit from (M) in value of US$19 million. In order to enable shipments of further pending POs, the parties agreed upon the following:

1. Parties agreed to offset the mutual claims so that the debt from ME to L is offset against the debt of L to (M) monthly.

2. As such, the amount due from L to (M) of US$19,944,112.68 will be reduced by the amount due from ME to L of US$9,835,505.92 and the net due amount from L to (M) will become US$10,108,606.76….

3. L will pay for the AR balance in time as AP clear off.

…”

10. The relationship is clearly explained in the recitals to the Guarantee. L had an open account limit of US$19 million, the effect of which was that M could not make further shipments to L if the limit was exceeded, and the parties’ agreement to sign the Guarantee was to reduce L’s debt to M by the set-off arrangement, such that further shipments of the Goods can be made. The appendices to the Guarantee set out the invoices and delivery notes issued by L for the Parts and by M for the Goods, and the amounts payable by ME and L respectively.

11. The Guarantee contains an arbitration clause, as clause 8 provides:

“Any dispute shall be settled by amicable negotiations between 3 parties, in case any parties can not be reached (sic) amicable agreement, all disputes arising in connection with this contract shall be submitted to Hong Kong International Arbitration Centre, Rules and regulations of the Centre shall be applied. The awards of arbitration (s) shall be final and binding upon there (sic) parties.”

12. Similar set-off agreements were made and signed by the parties in January 2014 and April 2014, relating to the status of the parties’ accounts as at 15 January 2014 and 15 April 2014. Each of these Guarantees made on 15 January 2014 and April 2014 contain arbitration clauses substantially similar to clause 8 above.

13. Disputes arose between the parties sometime in May 2014, as to whether the Goods supplied by M complied with the standards required under the Master Agreement, whether payments were due and payable by L, and whether and how there should be a set-off of the invoices outstanding from L and ME respectively. The parties finally reached agreement on a set-off of US$4,103,760.83, and the MCSA dated 2 February 2015 was signed by L, M and ME in March 2015.

14. The MCSA provides as follows:

“L is supplying components, predominantly panel/open cell parts to ME. At 31 December 2014, there is a confirmed amount outstanding from ME to L of US$4,103,760.83.

Herewith the parties agreed to settle mutual claims as follows:

1. Parties agreed to offset the mutual claims so that the debt from ME to L is offset against the debt of L to (M).

2. As such the amount due from L to (M) will be reduced by the amount due from ME to L, the total amount is US$4,103,760.83.

3. Details of related invoices from L to ME are attached in Appendix 1.

4. If ME could not pay for its debt, this debt would be offset automatically by (M).

5. ME shall be released from the debt due to L upon the effective date of this agreement.

6. This agreement shall be governed by the laws of Hong Kong, excluding conflict of law rules and principles.

7. This agreement shall come into force upon the signing of all three parties.

8. In the event that any dispute between the parties arising out of or in connection with this agreement then any party shall refer such dispute to the Hong Kong International Arbitration Centre for arbitration in English under the arbitration rules of the Hong Kong International Arbitration Centre.”

15. In the NOA, M expressly referred to clause 8 of the MCSA as the relevant arbitration agreement, pursuant to which the Claim was referred to arbitration.

16. According to Mr X of L, by signing the MCSA, L only agreed to the arbitration clause being applied to the set-off of the sum of US$4,103,760.83, and never agreed that the arbitration clause would apply to the overall agreement for the sale and purchase of the Goods, which remains governed by the Master Agreement. L maintains that M’s Claim is made for the allegedly outstanding price of the Goods sold under the Master Agreement, and accordingly, the Claim does not fall within clause 8 of the MCSA, which is the arbitration agreement relied upon by M in the NOA. According to L, the Tribunal is wrong in its Award in finding that it had jurisdiction.

17. The parties do not dispute that the Court is to make a finding on the jurisdiction of the Tribunal on a de novo basis, and that the court has to be satisfied that the Tribunal was right on the question of its jurisdiction (S Co v B Co [2014] HKCFI 1440; [2014] 6 HKC 421).

Nature of dispute

18. According to the NOA, the Claim is for L’s payment of the balance of the purchase price of the Goods sold and delivered by M to L during the period from January 2014 to April 2014, in the total sum of US$20,154,892.27 (“Balance”), after setting-off the sum of US$4,103,760.83 (the amount specified in the MCSA).

19. In determining whether there is a dispute, and the nature of the dispute between the parties, the Court should consider not just the Claim as can be seen from the NOA or the Statement of Claim, but should also look at the affidavit evidence filed by the parties, and the Points of Defence, if any is served, in order to consider the denials and issues raised, and any admission to the Claim made. It is only upon reviewing the Answer, Points of Defence, and any evidence filed on behalf of the respondent/defendant, that the issues of the claims which are in dispute can be understood, and identified. I therefore consider that it is relevant to consider the Defence and Counterclaim filed by L in the Arbitration on 17 June 2016, and grant leave to M (on its summons issued on 4 July 2016) to produce the Defence and Counterclaim as evidence.

20. In the Answer, L denies that the Goods were sold and delivered under the MOU, claiming that it was pursuant to the Master Agreement that the orders were placed and the Goods sold. In the Defence and Counterclaim which was served by L without prejudice to its challenge to the jurisdiction of the Tribunal, L claims that the Goods were defective, that M was in breach of a condition of the Master Agreement, and that L was entitled to refuse payment for the balance of the purchase price claimed for the Goods. By way of Counterclaim, L seeks payment of the amounts paid to M for the Goods over the years, including the amounts settled under the 3 Guarantees and the sum of US$4,103,760.83 settled or set-off under the MCSA.

21. Even if the Counterclaim is not to be considered (on the basis that it was served by L without prejudice, and would be pursued only if the Court finds that the Tribunal has jurisdiction over the Claim), it is clear from the NOA, the Answer and the evidence filed for the purpose of the challenge to jurisdiction that the Claim is clearly for payment of the price of the Goods sold and delivered by M to L, and that the dispute between the parties is whether L is liable for such payment, whether the Goods are defective as L claims, and whether L is liable for payment of the Balance. If the Counterclaim is to be pursued, the dispute raised by the Counterclaim is whether M is liable to refund the amounts paid by L for the Goods.

22. There is also dispute between the parties as to whether the Claim is properly made under the MOU, or whether the sale and purchase of the Goods is purely governed by the Master Agreement. According to L, there is no dispute between the parties under the MCSA, which does not relate to the Claim for payment sought by M.

Is there an arbitration agreement?

23. Section 34 of the Ordinance applies Article 16 of the Model Law, which provides that the arbitral tribunal may rule on its jurisdiction. Under s 34 (2) of the Ordinance, the power of the Tribunal to rule on its own jurisdiction includes the power to decide what matters have been submitted to arbitration in accordance with the arbitration agreement.

24. “Arbitration agreement” is defined in Article 7 of the Model Law, which applies by virtue of s 19 (1) of the Ordinance. Under Option I of Article 7, “arbitration agreement” is 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. An arbitration agreement may be in the form of an arbitration clause in the contract, or in the form of a separate agreement.

The MCSA

25. In the NOA, M expressly refers to and relies on clause 8 of the MCSA for its reference of the Claim to the Tribunal. L suggests that this is the only clause to which the Tribunal and the Court should have regard, when determining whether the Tribunal has jurisdiction over the Claim. M disputes this, and argued that there is no need for a claimant to identify the specific arbitration clause relied upon in the NOA. According to M, the Court should consider the entire trading relationship between the parties which began in May 2013 and continued until April 2014, and bear in mind that in the course of the development of such relationship, the parties had entered into various agreements after the Master Agreement, including the MOU, the Guarantees of December 2013, January 2014 and April 2014, and finally, the MCSA, all of which contain arbitration clauses. The fact that such clauses were not identified in the NOA can be cured by amendment, and does not affect the substantive jurisdiction of the Tribunal, if there was in fact a valid arbitration agreement.

26. Dealing first with clause 8 of the MCSA, the terminology used is wide, covering “any dispute between the parties arising out of or in connection with” the MCSA. The words “arising out of or in connection with” are widely construed. In Tommy CP Sze & Co v Li & Fung (Trading) Limited [2002] HKCFI 682; [2003] 1 HKC 418, Ma J (as the Chief Justice then was) stated :

“Words like ‘in connection with’ or ‘connected therewith’ are wide in nature and will cover all disputes other than those entirely unrelated to the transaction covered by the contract in question: see Mustill & Boyd: Commercial Arbitration, at 119.”

27. Para 2-103 of Russell on Arbitration (24th edition, 2015) states that “in connection with” may be sufficient to catch disputes arising under another contract related to the contract containing the arbitration clause. This was confirmed in UDL Contracting Ltd v Apple Daily Printing Ltd [2008] HKCFI 42; [2008] 2 HKC 534.

28. The principles of construction of contracts are clear. Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. The contract is to be interpreted objectively. Hence, the law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent (such as the declaration by Mr X).

29. On the face of the MCSA, L, M and ME agreed:

(1) to offset their “mutual claims”;

(2) that the debt due from ME to L (which the parties confirmed to be a sum of US$4,103,760.83 outstanding as at 31 December 2014) was to be offset against “the debt of L to M” (L has emphasized the fact that this debt of L was not quantified, and not expressly confirmed to be outstanding – to be contrasted with the amount outstanding from ME to L);

(3) that the amount due from L to M would be reduced by the amount due from ME to L of US$4,103,760.83 (the annexure to the MCSA shows that the outstanding amount under the invoices issued to L was US$56,470.99 after set-off);

(4) if ME could not pay its debt to L under the invoices, the debt “would be offset automatically by M”; and

(5) M would be released from the debt due to L upon the effective date of the MCSA.

30. Against the background of the relevant dealings between the parties, there can be no doubt that any debt due from L to M (as referred to in the MCSA) can only be reference to the amount due from L to M for the Goods sold and delivered by M to L. L acknowledged, by the MCSA, that there was some (albeit unquantified) amount which was due from L to M, and this must be for Goods which had been sold and delivered to L before 31 December 2014, under the invoices set out in the annexure to the MCSA. There is no express admission of liability for the debt due, and the debt is not expressly quantified in the body of the MCSA, but that does not in my view detract from the MOU’s reference to and the acknowledgment of a debt due from L. Although there was a set-off and reduction of the said debt pursuant to the MCSA, as agreed, L now seeks in the Arbitration to dispute its liability to make payment for the Goods by reason of the defects in the Goods (and further seeks repayment by its Counterclaim of the price paid or set-off). This dispute clearly falls within the arbitration clause of the MCSA, as one which is in connection with the debt acknowledged by L to be due under, and hence in connection with matters covered by, the MCSA. Even if the amount fell due under the Master Agreement, as L maintains, the Claim cannot be said to be “entirely unrelated” to the MCSA.

31. The assertion made by Mr X, in the Arbitration and in these proceedings after dispute has arisen, that he had never intended clause 8 of the MCSA to extend to and cover the disputes arising under the Master Agreement, is self-serving, and in any event carries little if any weight in the objective construction of the MCSA and clause 8.

The MOU

32. The NOA relies on clause 8 of the MCSA, but also refers to the MOU as the contract containing the terms of the sale and purchase of the Goods. The MOU likewise contains an arbitration clause, providing for “any dispute” between the parties “arising in connection with” the MOU to be referred to arbitration.

33. L denies that the MOU governs the agreement between L and M for the sale and purchase of the Goods. In its Answer to the NOA, L claims that the MOU only addressed the supply of the Parts by L to M. L also claims that the MOU was stated (in clause 11) to be subject to the parties’ negotiation and execution of formal contracts between them.

34. The MOU was made between L and M. ME was not a party. The recitals refer to L’s purchase from M, and M’s sale to L, of the “Products” set out in the MOU. There is no dispute that the only products sold by M to L are the Goods, and not the Parts – which were sold by ME to L.

35. The Parts were mentioned in clauses 2 to 5 of the MOU. These state that L would specify the standards, suppliers and requirements of the Parts which would be purchased by M, and that L would be liable for the Parts provided or specified by L. Clause 3 of the MOU expressly provides that L would sell the Parts to M “according to the agreement the parties separately agreed”.

36. Construed as a whole, the MOU relates to the sale and purchase of the Goods, as well as providing for L’s liability for the Parts provided and specified by it.

37. Although L argued that the MOU was subject to the parties’ negotiation of a formal contract, and that the MOU related to the sale and purchase of the Parts only, it is accepted by Mr X of L that M and L did not, after the date of the MOU, conclude any other formal contract for the sale and purchase of the Parts. It is however not in dispute that L had continued to supply Parts to ME, and that the parties had agreed to the arrangement for the mutual set-off of the amounts payable under the invoices for the Goods and those for the Parts. Clause 20 of the MOU also provides that the MOU shall come into force on signature by both L and M and shall continue in effect until the replacement of the MOU with a formal contract or further agreement.

38. The dispute as to whether M is entitled to the Balance for the Goods sold to L is clearly a dispute within the scope of the arbitration clause in the MOU, as a dispute which arises in connection with the MOU and M’s sale of the Goods – which are amongst the products set out in the MOU, if not the very subject matter of the MOU.

39. The fact that the terms of the sale and purchase of the Goods may be set out in a separate contract or document does not mean that the parties cannot rely on the arbitration agreement set out in the MOU (Art 7(1), Model Law).

The identification of the arbitration agreement in the NOA

40. L argued that clause 21 of the MOU is not the arbitration agreement identified in the NOA, and accordingly, the Tribunal cannot assume jurisdiction over the Claim under or by virtue of clause 21 of the MOU.

41. I agree with Mr Manzoni SC, Leading Counsel for M, that so long as the Court is satisfied that there is a valid arbitration agreement between the parties, and that the Claim falls within the scope of the arbitration agreement, so as to confer jurisdiction on the Tribunal, M’s failure to identify clause 21 of the MOU in the NOA is at most an omission or defect in the arbitral procedure, which can be cured by amendment, and does not affect the substantive jurisdiction of the Tribunal.

42. L referred to the HKIAC Rules. Article 4.3 of these Rules provides for the matters required to be included in a notice of arbitration. They include a demand that the dispute be referred to arbitration, the names of the parties, a copy of the arbitration agreement invoked, a reference to the contract or other legal instruments out of or in relation to which the dispute arises, and a description of the general nature of the claim.

43. As Mr Manzoni highlighted, the NOA included copies of the MCSA and the MOU, both of which include the arbitration clauses.

44. Article 4.7 of the HKIAC Rules provides that if a notice of arbitration is incomplete, HKIAC may request the claimant to remedy the defect, and if the claimant fails to comply, the notice of arbitration shall be deemed not to have been validly submitted and the arbitration shall be deemed not to have commenced without prejudice to the claimant’s right to submit the same claim at a later date in a subsequent notice of arbitration.

45. Neither the Tribunal nor HKIAC in this case ever requested M to remedy any defect with regard to the NOA. There is no non-compliance on the basis of which the NOA can be said to be deemed not to have been validly submitted, for the arbitration to be deemed not to have been commenced.

46. I have not been referred to any other provision of either the HKIAC Rules or the Ordinance, nor to any authority, to support the contention that M’s failure to identify clause 21 of the MOU in the NOA as the arbitration agreement relied upon for the reference of the Claim to the Tribunal is a matter which affects the substantive jurisdiction of the Tribunal. The Tribunal’s jurisdiction is determined in law by the existence of an arbitration agreement, the construction of the scope of such agreement and the nature and scope of the dispute referred to arbitration. As Mr Manzoni pointed out, the requirement that the arbitration agreement must be included in the NOA in order to vest jurisdiction in the Tribunal is inconsistent with the fact that under the Ordinance, an arbitration agreement may arise after the arbitration is commenced. Under Article 7 (5) of the Model Law (incorporated by s 19 of the Ordinance), an arbitration agreement may be contained in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party, and not denied by the other. Such an arbitration agreement would not, and could not, have been identified in the notice of arbitration.

47. I therefore agree with Mr Manzoni that any question as to the defects in the NOA can be cured by amendment, do not affect the substantive jurisdiction of the Tribunal in respect of the Arbitration, and are procedural matters to be dealt with by the Tribunal within its jurisdiction.

48. In any event, in my judgment, the NOA identified clause 8 of the MCSA as the arbitration agreement relied upon, and the Claim is on construction within the scope of that arbitration clause.

The absence of an arbitration clause in the Master Agreement

49. On behalf of L, it was also argued that in the construction of the MCSA and the MOU, and the arbitration clauses contained therein, due heed should be taken of the fact that the Master Agreement does not contain an arbitration clause, that the MOU and the MCSA which contain the arbitration clauses were entered into after the Master Agreement, and in particular, that at the time of the MCSA, there was already a dispute which had arisen between the parties. It was argued that the arbitration clauses in the agreements subsequent to the Master Agreement should be construed narrowly in the context, to apply only to matters that the parties clearly wanted to refer to arbitration. Referring to Francis Travel v Virgin Atlantic Airways (1996) 39 NSWLR 160, 165 it was argued that wide construction of an arbitration agreement should apply only when parties agree, at the time of making the contract and before any disputes have arisen, to refer any dispute arising out of the agreement to arbitration.

50. First, I do not consider that there is merit in the argument that an arbitration agreement should be construed narrowly or more stringently just because at the time it was entered into, a dispute has already arisen between the parties. An arbitration agreement may, by definition under Article 7 of the Model Law, extend to disputes which have already arisen. The relevant clause in the MCSA is already in wide terms, covering “any dispute arising in connection with” the MCSA. I do not agree that there is much distinction between the language used in clause 8 of the MCSA and that found in the model clause recommended by the HKIAC.

51. In the Award, the Tribunal relied on Lord Hoffman’s judgment in Fili Shipping Co Ltd and Others v Premium Nafta Products Ltd [2007] BUS LR 1719, in finding that the Claim falls within the arbitration clause set out in the MCSA. In Fili Shipping, Lord Hoffman referred to the construction of an arbitration clause “starting from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship in which they have entered or purported to enter to be decided by the same tribunal”.

52. In arguing that the Tribunal was wrong in its finding on jurisdiction, Mr Coleman SC for L submitted that there is no legal presumption in favor of arbitrability, which requires a party contending that a question is outside the scope of the arbitration to point to very clear language that this is so (ACD Tridon v Tridon Australia [2002] NSWSC 896; and TCL Airconditioner (Zhongshan) Co Ltd v Castell Electronics Pty Ltd [2009] VSC 55). Reliance was placed on the decision of the English Court of Appeal in Trust Risk Group SpA v AmTrust Europe Limited [2015] EWCA Civ 437, where Lord Justice Beatson referred to the scope of the Fiona Trust presumption (in Fiona Trust & Holding Corporation v Primalov [2007] 1 Lloyd’s Rep 254), and to Sebastian Holdings Inc v Deutsche Bank AG (No 2) [2011] 1 Lloyd’s Rep 106. At paragraph 48 of his judgment, Lord Justice Beatson observed:

“The current (16th) addition of Dicey, Morris and Collins states (at para 12-110) that:

‘Where a complex financial or other commercial transaction is put in place by means of a number of interlinked contracts, and each has its own provision for the resolution of disputes, the point of departure will be that it is improbable that a jurisdiction clause in one contract, even expressed in ample terms, was intended to capture disputes more naturally seen as arising under a related contract… Even if the effect is that there will be a risk of fragmentation of the overall process for the resolution of disputes, this is not by itself sufficient to override the construction, and consequent giving effect to, the complex agreements for the resolution of disputes which the parties have made.’

In short, what is required is a careful and commercially-minded construction of the agreements providing for the resolution of disputes. This may include enquiring under which of a number of inter-related contractual agreements a dispute actually arises, and seeking to do so by locating its centre of gravity and thus which jurisdiction clause is ‘closer to the claim’. In determining the intention of the parties and construing the agreement, some weight may also be given to the fact that the terms are standard forms plainly drafted by one of the parties.”

53. Whether or not there is a legal presumption in favor of arbitrability and the “one-step”/“one jurisdiction” approach, I agree that it is a useful starting point in the construction of the agreements in question. The aim and the principles of interpretation of a commercial contract are to objectively ascertain the intention of the parties as reasonable commercial men at the time when they made the contract, giving the words they used their natural and ordinary meaning in the context of the agreement itself, the commercial purpose of the agreement, the parties’ relationship, and the relevant facts surrounding the commercial transaction so far as known to the parties.

54. Trust Risk and Sebastian Holdings concern cases in which there is a series of agreements, each of which has its own provision with differently expressed choices of jurisdiction and/or law and/or mode of dispute resolution. The court in Trust Risk highlighted (in paragraph 49 of the judgment of Lord Justice Beatson) the difference between a complex series of agreements about a single transaction or enabling particular types of transactions, and the situation in which there is a single contract creating a relationship which is followed by a later contract embodying a subsequent agreement about the relationship. It was pointed out that where the contracts are not “part of one package”, it may be easier to conclude that the parties chose to have different jurisdictions to deal with different aspects of the relationship.

55. In the present case, I cannot agree that the Master Agreement, the MOU, the MCSA and the Guarantees are different transactions entered into between L and M, to the extent that they are not “part of one package”. They are all related, and all concern M’s sale and supply to L of the Goods, being kits for assembly into television sets. The MOU relates to the same sale and purchase of the Goods, in addition to providing for L’s supply of the Parts as per its own specifications (as to the standards and suppliers) and on its own liability. As Mr Manzoni emphasized, the Guarantees and the MCSA are essentially to vary the method of payment for the Goods, from cash payment to the arrangement for set-off against the price payable by ME for the Parts, to enable shipment of the Goods and performance to continue under the Master Agreement.

56. Moreover, the Master Agreement is silent as to the mode of dispute resolution. It does not contain an express jurisdiction clause which is inconsistent with the arbitration clauses the parties agreed to incorporate into each of the agreements governing their relationship, from the time of the MOU in October 2013 to the MCSA in February 2015. This is distinguishable from cases in which there are different contracts with multiple forum clauses – which may be taken as an indication of the parties having expressed an intention not to have their disputes resolved by one and the same forum.

57. No authority has been cited to support the argument made on behalf of L that because the parties failed to include a forum clause in the Master Agreement, this is equivalent to the parties agreeing to submit their dispute to the courts. I agree with Mr Manzoni that the parties’ failure to nominate a court of a particular jurisdiction means only that the court of any state can assert jurisdiction, subject to their conflict of laws rules. The absence of a jurisdiction clause in an agreement, and the parties’ failure to provide for their submission to or confer jurisdiction on a particular court does not, by itself, demonstrate the intention of the parties that there should be different forums for the resolution of the disputes arising under their commercial relationship.

58. Having considered the overall relationship between L and M from the time of the Master Agreement, and the evolution of such agreement with the parties’ execution of the MOU in October 2013, the Guarantees in December 2013 and early 2014, and finally the MCSA in February 2015, and the fact (as emphasized by M) that the parties have consistently adopted an arbitration clause in each of the agreements since October 2013, I consider that in the context, the parties as reasonable businessmen must have intended at the time of the MOU and the MCSA that any dispute which may arise in connection with their agreement to sell and purchase the Goods and the Parts, including any dispute as to be amounts payable for the Goods and the Parts, should be resolved by arbitration, as provided for in clause 21 of the MOU, and clause 8 of the MCSA. In any event, the dispute as to L’s liability for payment of the Goods under the Master Agreement is certainly not unrelated to the transaction covered by either the MOU or the MCSA (Getwick Engineers Limited v Pilecon Engineering Limited HCA 558/2002).

Conclusion

59. For all the above reasons, I conclude that the Tribunal is correct in its finding that it has jurisdiction over the Claim made by M against L in the Arbitration. L’s application for the declaration sought is dismissed, with costs. I make an order nisi that the costs of the Originating Summons of 5 April 2016 (including the costs of M’s summons of 4 July 2016) are to be paid by L on an indemnity basis, with certificate for 2 counsel.

(Mimmie Chan)
Judge of the Court of First Instance
High Court

Structural Monitoring Systems Ltd v Tulip Bay Pty Ltd [2017] WASC 379 (22 December 2017)

SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

STRUCTURAL MONITORING SYSTEMS LTD 
(Applicant)

V

TULIP BAY PTY LTD
(First Respondent)

KENNETH JOHN DAVEY
(Second Respondent)

CORAM: Martin CJ
HEARD: 17 October 2017; 3, 13 & 20 November 2017 on the papers
DELIVERED: 22 December 2017
FILE NO: ARB 7 of 2016
CATCHWORDS: Arbitration – Commercial Arbitration Act 1985 (WA) – Application to set aside arbitral award on ground of misconduct – Whether denial of procedural fairness – Whether excessive delay in the delivery of the award – Whether the matter was heard and determined by two arbitrators where three arbitrators had been appointed – Application dismissed

 

MARTIN CJ:

Summary

1 Structural Monitoring Systems Ltd (SMS) applies for orders pursuant to s 42 and s 44 of the Commercial Arbitration Act 1985 (WA) (the Act) setting aside an award made by arbitrators Peter John Hannan and Philip George Clifford on the ground of misconduct, and removing arbitrators Peter John Hannan, Philip George Clifford and Kelvin Lord on the same ground.

2 The misconduct is said to be constituted by:

(a) denial of procedural fairness, by taking into account submissions from the respondents, Tulip Bay Pty Ltd (Tulip) and Mr Kenneth Davey, to which SMS had no opportunity to respond;

(b) excessive delay in the delivery of the award; and

(c) the matter being decided by two of the arbitrators (Mr Hannan and Mr Clifford) in circumstances where three arbitrators had been appointed.

3 It will be apparent from the reasons which follow that the arbitration fell well short of a paradigm example of efficient and costeffective dispute resolution. It will also be apparent from my reasons that the parties and their lawyers must take some responsibility for the inefficient conduct of the proceedings. In order to resolve this application, it is not necessary for me to allocate responsibility for the tortuous course taken by the proceedings as between the arbitrators on the one hand, and the parties and their legal advisers on the other. It is sufficient for me to conclude, for the reasons which follow, that the misconduct alleged by SMS has not been made out and the application should be dismissed.

4 The legislation governing domestic and international arbitration in Australia recognises that arbitration can serve the public interest by:

(a) enabling parties to agree upon a bespoke procedure for the resolution of their commercial disputes;

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

(c) resolving disputes by awards which are certain and final.

5 Arbitration will achieve these objectives if legal practitioners and arbitrators act diligently and effectively to identify and resolve the real issues in dispute as quickly as is consistent with the vital interests of fairness and justice, avoiding unnecessary procedural disputes and delay. Regrettably, the history of this case is replete with unnecessary delay and procedural disputes, and resulted in an award which has been challenged on a number of grounds, including a ground which arises from the uncertain degree of involvement of one of the arbitrators in the determination of the dispute. In this case, as it happened, the dispute would have been resolved much more quickly, cheaply and finally if the parties had gone to court – contrary to the legislative objectives to which I have referred.

The arbitration agreement

6 The arbitration agreement is contained in cl 17 of an agreement between SMS, Tulip and Mr Davey entitled ‘Technology Agreement’ dated 29 November 1999. As there is no issue with respect to the ambit of the arbitration agreement, it is unnecessary to relate the breadth of the disputes to which it applies.

7 Clause 17.2 of the Technology Agreement provides that a single arbitrator is to be appointed with the unanimous consent of the parties, but if they cannot reach agreement on an arbitrator within 14 days of the submission of a notice of arbitration:

[T]he arbitration shall be heard and determined by three (3) arbitrators.

The same clause provides that failing agreement with respect to the appointment of a single arbitrator, each party is to appoint an arbitrator, who will together appoint a presiding arbitrator.

8 Clause 17.3.3 of the Technology Agreement provides:

[W]here there is more than one arbitrator, all decisions and awards shall be made by majority vote of the arbitrators.

The Technology Agreement

9 The Technology Agreement recites that Mr Davey was the inventor of the technology the subject of the agreement, and had assigned full beneficial ownership of the technology to Tulip. The agreement further recites that SMS had acquired from Tulip the exclusive worldwide licensing rights and the option to purchase the intellectual property rights pertaining to the technology.

10 The agreement also records that, by its terms, SMS exercises the option to acquire the intellectual property rights in the technology in return for a payment of $500,000 and a continuing obligation to pay a royalty for as long as any patent remains in existence. Schedule 2 of the Technology Agreement specifies that the royalty is to be a percentage of revenues derived by SMS. The agreement also provides for a minimum annual royalty to be paid by SMS. The Technology Agreement also contains various warranties and undertakings by Tulip and Mr Davey for the general purpose of protecting and preserving the interest of SMS in the intellectual property relating to the technology. Clause 2.3 of the Technology Agreement records an acknowledgement and agreement by Tulip and Mr Davey to the effect that SMS has, by the agreement, acquired full beneficial right, title and interest in the intellectual property rights relating to the technology, together with each ‘Enhancement’. The word ‘Enhancement’ is defined by the agreement to mean:

Each improvement, update, revision, modification, extension or change to the Technology, the Products and the Intellectual Property Rights made by or on behalf of SMS, Tulip or Davey.

The dispute

11 In June 2006, Mr Davey lodged an application for a patent (the 2006 patent application). It was given the designation AAPA 2006903137. In June and July 2009, Tulip and Mr Davey lodged two more applications for patents. SMS asserted that each of the applications was an ‘Enhancement’ within the meaning of the Technology Agreement, and that the applications for patents constituted breaches of that agreement. SMS further asserted that the breaches constituted a repudiation of the Technology Agreement by Tulip and Mr Davey, which SMS had accepted, bringing that agreement to an end. In addition, SMS claimed damages for breach of the Technology Agreement, including return of all royalties it had paid since 2006, plus costs and expenses it claimed to have incurred.

12 When SMS ceased making royalty payments, Tulip and Mr Davey commenced proceedings in the District Court of Western Australia, claiming payment of the royalties due. SMS failed to file an appearance in those proceedings, and judgment by default was entered in favour of Tulip and Mr Davey on 11 May 2012. On 30 May 2012, Tulip and Mr Davey issued a statutory demand against SMS for payment of the judgment debt, pursuant to the provisions of the Corporations Act 2001 (Cth). On 7 June 2012, SMS issued a notice referring the dispute to arbitration and on 19 June 2012, commenced proceedings in the Supreme Court to set aside the statutory demand which had been issued by Tulip and Mr Davey.

The notice of arbitration

13 The notice of arbitration identifies the dispute by reference to a document entitled Points of Claim, which was annexed to the notice. In the notice, SMS consents to the appointment of Mr Clifford as the arbitrator, and states that if Tulip and Mr Davey do not agree with his appointment as sole arbitrator, he will be appointed as an arbitrator by SMS pursuant to the Technology Agreement.

The points of claim

14 The points of claim recite various provisions of the Technology Agreement, and refer to the three patent applications giving rise to the dispute. It is asserted that the applications constitute a repudiatory breach of the Technology Agreement which SMS has accepted. The points of claim assert an entitlement to repayment of all royalties paid since 2006, and claim damages, including costs and expenses incurred, together with interest on the damages claimed.

The appointment of the arbitrators

15 As I have noted, SMS nominated Mr Clifford as arbitrator on 7 June 2012, in the notice of arbitration. Tulip and Mr Davey nominated Mr Lord on 14 September 2012, and the nominated arbitrators appointed Mr Hannan as presiding arbitrator on 30 January 2013, almost eight months after the notice of arbitration was served. The reasons for the delay in the constitution of the tribunal are not apparent from the materials before the court.

The course of the arbitration

16 The first preliminary conference was held on 14 February 2013. With the consent of all parties, Mr Lord did not participate in that conference and directions were made by Mr Hannan and Mr Clifford. Tulip and Mr Davey objected to the jurisdiction of the arbitrators on the ground of a misdescription of SMS in the notice of arbitration. That objection was dismissed in reasons published on 18 March 2013 by Mr Hannan, with which Mr Clifford agreed by reasons published on 19 March 2013. By letter dated 18 March 2013 addressed to Mr Clifford, Mr Lord advised that he agreed with the reasons of Mr Hannan, which he had seen in draft.

17 On 29 April 2013, the programming directions previously made by the arbitrators were varied in a document published by Mr Clifford with the authority of Mr Hannan and Mr Lord. In accordance with those amended directions, Tulip and Mr Davey served their response to the points of claim, and their counterclaim on 30 April 2013.

The response to points of claim and counterclaim

18 In the response to the points of claim, Mr Davey admitted filing an application for a provisional patent in June 2006, but asserted that he did so after SMS had declined any interest in the technology the subject of the patent application. Mr Davey further asserted that he advised SMS of the application a month after it was lodged and proposed that the final specification for the patent be lodged and maintained by SMS. He further asserted that he had no intention of proceeding with the patent application without the support of SMS and never lodged a final specification in respect of the relevant technology. Mr Davey further asserted that on 25 May 2007, he sent to SMS an executed deed assigning the patent application to SMS. He further asserted that SMS then invited him to allow the patent application to lapse in order that SMS might submit a fresh application so as to obtain a new priority date. Mr Davey further asserted that in August 2008, SMS lodged a final application in relation to the technology the subject of the 2006 patent application.

19 In the response, Mr Davey also admitted filing an application for another provisional patent in June 2009, and further asserts that he did so in the belief that the application related to different technology to the technology the subject of the Technology Agreement. Tulip and Mr Davey admitted in the response that an arbitrator, Mr Tony Mizzi, found that the invention the subject of the patent application lodged in June 2009 was an ‘Enhancement’ for the purposes of the Technology Agreement, but asserted that he erred in so finding.

20 Tulip and Mr Davey further admitted in the response that in July 2009 Mr Davey filed another provisional patent application which was a specification for the same invention that was the subject of the application lodged in June 2009. They further asserted that in June 2011 they sent to SMS a deed of assignment of the application lodged in June 2009.

21 Tulip and Mr Davey further asserted that the making of applications for provisional patents did not constitute a breach of the agreement provided confidentiality was maintained, and asserted that confidentiality was in fact maintained in respect of those applications. They further asserted that despite having assigned the applications lodged in June 2006 and June 2009 to SMS, SMS had failed to register those assignments.

22 The points of defence included a counterclaim by Tulip and Mr Davey in respect of the amount of the debt the subject of the judgment in the District Court proceedings, and in respect of royalty payments not made, amongst other claims.

The response to the counterclaim

23 SMS had been directed to respond to the counterclaim by 14 May 2013. However, it failed to do so, and by orders published on 31 July 2013 in the name of all three arbitrators, Tulip and Mr Davey were directed to provide a substituted response and counterclaim by 2 August 2013, and SMS was directed to provide a response to the counterclaim by 16 August 2013. SMS was further directed to provide statements of the evidence upon which it relied by 30 August 2013.

24 On 2 August 2013, Tulip and Mr Davey filed a substituted response to the points of claim and counterclaim. The thrust of that document was the same as the document previously served.

25 However, despite repeated correspondence from the solicitors acting for Tulip and Mr Davey, SMS continued to fail to comply with the orders made by the arbitrators, with the result that Tulip and Mr Davey applied for orders dismissing SMS’s claim. On 4 March 2014, Mr Hannan published his reasons for dismissing that application, and Mr Clifford published a document recording his agreement with those reasons and the orders proposed. Although that document was copied to Mr Lord, no communication from him on the subject is included in the materials before the court.

26 Tulip and Mr Davey applied for a springing order on 7 March 2014. However, SMS finally provided its response to the response to the points of claim and counterclaim on 18 March 2014, seven months after it was due. That response was largely concerned with the counterclaim, and asserted that SMS was not obliged to make royalty payments by reason of the termination of the Technology Agreement as a consequence of its acceptance of the repudiatory breach by Tulip and Mr Davey. The document essentially reiterates assertions made in the points of claim by way of answer to the counterclaim.

The exchange of evidence

27 On 20 March 2014 Mr Hannan and Mr Clifford made further programming orders relating to the provision of written statements from the witnesses to be called by the parties at the hearing. They further directed that SMS serve its submissions with respect to the issues raised by the arbitration by 20 May 2014, and that Tulip and Mr Davey serve their submissions by 27 May 2014, and foreshadowed the fixing of a date for hearing. The materials before the court do not show any involvement on the part of Mr Lord in relation to those directions.

28 On 14 April 2014 SMS served the statement of one witness, and on 29 April 2014 Tulip and Mr Davey completed the service of statements of the evidence to be given by Mr Davey. All statements were served within the times specified by Mr Hannan and Mr Clifford. However, SMS failed to comply with the directions made relating to the service of its submissions by 20 May 2014. That failure was the subject of complaint in correspondence emanating from the solicitors for Tulip and Mr Davey in late May 2014. SMS nevetheless failed to file the submissions as directed.

Settlement discussions

29 Settlement discussions took place between September and December 2014. On the materials before the court, it seems clear that those negotiations were concluded, unsuccessfully, by the end of 2014.

Further programming orders

30 In April 2015 the solicitors acting for Tulip and Mr Davey wrote to the solicitors for SMS advising that unless the written submissions were provided by 18 April 2015, orders would be sought preventing SMS from filing submissions out of time. In the result, SMS served its written submissions on 20 April 2015, 11 months after they were due.

31 Further programming orders were made in the name of all three arbitrators on 24 April 2015. In those orders Tulip and Mr Davey were required to file responsive submissions on or before 4 May 2015.

32 Tulip and Mr Davey sought an extension of time for the service of those submissions, which was granted in an email from Mr Clifford to the parties dated 13 May 2015, apparently with the concurrence of Mr Hannan. In the email an order extending the time for filing of submissions by Tulip and Mr Davey until 25 May 2015 was proposed. Mr Clifford advised:

At the time of publishing this email and order I have not had an opportunity to finally confer with arbitrator Lord. Should arbitrator Lord have a different view to that expressed above I will let you know. Otherwise the arbitrators look forward to receiving the respondents’ submissions.

33 On 25 May 2015 the solicitor acting for Tulip and Mr Davey sent an email to the solicitor for SMS and the arbitrators advising that he would be unable to serve the submissions within the time directed and requesting an extension of time until 2 June 2015 for the provision of those submissions.

34 The solicitor for SMS responded to that email later that day, copied to the arbitrators, proposing that no further extension should be granted without confirmation that unless the material was provided by 2 June 2015, the arbitration would proceed without regard to any submissions provided by Tulip and Mr Davey.

35 By email dated 26 May 2015 from Mr Clifford to the parties, copied to Mr Hannan and Mr Lord, Mr Clifford advised that he and Mr Hannan had conferred and agreed that the time for provision of the submissions by Tulip and Mr Davey should be extended to 2 June 2015. In that email Mr Clifford noted:

Arbitrators Hannan and Clifford have not had an opportunity to confer with arbitrator Lord about the respondents’ time extension application. Should arbitrator Lord have a differing view to that of arbitrators Hannan and Clifford I will immediately let the parties, through their solicitors, know of that view.

36 The email from Mr Clifford further advised:

As an indication of what may happen should the respondent not file and serve its substantive arbitral submissions by 2 June 2015 Presiding arbitrator Hannan and Arbitrator Clifford are presently inclined to the view that any further extension of time, if any, sought by the respondent to file and serve its substantive arbitral submissions beyond 2 June 2015 will be met with a very short time extension coupled with an ‘unless’ order to be formulated after brief submissions from the parties at that time. Of course whether any further time extension will be granted is to be determined on the facts as they stand at that time including, importantly, any substantive prejudice the claimant may be suffering.

37 On 29 June 2015 Mr Clifford sent an email to the solicitors for the parties, copied to Mr Lord and Mr Hannan in which he observed that he had not received any submissions from Tulip or Mr Davey, nor had he heard anything from any party since the extension of time for filing those submissions had been granted. In the email Mr Clifford recorded that he had not yet had the opportunity to discuss the respondents’ failure to provide submissions as directed with Mr Lord. He further advised that if the dispute had not been resolved and the arbitrators did not hear from the parties or either of them by Monday 6 July 2015, the arbitrators would commence work on the resolution of the disputes on Tuesday 7 July 2015.

38 Mr Clifford further advised:

If the respondent does not file and serve substantive hearing submissions by 10am Thursday 8 July 2015, or explain in clear terms why it cannot file and serve submissions by that time and also persuade the arbitrators why it needs more time to file and serve submissions, the arbitrators will determine the ‘disputes’ without the benefit of any respondent substantive hearing submissions.

Mr Hannan agrees with the above timetable, and in particular, subject to anything persuasive the respondents may say, the final date for the respondents’ submissions of Thursday 8 July 2015.

39 The solicitor for Tulip and Mr Davey responded to that email very shortly after it was sent, apologising for the delay in the filing of the submissions, which was said to have been occasioned by his obligation to take over conduct of a trial for a colleague who had suffered a bereavement. He further advised that he considered 8 July 2015 to be ‘an achievable timeframe within which to finalise the respondents’ submissions’.

40 Mr Clifford responded to that email later the same day, copied to the solicitor for SMS, Mr Hannan and Mr Lord, in which he stated:

Subject to Mr Rumsley and his client having some very persuasive argument(s), anchored firmly on nonremedial [sic] prejudice, if any, to the contrary, and this arbitrator is presently unable to see such a persuasive argument to the contrary, the Arbitrators will commence work on preparing for the final determination of the Arbitral issues on Tuesday 7 July 2015 with the respondents’ submissions to be filed and served by 10am Thursday 9 July 2015. … [T]he arbitrators expect to receive the respondents’ substantive arbitral submissions on or before 10am Thursday 9 July 2015. Please note the reference to Thursday 8 July 2015 in my below email is in error and it ought to have been a reference to Thursday 9 July 2015. (original emphasis)

41 On 30 June 2015 the solicitor for SMS sent an email to the arbitrators and the solicitor for the other parties asserting that the arbitrators should determine the disputes ‘without regard to any further material from the Respondents’.

42 At 9.17 am on 9 July 2015, the solicitor for Tulip and Mr Davey sent an email to the arbitrators and the solicitor for SMS in the following terms:

I am conscious of the order requiring the Respondents’ submissions in arbitration to be filed by today at 10.00 am.

Unfortunately I am currently embroiled in a serious family medical emergency and will not be able to get into work by the 10.00 am deadline to send the Respondents’ submissions. I will however be able to provide the Respondents’ submissions later today, as they are complete.

I apologise for the delay and will send through the submissions as soon as is reasonably possible (and certainly not later than close of business today).

43 Submissions on behalf of Tulip and Mr Davey were served by an email sent at 5.01 pm on 9 July 2015 to the arbitrators and the solicitor for SMS. In that email the solicitor wrote:

Please accept my apologies for the delay today, which was due to a serious and recent health issue currently being experienced by a family member.

44 The circumstances to which the solicitor was referring in these emails have been explained in an affidavit filed in these proceedings. In that affidavit he deposes:

On the morning of 9 July 2015 my sister’s fiancé, who suffers from Crohn’s disease, became very seriously ill, suffering from severe seizures, lapses in consciousness, vomiting and irrational behaviour. I assisted my sister to deal with the situation and to obtain urgent medical treatment for her fiancé, as her fiancé was refusing to cooperate with ambulance officers and paramedics. These events caused considerable distress and disruption for my family and for me.

As a result of the events set out … above, I was unable to arrange for the defendants’ submissions in arbitration to be filed by 10.00 am on 9 July 2015.

45 Objection is taken to the admission of these paragraphs on the grounds of relevance. However, this evidence is directly relevant to the issues raised by SMS in its application, by providing direct evidence of the existence of reasonable grounds for the solicitor’s failure to comply with the directions made by the arbitrators, as contemplated by the email from Mr Clifford of 29 June 2015.

46 I digress to observe that objection is also taken to another paragraph in the same affidavit, on the ground that the evidence paraphrases documents which speak for themselves. The objection is technically correct and must be upheld, but the objection serves no purpose as the documents to which reference is made are in evidence, and their purport is not contentious. They have already been described by me in much the same terms as the affidavit.

The respondents’ written submissions

47 It is unnecessary to make detailed reference to the position adopted by the respondents in the submissions served on 9 July 2015. That is because SMS draws no particular attention to any aspect of those submissions in support of its assertion that procedural fairness was denied. Rather, as will be seen, the only matters upon which SMS places reliance with respect to its assertion that procedural fairness was denied arise from written submissions lodged in January 2016. However, in light of the argument advanced in respect of those submissions it should be noted that in the submissions served on 9 July 2015, reference is made to the fact that Mr Davey provided to SMS an executed deed assigning the rights to the 2006 patent application to SMS. Reference is also made to the fact that SMS subsequently lodged a final application based on the 2006 patent application in its own right. As I have noted, both these facts were clearly asserted in the response served by Tulip and Mr Davey two years earlier.

The respondents serve further materials

48 On 13 July 2015 the solicitors acting on behalf of Tulip and Mr Davey sent two emails to the arbitrators attaching current patent searches and information sheets in the public domain which were said to be of possible assistance to the arbitral tribunal. On 15 July 2015 the solicitors for Tulip and Mr Davey sent an email to the arbitrators correcting an error in the submissions which had been filed on 9 July 2015.

The position adopted by SMS

49 On 21 July 2015 the solicitor acting for SMS sent an email to the arbitrators and the solicitors for Tulip and Mr Davey reciting the communications which I have set out above and asserting:

On the basis of the matters set out above, the applicant has not considered the material provided by Mr NoonanCrowe [the solicitor for the respondents] as the Respondent has been provided more than a reasonable opportunity to put on material, been advised of the consequences of noncompliance and chose not to put on any material within the relevant timeframes.

50 The solicitors for Tulip and Mr Davey responded to that proposition by an email to the arbitrators and the solicitor for SMS sent on 27 July 2015. That email referred again to the sequence of correspondence I have set out above and concluded by submitting that it was in the interests of the just determination of the dispute for all of the material provided by the respondents to be considered. The arbitrators do not appear to have responded specifically to these communications.

51 I digress to observe that the sequence of communications I have set out above reveals that:

(a) although the email from Mr Clifford of 29 June 2015 had foreshadowed the making of what had been characterised by the parties in their communications as an ‘unless’ order – namely, an order to the effect that unless the respondents’ submissions were served by a particular time, they would not be considered – in fact no such order was made;

(b) the same email from Mr Clifford expressly contemplated that if the submissions were not filed by 10.00 am on 9 July 2015, it would be open to the respondents to explain why the submissions could not be filed by that time;

(c) the respondents did in fact provide an explanation for the seven hour delay (from 10.00 am to 5.00 pm) in serving the written submissions;

(d) the explanation provided was, on its face, reasonable;

(e) in earlier communications, Mr Clifford had drawn attention to the significance of nonremediable prejudice in determining applications for an extension of time;

(f) no attempt was made by the solicitor for SMS to establish that nonremediable prejudice had been suffered by reason of the seven hour delay in serving the written submissions, and there is no material before the court to suggest that any prejudice was in fact suffered by reason of that small delay; and

(g) the dogmatic and truculent position adopted by SMS with respect to a delay of seven hours in providing the respondents’ submissions, a delay which was reasonably explained and which followed extensions of time of two months, must be viewed in the context of previous unexplained and unapproved delays by SMS of seven months and eleven months respectively.

The arbitrators’ deliberations

52 On 28 October 2015 the solicitors for Tulip and Mr Davey enquired of the arbitrators’ progress. Mr Clifford responded to that enquiry on the same day by advising that:

The work currently being done by the Arbitrators suggests the further questions, if any, the Arbitrators have of the parties will be clearly identified within fourteen (14) days. And within not more than three weeks after those questions have been dealt with, if any, the Arbitrators will be in a position to finalise the award and publish.

53 No further communication having been received from the arbitrators, on 25 November 2015 the solicitors for Tulip and Mr Davey again contacted the arbitrators to enquire of their progress. Mr Clifford replied to that enquiry on 7 December 2015 apologising for the delay and advising that:

Recently each of myself and the Presiding Arbitrator have been unable to coordinate a meeting time to discuss our views and convey those views to Mr Lord. We expect to meet tomorrow (Tuesday 8 December 2015 in the afternoon …) and shortly thereafter to let you know what else is required, if anything.

54 On 18 December 2015 Mr Clifford provided a memorandum to the solicitors for the parties and his fellow arbitrators in which he set out 22 issues to be resolved in the arbitration. Those issues included, as the issues numbered 2 and 3 respectively, the question of whether the 2006 patent application was filed without the knowledge or consent of SMS, and whether it constituted an ‘Enhancement’ for the purposes of the Technology Agreement.

55 The memorandum invited the parties to consider whether the issues set out were the issues for resolution or whether the parties wished to jointly concede any of those issues. The memorandum also invited the parties to advise if any other issue ought to be added and, if so, stated that the issue was to be identified with clarity and its source in the pleadings identified.

56 The memorandum also drew the parties’ attention to three decisions on the subject of repudiation and invited either party ‘to make a further submission of law or mixed fact and law on how the cases mentioned above apply to their case theory’.

57 The memorandum also advised that the arbitrators did not require an oral hearing and proposed to resolve the issues on the papers, but invited either party wanting an oral hearing to advise the arbitrators of that fact, and why. The memorandum directed that any further materials were to be provided not later than 20 January 2016.

58 Although not expressly invited to do so by Mr Clifford’s memorandum, on 20 January 2016 Tulip and Mr Davey served written submissions with respect to each of the 22 issues identified in the memorandum. It is relevant to the submission made by SMS with respect to procedural fairness to note that in response to issue 3, which was the issue relating to the question of whether the invention the subject of the 2006 patent application was an ‘Enhancement’ for the purposes of the Technology Agreement, Tulip and Mr Davey submitted:

3(c) Whether or not APPA2006903137 [the 2006 patent application] is an ‘Enhancement’ is not an enquiry which would lead to any productive end, as APPA2006903137 was assigned to SMS and SMS subsequently exploited APPA2006903137 by lodging international application No. PCT/AU2008/000840.

(d) These issues were resolved between Mr Davey, Tulip Bay and SMS by agreement without any need for a determination as to whether APPA constituted an ‘Enhancement’ pursuant to the Technology Agreement.

59 By email sent at 12.24 pm on 28 January 2016 to the solicitors for the parties and the other arbitrators, Mr Clifford acknowledged receipt of the materials that had been sent by the solicitors for Tulip and Mr Davey on 20 January 2016 and further materials (not submissions) sent on 27 January 2016 and advised that:

Those documents are being considered by the arbitrators now. The arbitrators will send a further communication to the parties shortly regarding this material and the timing of the final resolution of the contentious issues between the parties in the arbitration.

60 At 9.15 pm on the same day, 28 January 2016, the solicitor for SMS sent an email to the arbitrators and the solicitors for Tulip and Mr Davey objecting to the provision of the further materials by Tulip and Mr Davey. The letter asserted that the respondents had had the opportunity to make any submissions and failed to meet even generously extended timeframes, and further asserted that the respondents should be held to the case they had run, and should not be permitted to serve materials that ‘are almost entirely irrelevant to the matters actually in issue and cannot serve other than to obscure the true issues’. The incongruity of the latter proposition with the submissions which respond directly to the 22 issues identified by Mr Clifford is perhaps explained by the assertion by the solicitor for SMS that he had not seen the submissions dated 20 January 2016 at the time he sent his email. In light of that assertion, the solicitors for Tulip and Mr Davey reiterated that the submissions had been sent to the solicitor for SMS on 20 January 2016, but nevertheless provided another copy to the solicitor for SMS under cover of a letter dated 29 January 2016.

61 In the letter of 29 January 2016 the solicitors for Tulip and Mr Davey responded to the objection lodged with respect to the further material they had provided, advising that the respondents would not object to SMS being provided with a period of 14 days in which to provide a response to any assertion made in the more recently provided submissions, in order that the arbitrators might consider all parties’ contentions in a balanced manner prior to making their determination.

62 The arbitrators do not appear to have responded directly to the communications received from the parties relating to the receipt of the material provided by the solicitors for Tulip and Mr Davey. However, as I have noted, on 28 January 2016 an email had been sent advising the parties that the material was being considered, and the arbitrators never appear to have resiled from that position.

63 On 8 March 2016 the solicitors for Tulip and Mr Davey enquired of the arbitrators’ progress. Mr Clifford replied in an email sent on 9 March 2016 to the solicitors for the parties and the other arbitrators. He advised:

Presiding Arbitrator Hannan is currently working on the decision and is expected to discuss the same with the other arbitrators shortly. I expect to be in a position to let you know a more definite timeline in the next week and will write to both parties at that time.

64 On 18 March 2016 Mr Clifford sent an email to the solicitors for the parties and the other arbitrators in which he advised:

I have had an opportunity to discuss … deliberations with Mr Hannan but not yet Mr Lord. I am unable to provide a fixed date for delivery and publication of the reasons (and an award) but do expect it to be a matter of a few weeks.

65 On 26 April 2016 Mr Clifford sent another email to the solicitors for the parties and the other arbitrators advising that:

Further work done by the Arbitrators suggests the arbitral decision will be ready in 3 to 4 weeks.

66 On 16 June 2016 Mr Clifford sent another email to the solicitors for the parties and the other arbitrators advising that:

The arbitrators’ reasons for decision, and ultimately the arbitral award, are still being worked on and, unfortunately, will not likely be ready for publication before the end of this financial year being 30 June 2016.

Again it is my expectation the reasons will be ready shortly after 30 June 2016 and the arbitrators are working toward finishing the reasons within that time.

67 On 30 June 2016 the solicitors for Tulip and Mr Davey wrote to the arbitrators, copied to the solicitor for SMS, foreshadowing an application for leave to adduce fresh evidence and proposing that the tribunal reserve its decision until that application had been made and determined.

68 By joint memorandum dated 4 July 2016, arbitrators Hannan and Clifford set out the considerations that they considered would be relevant to any application to adduce fresh evidence. On 27 July 2016 the solicitors for Tulip and Mr Davey advised that no application to adduce fresh evidence would be made.

69 On 14 September 2016 the solicitors for Tulip and Mr Davey again enquired of the arbitrators’ progress. Mr Clifford replied to that enquiry on 19 September 2016 by email sent to the solicitors for the parties and the other arbitrators advising that:

The delay in publishing arbitral reasons for decision is presently due to Presiding arbitrator Hannan and myself working to agree a common set of conclusions and reasons. We anticipate a common set of both will be agreed and publication of those reasons will be only a few (meaning 3 or 4) weeks.

70 On 30 September 2016 by memorandum sent to the solicitors for the parties and copied to the other arbitrators, Mr Clifford advised that:

Presiding arbitrator Hannan and myself have been working toward an agreed set of reasons, conclusions and orders to finalise an award. I expect arbitrator Lord will have some comments on the reasons in due course.

71 The memorandum foreshadowed a request for additional funds to cover arbitrators’ fees.

72 On 28 October 2016 Mr Clifford sent another memorandum to the solicitors for the parties and the other arbitrators advising:

Presiding arbitrator Hannan and I have agreed, in principle, upon the arbitral award presently in draft awaiting comments from arbitrator Lord, and are finalising the written arbitral reasons supporting the draft award that are also agreed in principle and substance between us.

73 On 7 November 2016 Mr Clifford sent another memorandum to the solicitors for the parties and the other arbitrators advising that the reasons for arbitral decision and draft arbitral award had now been finalised as between presiding arbitrator Hannan and himself, and comments were awaited from arbitrator Lord. The memorandum included a request for the payment of a further amount on account of arbitrators’ fees.

The publication of reasons

74 On 18 November 2016 reasons for decision signed by arbitrators Hannan and Clifford were sent to the parties and to Mr Lord. Various schedules were attached to the reasons, including a draft substantive award. Another schedule gives detailed consideration to the various materials that were provided to the arbitrators and sets out reasons for accepting some and rejecting other parts of those materials. The respondents’ submissions dated 9 July 2015 and 20 January 2016 were both accepted.

75 In an email sent to the solicitors for the parties and the other arbitrators on 21 November 2016, Mr Clifford advised that although the reasons which had been previously circulated referred to a draft award, the reasons were not to be considered a draft, but were final.

76 Communication then took place between the arbitrators and the parties in relation to the provision of submissions with respect to the costs of the arbitration. In the course of those communications, Mr Clifford advised by memorandum sent to the solicitors for the parties and the other arbitrators that the arbitrators would like to make final orders, including costs orders, before 21 December 2016 and in that regard requested submissions with respect to costs be provided not later than 12 December 2016. Further, on 13 December 2016, Mr Clifford sent another memorandum to the solicitors for the parties and the other arbitrators advising that he and presiding arbitrator Hannan would like to make and sign all final orders early in the following week, and to return to the parties the surplus funds paid on account of the arbitrators’ fees before the Christmas break commenced.

77 These proceedings were commenced on 9 December 2016. On 23 December 2016 Mr Clifford sent an email to the solicitors for the parties and to Mr Hannan advising that he had been authorised by Mr Lord to publish a letter which Mr Lord had sent to him dated 20 December 2016. In that letter, Mr Lord wrote:

I wish to advise that I have read the reasons for the decision of Philip Clifford and Peter Hannan in the above matter. Further, I wish to advise that I agree with the said reasons.

78 In the email to the parties, Mr Clifford confirmed that the reference in the letter to ‘the reasons’ is a reference to the reasons dated 18 November 2016 signed by Mr Clifford and Mr Hannan.

79 Mr Clifford further advised the parties that ‘Arbitrator Lord has also graciously decided to waive his fees for the arbitration’.

80 Also on 23 December 2016 Mr Hannan and Mr Clifford wrote to the parties indicating the course which they proposed to take in relation to the costs of the arbitration.

81 On 28 December 2016, reasons apparently being those of Mr Hannan and Mr Clifford (but unsigned) dealing with the costs of the arbitration were sent to the parties, together with a document headed ‘Final Award’, prepared in such a way as to provide for execution by each of Mr Hannan and Mr Clifford (but not Mr Lord). The copy of that document in evidence has not been signed by either Mr Hannan or Mr Clifford.

82 On 29 December 2016 the solicitor for SMS sent an email to the arbitrators and the solicitors for Tulip and Mr Davey asserting that there had been certain mathematical errors in the calculations relating to costs.

83 On 13 January 2017 Mr Clifford sent an email to the solicitors for the parties and the other arbitrators apparently attaching a copy of the final award signed by Mr Hannan and himself (although that copy is not in evidence, there is no reason to doubt that it exists). I note that the final award was delivered four and a half years after the notice of reference to arbitration was served. The email from Mr Clifford invited the parties to confer with respect to the calculation issues raised by the solicitor for SMS, and foreshadowed the making of an amended final award if necessary to make corrections in respect of those matters.

84 In a memorandum dated 24 January 2017 sent to the solicitors for the parties and the other arbitrators, Mr Clifford advised that he and arbitrator Hannan had considered the calculation point raised by the solicitor for SMS, and concluded that it was correct. The memorandum attached an amended corrected final award, and invited the parties to advise their position in relation to the proposed amendments. The amended corrected final award attached to that memorandum is unsigned, but has been prepared on the basis that provision is made for signature by Mr Hannan and Mr Clifford, and not by Mr Lord.

The position of the arbitrators

85 Having regard to the allegations of misconduct made against the arbitrators, I indicated to counsel for SMS that it would be appropriate for the arbitrators to be joined as parties to these proceedings unless they indicated they did not wish to be heard. The solicitor acting for SMS then wrote to the arbitrators enclosing copies of the amended application and the statements of position exchanged by the parties in relation to this application, and enquiring as to whether the arbitrators wished to be heard. The letter advised the arbitrators that if they wished to be heard, they would be joined as parties. In reply to that letter Mr Clifford sent a document to the parties advising that the question of whether the arbitrators should be joined was essentially a matter for SMS but, at the same time, offering comment on some of the issues identified in the documents which had been provided to the arbitrators relating to these proceedings.

86 The document provided by Mr Clifford does not make the position of the arbitrators in relation to these proceedings at all clear. However, given the terms of the letter which was sent to the arbitrators, which made it unequivocally clear that if they wished to be heard they would be joined as parties, I conclude that the arbitrators do not wish to be heard and am prepared to proceed to resolve this application on that basis, without requiring them to be joined as parties.

The alleged denial of procedural fairness

87 In the originating summons commencing these proceedings SMS asserts that arbitrators Hannan and Clifford misconducted the proceedings by denying SMS procedural fairness in:

deciding the matter on the basis of late written submissions and documents by the Defendants for which no leave had been granted and respect of which the Plaintiff was not given an opportunity to respond.

88 Because of the generality of that assertion, I directed that SMS file a detailed statement of the grounds upon which it relied in support of its application. In that document it is asserted that the arbitrators’ receipt and consideration of materials provided by Tulip and Mr Davey between 9 July 2015 and 20 January 2016 constituted a denial of procedural fairness because the arbitrators had advised the parties that if the respondents ‘did not lodge any material by 10.00 am 8 [sic] July 2015 the arbitrators would determine the disputes without the benefit of any Defendants’ substantive hearing submissions’. The statement of grounds then lists the documents that were lodged after 10.00 am on 9 July 2015, including the submissions lodged around 5.00 pm on 9 July 2015, and the submissions served on 20 January 2016. The grounds also refer to the objections lodged by SMS in relation to the receipt of that material on 21 July 2015 and 28 January 2016. The grounds further assert that SMS was denied procedural fairness because, having advised the parties that any materials lodged after 10.00 am on 9 July 2015 would not be considered, the arbitrators did not advise SMS that they intended to rely upon that material, with the result that SMS had not had an opportunity to respond to it.

89 The fair hearing component of the rules relating to procedural fairness will be infringed if a party does not have a fair opportunity to know the case which has to be met, and to meet that case. In this case, the respective positions of the parties were clearly set out in the points of claim and the response to those points of claim and counterclaim which were exchanged in accordance with directions made by the arbitrators. Those documents, and the evidence upon which the parties proposed to rely were exchanged well prior to 9 July 2015, and well prior to the service of any of the materials the consideration of which is said to give rise to a denial of procedural fairness. In that context, in order to make good the proposition that the consideration of the materials served by Tulip and Mr Davey after 10.00 am on 9 July 2015 denied SMS the opportunity to meet the case against it, it is necessary for SMS to identify in those materials some point or proposition not raised by the statements of position previously exchanged between the parties, with the consequence that SMS was prejudiced by a lack of opportunity to respond to that point or proposition.

90 Neither the originating summons nor the statement of grounds lodged in support of the originating summons address that question. In particular, no attempt is made to identify any particular topic, issue or proposition raised in the materials lodged by Tulip and Mr Davey after 10.00 am on 9 July 2015 which had not been identified in the materials previously exchanged between the parties.

91 For that reason, I pressed counsel for SMS on this question during the course of oral argument. He confirmed that the only matter to which he could point as being a matter upon which SMS was denied an opportunity to present its case to the arbitrators related to the following passages in the reasons published by Mr Hannan and Mr Clifford on 18 November 2016:

  1. … Tulip Bay and Mr Davey 2nd point out that AAPA2006903137 was assigned to SMS. See 2nd TB/Davey Submissions (as defined in para 21 of the 3rd schedule hereto) at para 3(b). That submission is supported by Mr Davey’s First Witness Statement at para 20. The instrument of assignment has not, however, been put in evidence.
  2. We have, however, found that on 25 May 2007, Mr Davey executed a document by which AAPA2006903137 was assigned to Structural Monitoring Systems PLC (rather than SMS). See para 102 above.
  3. Tulip Bay and Mr Davey submit that, having regard to the assignment referred to in para 166 above, whether or not AAPA2006903137 was an ‘Enhancement’ for the purposes of the Technology Agreement ‘is not an enquiry that would lead to any productive end’. See 2nd TB/Davey Submissions at para 3(c).
  4. Tulip Bay and Mr Davey also submit that, having regard to the assignment referred to in para 166 above, the issue of whether or not AAPA2006903137 was an ‘Enhancement’ for the purposes of the Technology Agreement was ‘resolved between Mr Davey, Tulip Bay and SMS by agreement without any need for a determination’ of that issue. See 2nd TB/Davey Submissions at para 3(d).
  5. No submission has been made on behalf of SMS in response to the submissions (on behalf of Tulip Bay and Mr Davey) referred to in paras 167 & 168 above. Further, no submission has been made on behalf of SMS as to the impact (if any) on the issues in this arbitration of the assignment (on 25 May 2007) of AAPA2006903137 from Mr Davey to Structural Monitoring Systems PLC (rather than SMS).
  6. We uphold the submission (on behalf of Tulip Bay and Mr Davey) referred to in para 167 above. Accordingly we make no finding as to whether or not AAPA2006903137 was an ‘Enhancement’ for the purposes of the Technology Agreement.

  1. Subject to the caveat referred to in para 205 below, even if the 1st Alleged Conduct constitutes a breach of the Technology Agreement by Tulip Bay and/or Mr Davey, the assignment AAPA2006903137 to Structural Monitoring Systems PLC (rather than SMS), referred to in para 166 above, effectively remedies any breach by Tulip Bay and/or Mr Davey.
  2. The caveat to para 204 above is that AAPA2006903137 was assigned to Structural Monitoring Systems PLC rather then SMS.

92 Counsel for SMS drew particular attention to par 169 above, and asserted that, if SMS had known that reliance was to be placed on the matters to which reference was made in pars 167 and 168 above, it would have made submissions with respect to them. Counsel confirmed that this is the only respect in which SMS is said to have been denied procedural fairness.

93 It should be noted that the submissions of Tulip and Mr Davey to which the arbitrators refer in the portion of reasons set out above are the submissions lodged on 20 January 2016, not the submissions lodged around 5.00 pm on 9 July 2015. It is therefore difficult to see why so much attention was given in these proceedings, in written submissions and oral argument, to the communications which preceded the service of written submissions on 9 July 2015. In the interests of completeness I will however give detailed consideration to that course of communications below.

94 More significant, however, is the fact that the submissions of 20 January 2016 respond specifically to the 22 issues identified by the arbitrators in the memorandum of 18 December 2015. Those issues were identified by reference to the points of claim, response to the points of claim and counterclaim and evidence exchanged by the parties well prior to 9 July 2015. It is therefore inherently unlikely that any response to those issues would deal with any issue that was not already alive, as between the parties, as a result of the exchange of those prior materials.

95 The inherent unlikelihood of submissions responding to the issues identified by the arbitrators traversing new ground is confirmed by a consideration of the particular issue dealt with by the arbitrators in the passages upon which SMS relies. As I have noted, in their response Tulip and Mr Davey made it quite clear that they relied upon the assignment of all the rights relating to the 2006 patent application to SMS in May 2007 as a defence to that portion of SMS’ claims, together with the subsequent application for patent made in 2008 by SMS in relation to the invention the subject of the 2006 patent application. Those facts, and their potential implications for the reliance which SMS placed upon the first alleged contravention (that is, the 2006 patent application) were made unmistakably clear by the response served by Tulip and Mr Davey on 30 April 2013 and were repeated in the substituted response served on 2 August 2013. SMS had every opportunity to put its case in relation to those matters before the arbitrators. Its failure to deal with those matters cannot be attributed to any conduct on the part of either the arbitrators or Tulip and Mr Davey.

96 There are other reasons why SMS’ claim to have been denied procedural fairness must be rejected. They include the fact that counsel for SMS was unable to identify any proposition which SMS could have put in relation to the issues arising from the assignment of the patent application to SMS which would have had any bearing on the outcome of the arbitration. So, counsel did not contend that SMS would have challenged the fact that it received an assignment of the 2006 patent application or that it had the opportunity to derive full benefit from the invention the subject of that application many years before SMS ever purported to terminate the Technology Agreement on the basis of repudiatory breach.

97 Counsel for SMS contended that even though any breach resulting from the 2006 patent application had been cured by the assignment of the rights to that application to SMS well before any question of termination for repudiation arose, it was nevertheless necessary for the arbitrators to determine whether that breach had occurred, so as to provide context for the arbitrators’ consideration of the breaches alleged in 2009. There are at least two reasons why that contention must be rejected. First, the nature of the breaches which occurred in 2009 cannot be readily assessed in the context of the agreed resolution of any earlier breach by the assignment of the relevant rights to SMS. Whether or not there was in fact an earlier breach does not assist in the characterisation of the events which took place in 2009 given the agreement which had resolved any earlier breach. Second and in any event, the arbitrators concluded that each of the patent applications made in 2009 constituted a breach of the Technology Agreement. The reason SMS was unsuccessful in the arbitration was its failure to establish that those breaches were of such a character as to constitute a repudiation of the Technology Agreement. Nothing which occurred in 2006 was or is capable of altering that characterisation.

98 Further, the assertion that SMS was denied procedural fairness by the arbitrators’ consideration of the materials to which reference has been made is based on a false factual premise. Both the originating summons and the statement of grounds provided by SMS assert that the arbitrators had directed that unless submissions were filed by 10.00 am on 9 July 2015 they would not be considered. As I have already noted, that assertion is not correct. The emails from Mr Clifford were to the effect that if the submissions were not served by that time, they might not be considered unless reasonable justification for late delivery was provided. However, reasonable justification for the very short delay in the provision of the submissions (seven hours) was provided and no direction was made by the arbitrators to the effect that those submissions would not be considered.

99 In effect, SMS unilaterally determined that it would not respond to those materials, in an attempt to force the arbitrators into accepting its proposition that the materials should not be considered because they were served seven hours after the time specified. In the circumstances which I have set out at [51], the position adopted by SMS was manifestly unreasonable and entirely unjustified. Any lack of response by SMS to the submissions which were served by Tulip and Mr Davey is entirely attributable to the unreasonable position which it adopted, and cannot be attributed to the conduct of the arbitrators. But in any event, as I have already noted, SMS has not identified any proposition which could have been put in relation to its receipt of an assignment of the rights to the 2006 patent application in 2007, and its lodgement of a patent application for the invention the subject of the 2006 patent application in 2008, well before any purported termination of the Technology Agreement, which could have had any bearing on the outcome of the arbitration.

100 Much the same observation may be made with respect to the submissions served by Tulip and Mr Davey on 20 January 2016, which are the submissions to which reference was made by Mr Clifford and Mr Hannan in the portion of their reasons set out above. Although those submissions were not specifically invited by Mr Clifford in his earlier memorandum identifying the 22 issues which the arbitrators proposed to address, there was no direction precluding the lodgement of submissions in relation to those issues. Further, after the submissions had been served, by email sent on 28 January 2016 to the solicitors for the parties and the other arbitrators Mr Clifford advised that the submissions would be considered by the arbitrators. The arbitrators never resiled from that position, and there was no reasonable basis upon which SMS could assume that, contrary to the express statement made in Mr Clifford’s email, the arbitrators would not in fact consider those submissions. It follows that any lack of response by SMS to the submissions served on 20 January 2016 is attributable to an entirely unjustified and unreasonable assumption that the arbitrators would not act in the manner which they had expressly indicated. Any lack of response to those submissions cannot be attributed to the conduct of the arbitrators.

101 It should also be noted that no direction had been made by the arbitrators for the provision of any responsive material by SMS to the submissions to be served by Tulip and Mr Davey on 9 July 2015. To the contrary, directions had been made on the assumption that each of the parties to the arbitration would file only one set of submissions, and no provision was made for SMS to serve submissions in reply to those served by Tulip and Mr Davey. Of course, this is not to say that SMS could not have applied to the arbitrators for the opportunity to put on submissions in reply, in respect of matters it had not anticipated. However, it did not do so. Nor, as I have already indicated, has SMS established any matter addressed in the submissions served by Tulip and Mr Davey which had not already arisen as an issue in the previous exchange of documents analogous to pleadings, and which could not therefore have been unanticipated.

102 Similarly, although the submissions served by Tulip and Mr Davey on 20 January 2016 were not expressly requested by the arbitrators, no direction had been made preventing the service of those submissions. Accordingly, there was nothing to prevent SMS serving submissions in response to those served by Tulip and Mr Davey and indeed, in the letter of 29 January 2016, the solicitors for Tulip and Mr Davey advised that they would not object to SMS providing responsive submissions within 14 days.

103 So, when detailed attention is given to the sequence of events and the precise terms of the directions made by the arbitrators, there is no basis for the contention that SMS was denied the opportunity to respond to the submissions and other materials served by Tulip and Mr Davey.

104 Of course this is not to suggest that the course adopted by the arbitrators should be commended as a model of appropriate procedure. In July 2015, and again in January 2016, SMS unilaterally adopted a dogmatic position with respect to the materials served by Tulip and Mr Davey, and unequivocally contended that those materials should not be considered by the arbitrators. Although the arbitrators made no directions to that effect, nor did they expressly respond to the contentions advanced on behalf of SMS. Although it was not reasonable for SMS to assume, in those circumstances, that its contention had been accepted by the arbitrators, it would clearly have been preferable, and more orthodox, for the arbitrators to provide the parties with a clear statement of position after SMS had advanced its contentions. As it happened, that did not occur until the reasons of Mr Hannan and Mr Clifford were published, in which rulings were made with respect to the materials that would and would not be received.

105 There may be cases in which it is entirely appropriate to reserve a position with respect to the admissibility of evidence or other materials until reasons for decision are published. Indeed, that course is not uncommonly adopted by courts. However, generally speaking, that course can only be adopted, consistently with the requirements of procedural fairness, if the parties are aware that that course is to be followed, and if all parties are given the opportunity to provide a response to the contentious materials, to be received in the event that the contentious materials are received.

106 That course was not followed in this case. However, for the reasons I have given, there was no reason for SMS to assume that the materials served by Tulip and Mr Davey would not be considered by the arbitrators, nor did SMS have any reason to assume that it would be precluded from responding to those materials. Further and in any event, those materials addressed issues which were live between the parties at all times since the exchange of documents analogous to pleadings. Further, SMS has not identified any matter or submission which it could or would have put before the arbitrators which could or would have had any bearing upon the outcome of the arbitration in relation to the single issue in respect of which it asserts it was denied procedural fairness.

107 For these reasons, although the approach taken by the arbitrators was less than optimal and somewhat unorthodox, SMS has failed to establish that it was denied procedural fairness by reason of the course followed, or that the arbitrators were guilty of misconduct of a kind which would justify setting aside the award.

Delay

108 SMS asserts that the award should be set aside by reason of misconduct by the arbitrators in the form of excessive delay in the delivery of the award.

109 There is no doubt that there was excessive delay in the delivery of the award. The evidence and submissions of each party had been served by 9 July 2015. Reasons for decision were published by two of the arbitrators on 18 November 2016, more than 16 months later. The third arbitrator indicated his agreement with those reasons on 20 December 2016 and the document described as the ‘final award’ was published on 13 January 2017 – 18 months after the evidence and submissions had been received.

110 However, it is of great significance to this ground of attack upon the award that the arbitrators proposed, and the parties agreed, that there would be no oral hearing. Accordingly, the period to which I have referred reflects the time taken by the arbitrators to consider the written materials which had been served by the parties. It was not the lapse of time between an oral hearing, at which evidence was adduced, or oral submissions received, and the publication of an award.

111 In its written submissions in support of this ground, SMS relied upon a series of decisions relating to the consequences of substantial delay between the conduct of what I would describe as a conventional court trial, and the publication of reasons by the court. When those cases are considered, it is clear that the principles enunciated in them have no application to the unusual circumstances of this case.

NAIS v Minister for Immigration and Multicultural and Indigenous Affairs

112 In NAIS v Minister for Immigration and Multicultural and Indigenous Affairs Marshall J accepted that excessive delay may support the conclusion that procedural fairness had been denied in a case in which a tribunal

reflects, in an adverse way, upon the demeanour of an applicant in its reasons for decision in circumstances where the evidence was given so long ago that it could not reasonably remember the demeanour in question.

However, because in that case the decision of the relevant tribunal did not turn on any question involving the demeanour of the applicant, the excessive delay did not result in the denial of procedural fairness.

113 Hill J gave consideration to the question of whether excessive delay could, of itself, support the conclusion that the decisionmaker had not performed his or her function. In that context he observed:

I do not think that it is a necessary inference just from the delay itself that the Tribunal member was unable as a result of that delay to fulfil his function of reviewing the decision[.]

In that case, the delay was in excess of five years.

Mount Lawley Pty Ltd v Western Australian Planning Commission

114 In Mount Lawley Pty Ltd v Western Australian Planning Commission there was a delay of almost two and a half years between the completion of a very long and complex hearing relating to the valuation of resumed land and the publication of reasons for decision. The reasons published were brief and bore no appropriate relationship to the breadth and complexity of the issues ventilated during the hearing. Conclusions were expressed with respect to the credibility of witnesses based on demeanour without analysis in any depth of the reasons why the evidence given by one witness was preferred to that given by another. In those circumstances, the lengthy delay, coupled with the inadequacy of the reasons published led the appellate court to conclude that the judge at first instance had failed to engage with the issues which he had to determine.

Expectation Pty Ltd v PRD Realty Pty Ltd

115 Expectation Pty Ltd v PRD Realty Pty Ltd was a very similar case to Mount Lawley. Following a complex hearing relating to alleged misrepresentation with respect to the sale of some shopping centres, after almost two years after the witnesses gave their evidence, and after reserving his decision for 17 months, the trial judge published relatively brief reasons in which he expressed, in a conclusionary way, his acceptance of the evidence of some witnesses and his rejection of the evidence of others without detailed supporting analysis, and failed to deal with a number of the causes of action advanced by the applicant. Because the case turned critically upon the evaluation of the credibility of the witnesses giving competing evidence, the appellate court concluded that the delay had weakened the trial judge’s advantage of having seen and heard the witnesses – an advantage which was essentially lost by the time he came to publish his reasons.

Monie v Commonwealth of Australia

116 In Monie v Commonwealth of Australia Hunt AJA expressed a principle very similar to that expressed by the Full Court of the Federal Court in Expectation. He observed:[17]

But the trial judge’s advantage does weaken with time. Where there is a significant delay between seeing and hearing the witnesses and the delivery of judgment, the trial judge is obliged to give specific reasons for accepting or rejecting the evidence of those witnesses whose evidence plays an important part in the factual finding made.

Sullivan v Trilogy Funds Management Ltd

117 In Sullivan v Trilogy Funds Management Ltd, in a case of significant delay between trial and the publication of reasons, the Full Court of the Federal Court, after referring to Expectation, observed:

Having rejected the appellants’ evidence on grounds of lack of credit, it was incumbent upon the trial judge to explain how, despite the delay, he was well able to recollect the oral testimony.

The cases relied on by SMS – summary

118 It is apparent from my brief analysis of the various cases upon which SMS relies that none has any application to the circumstances of this case. In this case there was no oral hearing at which testimony was given by witnesses or argument developed by counsel for the parties. The cases above establish that:

(a) the advantage which a court or tribunal at first instance derives from the hearing process diminishes over time, in the event of significant delay;

(b) in a case of significant delay between an oral hearing and the publication of reasons, where those reasons deal with contested findings of fact to which oral testimony relates, it is incumbent upon the court or tribunal at first instance to explain how the delay did not prejudice the fact finding process; and

(c) in cases of significant delay between an oral hearing and publication of reasons, an appellate court will look with special care at the reasons for any finding of fact challenged on appeal.

However, none of those circumstances apply to this case as there was no oral hearing, no contentious finding of fact which turned upon oral testimony, nor is there a challenge to any finding of fact made by the arbitrators.

119 When this general proposition was put to counsel for SMS he submitted that, in effect, the only material consequence of the delay to which he could point was the arbitrators’ failure to note that SMS had failed to respond to the submissions made by Tulip and Mr Davey in relation to the issue identified in the first ground of attack upon the award. In that context, counsel for SMS accepted that the delay fed into and supported the first ground of attack upon the award but could not, of itself and independently of that ground, support a conclusion that procedural fairness had been denied. As I have concluded that SMS was not denied the opportunity to respond to the case presented by Tulip and Mr Davey, it follows that the delay in the publication of the reasons and the award cannot constitute misconduct of a kind which would justify setting aside the award.

Did three arbitrators hear and determine the dispute?

120 The originating process lodged by SMS asserts misconduct on the part of arbitrators Hannan and Clifford by ‘proceeding to decide the matter whereas three arbitrators … had been appointed’. The statement of grounds which I ordered SMS to provide in order to amplify the basis of its attack upon the award merely states, under the heading ‘Operative Delay’, that ‘[t]he Award was made by two of three arbitrators only’. Brief reference was made in the written submissions served by SMS to the facts relating to the publication of reasons and the award, followed by the proposition that:

Where the agreement mandated 3 arbitrators, the failure of the presiding arbitrator to have the third arbitrator’s advice can constitute a breach of the rules of natural justice.

relying upon Dental Board of Queensland v B.

121 However, that decision involves such different circumstances and issues as to provide no support for the proposition asserted by SMS. The case concerned the conduct of disciplinary proceedings commenced against a dentist pursuant to the provisions of the Health Practitioners (Professional Standards) Act 1999 (Qld). Pursuant to the provisions of that Act the proceedings were heard by a tribunal constituted by a judge assisted by three assessors. After a two day hearing before the judge and the assessors, the tribunal reserved its decision to a future hearing, and foreshadowed dealing with the sanction to be imposed in the event that the complaint was made out at that hearing.

122 When the hearing resumed and the tribunal published its reasons for concluding that the complaint had been made out, the assessors were not present. In the absence of the assessors the tribunal proceeded to receive submissions with respect to the sanction to be imposed, and imposed a sanction. The Court of Appeal of Queensland concluded that the relevant legislation required that the tribunal be assisted by assessors with respect to the performance of all parts of the tribunal’s function, including the imposition of sanctions. Accordingly, because, on the proper construction of the Act, the provision of assistance to the tribunal by assessors was, in effect, a condition of the valid exercise of the tribunal’s powers, the decision with respect to sanction was set aside by the court.

123 In the course of oral argument, counsel was unable to take the proposition any further than the very brief enunciation in the written submissions which I have set out above, or to cite any authority in support of the proposition other than the decision to which I have just referred. Counsel submitted orally that Mr Lord had not engaged in the decision at all, but was, of course, obliged to acknowledge that on 20 December 2016 Mr Lord wrote to Mr Clifford advising that he agreed with the reasons which had been previously published by Mr Clifford and Mr Hannan. No submissions were made with respect to the findings of fact which I should make, or the inferences which should be drawn with respect to the extent of Mr Lord’s engagement, having regard to the evidence which I have set out in detail but which was not really addressed in the written submissions.

124 The written and oral submissions provided on behalf of Tulip and Mr Davey were equally terse. They were essentially limited to a denial of the relevance of the decision in Dental Board of Queensland v B – a proposition with which I agree.

125 The attention given by the parties to this ground of attack upon the award is inversely proportional to its significance. For that reason, at the conclusion of the hearing I directed the exchange of further written submissions relating to this ground.

126 My hope that those submissions would provide assistance in the resolution of this ground was not fulfilled. As will be seen, the only authorities identified by the parties in those submissions are of little or no assistance. Surprisingly, neither party made reference to s 29 of the Act which provides:

  1. Form of award

(1) Unless otherwise agreed in writing by the parties to the arbitration agreement, the arbitrator or umpire shall –

(a) make the award in writing;

(b) sign the award; and

(c) include in the award a statement of the reasons for making the award.

(2) Where an arbitrator or umpire makes an award otherwise than in writing, the arbitrator or umpire shall, upon request by a party within 7 days after the making of the award, give to the party a statement in writing signed by the arbitrator or umpire of the date, the terms of the award and the reasons for making the award.

I will return to this section after addressing the cases to which the parties have referred.

Cargill International SA Antigua v Sociedad Iberica De Molturacion SA

127 Tulip and Mr Davey rely upon the decision of the Court of Appeal of England and Wales in Cargill International SA Antigua v Sociedad Iberica De Molturacion SA. In that case a dissenting arbitrator refused to sign the arbitral award. The applicable rules of the arbitration expressly required that the award be signed by all arbitrators. The court held that the dissenting arbitrator was properly replaced by the arbitral body supervising the arbitration, observing that:

There will be cases under rules or arbitration agreements in different terms from [the applicable rules] where … the dissenting arbitrator will be free not to sign the award, leaving a valid award signed simply by the majority.

128 The only real significance of this decision is to focus attention upon the importance of the agreement governing the procedure of the arbitration, including any rules incorporated pursuant to that agreement. The same focus is required by s 29 of the Act.

Sea Containers Ltd v ICT Pty Ltd

129 Tulip and Mr Davey also rely upon the decision of Rein AJ in the Supreme Court of New South Wales in Sea Containers Ltd v ICT Pty Ltd. In that case an award was attacked on the ground that an arbitrator’s dissenting view had not been included in the award but was separately published. That proposition was rejected on the basis that the inclusion or exclusion of the dissentient view within the award made no difference to the result, given that a provision of the applicable arbitration legislation provided for decisions by majority.

130 It was further submitted that it was necessary for the majority to deal explicitly with the dissentient view in its reasons. That proposition was also rejected. Rein AJ observed:

It is not uncommon in Courts of Appeal where traditionally three or more judges constitute the bench, for the majority to expressly refer to the dissentient view but it is far from universal. Provided the majority has considered the argument which found favour with the dissentient (assuming that argument to have been put), there is no procedural unfairness or manifest error in that respect.

Murcia & Associates (a firm) v Grey

131 In its written submissions SMS relies upon Murcia & Associates (a firm) v Grey. However, that case is entirely unrelated to the issue presently under consideration, and was concerned with the jurisdiction of a judge of the District Court of Western Australia to make an order that a solicitor cease acting. The case was cited in support of the trite proposition that there is a distinction between the exercise of powers within jurisdiction, and the exercise of powers outside jurisdiction. It is of absolutely no assistance to the issue presently under consideration.

Rylands Brothers (Australia) Ltd v Morgan

132 SMS also relies upon the decision of the New South Wales Supreme Court in Rylands Brothers (Australia) Ltd v Morgan, which considered the question of whether the chairman of a committee appointed pursuant to applicable industrial relations legislation was entitled to vote as a member of the committee. The case turned upon a question of statutory construction but, in any event, the decision cited by SMS was unanimously overturned by the High Court of Australia. Although the subject matter is far removed from the present issue, it is of some interest that two members of the court relied upon a provision in the statute providing for a majority decision.

Cases cited by the parties – summary

133 None of the cases cited by the parties have any direct application to the issue raised by the third ground of attack upon the award in this case. One of the cases cited concerns an entirely different proposition, and the other three are concerned with procedural issues which arose when the members of a multimember panel or tribunal disagreed. None were concerned with the issue presently at hand, which involves an allegation that one member of the arbitral tribunal did not, in fact, engage in the determination process.

The source of the arbitrators’ jurisdiction

134 The source of the arbitrators’ jurisdiction is the arbitration agreement. Further, the provisions of the Act potentially relevant to this issue are expressly made subject to contrary provision in the arbitration agreement.

135 In the present case, as I have noted, the arbitration agreement provides that, unless the parties agree upon a single arbitrator ‘the arbitration shall be heard and determined by three (3) arbitrators’ and ‘where there is more than one arbitrator, all decisions and awards shall be made by majority vote of the arbitrators’.

136 There are cases dealing with the nature and extent of an arbitrator’s obligation to hear and determine the relevant dispute, in the context of multimember arbitral panels. Those cases proceed on the appropriate assumption that each arbitrator is obliged to give proper and adequate consideration to the evidence and arguments advanced by the parties, and must turn his or her own mind to the appropriate resolution of the dispute, providing reasons which reveal the intellectual process which was followed to resolve the substantive issues in the dispute. Essentially, those cases turn on the factual question of whether all arbitrators did discharge that responsibility – a factual question given scant attention in the submissions provided by the parties in this case.

137 As in those cases, the critical question which must be answered in order to resolve this ground in this case is a question of fact – namely, did Mr Lord ‘hear’ and ‘determine’ the arbitration as required by the arbitration agreement? Given the mandatory terms in which that obligation is expressed in the arbitration agreement, there would be much to be said for the view that if, as a matter of fact, Mr Lord did not ‘hear’ and ‘determine’ the arbitration, the arbitration was not in accordance with the agreement, with the result that the award is not binding on the parties.

138 In the absence of authority to the contrary, the provision in the arbitration agreement for decisions and awards to be made by a majority would not validate a procedure which departed from the requirements of the arbitration agreement in that only two, not three, arbitrators heard and determined the dispute. The arbitration agreement records the intention of the parties that any dispute will be heard and determined by three arbitrators not two (absent agreement on a sole arbitrator), in a context in which the parties can be taken to have assumed and intended that the three arbitrators would interact with each other and participate equally in the hearing and determination process. That intention is more readily attributed to parties to an arbitration agreement such as this, whereby each party nominates one arbitrator and those arbitrators together appoint a presiding arbitrator. In that context, the nonparticipation of one arbitrator (in this case allegedly the arbitrator appointed by Tulip and Mr Davey) would deprive the appointing party of one of the benefits of the arbitration agreement. So, if in fact Mr Lord did not ‘hear’ and ‘determine’ the arbitration the provision in the arbitration agreement for a majority decision would not operate to validate the award subsequently delivered by Mr Clifford and Mr Hannan.

“Hearing” the arbitration

139 In the absence of any indication to the contrary in an arbitration agreement, it should be inferred that parties choosing to resolve their disputes by arbitration intend to achieve the informality, flexibility and expedition which are generally regarded as characteristic of that form of dispute resolution. So, in this case, in their reference to the arbitration being ‘heard’ by three arbitrators in their arbitration agreement, the parties should not be taken to have intended that there must be an oral hearing in relation to all disputes, of all kinds, referred to arbitration. Rather, in its context the word ‘heard’ should be construed as encompassing whatever procedure the arbitrators and parties adopt in order to place before the arbitrators the evidence and submissions required to determine the dispute.

140 In this case the arbitrators proposed, and the parties agreed, that the evidence and submissions upon which they relied would be presented to the arbitrators in writing, and that there would be no oral testimony or submissions. In such a context, the obligation imposed upon the arbitrators by the arbitration agreement was to consider the evidence and submissions presented by the parties and determine the terms upon which their dispute should be resolved. Therefore, the critical question is whether, as a matter of fact, Mr Lord considered the evidence and submissions presented by the parties and determined the terms upon which their dispute should be resolved.

141 Despite me raising the issue, no party sought to join any of the arbitrators. If they had been joined, the procedures of the court would have been available to obtain information with respect to the extent of Mr Lord’s engagement in the determination of the dispute. Accordingly, the question is whether an inference can and should be drawn from the evidence which I have set out in detail to the effect that Mr Lord did not consider the evidence and submissions presented by the parties or come to a conclusion as to the terms upon which their dispute should be resolved. That question is to be addressed in a context in which SMS carries the burden of proving misconduct of a kind which would justify the intervention of the court to set aside the award.

142 The pertinent features of the evidence which bear upon this question are as follows:

(a) Mr Lord was copied into all communications between the parties and the other arbitrators;

(b) throughout the proceedings express provision was made for Mr Lord’s contribution, should he have formed a view different to that of the other arbitrators;

(c) there were a number of occasions upon which Mr Lord expressed no view in relation to procedural issues addressed by the other arbitrators, albeit in a context in which his concurrence with the views formed by those other arbitrators might be inferred;

(d) there is no reason to suppose that Mr Lord was not provided with the evidence and submissions upon which the parties relied at the time those materials were served;

(e) it is a fair inference from the evidence that the joint reasons published by Mr Clifford and Mr Hannan were developed by conferral between those two arbitrators with little or no input from Mr Lord;

(f) the joint reasons to which I have referred were provided to Mr Lord who indicated his concurrence with those reasons;

(g) the reasons with which Mr Lord concurred included a draft award;

(h) Mr Lord has not signed either the first or amended award, which has been signed by the other arbitrators, and no provision was made for Mr Lord to sign any award; and

(i) Mr Lord did not charge any fees for his services as arbitrator.

143 As I have indicted, I would infer, and find, that Mr Lord did not confer with Mr Hannan and Mr Clifford in relation to the terms of their reasons. However, I would not construe the arbitration agreement as requiring the arbitrators to confer with each other prior to the publication of reasons as a condition of the exercise of their jurisdiction even though, in the ordinary course, such conferral would be expected. It is sufficient for the valid exercise of jurisdiction if each arbitrator turns his (or her) mind to the evidence, the submissions of the parties, and the terms upon which the dispute should be resolved, and either expresses or concurs in reasons which reveal the intellectual process which was followed.

144 Mr Lord has produced a document which has been distributed to the other arbitrators and the parties in which he records his concurrence with the reasons prepared by Mr Hannan and Mr Clifford. There is no reason to suppose that he did not have the evidence and the submissions of the parties at the time he expressed that concurrence. In the absence of any evidence, I am not prepared to infer that Mr Lord expressed that concurrence without turning his mind to the evidence and submissions which he presumably had, or without turning his mind to the terms upon which the dispute between the parties should be resolved. To express concurrence without giving genuine consideration to the evidence and submissions, or without turning his mind to the proper determination of the dispute, would be an abdication of Mr Lord’s responsibilities as arbitrator, and I am not prepared to infer that he would take that course without some evidence to that effect.

145 Neither party drew my attention to the fact that Mr Lord had not charged any fee for his services, or presented any submissions with respect to the inferences which might be drawn from that fact. In my view it is a fact of considerable significance to the question of the extent of Mr Lord’s engagement. However, it does not follow from the fact that Mr Lord charged no fees that he did not consider the evidence or submissions served by the parties, or turn his mind to the terms upon which their dispute should be resolved. In the absence of evidence it is of course a matter of speculation and conjecture, but there might be reasons for Mr Lord’s failure to render a fee other than his failure to engage with the issues in the arbitration – such as, for example, a desire to maintain favourable commercial relations with one or other party, or perhaps as a result of embarrassment arising from the delay in resolving the dispute.

146 For these reasons I conclude that SMS has failed to discharge the burden of proving that Mr Lord did not consider the evidence and submissions presented by the parties or determine the terms upon which their dispute should be resolved. In the words of the arbitration agreement, SMS has failed to prove that Mr Lord did not ‘hear and determine’ the dispute.

Mr Lord’s failure to sign either the first or amended award

147 As I have noted, Mr Lord did not sign either version of the award issued in January 2017. However, given his concurrence with the reasons and draft award prepared by Mr Hannan and Mr Clifford, there is no reason to suppose that he would not sign the corrected version of the award if requested to do so (unlike the arbitrator in the Cargill case). Further, in the absence of such a request, it could not be said that Mr Lord’s failure to sign the award constitutes misconduct of a kind which would justify setting aside the award in circumstances in which I have found that Mr Lord fulfilled the obligations imposed by the arbitration agreement to ‘hear and determine’ the dispute. As I have noted, SMS has not referred to s 29 of the Act, and has not advanced any submission to the effect that the award signed by Mr Hannan and Mr Clifford is invalid by reason of noncompliance with that section. If that submission had been made, it seems that the references in s 29 to ‘the arbitrator or umpire’ should be construed as extending to all arbitrators in the case of a multimember arbitration, but there would be a question as to whether the provision in the arbitration agreement authorising an award to be ‘made by a majority vote of the arbitrators’ constituted an agreement in writing to depart from the requirements of s 29 of the Act.

148 I reiterate my earlier observation to the effect that the provision in the arbitration agreement relating to majority determination could not validate a procedure in which only two arbitrators ‘heard and determined’ the dispute. However, I am presently concerned with the question of form, rather than substance, and on the basis that I have found that all three arbitrators ‘heard and determined’ the dispute, the provisions of the arbitration agreement with respect to majority determination might arguably be relevant to the form of the award required.

149 If this argument had been put, a question would also have arisen as to whether compliance with the formal requirements imposed by s 29 of the Act was a condition of the validity and enforceability of an award – a question which would have been addressed in accordance with the principles enunciated in Project Blue Sky Inc v Australian Broadcasting Authority. On the face of it, the language of s 29 of the Act, construed in the context of the Act as a whole, would not appear to suggest a legislative intention to the effect that, in a case such as this, where three arbitrators heard and determined the dispute and agreed as to the terms upon which the dispute would be resolved, and as to the reasons for that determination, an award signed by only two of those arbitrators would not be valid or enforceable. However, because the point has not been raised or addressed by the parties, I do not express any concluded view upon it.

Ground 3 – summary and conclusion

150 For these reasons SMS has failed to establish that Mr Lord did not ‘hear and determine’ the dispute referred to arbitration and ground 3 must be dismissed.

General conclusion

151 As SMS has failed to establish misconduct on the part of the arbitrators which would justify the intervention of the court in setting aside the award, these proceedings must be dismissed.

 

Shirley Sloan Pty Ltd v Merril Holdings Pty Ltd t/as Airen Constructions [2000] WASC 99 (18 April 2000)

SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

SHIRLEY SLOAN PTY LTD
Applicant (Claimant)

V

MERRIL HOLDINGS PTY LTD T/AS AIREN CONSTRUCTIONS
Respondent (Respondent)

CORAM: Steytler J
HEARD: 2 March 2000
DELIVERED: 18 April 2000
FILE NO: ARB 1 of 2000
CATCHWORDS: Arbitration – Conduct of arbitration proceedings – Breach of rules of natural justice – Whether Court should exercise discretion under Commercial Arbitration Act 1985, s 42(1) to set award aside for misconduct – Applicant may have been materially unjustly prejudiced – Award set aside – Turns on own facts

 

1 STEYTLER J: This is an application, brought pursuant to s 42(1) of the Commercial Arbitration Act 1985, to set aside the award of an arbitrator upon the ground that he has misconducted the proceedings. The word “misconduct” is defined in s 4(1) of the Act to include a breach of the rules of natural justice and it is this which is alleged against the arbitrator.

2 The dispute which led to the arbitration arose out of the construction by the respondent, a registered builder, of a house on the applicant’s farm at Lower Chittering. The house was built pursuant to a contract in writing made between the parties on 16 April 1998. The house was to have exposed raked timber ceilings. The specifications provided that the roof framing timber would be “dry dressed Oregon”. Oregon was in fact used for the purposes of the roof framing but the parties were in dispute on the question whether it was “dry dressed” oregon. The applicant said that it was not. The respondent said that it was. The issue went to the arbitrator.

3 The parties agreed that the arbitrator should decide the dispute upon the basis of documentary evidence submitted to him by consent and without the need for any oral evidence. They also agreed that the dispute could be decided upon the basis of written submissions only. They consequently forwarded to the arbitrator the documents they considered to be relevant together with their written submissions.

4 The applicant submitted, in a nutshell, that “ship-dried oregon” had been supplied and that this could not be categorised, for the purposes of the contract, as “dry dressed Oregon”. It contended that ship dried oregon is cheaper than, and inferior to, dry dressed oregon. It said that it was consequently entitled to damages for breach of contract.

5 The respondent admitted that it had supplied and installed “ship dried oregon”. It said that “ship dried oregon” is “dry dressed Oregon” for the purposes of the contract. It consequently denied that there was any breach of contract.

6 The arbitrator found in favour of the respondent.

7 Before saying what is the breach of natural justice contended for by the applicant, it is, I think, necessary to set out the arbitrator’s reasoning at some length.

8 The arbitrator, after mentioning that the applicant bore the onus of demonstrating that the oregon provided was not dry or not dressed or both, said that there was, in the witness’ statements provided to him, general agreement on some issues. The first was that the word “dry” commonly equated to “seasoned”. The second was that published standards referred to “seasoned” timber as being timber with a moisture content of not more than 15 per cent. The third was that timber which is not “dry” or “seasoned” can be referred to as “green” or “unseasoned”.

9 He next referred to evidence which was led in respect of the term “ship dried oregon”. He mentioned in that respect, inter alia, the evidence of Dr Graeme Siemon of the Department of Conservation and Land Management who had said that ship dried timber “is green timber which has been block stacked”. However the arbitrator pointed out that, in a letter written by Dr Siemon to a representative of the respondent, Dr Siemon had said:

“Ship-dried timber has been green timber which is block-stacked, which reduces air circulation and therefore drying rate, but which dries to a certain extent while being transported. It would be very unlikely that this timber would conform to the moisture content requirements of AS 2858.”

10 The arbitrator emphasised the distinction between what was said in the letter to the effect that ship dried timber “has been” green timber and what was said by Dr Siemon in his written evidence to the effect that ship dried timber “is” green timber. He also mentioned that Dr Siemon had not said that the oregon provided by the applicant was not the timber specified.

11 The arbitrator next referred to the evidence of a roofing contractor, Mr S R Macdonald, who had expressed the opinion that the timber used in the roofing was “most certainly” not dry dressed oregon and that he would class it as green oregon although it “later turned out that it was ship dry [sic] oregon”.

12 Then, in par 5 of his reasons, the arbitrator said:

“All seasoned or ‘dry’ timber has been green at some stage. In the case of kiln-dried timber the moisture content is reduced or modified under controlled conditions in a process specifically designed for the purpose. In the case of ship-dried timber the moisture content is reduced, as Dr Siemon has said, while being transported but the extent of moisture reduction also depends on time stacked before being shipped as well as after delivery to the point of sale, and also on the cross sectional sizes of the timber stacked before, during and after shipping. The evidence does not mention those factors but one does not need to be an expert to understand that air drying is related to both time and surface area, as well as other factors such as air flow, air temperature and humidity.”

13 Then, after referring to methods of determining moisture content, the arbitrator said that there was no evidence of whether the moisture content in any or all of the oregon roof timber which had been supplied was less than or more than 15 per cent. Nor, he said, was there any reference in the evidence to any measurement of the moisture content at any time before or after the timber had arrived on site.

14 The arbitrator next referred to the evidence of Mr John Pidgeon, an architect. Mr Pidgeon’s view was that kiln drying was the only method which would ensure that the moisture content of timber would be not more than 15 per cent. However, the arbitrator said, this was inconsistent with documents referred to by Mr Pidgeon and, he said, Mr Pidgeon’s conclusion was only that, “if” the timber had a moisture content over 15 per cent, it did not comply with the specification. He said that the “key” to Mr Pidgeon’s conclusion was the word “if”.

15 The arbitrator next referred to evidence from the architect who had prepared the specification. That architect’s intention was, the arbitrator said, “that the ‘dry’ timbers he required for his design were ‘ship-dried’ because in his experience dry dressed oregon and ship dried oregon for structural timbers and roof framing were the same”.

16 After referring to some other evidence in this respect the learned arbitrator went on to say:

“I do not know why the architect did not administer the building contract but if this were the more normal case in which the architect-designer is also the contract administrator the complaint that the timber did not comply with the contract would have been directed to the architect, not the builder, because as far as the architect was concerned, the roof timber provided by the builder was what he, the architect, specified in the contract.”

17 The arbitrator then referred to the evidence of a Builders’ Registration Board inspector, Mr B Knowles, who had inspected the house. In his report to both parties Mr Knowles expressed the understanding “that ‘dry dressed oregon’ would require the merchant to supply ‘ship-dried oregon’ which may have such imperfections as knots, gum veins or cracking in the timber.”

18 The arbitrator said of Mr Knowles that inspectors of the Builders’ Registration Board could be assumed to have a wide range of experience and knowledge in most aspects of domestic building work.

19 Then, after referring to some other aspects of the evidence, the arbitrator said, in par 14 of his reasons, the following:

“The contract drawing 9710 104 02 shows the sizes of the roof timbers:

90 x 45

120 x 45

190 x 45

240 x 45

with 240 x 45 bird boards.

All of these dimensions except 240 (which is greater than the largest dimension in the Standard) are dimensions of softwood according to AS 1684-1992, which distinguishes between ‘nominal’ dimensions in unseasoned timber (i.e., ‘green’ timber) and actual dimensions in seasoned timber (i.e., ‘dry’ timber). Table 1.1 in this Standard includes the following information

Nominal unseasoned Minimum actual

timber dimensions seasoned softwood

50 mm 42 mm

100 90

200 190

The dimensions of the roof timbers required by the contract were dimensions of seasoned timber, or ‘dry’ timber. They were not dimensions of unseasoned timber, or ‘green’ timber. I have no evidence that the dimensions of roof timber used were other than the dimensions required by the contract.

I have referred above to AS 1684-1992. This is titled ‘National Timber Framing Code’. It is referred to expressly on engineering drawing S3 and by implication in Specification clause A1.5, ‘Australian Standards’.”

20 Immediately thereafter the arbitrator went on to say, in par 15, that:

“It is part of the Claimant’s case that ship-dried oregon is ‘not understood in the industry to be equivalent to dry dressed oregon’. The witness statements of witnesses who may be said to be ‘in the industry’ (if it [sic] means the building industry – are those of John Pidgeon, architect, Robert McCarthy, of Timber Traders Cockburn and R S Macdonald, of Timber Constructions WA. Witness statements who [sic] have a different view are those of the builder, who ordered ‘shipped dry dressed oregon’, the architect, who wrote the relevant part of the contract, and an inspector of the Builders Registration Board. The evidence in witness statements of persons who can be classed as ‘in the industry’ is clearly divided.

There were two others whose views may have some weight. Dr Siemon does not say that ship-dried oregon is not equivalent to dry dressed oregon but he does say it would be ‘very unlikely’. Dr Siemon is an expert in forestry, wood properties and timber utilisation. He is not in the category of witnesses ‘in the building industry’ who may understand a particular expression used in the industry. Another document provided to me is the report of ArchiCentre by Barry Jones [a building consultant], who had every opportunity to report that the roof timbers did not comply with the contract but did not do so.

The Claimant’s claim that ‘ship-dried oregon is not understood in the industry to be equivalent to dry dressed oregon’ is not by any means universally supported in the industry.”

21 Having expressed this conclusion the arbitrator turned to the question whether or not the oregon which was supplied was “dressed”. He found that it was.

22 The arbitrator then went on to consider a report which had been prepared by Mr Jones, the building consultant to whom he had earlier referred, which, he said, did not address the question whether the rafting timbers were made of “dry dressed oregon” but, instead, addressed other issues.

23 The arbitrator then arrived at this conclusion:

“I determine that the Respondent was not in breach of this clause in the manner described because the evidence does not support the claim that ship dried oregon was installed in lieu of dry dressed oregon or the proposition that the timber installed, if it was ship-dried oregon, was not dry dressed oregon.”

24 The failure of natural justice contended for by the applicant relates to par 14 of the arbitrator’s reasons. The matters there dealt with were not raised by either party. Neither party had sought to support its case by reference to the dimensions of the timber. That being so, the applicant contends, it was taken by surprise by what was done by the arbitrator and it was denied the opportunity of placing any additional evidence before the arbitrator and of making submissions to him in respect of the dimensions of the timber. It submits that, had it known that the arbitrator would be influenced by the dimensions of the timber, it would have placed additional evidence before him. This evidence would have established that the roof timber, when purchased by the sawmiller who supplied it to the respondent, had dimensions which were consistent with those of unseasoned timber and that the sawmiller dressed it down to the dimensions ordered by the respondent. The evidence would also have established that the dressing down process involved the passing of the timber through a dressing machine which reduced its thickness but which did not otherwise alter the timber.

25 The applicant contends that, had it had the opportunity to lead this additional evidence and other ancillary evidence to which it referred, the arbitrator would have arrived at the conclusion that the dimensions of the timber did not in fact support the conclusions at which he arrived and, indeed, that the dimensions of the timber, prior to the dressing down, were such as to lead him to the opposite conclusion.

26 Before returning to this contention I should refer to some of the authorities upon which the parties relied.

27 Both referred to the judgment of this court in Thiess Contractors Pty Ltd v Water Corporation of Western Australia, unreported; SCt of WA; Library No 970561; 28 October 1997. Parker J there said (at 37 – 38):

“It is well settled that in contexts such as s 42 of the Act, misconduct may include a mistake in procedure which has, or may have, unjustly prejudiced a party: Melbourne Harbour Trust Commissioners v Hancock [1927] HCA 26;(1927) 39 CLR 570 at 587, 588. The consideration of what constitutes misconduct for these purposes by Marks J in Gas and Fuel Corporation of Victoria v Wood Hall Ltd [1978] VicRp 41; [1978] VR 385 at 391 ff has received wide acceptance. The analysis by Marks J was relied on by each of the judges in Doran Constructions Pty Ltd v Health Administration Corporation of New South Wales (1994) 12 BCL 59, particularly at 62 per Cole JA, Gleeson CJ agreeing and at 63 per Kirby P (as he then was). In that case, as Kirby P pointed out at 63, the term ‘misconduct’:

‘may not, by the authorities, amount to much more than such a mishandling of the arbitration as to be likely to amount to a substantial miscarriage of justice’.

The learned President referred to Williams v Wallis and Cox [1914] 2 KB 478 at 485. There was also acceptance of the decision of … [Staughton J] in Edible Oil Products (Malaysia) … [Bhd] v Jayant Oil Mills Private Ltd [1982] 2 Lloyds Rep 95 at 97 for the proposition:

‘ … the mere failure to put a party on notice of an argument as to a point which might be decided … may not, in the context of an arbitration, necessarily amount to misconduct.’

From this brief identification of relevant authority, I would for present purposes accept that procedural unfairness may amount to misconduct, but that is not necessarily the case. What is to be discerned is that the procedure has, or may have, unjustly prejudiced a party in some respect material to the outcome. The notion bears much similarity to procedural unfairness amounting to a substantial miscarriage of justice.”

28 There is no question as to the proposition that breach of the rules of natural justice amounts to “misconduct” for the purposes of s 42(1)(a) of the Act. That is the effect of the definition of that term in s 4 thereof. The real question is whether, where there is misconduct of that kind, it is such as should attract an exercise of the discretion which s 42(1) affords to the court, on the application of a party to the arbitration agreement, to set aside the award either in whole or in part. It is unlikely that a court would exercise its discretion in that way, even in the case of a denial of natural justice, unless the denial was such as (to use the words of Isaacs J in Melbourne Harbour Trust Commissioners v Hancock [1927] HCA 26; (1927) 39 CLR 570 at 588) “has or may have unjustly prejudiced a party” in a respect material to the outcome of the arbitration (cf Doran Constructions Pty Ltd v Health Administration Corporation (NSW) (1994) 12 BCL 59 at 62 – 63 and Van Dongen v Cooper [1967] WAR 143 at 145).

29 It is not difficult to see why, even in the context of an Act which provides (by s 19(3)) that the arbitrator is not, unless otherwise agreed in writing by the parties to the arbitration agreement, bound by the rules of evidence but may inform himself in relation to any matter in such manner as he thinks fit, the legislature has seen fit to include within the concept of “misconduct” a breach of the rules of natural justice. It is a matter of fairness. As was said by Goff LJ in Interbulk Ltd v Aiden Shipping Co Ltd [1984] 2 Lloyds Rep 66 at 75:

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

30 Ackner LJ, in the same case, said (at 76):

“If an arbitrator considers that the parties or their experts have missed the real point – a dangerous assumption to make … – then it is not only a matter of obvious prudence, but the arbitrator is obliged, in common fairness or, as it is sometimes described, as a matter of natural justice, to put the point to them so that they may have an opportunity of dealing with it.”

31 More recently, in Pacol Ltd v Joint Stock Co Rossakhar [2000] 1 Lloyds Rep 109 at 115 Colman J said:

“In a paper arbitration the temptation to arrive at a conclusion which may not have been envisaged by either party by reference to matters upon which the parties have not had the opportunity of addressing the arbitrators or in respect of which they have not had the opportunity of adducing further evidence, may be a particular temptation which arbitrators should be careful to avoid.”

32 There is, in this case, no real contest as to the fact that the arbitrator did not give to the parties the opportunity of dealing with the point canvassed in par 14 of his reasons. Neither party had raised it and neither expected the arbitrator to raise it. It is readily apparent from the affidavit evidence put forward by the applicant that, had the parties been given an opportunity to deal with the point, it would have been shown to be one of no substance, at worst for the applicant, or, at best for the applicant, one which supported a conclusion different to that at which the arbitrator ultimately arrived.

33 While counsel for the respondent submitted that the matters taken into account by the arbitrator in par 14 of his reasons were not material to the finding at which he ultimately arrived I am not satisfied that this is so.

34 The arbitrator does not say, in terms, what it is which led him to the conclusion that the evidence did not support the claim that the timber installed was not dry dressed oregon. However it must be inferred, from his reasons, that what was said by him in par 14 thereof played some part in assisting him in arriving at this conclusion. There would otherwise have been no point in that paragraph. Consequently, it seems to me, the fact that, as he assumed to be the position, the dimensions of the timber used in the building were those of seasoned or “dry” timber rather than those of unseasoned or “green” timber was one of the factors which led him to conclude that the evidence did not support the claim that the timber installed was not dry dressed oregon. While it is true, as counsel for the respondent pointed out, that the arbitrator said that he had no evidence that the dimensions of the roof timber used were other than the dimensions required by the contract, rather than that the dimensions were those required by the contract, it seems to me, from what he said, that he inferred that the dimensions were those required and that he regarded this as being significant for the reasons earlier outlined. Had he mentioned to the parties that he considered these dimensions to be significant (as he should have done in circumstances in which he proposed to take them, and the standard to which he referred, into account and in which neither party had referred, at all, to this issue) the additional evidence to which I have referred would have been placed before him. How that would have affected his ultimate determination, if at all, is a matter for speculation but it cannot, in my opinion, be said with any confidence that it would have made no difference to the result.

35 It is, I think, important to bear in mind in this respect that, as was said by Ackner LJ in Interbulk, above, at 76:

“Where there is a breach of natural justice as a general proposition it is not for the Courts to speculate what would have been the result if the principles of fairness had been applied. I adopt, with respect, the words of Mr Justice Megarry in John v Rees, [1969] 2 All ER 274 at p 309 where he said:

‘As everybody who has anything to do with the law well knows, the path of the law is strewn with examples of open and shut cases which, somehow, were not; of unanswerable charges which, in the event, were completely answered; of inexplicable conduct which was fully explained; of fixed and unalterable determinations that, by discussion, suffered a change.’ ”

36 In the end it seems to me to be plain that there was, in this case, a breach of the rules of natural justice. It also seems to me, as I have said, that the consequence of the breach was one which might have affected the result. That being so the applicant may have been materially unjustly prejudiced.

37 While counsel for the respondent submitted that there can be no material prejudice because the arbitrator went on, in his award, to find that the applicant had not suffered any loss, I do not accept that this is so.

38 It seems that the applicant had, in its Points of Claim, suggested that the measure of its loss was “the cost saving which the Respondent has obtained in using Ship Dried Oregon in lieu of Dry Dressed Oregon” and that it sought directions “for a true accounting of the cost savings”. Leaving to one side the question whether this was an appropriate way of calculating any damages to which the claimant might be entitled (a point on which no argument was addressed to me) it is, I think, plain that the arbitrator declined to make directions of the kind sought, or to make any further enquiry in this respect, only because he found that there had been no breach. While it is true that he said, in the course of his reasons, that there was no evidence of any “savings” obtained by the respondent through his purchase of the less expensive roof timbers, he went on to say:

” … nor should there be if, as I have determined, the timber complied with the contract. There is therefore no need for any direction for ‘a true accounting of the cost savings’.” [My italics.]

39 The arbitrator also said that there was no evidence that what the respondent had claimed in respect of the cost of the timber was “anything more than the true cost” and consequently that what the applicant had been asked to pay was “more than what … [it] should pay”. While it is not entirely clear to me what was intended by this comment (and I should add that I was told that the contract was a “lump sum” contract), it might well be the case that the arbitrator’s conclusion in this last respect was a consequence of his finding that there had been no breach. It was plain, at least on the evidence before me, that the timber supplied cost significantly less than did seasoned oregon.

40 Moreover, at the foot of par 19 of his reasons, the arbitrator said the following:

“The Claimant in paragraph 19 of its Outline of Submissions says, ‘By analogy, had the Claimants requested a variation of the contract to substitute ship-dried oregon for dry dressed oregon, they would have been entitled to a credit for the variation … ‘. It is my finding that, in another analogy, had the architect been administering the contract he would have responded to such a request by explaining that the requested change could not be a variation to the contract. He wrote the relevant part of the contract and his evidence is that ship-dried is the same as dry dressed.”

41 It is apparent from that paragraph that, had the learned arbitrator arrived at a different conclusion on the question of breach, he might also have arrived at a different conclusion as regards the question of entitlement to a credit for the variation.

42 Moreover, in respect of the claim for “loss of amenity and inconvenience” which had been brought by the applicant, the arbitrator found not only (as was pointed out by counsel for the respondent) that there was no explanation of the amenities said to be lost, inconvenience said to be suffered or enjoyment said to be lost but also that, because there was no breach, it was unnecessary for him to consider this claim further.

43 Once again it is not clear that, had the arbitrator found that there was a breach, he would not have given further consideration to this question.

44 In all of these circumstances I am satisfied that this is a proper case for the exercise of my discretion to set aside the award in whole. While this is an unfortunate result it seems to me that the arbitration will have to be re-heard.

45 I will hear further from the parties as to the form of orders required to give effect to this conclusion.

Oil Basins Ltd v BHP Billiton Ltd & Ors [2007] VSCA 255 (16 November 2007)

SUPREME COURT OF VICTORIA
COURT OF APPEAL

OIL BASINS LIMITED (ACN 091 829 819)
(Appellant)

V

BHP BILLITON LIMITED (ACN 004 028 077) & ORS
(Respondents)

 

JUDGES: Buchanan, Nettle and Dodds-Street JJA
WHERE HELD: Melbourne
DATES OF HEARING: 16 & 17 October 2007
DATE OF JUDGMENT: 16 November 2007
CATCHWORDS: ARBITRATION – Award – Interim award – Form of award – Requirement to include in award statement of reasons for making award – Judicial review of awards – Question of law arising out of award – Whether failure to include adequate statement of reasons in award constitutes manifest error of law on face of award – Whether inadequacy of reasons substantially affects rights of one or more parties – Misconduct – Technical misconduct – Whether failure to include adequate statement of reasons in award constitutes technical misconduct – Power to set aside award – Whether appropriate to set aside award due to inadequacy of reasons – Reasons – Observations as to standard of reasons required to be included in awards – Commercial Arbitration Act 1984, ss 29(1)(c), 38, 42 and 43.

 

1 This is an appeal from a judgment given in the Commercial List of the Commercial and Equity Division. It concerns an interim arbitral award as to the application of an override royalty agreement to the Blackback oil field in Bass Strait (‘the Royalty Agreement’). The judge set aside the award for error of law on the face of the award and for technical misconduct constituted by the inadequacy of the majority arbitrators’ reasons and their failure to deal with relevant evidence and significant submissions.

The facts

2 As appears from the interim award, the Royalty Agreement was made between the late Dr Lewis Weeks, a renowned United States based geologist with particular skill and experience in petroleum exploration, and The Broken Hill Proprietary Company Limited (‘BHP’). Early in 1960, BHP engaged Dr Weeks to evaluate petroleum prospects in the Sydney Basin in New South Wales where BHP held permits. After Dr Weeks travelled to Australia to examine the data and the relevant areas, he advised against the Sydney Basin and BHP subsequently surrendered all oil permits for that area. Before leaving Australia, however, Dr Weeks had further discussions with BHP’s technical staff which culminated in BHP applying for, and becoming the holder of, three Petroleum Exploration Permits issued under the Petroleum Act 1958 (Vic) and one Exploration Licence issued under the Mining Act 1929 (Tas), with a view to BHP searching for oil mainly under the Bass Strait sea bed. To assist BHP in that endeavour, Dr Weeks also agreed to BHP’s request that he act as its geological adviser in respect of its three applications for permit, namely, applications 38, 39 and 40 and, in accordance with that arrangement, Dr Weeks continued in his consultancy role until his death in 1977.

3 Petroleum Exploration Permit No.38 (‘PEP 38’) was granted to BHP on 23 June 1960. Under PEP 38, and pursuant to section 67 of the Petroleum Act 1958 (Vic), BHP was granted the exclusive right to explore for petroleum (and for no other purpose) within the area covered by the permit for a period of two years from 1 April 1960. The permit could be extended for a further period(s) of 12 months at the discretion of the Minister. By letter dated 22 June 1960, Dr Weeks informed BHP that, in his view, ‘[t]he most important areas’ he had recommended to BHP were those ‘covered by the Victorian application’, he having ‘long believed … that the Mesozoic-Tertiaries of the Bass Strait and neighbouring coastal belt offer the best opportunities for oil in Australia’. He advised BHP that it ‘should seek to strengthen [its] position in the region when and wherever possible’.

4 Later in 1960, BHP and Dr. Weeks’ nominee, Oil Basins Incorporated (‘OBI’), which was the appellant’s predecessor in title, entered into separate royalty agreements in respect of each of the areas covered by PEP’s 38, 39 and 40 and Exploration Licence 1/60. BHP and Dr Weeks also entered into a Consultancy Agreement (‘the Consultancy Agreement’) in respect of, inter alia, the areas covered by PEP’s 38, 39 and 40 and Exploration Licence 1/60.

5 The Royalty Agreement pertaining to PEP 38 recited that BHP ‘holds the exclusive Petroleum Exploration Permit No. 38 issued under the Petroleum Act 1958 of the State of Victoria to explore for hydrocarbons within an area comprising 4,450 square miles as shown on the attached plan (hereinafter referred to as “the area”) and as specifically described in the Schedule hereto.’ The Blackback field is within the area as defined in the Royalty Agreement.

6 By the Royalty Agreement, BHP did ‘bargain sell grant and assign’ to OBI ‘an overriding royalty of two and one half per centum (2½%) of the gross value of all hydrocarbons produced and recovered by the Company its successors and assigns within the area.’

7 The first discovery of hydrocarbons within ‘the area’ occurred in 1965 with the discovery of gas at the field known as ‘Barracouta’ and since then there have been significant discoveries of oil and gas within the area, in respect of which the respondents have paid royalties to the appellant.

8 In 1967, each of the Commonwealth and the State of Victoria enacted substantially identical legislation in the form of the Petroleum (Submerged Lands) Acts 1967 (‘PSLA’). The PSLA introduced a new exploration permit scheme under which permits were to be issued for an initial term of six years, the permit holder had a right to obtain a renewal subject to compliance with the terms of the permit and the legislation, but the renewed permit would only be issued in respect of 50% of the blocks covered by the previous permit.

9 In July and August 1975, the respondents under Exploration Permit VIC/P1 drilled ‘Hapuku-1’, the discovery well for the Blackback field. (The Blackback field is located on blocks 2143, 2215 and 2216 and the Hapuku-1 well was drilled on block 2215.) After drilling to a total depth of 11,974 feet, the oil column was deemed to be uneconomic, due to the water depth at which it was located, and the well was plugged and abandoned. Subsequently, in 1979, BHP as the VIC/P1 permit holder and in accordance with the PSLA statutory regime relinquished or surrendered one half of the blocks then comprising the permit including blocks 2143, 2215 and 2216. (Under the PSLA regime, BHP, as permit holder, had a discretion as to which of the permit blocks it would surrender and consulted with its joint venturer, Esso, before determining which blocks would be surrendered or relinquished.)

10 In 1981, some seven years after the abandonment of Hapuku-1, BHP and Esso again tendered for two permit areas in Bass Strait, one of which included block 2143. Subsequently, however, they entered into a ‘farm-in’ with the successful tenderer, a consortium headed by Shell Development (Aust) Pty Ltd, and by agreement each of BHP and Esso thereby acquired a 25% interest in exploration permit VIC/P19. On 6 August 1986, the Designated Authority consented to the consortium’s surrender of 11 of the blocks forming part of permit VIC/P19, including block 2143.

11 In September 1987, the Designated Authority invited applications for the grant of exploration permits for a number of areas including Area 86-G7, which included the Blackback blocks, blocks 2143, 2215 and 2216. The material released with respect to the applications pointed out that the Hapuku-1 well had proven the area of the Blackback blocks to be prospective for hydrocarbons. In November and December 1986, BHP evaluated and assessed this acreage, noting that ‘the most prospective structure is Hapuku’ and, after consulting with Esso, a BHP subsidiary applied for and on 30 July 1987 was granted an Exploration Permit, VIC/P24, for a period of six years in respect of 21 blocks, including blocks 2143, 2215 and 2216.

12 In February 1989 Esso, at BHP’s invitation and with the approval of the Designated Authority, farmed in to Exploration Permit VIC/P24 and entered into a joint venture operating agreement with the relevant BHP subsidiary. Under those arrangements, a 50% interest in VIC/P24 was transferred to Esso in consideration of Esso agreeing, inter alia, to bear 100% of the cost of the commitment wells. In seeking the approval of its Executive Committee to farm-in, Esso stated that the ‘prime purpose of farming into this area was to gain equity in the Hapuku-Blackback structure.’ (It was at about this time that the field became known as Blackback.)

13 Between 1989 and 1994 Esso, as operator of the joint venture, drilled a number of wells into the Latrobe structure where Hapuku-1 had found oil. All of these wells tested and appraised the oil accumulation discovered by the Hapuku-1 well.

14 On 8 October 1993, Exploration Permit VIC/P24 was renewed over blocks including 2143, 2215 and 2216. On 20 June 1997, following the identification of a petroleum pool, the Designated Authority declared the Blackback blocks 2143, 2215, and 2216 to be a ‘location’ for the purposes of s 37 of the PSLA. In January 1998 the Designated Authority granted to the respondents a Production Licence, VIC/L20, over the Blackback blocks for a period of 21 years and on 12 February 1998, the Designated Authority approved the surrender of VIC/P24.

15 The production of hydrocarbons from the Blackback field commenced during 1999 and is continuing. The Blackback hydrocarbons are being ‘produced and recovered’ by the respondents by way of a sub-sea completion that is tied into the Mackerel platform, in the geographic ‘area’ the subject of PEP 38 (ie, both the Blackback field and the Mackerel platform are located within the perimeter of the geographic area described in 1960 as the area covered by PEP 38).

16 On 26 June 1998, at the request of BHP and Esso, the Minister for Resources and Energy as the Minister for the time being administering the PSLA certified that for the purposes of the Petroleum Resource Rent Tax Assessment Acts and associated Acts, ‘Production Licences VIC/L1 to VIC/L19 inclusive which make up the single petroleum project in relation to all production licences that are related to the Bass Strait exploration permit in terms of Section 19(1A) of the Act, and the Blackback Production Licence, VIC/L20, shall be treated as a single project’.

17 On 16 April 1999 the Chairman of the appellant wrote to BHP noting that he and other officers of the appellant had been informed at a meeting with BHP on 11 March 1999 of BHP’s and Esso’s view that, because Blackback was not discovered by a successor or assign of BHP, but in 1989 after Esso had farmed in, the Royalty Agreement did not apply to Blackback and hence that override royalty was not payable in respect of production from Blackback.

18 BHP replied by letter dated 30 April 1999 that:

BHP’s view, supported by legal advice, is that OBL is not entitled to royalty on production from Blackback. With respect to VIC/L20, OBL’s overriding royalty interest was extinguished when the relevant portions of VIC/P1 were relinquished as required by the Petroleum (Submerged Lands) Act.

19 Under both the Royalty Agreement and a later Settlement Agreement made on 17 March 1994 (as amended by deed of amendment dated 14 March 1997) (the ‘Settlement Agreement’) the parties provided for arbitration as the means for resolving any disputes between them.

20 By letters dated 12 July 2002 and 13 August 2002 the appellant gave notice of dispute to the respondents pursuant to the Settlement Agreement and also pursuant to the Royalty Agreement. In 2003 the appellant appointed a retired state Supreme Court judge as its nominated arbitrator and the respondents appointed a United States’ oil and gas lawyer as their nominated arbitrator. Thereafter a retired judge of the Federal Court of Australia was appointed by the two arbitrators as a third arbitrator and chairman of the arbitral panel. Their appointments were formally recorded in Arbitrator Appointment Agreements.

21 On 27 May 2004, the parties submitted their dispute to arbitration, adopting the procedures set out in the Deed of Submission to Arbitration (‘the Deed’) and, subject to the Act, made applicable by clause 3 of the Deed. The Deed recorded, inter alia, the parties’ ‘agreed goal of efficient resolution of the Dispute’ and their agreement to use their best endeavours to facilitate the making of an award by the Arbitrators ‘expeditiously and without undue delay’, their mutual requirement that all hearings be held in private and be kept confidential to the parties, and that any interim award be made in writing, as soon as reasonably practicable, stating the reasons for making the award, and be final and binding upon the parties.

22 On 30 August 2004, the arbitrators ordered and directed, inter alia, that ‘All questions of liability referred to in the pleadings be heard and determined by the Arbitrators and made the subject of an Interim Award before hearing and determining any further issues.’

23 Clause 12 of the Royalty Agreement provides that it ‘shall be interpreted and applied in accordance with the law of the State of New York, United States of America.’ It was necessary, therefore, for the arbitrators to make findings of fact as to the content of New York law; and, in particular, as to the applicable principles of contract interpretation under New York law. It was common ground that the question was to be approached by reference to the manner in which the matter would be decided by the New York Court of Appeals.

24 The arbitrators delivered their interim award on 6 September 2005. The chairman and the other Australian arbitrator (‘the majority arbitrators’) delivered a joint interim award in which they concluded that the respondents were liable to pay the appellant the overriding royalties which have accrued and remain unpaid since the production and recovery of hydrocarbons from the Blackback field. In his dissenting reasons, the third arbitrator stated that he would have denied the respondent’s claim because, in his view, a New York Court would conclude that the 2½% overriding royalty granted by the Royalty Agreement would not cover or apply to hydrocarbons produced and recovered pursuant to the petroleum production licence covering the Blackback field.

25 Regrettably, the chairman died on 13 January 2006 and the arbitrators have not since taken any further substantive step.

The judgment below

26 The respondents challenged the interim award before the judge below on two grounds: first, that the reasons given by the majority arbitrators were so manifestly inadequate as to constitute error of law on the face of the interim award; and, secondly, that the majority arbitrators had so much failed to consider and adjudicate upon substantial and serious submissions and evidence relied upon by the respondents as to amount to technical misconduct.

27 In dealing with the first of those contentions, the judge noted that the arbitration had been conducted under the Commercial Arbitration Act 1984 and, therefore, that the arbitrators were required by s 29(1)(c) of that Act to include in their award a statement of the reasons for making the award. After referring to a number of cases in which the duty of judges and arbitrators to give reasons has been considered, his Honour held that:

the standard to be applied in considering the sufficiency of an arbitrator’s reasons depends upon the circumstances of the case including the facts of the arbitration, the procedures adopted in the arbitration, the conduct of the parties to the arbitration and the qualifications and experience of the arbitrator or arbitrators. For example, in a straightforward trade arbitration before a trade expert, a less exacting standard than would be expected of a judge’s reasons should be applied in considering the adequacy of the reasons for the making of an award. On the other hand, in a large-scale commercial arbitration, where the parties engage in the exchange of detailed pleadings and witness statements prior to a formal hearing before a legally qualified arbitrator, a higher standard of reasons is to be expected. This is especially so where the arbitrator is a retired judicial officer.

And that:

My review of the authorities and the facts of this case leads me to conclude that the arbitrators were under a duty to give reasons of a standard which was equivalent to the reasons to be expected from a judge deciding a commercial case. The arbitration is a large commercial arbitration involving many millions of dollars. It was attended with many of the formalities of a legal proceeding, including the exchange of points of claim and defence and of substantial witness statements. The hearing occupied 15 sitting days. In addition to oral argument, substantial written submissions were made by the parties. The arbitrators were obviously chosen for their legal experience and were retired judges of superior courts. Both sides were represented by large commercial firms of solicitors and very experienced Queens Counsel.

28 The central issue in the arbitration was whether the expression ‘overriding royalty’ in the Royalty Agreement was used as a term of art, as the respondents contended (with the result that any right to royalty ceased upon surrender of the tenement to which it related (a ‘title based’ royalty)), or whether the expression meant simply an additional royalty, as the appellant argued (with the result that royalty was payable in respect of production derived by the respondents from within the area regardless of surrenders (an ‘area based’ royalty)). Much turned on the decision of the New York Supreme Court Appellate Division in Hatch v NYCO Minerals Inc, in which it was held that ’”Overriding royalty”, by definition, is a retained interest in minerals located on specific property that the royalty holder, ie, lessee, does not actually own’, and that ‘[t]echnical words are to be interpreted as usually understood by the persons in the profession or business to which they relate, and must be taken in the technical sense unless the context of the instrument or an applicable usage or the surrounding circumstances clearly indicate a different meaning’.

29 Accordingly, the judge held that in order to provide reasons of the standard required by s 29(1)(c), it was necessary for the arbitrators to decide and give reasons for deciding whether ‘overriding royalty’ was a technical term with a meaning usually understood by persons in the oil and gas industry and, if so, whether the context of the royalty agreement or the surrounding circumstances implied that the parties intended a different meaning from the technical meaning.

30 The reasons which the majority arbitrators gave on those points were as follows:

177. We turn to the question, on which heavy reliance was placed by the Respondents, whether the Royalty Agreement confers purely contractual rights or a proprietary interest under New York law.

178. Central to the case of the Respondents is their argument based on the decision of the Supreme Court of New York, Appellate Division, in the Estate of Hatch (supra), as authority for the proposition that the duration of an overriding royalty must be limited by the duration of the underlying proprietary interest from which it was carved.

179. It is to be noted that Hatch was concerned with a “lease” from which the royalty right was said to be carved.

180. In our view, Hatch is not authority for the proposition that the expression “overriding royalty” has a single fixed meaning in oil and gas custom and usage. Nor did the Supreme Court of New York decide that an overriding royalty must be “carved out” of a property interest in hydrocarbons which existed at the time of the making of the agreement that created that interest (“the Royalty Agreement”), or that the duration of the royalty was limited to the duration of the grantor’s real property interest. What was said by the Supreme Court in Hatch was that an overriding royalty must relate to minerals located on specific property that the royalty holder does not own. Under cross-examination, Judge Simons said that “there isn’t any law in New York State that addresses the question of overriding royalty. There wasn’t any such law before Hatch”. He said also that “Hatch is not a decision that the Court of Appeals would look at and say, they have defined overriding royalty and that’s the only law in New York State on overriding royalty, we would give it very serious consideration, because they wouldn’t. They would look at it and say, the facts of the [the respondent’s] case are entirely different and the definition of overriding royalty found in the Hatch case will not work here. It is a recognised canon of construction that, if the technical definitions or words do not fit the facts and circumstances before you, then they need not be interpreted in that way”. We accept that evidence as an accurate statement of the relevant law of New York. The Supreme Court in Hatch clearly acknowledged that the term “overriding royalty” does not have a single invariable meaning under New York law. The Court said that the technical meaning of a word is not followed when “the context of the instrument or an applicable usage or the surrounding circumstances clearly indicate a different meaning”. (See 666 NYS 2nd at 298).

181. We also accept the evidence of Judge Simons to similar effect with respect to other decisions of courts of the USA, including the decision of the Supreme Court of Montana in Aronow v Bishop (107 Mont 317; 86 p.2nd 644).

182. In our view the submission made on behalf of [the appellant], is correct that the term “overriding royalty”never has had and does not now have, a single definite meaning in the United States oil and gas and usage. The expression is and has always been used in the general sense of a royalty that is payable over and above whatever royalty may be customarily due to the owner of the underlying mineral interest. We reject [the respondents’] contention that the term overriding royalty necessarily means in all contexts an interest “carved out” of an underlying leasehold or other working interest and limited in duration to the duration of that interest. The evidence before us demonstrates that the term does not and never has had one fixed meaning even in the context of private mineral holdings in the United States, and, a fortiori, in the context of the Royalty Agreement with which this case is concerned.

183. We agree with the following statement of Professor Kuntz in his work, Law of Oil and Gas (2003 ed.) Chapter 16.1 in these terms: “Under the ‘four corners’ rule, the court makes every effort to reconcile all provisions of the entire instrument. Stated another way, arbitrary and technical rules of construction are not invoked if the intention of the parties can be determined from the four corners of the instrument without aid. Technical word(s) may not be construed in their technical sense, and strict or literal meaning of the language used will not be applied if it would frustrate the apparent intention of the parties as deducted [sic] from the entire instrument”.

184. We note also that this analysis is consistent with the approach taken by the arbitrators in Asamera (South Sumatra) Limited v Tesoro Petroleum Corporation (supra).

185. The term “overriding royalty” was commonly used in the oil and gas industry in the United States with a range of meanings. We are satisfied that the expression “overriding royalty” does not have the special limited meaning for which the Respondents contend.

31 In the judge’s view, those reasons were inadequate because they left the reader to wonder whether the majority arbitrators had decided that the expression ‘overriding royalty’ was a technical term with a meaning which was usually understood in the oil and gas industry but which was displaced by context, usage or surrounding circumstances, or whether they had decided that the expression ‘overriding royalty’ was not a technical term with a meaning which is usually understood by persons in the oil and gas industry.

32 As to the question of whether the majority arbitrators failed to consider and adjudicate upon substantial and serious submissions and evidence relied upon by the appellant, his Honour held that they had so failed, because:

  1. Nowhere in these conclusions is any reference made to the submissions made on behalf of [the respondents] in support [their] contention that usage, context and circumstances did not indicate a different meaning to the technical meaning of “overriding royalty” but, rather, strongly confirmed the “title based” technical meaning for which [the respondents] contended. These submissions were summarised by arbitrators in the interim award, as set out in sub-paragraphs 98(4) to 98(7) above.
  2. These submissions made on behalf of [the respondents] were not at the periphery of its case; nor were they so obviously untenable that they could safely be ignored by the arbitrators. The submissions were at the heart of the matter, as demonstrated by the fact that the arbitrators had set them out in some detail in the reasons. This is also demonstrated by the content of paragraph 180 of the reasons, in which the arbitrators express a conclusion on the very issue to which these submissions were directed. The arbitrators were required to do more than merely refer to these submissions. They were required to give intelligible reasons for their rejection. They did not do so; and their reasons on this issue are manifestly inadequate as a result.

Adequacy of reasons

33 The appellant contends that the judge was wrong in holding that the majority arbitrators’ reasons were inadequate. Counsel for the appellant submitted that an informed reader would not be left in any doubt as to what it was that the majority had decided and that it is apparent on a fair reading of the award that the majority arbitrators had in fact given the following multiple and cumulative reasons for their decision:

  1. The words “overriding royalty” have a plain and natural meaning – they are not obviously technical words conveying a technical meaning, and the Royalty Agreement is completely harmonious when the words are given their ordinary meaning.
  2. The evidence demonstrated that the expression was commonly used with a range of meanings, never had one fixed meaning and did not have the special meaning for which the [respondents] contended [par 182 and 185].
  3. The [respondents] founded their special limited “carve out” meaning on Hatch, but Hatch does not establish that special meaning [par 180,182].
  4. The meaning for which the [respondents] contended was inconsistent with the context and surrounding circumstances of this Royalty Agreement [par 183].

34 We do not accept that argument. Superficially, it appears to be attractive. Proposition (2) looks to be supported by paragraphs 182 and 185 of the majority arbitrators’ reasons; proposition (3) seems to be underpinned by paragraphs 180 and 182; proposition (4) appears as based on paragraph 183; and proposition (1) might be viewed as a summary of the other propositions. But, as the judge said, among other difficulties with the analysis is that paragraphs 180 and 182 are inconsistent. The last two sentences of paragraph 180 imply that ‘overriding royalty’ is a term of art of which the technical meaning may be displaced by context. Contrastingly, paragraph 182 proceeds as if the expression ‘overriding royalty’ has ‘always only ever been used in the general sense of a royalty that is payable over and above whatever royalty may be customarily due to the owner of the underlying mineral interest’. Further, as his Honour observed, the only reason given for concluding that the expression ‘overriding royalty’ has only ever been used in the general sense identified is what the majority arbitrators described as the ‘evidence before us’. They did not identify which of the evidence before them they had in mind, or give reasons for preferring it to the substantial body of expert opinion evidence which pointed the other way. The only hint they gave was this:

The parties also basically agree about what the relevant principles of interpretation of New York law are, but there is some disagreement, more on the relevance of certain of those principles to this arbitration and their application to it, rather than the substance of the principles themselves. This attitude of the parties substantially reflects the evidence of the expert witnesses. We observe, however, that in some respects the evidence of some of the expert witnesses, in particular Judge Simons and Judge Levine, differs from the other. Having read and considered their statements of evidence and heard their oral evidence, where these differences occur we generally prefer the evidence of Judge Simons.

35 So far from clarifying the position, however, the hint adds considerably to the uncertainty. It appears in a section of the reasons which is headed ‘Principles of Interpretation of the Royalty Agreement and the Consultancy Agreement’. That implies that some part of the ‘disagreement’ was perceived to relate to ‘the principles’ as well as to ‘their application’. But the only particulars of the ‘disagreement’ given are that the evidence of ‘Judge Simons and Judge Levine differs from the other’. One is not told in what respects they were perceived to differ, and in particular whether as to principles or application. Further, as to the resolution of ‘these differences’, the only reason provided is the Delphic incantation that the majority arbitrators ‘generally prefer the evidence of Judge Simons’. It is not said which parts of it or why. Moreover, the other expert witnesses on both sides (in particular Mr McCollam and Professor Martin who were called by the respondents) are not mentioned, still less said to have been rejected because of something uttered by Judge Simons or for some other reason; and that latter omission assumes particular significance once it is understood that there were aspects of the matter with which those witnesses dealt that were arguably not dealt with by Judge Simons (although covered by other experts called by the appellant). It implies that Mr McCollam’s and Professor Martin’s evidence or at least parts of it may not have been considered at all.

36 The uncertainty is then further exacerbated by the observation in paragraph 181 that ‘we also accept the evidence of Judge Simons to similar effect with respect to…Aronow v Bishop (107 Mont 317; 86 p.2nd 644)’. For as far as we can see, Judge Simons accepted that Aronow and other ‘Preference Rights’ cases recognised that a strict application of the technical definition of an ORR [overriding royalty] would have effectively extinguished the royalty holders’ rights once prospecting permits were surrendered or exchanged for mining leases (see, e.g., Aronow, 86 P.2d at 646). Admittedly, Judge Simons later went on to say that: ‘it would be open to the [New York] Court of Appeals to conclude that the so-called “Preference Rights” cases cited by the respondents’ experts (particularly Mr McCollam (at [27]-[33]) do not provide an analogous and persuasive basis for narrowly limiting the extension of any royalty obligation under the 1960 Royalty Agreement to mining titles “directly derivative” of PEP 38 (or its replacement Permit Vic/P1).’ But that may just mean that the expression ‘overriding royalty’ was a term of art with a technical meaning of a ‘carved out’ interest which was in this case excluded by the context.

37 The same deficiency infects the asseveration in paragraph 182 that: ‘The evidence before us demonstrates that the term [“overriding royalty”] does not and never has had one fixed meaning even in the context of private mineral holdings in the United States, and a fortiori, in the context of the Royalty Agreement with which this case is concerned’. There is no reference there or elsewhere to any of the substantial contrary body of evidence adduced by the respondents and there is no explanation of why it was rejected.

38 There is next the reference in paragraph 184 to Asamera (South Sumatra) Limited v Tesoro Petroleum Corporation as being consistent with the approach earlier mentioned in paragraph 183 (that ‘Technical word[s] may not be construed in their technical sense, and strict or literal meaning of the language used will not be applied if it would frustrate the apparent intention of the parties as deducted [sic] from the entire instrument’). That implies an acceptance of the proposition that ‘overriding royalty’ has a technical meaning which may have been excluded by context. But if it were thought that the context here excluded the technical meaning, there is no explanation of why it was thought to do so.

39 Finally, the observations in paragraph 185 (that ‘”overriding royalty” was commonly used in the gas and oil industry in United States with a range of meanings’) reverts to the earlier theme of paragraph 182 (that ‘”overriding royalty” never has had and does not now have, a single definite meaning in the United States oil and gas usage’). But that is at odds with the second sentence of paragraph 182 (that ‘The expression is and has always been used in the general sense of a royalty that is payable over and above whatever royalty may be customarily due to the owner of the underlying mineral interest’) and at odds with the strong indication implicit in the last sentence of paragraph 183 (that ‘overriding’ royalty is a ‘technical word’ with a ‘technical sense’ but that its ‘strict or literal meaning of the language used will not be applied if it would frustrate the apparent intention of the parties as deducted [sic] from the entire agreement’).

40 Perhaps one is to read the reasons as meaning that, if the expression ‘overriding royalty’ is a term of art or ‘technical word’ with a ‘technical meaning’, the context implies that it was not used with that meaning in the Royalty Agreement. But, as the judge said, if that is the case, the reasons are inadequate because of their failure to condescend to any analysis of the competing evidence and reasons for rejecting it in favour of the appellant’s contentions. The most that can be gleaned from what the majority arbitrators said is that they attached some special significance to Judge Simons’ opinion compared to the other experts, and there is no explanation of why they did. We are reminded of Henry LJ’s animadversion upon the reasons of the judge in Flannery v Halifax Estate Agencies Ltd:

That passage is the only passage in the judgment which purports to set out reasons for the decision. The appellants complain that in truth no reasons are given we do not know why the judge preferred the defendant’s expert evidence to that of the plaintiff….But the judgement is entirely opaque it gives the judge’s conclusion, but not his reasons for reaching that conclusion.

41 The appellant contends that, even if that be so, there was abundant evidence to support the majority arbitrators’ conclusion that ‘overriding royalty’ did not have the meaning for which the respondents contended, and that it may be assumed that the majority arbitrators came to their decision on the basis of that evidence. Counsel for the appellant relied in particular on the following:

• Observations in Kuntz, Law of Oil and Gas, and Collins, ‘The Rights of the Overriding Royalty Owner’ (‘Royalties in addition to the usual one-eighth reserved in the oil and gas lease are usually classified as overriding royalties’) to the effect that ‘overriding royalty’ may mean nothing more than a royalty ‘in addition’ to (or over and above) any royalty to be paid to the owner of the underlying mineral estate (typically, the lessor).

• This passage from Professor Summers treatise:

Perhaps the only safe way to define the term ‘overriding royalty’ is to say that it is a fractional interest in the gross production of oil and gas, in addition to the usual royalties to be paid to the lessor. The term m[a]y be used in referring to a non-participating royalty interest in perpetuity or for a term of years created by the land or mineral owner prior to a lease for oil and gas.

• This further observation in Professor Summers’ treatise, to the effect that the term ‘overriding royalty’ can be used to describe a royalty right that is granted or promised in relation to a lease or other working interest that may be acquired in the future:

A prospective lessee may agree to pay an overriding royalty, a certain share of the production, to another person as consideration for his services in procuring a lease on certain lands.

42 In our view, however, counsel’s argument breaks down at a number of levels. To begin with, the arbitrators did not refer to the identified passages from Kuntz or Summers and it is not otherwise apparent that they took those passages into account. So, to borrow again from the judgment of Henry LJ in Flannery:

we do not know whether the assumed thought process was the judge’s actual thought process…on what the judge said we do not know why he preferred the defendants’ experts, nor whether that was for good reason or bad. We do not know because reasons were not given.

43 Secondly, as we read the cited passage from Summers, it accords with the view that ‘overriding royalty’ is a term of art in United States’ oil and gas law signifying an overriding interest which is ‘carved out’ of an oil and gas lease and which, therefore, is limited in duration to the term of the lease. The cited passages from Kuntz and Collins, when read in context, appear also to confirm that view:

(1) The thrust of the chapter in Kuntz from which the cited passage is taken appears as follows:

An overriding royalty is a nonoperating interest that is carved out of the working interest of an oil and gas lease. It may be created by conveyance of the overriding royalty by the owner of the lease, but is it more commonly created by reservation upon the transfer of an oil and gas lease.

…Occasionally, the parties refer to the additional royalty as an “overriding royalty” and thereby create the possibility of confusion with the overriding royalty carved out of an oil and gas lease. The use of the term “overriding” to describe an additional royalty adds nothing to the meaning of “royalty” and may create doubt as to whether or not the additional royalty is intended to override other limiting provisions of the lease, such as the lesser interest clauses…

Because of the problems that may be created, the use of the term “overriding royalty” in an oil and gas lease to describe an additional royalty should be avoided. Despite this occasional use of “overriding royalty” to describe an additional royalty, the term will be used herein in its conventional sense to describe an interest carved out of an oil and gas lease by the lessee.

An overriding royalty is an interest in the oil and gas lease out of which it is carved and cannot be a property interest of greater dignity than the lease itself…

In various jurisdictions it has been variously held that an overriding royalty is “land”, “real property”, or “real estate”, as those terms are used interchangeably in a statute providing for attachment…

An overriding royalty created from a federal oil and gas lease is real property so that it is a proper subject for a quiet title action and is subject to the recording statutes…

From the various cases to which reference has just been made and from others, it can be concluded that the overriding royalty is generally regarded to be an interest in land. It is, however, a non-possessory interest in land, with the result that the owner is not entitled to possessory remedies such as trespass to try title, and partition of such interest cannot be compelled by the owner of the working interest, except in extreme circumstances.

The overriding royalty is carved out of an oil and gas lease, but the owner is not a cotenant in the operating interest with the lessee, nor can it be said that their arrangement creates a partnership. Being a nonoperating interest that is carved out of the oil and gas lease, the overriding royalty has been regarded as an encumbrance on the working interest and is therefore free from liens thereafter imposed on the working interest.

The overriding royalty is created out of an oil and gas lease and is necessarily limited in duration to the life of the lease. Accordingly, the overriding royalty will terminate upon expiration of the lease, upon termination of the lease for failure of the lessee to comply with the drilling clause, and upon a surrender of the lease by the lessee.

In the absence of some special provision in the instrument creating the interest, the overriding royalty applies only to the lease out of which it was created and does not apply to any future leases granted. If the future lease is a “direct outgrowth” of the prior lease, then the overriding royalty may apply. For example, it has been held that if the new lease is acquired pursuant to a right created by the old lease, it will be subject to the overriding royalty reserved on assignment of the old lease.

(2) Similarly, in the article by Collins to which the appellant refers, it is said that:

The overriding royalty owner’s rights are akin to those of the lessee, in that their tenure is dependent on the continued life of the lease, even though all of the expense and control of development is borne by the lessee. His interest quickly shifts to that of the lessor when questions arise as the diligent and proper operation of the lease.

It is generally recognized that the overriding royalty is extinguished with the bona fide termination or cancellation of the lease. Many instances reach the courts where the lessee fails to obtain production during the primary term and later acquires a new lease on the same premises. Where the instrument creating the overriding royalty is silent regarding extensions or renewals, the overriding royalty owner must show a breach of fiduciary obligation and a conspiracy to deprive him of his interest before he is granted relief.

In determining the rights of the overriding royalty owner in the termination of his interest, most of the cases involved situations where the lease was permitted to lapse through the expiration of the primary term or failure to pay delay rentals. A different situation arises where the lessee releases a portion of the acreage held by production. In either event, the good faith of the release appears to be the criteria in resolving the rights of the overriding royalty owner…

44 Thirdly, the views of Judge Simons, to which the majority arbitrators referred in paragraph 180 of their reasons, were directly contradicted by the opinion of Judge Levine, and by the opinions of Mr McCollam and Professor Martin, as follows:

1) Judge Levine said:

When parties to an agreement employ technical phrases having well understood meaning or significance in the profession or business to which they relate, the New York courts will interpret the contractual language in accordance with that understanding. (See, Malbone Garage Inc v Minkin 272 App Div 109, 113 [2d Dept 1947], aff’d,297 NY 677 [1947]; Hatch v NYCO Minerals Inc, 245 A.D. 2d 746, 747-48 [3d Dept 1997]). Of particular precedential significance, the Appellate Division in Hatch, relying in part upon case law from the courts of mineral producing jurisdictions, found that the phrase “overriding royalty” has such a well understood “unambiguous” meaning. Therefore, the New York courts, in interpreting the language of Clause 1 of the Royalty Agreement, giving Dr Weeks’ nominee an “overriding royalty of …(2 1/2 %) of the gross values of all hydrocarbons produced and recovered by [BHP] within the area”, would look to the interpretation of overriding royalty by the courts of mineral producing jurisdictions that have frequent occasions [sic] to construe such royalty agreements. Analysis of the legal authorities discloses that the clear prevailing, and in my opinion the more analytically sound, view treats an overriding royalty as limited in duration to the life of the lease or other working interest under which it was created and, if the parties agree, to renewals and extensions thereof.

2) Mr McCollam said:

The most pertinent part of Hatch for present purposes is the finding by the court that “overriding royalty” is a technical term of art which must “be interpreted as usually understood by persons in the profession or business to which [the term] relate[s], and must be taken in the technical sense unless the context of the instrument or an applicable usage or the surrounding circumstances clearly indicate a different meaning”. Id. at 747.

As previously noted, the treatment of overriding royalties in the case law and doctrinal authorities described above is consistent with my understanding of the term gleaned from my 45 years as a legal practitioner focusing on oil and gas law. It is also consistent with my teachings at Tulane University during my tenure as a professor of mineral law. Based upon that experience, I believe that if a contrary view was adopted by a New York court that would be anomalous and inconsistent with established principles of U.S. mineral law…

3) Professor Martin said (with references to authority):

The term “overriding royalty” has a well understood meaning in the oil and gas industry in the United States. As defined in the Treatise and Manual of Terms for which I am now a revision author, Pat Martin & Bruce Kramer, Williams & Meyers Oil and Gas Law (2004) vol. 8 p. 748, ‘Overriding royalty’ is:

An interest in oil and gas produced at the surface, free of the expense of production, and in addition to the usual landowner’ royalty reserved to the lessor in an oil and gas lease…’

The term “overriding royalty” was chosen by the persons for whom the Claimant [the appellant] was established. A letter of Lewis G. Weeks of October 5, 1960 indicated that the Draft of Letter Agreement and accompanying Form of Overriding Royalty Agreement were prepared by an experienced oil industry counsel for him. He noted that “carried interest” had been used in a previous letter by him but “Overriding royalty is a more correct term for the kind of participation which I then so very briefly explained”. He said that the overriding royalty was similar to other provisions and overriding royalty to other agreements of recent date for like service.

Dr. Weeks was being advised by and much of the drafting of both agreements was inspired by Paul N. Temple. A 1948 graduate of the Harvard Law School, Mr Temple from 1954 to 1960 (when he drafted the royalty agreement) was an international petroleum concessions negotiator for Exxon Corporation…

Dr Weeks described Mr Temple to BHP as having “the very best experience in matters of this kind” and as “an experienced oil industry counsel.” … ”Mr Temple…can fairly be thought to have been familiar with the language of the oil industry in the United States and with the principles underlying if not the actual details of much United States oil and gas case law…”

Also found by the arbitrators: “BHP and their senior management had little or no experience in the discovery and production of petroleum. They found some of the technical phraseology emanating from the United States obscure. The phrase ‘overriding royalty’ was new to them. They asked for its interpretation.”

I do not believe there is ambiguity in the use of the term overriding royalty in the Consultancy Agreement and the Royalty Agreement: it is an interest carved out of a lessee’s share of oil and gas, and overriding royalty cannot apply to minerals mined from lands in which a lessee does not have an interest….

45 Fourthly, apart from noting that Judge Lewis and Mr McCollam and Professor Martin had given evidence, the majority arbitrators said nothing at all about their evidence.

46 Counsel for the appellant argued in the alternative that, as pleaded, the respondents’ case was put on the single narrow basis that the expression ‘overriding royalty’ had but one immutable meaning of a proprietary interest ‘carved out’ of an underlying leasehold interest and that, whatever else might be said about the quality of the majority arbitrators’ reasons, they were adequate to make plain why they rejected that view of the matter. Further or alternatively, counsel submitted, although the respondents’ pleaded case was that ‘overriding royalty’ was a proprietary interest ‘carved out’ of an underlying leasehold interest, the respondents had later come to realise that, because PEP 38 was not a lease and did not confer any rights to acquire a lease, the ‘carve out’ argument was inapposite and the respondents had then sought to prove (by invocation of the American ‘Preference Rights’ cases) that ‘overriding royalty’ was capable of applying by analogy to something in the nature of a usufruct which was granted during the life of and thus derived from an exploration or similar prospecting permit (not amounting to a lease or other interest in property). According to the appellant, therefore, it was plain that the respondents had not been able to prove their pleaded case and so they had been bound to fail.

47 We reject those submissions. The respondents’ case as pleaded was not that the expression had but one immutable meaning but rather that ‘[t]he outstanding characteristic of an overriding royalty, which has an unambiguous meaning under New York law, is that its duration is limited by the duration of the lease under which it is created’ and that ‘[t]he overriding royalty conferred by the PEP38 Royalty Agreement was accordingly limited by, and was at all times dependent for its existence on, PEP38 or VIC/P1.’ As we see it, that left scope, or at least it was treated between the parties as leaving scope, for the respondent to prove a case that, although PEP 38 did not confer an interest in real property, or indeed any right or preference to acquire a right to mine, the American Preference Rights cases implied (by way of analogy to overriding royalties carved out of underlying leaseholds) that an overriding royalty granted during the life of a permit such as PEP 38 was limited in duration to any mining rights acquired immediately upon the surrender of that permit. In the result, that was the case put in the expert witness statements of Mr McCollam and Professor Martin, and the appellant’s expert witnesses joined issue with it in their expert statements, and that was the case the arbitrators were required to decide.

48 As has been seen, however, they failed to deal or at least to deal adequately with the material issue of whether ‘overriding royalty’ was a technical term of art with a generally accepted meaning in United States’ oil and gas law. They failed to identify sufficiently the evidence upon which they came to the conclusion that ‘overriding royalty’ has ‘only ever been used in the general sense of a royalty that is payable over and above whatever royalty may be customarily due to the owner of the underlying mineral interest’. And they did not assign any reasons for rejecting the large body of evidence and United States’ authorities upon which the respondents relied to establish that ‘overriding royalty’ is a term of art which is generally understood in United States’ oil and gas law and thus in New York law as meaning something ‘carved out’ of a property interest in hydrocarbons which existed at the time of the making of the agreement of which the duration is limited to the grantor’s real property interest and that it applied analogously to exploration and prospecting permits in the nature of PEP 38.

49 The appellant contends that so to criticise the majority arbitrators’ reasons portrays a misunderstanding of the arbitral function. Counsel for the appellant argued that it was unnecessary for the reasons to be anything like as rigorous or complete as those demanded by the judge. In their submission, the dual requirements that arbitrators provide a statement of their reasons for making the award[ and do so ‘as soon as reasonably practicable’ fundamentally distinguished this arbitration from a curial proceeding, and implied that it was enough that the arbitrators set out the factors that supported the meaning of the expression which they preferred, had regard to contextual matters, contrasted the context of the private mineral holdings in the United States with the context of the Royalty Agreement, including the statutory regime prevailing at the time the agreement was entered into, and found on the evidence before them that ‘overriding royalty’ does not and never has had one fixed meaning.

50 We do not accept those submissions either. As already noted, the requirement to give reasons arose out of s 29(1)(c) of the Commercial Arbitration Act 1984. The extent of that requirement is informed by the purposes of the Act. As Giles J observed in R P Robson Constructions v D & M Williams, the Act fundamentally altered the approach to the provision of reasons in commercial arbitration, by taking away the jurisdiction to set aside an award on the ground of error on the face of the award and replacing it with a right to seek leave to appeal on any question of law arising out of the award which the court considered could substantially affect the rights of one or more of the parties. In order to enable the court to see whether there has been an error of law, s 29 provides that the award must be in writing and that the arbitrator must include a statement of reasons. And in order to be utile, the requirement is for reasons sufficient to indicate to the parties why the arbitrator has reached the conclusion to which he or she has come. To that extent, the requirement is no different to that which applies to a judge. Of course it is understood that arbitrators may not always be skilful in the expression of their reasons. Consequently, it is accepted that a court should not construe an arbitrator’s reasons in an overly critical way. But it is necessary that an arbitrator deal with issues raised and indicate the evidence upon which he or she has come to his or her conclusion. Accordingly, if a party has relied on evidence or material which the arbitrator has rejected, it is ordinarily necessary for the arbitrator to assign reasons for its rejection.

51 Counsel for the appellant relied on an observation in the second edition of Mustill and Boyd to the effect that an award need not set out the evidence from which an arbitrator has deduced his findings of fact because the findings of fact are not open to review and therefore a statement of the evidence will not serve any useful function. But, in our view, counsel’s reliance on that observation is misplaced in this context. It was directed to the sort of reasons required to be given in response to an order made under s 1(5) of the Arbitration Act 1979 (Eng). That section expressly limited the power to order reasons to requiring an arbitrator:

to state the reasons for his award in sufficient detail to enable the court, should an appeal be brought under the section, to consider any question of law arising out of the award.

Contrastingly, the requirement to give reasons under s 29(1)(c) of the Commercial Arbitration Act 1984 (which is now substantially replicated in s 52(4) of the Arbitration Act 1996 (Eng)) is not so limited. It reflects the expression in Article 31 of the UNCITRAL Model Law on International Commercial Arbitration of ‘a basic rule of justice that those charged with making a binding decision affecting the rights and obligations of others should… explain the reasons for making that decision.’ The effect of the section, as Sir Harry Gibbs explained in an extra-curial lecture delivered in 1988, is that:

The arbitrator is required to explain in the reasons which form part of the award why he or she reached the decision which the award embodies. To do that it is necessary to state the relevant facts and to explain why each issue of fact was resolved in the way in which the arbitrator resolved it. It is further necessary to state what conclusion the arbitrator reached on each question of law or of mixed law and fact and how that conclusion was reached…

52 Counsel for the appellant referred to an observation in Jacobs to the effect that s 29(1)(c) of the Act requires a statement of reasons and that the use of the word ‘statement’ is not surplusage but rather focuses on a legislative intent of something less than the full and comprehensive reasons which may be expected from a Supreme Court judge. But assuming without deciding that is so, it remains that an arbitrator’s reasons must be intelligible in the sense already described and we observe that a good deal of the text in Jacobs which follows the cited passage is strongly supportive of that view. In a later stated proposition, Jacobs makes the point that judicial decisions and pronouncements in New South Wales show that judges in the Commercial Court require something more than a mere statement, and the point is then emphasised by Jacobs’ citation of the following extra-curial pronouncement of Smart, J:

It is important that comprehensive findings of fact be made. Full reasons simply set down the processes which the arbitrator adopted (or should have adopted) in coming to his conclusion. The need to give reasons and think carefully helps you to arrive at the correct conclusion.

53 Counsel for the appellant argued that, even if that were so, the judge in this case was in error in assimilating the duty imposed on the arbitrators to the duty which applies to judges to the extent of concluding that ‘the arbitrators were under a duty to give reasons of a standard which was equivalent to the reasons to be expected from a judge deciding a commercial case’. Counsel submitted that the judge also erred in concluding that subjective matters (such as the background and experience of the arbitrator and the parties’ respective counsel and solicitors) were determinative of the standard of the reasons required to be delivered in an arbitration, as reflected by his reference to the following circumstances:

(a) The arbitration was a large commercial arbitration involving many millions of dollars.

(b) It was attended with many of the formalities of a legal proceeding, including the exchange of points of claim and defence and of substantial witness statements.

(c) The hearing occupied 15 sitting days.

(d) In addition to oral argument, substantial submissions were made by the parties.

(e) The arbitrators were obviously chosen for their legal experience and were retired judges of superior courts.

(f) Both sides were represented by large commercial firms of solicitors and very experienced Queen’s Counsel.

54 In our view, the judge did not err as alleged. The arbitrators’ decision in the present case called for reasons of a judicial standard. As with reasons which a judge is required to give, the extent to which an arbitrator needs to go in explaining his or her decision depends on the nature of the decision.

55 The subjective matters to which the judge referred did not dictate the applicable standard, but rather, reflected the nature of the decision. To adopt and adapt McHugh JA’s analysis in Soulemezis v Dudley (Holdings) Pty Ltd, if the only issue before an arbitrator is whether a claimant has sustained injury and the issue turns solely on the credibility of the claimant’s testimony, a simple finding that he or she fell and sustained injury might be enough. But if, in addition to the claimant’s credibility, other matters are relied on as going to the probability or improbability of the claimant’s case, such a simple finding will not be enough. Plainly, a judge is bound to refer to relevant evidence and, where there is a conflict of a significant nature, to provide reasons for choosing one over side over the other. A judge is also bound to deal with central contentions, even if sometimes only briefly, and at least to the extent of explaining in general terms why he or she has rejected them. Accordingly, where evidence and contentions combine as they are prone to do in the form of expert evidence, and the dispute involves ‘something in the nature of an intellectual exchange with reasons and analysis advanced on either side’, it is plain that the judge is bound to enter into the issues canvassed before the court and to provide an intelligible explanation as to why the judge prefers one case over the other. In our view, an arbitrator is subject to similar obligations.

56 Admittedly, as McHugh JA pointed out in Soulemezis, it is only in relatively recent times that judges have been required to give reasons of that kind. The obligation to do so evolved over the last century out of the creation of rights of appeal by statute, the enactment of stated case and review procedures, and the transfer from juries to judges of the function of deciding questions of fact. It must also be acknowledged that, in a number of the cases concerning the scope of the judicial obligation to give reasons, a principal consideration has been that reasons should be sufficient to enable courts of appeal to see if there has been any error in the process of fact finding. There is no right of appeal on questions of fact from the decision of an arbitrator. But the judicial obligation to give reasons is not based solely on rights of appeal. Ultimately, it is grounded in the notion that justice should not only be done but be seen to be done. And in point of principle, there is not a great deal of difference between that idea and the imperative that those who make binding decisions affecting the rights and obligations of others should explain their reasons. Each derives from the fundamental conception of fairness that a party should not be bound by a determination without being apprised of the basis on which it is made. So, in arbitration, the requirement is that parties not be left in doubt as to the basis on which an award has been given. To that extent, the scope of an arbitrator’s obligation to give reasons is logically the same as that of a judge.

57 As has been noticed, what is needed to satisfy that requirement will depend upon the particular circumstances of the case. If a dispute turns on a single short issue of fact, and it is apparent that the arbitrator has been chosen for his or her expertise in the trade or calling with which the dispute is concerned, a court might well not expect anything more than rudimentary identification of the issues, evidence and reasoning from the evidence to the facts and from the facts to the conclusion. Byrne J captures the point in this dictum in his Honour’s judgment in Schwarz:

In what are often called trade arbitrations, the parties and the Arbitrators are all engaged in a particular trade. In such an arbitration the reasons may be expressed in the jargon of the trade or they may ignore matters which will be well known to the participants. Such an award which may appear deficient to an outsider, may nonetheless satisfy the fundamental purpose of the statement of reasons. It cannot be the case that an award should be drafted only with an eye to informing an appeal court which may be unfamiliar with the trade and its practices.

Contrastingly, however, in complex commercial arbitrations, it may appear that the determination of the dispute demands reasons considerably more rigorous and illuminating than the mere ipse dixit of a ‘look-sniff’ trade referee. And in cases like the present, which involve an intellectual exchange with reasons and analysis advanced on either side, conflicting expert evidence of a significant nature and substantial submissions, the parties to the dispute are almost certain to be left in doubt as to the basis on which an award has been given unless the reasons condescend to an intelligible explanation of why one set of evidence has been preferred over the other; why substantial submissions have been accepted or rejected; and, thus, ultimately, why the arbitrator prefers one case to the other. Hence, in our view, the reasons in this case should have been of that standard.

58 Furthermore, in the usual course of events, disputants choose their arbitrators on the basis of qualifications, knowledge or a skill which is fitted to the nature of the dispute, and so to preparing the type of determination which is appropriate. Disputants are also likely to adopt a form of arbitral proceeding which is consonant with those requirements. To that extent, as the judge said in effect, the disputants’ choice of arbitrator and the structure of their arbitral proceeding may reflect the

58 nature of their dispute and so the nature of the reasons required. It would not facilitate the object of s 29 of the Commercial Arbitration Act 1984, and it could well discourage the continuing subjection of substantial commercial law disputes to arbitration, if the court were to tolerate less.

59 Contrary to the appellant’s submissions, however, that does not imply that the court is to approach the work of commercial arbitrators with a view to finding fault. The arbitration of commercial disputes is to be encouraged and hence arbitrators are free to a large extent to express their reasons as they choose. Nor does it follow that the court demands a higher standard of reasoning from retired judges and other legally trained arbitrators than from arbitrators who are not so trained. As Buchanan JA observed in the course of the hearing, it is the nature of a dispute which sets the standard for reasons, not the nature of the arbitrator.

60 The appellant contends that the judge was in error in stating that ‘[t]his is especially so where the arbitrator is a retired judicial officer’. Counsel for the appellant submitted that the judge thereby implicitly accepted that differing standards applied as between the majority arbitrators and the minority arbitrator. But in our view, that is not the case. As we read his Honour’s observation, it simply emphasised the point that the majority arbitrators (with whose reasons alone his Honour was concerned) were eminent retired judges who had been chosen because of their legal ability. That does not imply that a different or lesser standard should be expected of the third arbitrator. The third arbitrator was an eminent United States oil and gas lawyer and academic who was plainly well qualified to provide reasons of the standard expected of the other two.

Setting aside the award for error of law

61 The appellant contends in the alternative that, even if there were error in the majority arbitrators’ failure to provide sufficient reasons, it did not warrant setting aside the award.

62 We do not accept that contention. As the judge noted, and as was accepted below, it is not in doubt that an arbitrator’s failure to give adequate reasons may amount to error of law on the face of the award. The principle is established by a line of cases which takes as its starting point the statement of Megaw J in In re Poyser and Mills’ Arbitration concerning s 12 of the Tribunals and Inquiries Act 1958 (Eng) that:

Up to [the enactment of section 12], people’s property and other interests might be gravely affected by a decision of some official. The decision might be perfectly right, but the person against whom it was made was left with the real grievance that he was not told why the decision had been made. The purpose of section 12 was to remedy that, and to remedy it in relation to arbitrations under this Act. Parliament provided that reasons shall be given, and in my view that must be read as meaning that proper, adequate reasons must be given. The reasons that are set out must be reasons which will not only be intelligible, but which deal with the substantial points that have been raised. In my view, it is right to consider that statutory provision as being a provision as to the form which the arbitration award shall take. If those reasons do not fairly comply with that which Parliament intended, then that is an error on the face of the award. It is a material error of form….No one here suggests for a moment actual misconduct on the part of the arbitrator, but it may well be that what has gone wrong here is something which is capable properly of being described as both misconduct and error of law on the face of the award… I do not say that any minor or trivial error, or failure to give reasons in relation to every particular point that has been raised at the hearing, would be sufficient ground for invoking the jurisdiction of this court. I think there must be something substantially wrong or inadequate in the reasons that are given in order to enable the jurisdiction of this court to be invoked.

63 More particularly, it has been held that the requirement for an arbitrator to give reasons under s 29(1)(c) of the Commercial Arbitration Act 1984 has the effect that an arbitrator’s failure to include a statement of proper, adequate reasons, is an error of law on the face of the award within the meaning of s 38(5)(b)(i) of the Act. As Kirby P put it in Warley Pty Ltd v Adco Constructions Pty Ltd:

The same obligation of reasoned decisions which falls upon judges is applied by the Act to arbitrators who make awards. They are required by s. 29(1)(c) to include in the award “a statement of the reasons for making the award”. This statutory obligation to provide reasons appears to be equivalent to the common law obligation imposed on judicial officers to provide such reasons. In the case of arbitrators, the reasons must be such as the Act envisages.

A failure to give ‘reasons’ as the Act envisages would amount to an error of law. It would be such as to attract the operation of s 38 of the Act…

64 The point is reinforced by the New South Wales Court of Appeal’s decision in Promenade Investments Pty Ltd v State of New South Wales, as follows:

In applying s 38, as amended, a construction that would promote the purpose or object underlying the Act must be preferred to a construction that would not promote that purpose or object; s 33 of the Interpretation Act 1987… The expression “error of law on the face of the award” is one of a type well-known to courts. The award having been examined the question is whether there is apparent (and such is the denotation of the word “manifest”) an error of law. “Manifest error” is an expression sometimes used in reference to reasons given by judges or the approach taken by juries: see, eg, s 107(c)(iii) of the Supreme Court Act 1970 and the judgments of Kirby P inAzzopardi v Tasman UEB Industries Ltd (at 151) and Otis Elevators Pty Ltd v Zitis (1986) 5 NSWLR 171 at 181. It is used to indicate something evident or obvious rather than arguable: see generally per McHugh JA in Larkin v Parole Board (1987) 10 NSWLR 57 at 70-71. Nothing more is to be learnt from the language used but of course the discretion of the court as to whether or not it will grant leave remains and regard must be had to the requirement of subs (5)(a). The matters referred to by Lord Diplock in The Nema remain important factors in determining whether leave should be given.

65 Clarke JA, speaking for the New South Wales Court of Appeal in Friend and Brooker Pty Ltd v Council of the Shire of Eurobodalla, added further emphasis in a case in which it was contended that the arbitrator’s reasons were inadequate because the findings set out were an inadequate foundation for the conclusion reached:

My conclusion is that the critical finding by the Arbitrator is equivocal and incapable of supporting either the amount awarded or the total loss for which Mr Bennett QC opts. On the other hand I do not think it can be said that the finding leads to the consequence that nothing should be awarded. The findings of fact are simply an inadequate foundation for any conclusion.

In the result there is a manifest error of law – in the sense in which that word is used in the Commercial Arbitration Act 1984, s 38(5) as discussed in Promenade Investments Pty Ltd v State of New South Wales [1991] 26 NSWLR 203, 255 – in that the Arbitrator has failed to find the facts necessary in law to support his conclusion. As a consequence leave to appeal from this part of his Award ought to have been granted by Cole J and the appeal allowed. This Court, which has the powers enjoyed by Cole J (Supreme Court Act, s75A(6)) ought therefore, in my opinion, to grant leave to appeal and to allow the appeal.

The same approach been followed consistently in this state.

66 Counsel for the appellant referred to two recent English decisions, ABB AG v Hochtief Airport GmmbH and Benaim (UK) Ltd v Davies Middleton & Davies Ltd (No 2) as support for the view that an award should not be set aside for manifest error of law on the face of the award unless the error amounts to a ‘serious irregularity’ and that an insufficiency of reasons ought not be regarded as a serious irregularity for that purpose.

67 But in our view those authorities do not assist in this context. Each is based on s 68 of the Commercial Arbitration Act 1996 (Eng) (which significantly restricts the circumstances in which a court is to set aside an arbitral award for error to ‘serious irregularity’ as defined). There is no such restriction on the power of the court to set aside an award for error of law pursuant to s 38 of the Commercial Arbitration Act 1984 (Vic). A second difference between the Commercial Arbitration Act 1996 (Eng) and the Commercial Arbitration Act 1984 (Vic) is that s 70(4) of the former confers on the court an express power to order further reasons and thus by necessary implication excludes from the power to set aside an award for substantial injustice those cases in which the subject defect is constituted solely of a deficiency in reasons. Thirdly, and more generally, as was noted by Lord Steyn in Lesotho Development v Impregilo SpA the 1996 English Act has:

given English arbitration law an entirely new face, a new policy, and new foundations. The English judicial authorities…have been replaced by the statute as the principal source of law. The influence of foreign and international methods and concepts is apparent in the text and structure of the Act, and has been openly acknowledged as such. Finally, the Act embodies a new balancing of the relationships between parties, advocates, arbitrators and courts which is not only designed to achieve a policy proclaimed within Parliament and outside, but may also have changed their juristic nature.

68 Turning then to the requirements of s 38(5)(a), we consider that the judge was plainly right to hold as he did that determination of the question of law concerned could substantially affect the rights of the respondents in the sense that, if the majority arbitrators had set out the reasoning which led to their findings and from their findings to their conclusion, it might have appeared that their reasoning was incapable of supporting the conclusion and that the result should have been different.

69 Other things being equal, it would have been appropriate in this case to remit the matter to the arbitrators for re-determination in accordance with the court’s opinion. But, as the judge observed, that was not possible in view of the death of the chairman. In those circumstances, in our view, it was within the proper exercise of discretion for the judge to set aside the award as he did.

Failure to consider and adjudicate upon substantial and serious submissions

70 What we have said is sufficient to dispose of the appeal. In case the matter goes further, however, it is appropriate that we deal briefly with the appellant’s further contention that the judge was wrong in holding that the majority arbitrators were guilty of technical misconduct by reason of their failure to take the respondents’ submissions into account.

71 Counsel for the appellant argued that it is clear from the majority arbitrators’ reasons that they rejected the respondents’ submissions because the respondents did not establish that ‘overriding royalty’ was a term of art with the meaning for which they contended. In counsel’s submission, in those circumstances it was enough for the majority arbitrators to do as they did, namely, set out the factors which they found to support the plain meaning construction of the expression ‘overriding royalty’; have regard to contextual matters; contrast the context of the private mineral holdings in the United States with the context of the Royalty Agreement, including the statutory regime prevailing at the time the agreement was entered into; and find on the evidence before them that ‘overriding royalty’ does not and never has had one fixed meaning.

72 We reject those submissions substantially for the reasons we have given. Expert opinion was at the heart of this dispute. The parties put before the arbitrators literally hundreds of pages of competing expert views backed by thousands of pages of texts and authority. The arbitrators having agreed to determine such a dispute were, in our view, bound to undertake an analysis of the expert opinion evidence and the texts and authorities and to come to a conclusion supported by a rationale explanation for their preference. Instead of providing such an explanation, they confined themselves to the statement in paragraph 154 of their reasons, already referred to, to the effect that in ‘some respects the evidence of some of the expert witnesses, in particular Judge Simons and Judge Levine, differs from the other’ and that ‘having read and considered their statements of evidence and heard their oral evidence, where these differences occur we generally prefer the evidence of Judge Simons.’ As the judge held, in our view correctly, that does ‘not contain any analysis of the contrary expert evidence relied upon by [the appellants] or reasons for rejecting that evidence’ and the arbitrators’ failure to provide that analysis ‘constituted technical misconduct.’

73 Counsel for the appellant argued that the majority arbitrators were not required to explain why they preferred the Judge Simons’ opinion to those of the respondents’ experts. They contended that arbitrators as such are not expected to set out what counsel described as ‘subsidiary details of that kind’ and that it is enough for arbitrators to set out their findings of fact based on the whole of the evidence in the way that the majority did.

74 In our view that contention is untenable. For the reasons already given, we consider that, in a case of this kind, it was incumbent on the majority arbitrators to explain how they came to accept the opinion of Judge Simons over the competing opinions of the respondents’ experts and to provide an intelligible explanation of why Judge Simons’ opinion was accepted in preference to the opinions of Judge Levine, Professor Martin and Mr McCollam and the authorities on which they relied. That necessitated confronting and dealing with the respondents’ substantial arguments as why the opinions of their experts should be preferred. They did not do so. In their submissions before the arbitrators, the respondents advanced ten considerations drawn from the royalty agreement as to why Judge Simon’s opinion should be rejected and those points were in addition to arguments based on the Consultancy Agreement (with the latter of which the majority arbitrators did deal very briefly). Those arguments went to the heart of the respondents’ case. They devoted eight of the 50 pages comprising their closing written submissions to those points and emphasised them again in final address. Yet, as the judge observed, not one of them is mentioned in the majority arbitrators’ reasons.

75 The appellant contends in the alternative that, even if there were error of law in the majority arbitrators’ failure to deal with some of the evidence and submissions on which the respondents relied, the judge was still wrong to hold that it amounted to ‘technical misconduct’. Counsel for the appellant submitted that the relevant concept of ‘misconduct’ is informed by the inclusion in the definition of ‘misconduct’ in s 4(1) of the Act of ‘corruption, fraud, partiality, bias and a breach of the rules of natural justice’. They suggested, as Ipp J put it in Forsyath NL v Australasian Gold Mines NL, that ‘it is not however, without relevance that it omits any reference to an error of law’. Counsel also called in aid the dictum of Brownie J in Friend and Brooker Pty Ltd v The Council of the Shire of Eurobodalla, that it is to be ‘doubt[ed] that one can legitimately describe an error of law or a series of errors of law as constituting misconduct for the purposes of s 42.’ In counsel’s submission, whatever the exact scope of the notion of ‘technical misconduct’ it does not extend to a failure to refer to or deal in reasons with evidence or submissions.

76 We disagree. The expression ‘misconduct’ as used in relation to arbitration does not necessarily or indeed often involve moral turpitude on the part of the arbitrator. As was said in Williams v Wallis and Cox, ‘misconduct’ does not really amount to much more than such a mishandling of the arbitration as is likely to amount to some substantial miscarriage of justice. In our view, failure of an arbitrator to deal in his or her reasons with relevant evidence and substantial submissions is a mishandling of the arbitration and thus is ‘misconduct’ within the meaning of s 42.

77 We acknowledge that there have been doubts expressed about the point. Significantly, in Sydney Water Corporation Ltd v Aqua Clear Technology Pty Ltd, Rolfe J said that, while it has generally been accepted that it is an error of law for an arbitrator to fail to give proper reasons or to fail to address substantial and serious submissions, he had some doubts as to whether the failure to give reasons as required by s 29 or to deal with substantial and serious submissions amounts to technical misconduct. In his Honour’s view it was perhaps better thought of as a failure properly to consider the material in the sense of not exposing the reasoning process and, in the course of doing so, indicating to the parties the way in which substantial and serious submissions have been determined so that the parties and the court can consider whether the award is infected with relevant error, namely, manifest error on its face.

78 With respect, however, we do not share those doubts. It is true that not every error of law committed by an arbitrator will amount to misconduct. To take a simple example, an arbitrator might make a mistake about the substantive law of contract. That would be an error of law but it would not be misconduct. It is also true that not every act of misconduct will amount to an error of law (of the kind to which s 38(5) applies). For instance, an arbitrator might so restrict argument or cross-examination as to misconduct the arbitration within the meaning of s 42, but that would not be an error of law within s 38(5). But where, as here, an error of law consists in an arbitrator’s failure to include in reasons what the Act requires to be included, it is in our view both logical and appropriate to regard the omission as constituting technical misconduct as well as error of law (in the same way that Megaw J did in In re Poyser and Mills’ Arbitration and McKechnie J did in Villani v Delstrat Pty Ltd).

79 It is suggested in Jacobs that the failure of an arbitrator to deal with submissions worthy of serious consideration and seriously advanced would be better thought of as a ‘procedural mishap’ justifying remission under s 43 than ‘misconduct’ justifying that the award be set aside under s 42. But, with respect, that distinction will not always be useful. Granted, not every technical irregularity is sufficient to warrant setting aside an award. Indeed, the court will not intervene at all unless it is demonstrated that the misconduct in question may have been productive of ‘a substantial miscarriage of justice’ (as it was put by Marks J in Gas & Fuel) or ‘some injustice’ (in the sense explained by Lord Donaldson in King v Thomas McKenna Ltd). Hence the aphorism that the court will not permit s 43 to be used as a backdoor method for circumventing the statutory restrictions on the court’s power to intervene in arbitral proceedings. But if a ‘procedural mishap’ is productive of some fundamental injustice, in our view it is apt to be described as ‘a mishandling of the arbitration … likely to amount to some substantial miscarriage of justice’ and, therefore, as ‘misconduct’.

80 Certainly, the setting aside of an award may be viewed as the remedy of last resort and, if it is possible to save the award by remitter for further consideration under s 43, a court will ordinarily adopt that course. But the fact that a ‘procedural mishap’ may in some circumstances be better dealt with under s 43 than 42 does not mean that there are not other cases in which such misconduct should be dealt with under s 42.

81 Counsel for the appellant argued that there was no injustice sufficient to warrant that the interim award be set aside under s 42, because there was no suggestion that the majority arbitrators’ findings were not available on the evidence. In counsel’s submission, the respondents are in reality complaining about the factual findings which were made against them – seeking to repeat the arbitration process in the hope that different factual findings might emerge – and that is impermissible.

82 We do not accept that argument. As has been explained, it is not enough to avoid the possibility of injustice that it may have been open on the evidence to find as the majority arbitrators did. What was required were reasons which demonstrated that the majority arbitrators so found on a rational and otherwise lawful basis after considering and rejecting or discounting the evidence which pointed the other way. As it is, because of the inadequacy of the majority arbitrators’ reasons, one cannot exclude the possibility that the majority arbitrators reached their conclusions through failure to consider some part of the evidence or as a result of rejecting or discounting it on an irrational or otherwise unlawful basis. As we have said, for the respondents to be left in the position of not knowing which way it went was in our view a substantial injustice.

83 If, as we consider to be the case, it was open to the judge to set aside the award under s 38, there was obviously no need to rely on s 42. But, if contrary to our view it was not open to deal with the matter under s 38, we agree with the judge that, in this case, it would have been open to set aside the award under s 42.

Conclusion

84 In the result, the appeal will be dismissed.

Gas and Fuel Corporation of Victoria v Wood Hall Ltd and Leonard Pipeline Contractors Ltd [1978] VicRp 41; [1978] VR 385 (11 April 1978)

SUPREME COURT OF VICTORIA

GAS AND FUEL CORPORATION OF VICTORIA

V

WOOD HALL LTD

LEONARD PIPELINE CONTRACTORS LTD 

 

Marks, J.: This is a motion by the Gas and Fuel Corporation of Victoria (hereafter referred to as “the Corporation”) for an order that James M. Antill the arbitrator appointed in a reference to arbitration of a dispute between the Corporation and Wood Hall Ltd. and Leonard Pipeline Contractors Ltd. (hereinafter referred to as “the contractor”) under a submission dated 26 September 1977 be removed on the ground that he misconducted himself in the course of the arbitration.

The grounds of misconduct are set out in the notice of motion and in effect state that the arbitrator denied the Corporation a fair opportunity to present its case at the hearing; that the arbitrator was biased; that he contravened the rules of natural justice in determining questions both of law and fact, in that he did not give the Corporation any or any reasonable opportunity of being heard in respect of these; and generally that the arbitrator’s conduct of the proceedings was in contravention of the rules of natural justice.

The disputes, the subject of the arbitration, were in respect of claims made by the contractor against the Corporation for payment of moneys said to arise out of a contract or its variation for the construction of a gas pipeline from Wollert in Victoria to Albury in New South Wales. The work involved the construction of approximately 279.4 kilometres of pipeline 300 millimetres nominal diameter high pressure steel. [His Honour then dealt with certain matters prior to the execution of the contract. It appeared that the work on the pipeline was executed between 17 November 1975 and 3 February 1977, and although the contract was not signed until 25 October 1976, the contractor’s tender had been based on at least some of the terms included in the eventual contract.

CL43 of the contract provided that the parties would submit to arbitration “any question, dispute, or difference whatsoever” arising between them “upon or in relation to or in connection with the contract”. Thirteen items of dispute were referred to arbitration. In an attempt to have the claims dealt with by a court the Corporation issued a writ seeking certain declarations; but on the application of the contractor, these proceedings were stayed pursuant to s5 of the Arbitration Act. His Honour then continued:]

Eventually the parties agreed that Professor James Antill (referred to hereafter as “the arbitrator”) would be acceptable to both parties, but it appears that the arbitrator made it clear that he would not be able to commence hearing before December 1977.

On 26 January 1978 a preliminary conference was conducted at the offices of the Corporation in Melbourne and the arbitrator and the parties were present together with their legal representatives. At that conference the arbitrator indicated that he would be going overseas in the last week of March 1978 and be absent until July 1978 so that if the arbitration was not completed before he left it would be August or September before it could be resumed.

At that conference it was decided, with the concurrence of the parties, that the arbitration until 23 March be heard in Sydney and sit six days a week between the hours of 10 a.m. and 5 p.m. It was further arranged as follows:–

(a) The issues for determination by the arbitrator would be those appearing in items 1, 3, 4, 5, 11 and 12 in the Schedule to the contractor’s notice of arbitration. It was noted that the balance of the items set out there had been settled subject to formal agreement.

(b) The contractors were to deliver their points of claim on or before 10 February 1978.

(c) The Corporation was to deliver its defence on or before 17 February 1978.

(d) A list of documents was to be made on 20 February 1978 with inspection on that date and thereafter as each party might request the other. Each party expressed the hope that it would be able to deliver its points of claim and defence with sufficient detail to avoid the necessity for particulars.

(e) The hearing was to commence on 8 March 1978 but it was noted that on 15, 16 and 17 March Mr. Cole of Queen’s Counsel for the contractor might be absent and that the question whether the hearing would proceed on those days would be later determined.

(f) The parties were to provide the witnesses’ evidence in the form of written statements to be confirmed on oath and cross-examination taken on oath.

Paragraph numbered 11 of the minutes of that conference states, inter alia:

“(i) The contractors may determine to deliver points of claim in relation to items 1, 3, 4, 5 and 11 as aforesaid postponing the delivery of points of claim in relation to item 12 for the time being. (ii) The arbitrator is agreeable to an arbitration of item 12 in August 1978 upon his said return and will proceed with matters in issue other than item 12 in March 1978. If time is available in March item 12 will be dealt with.”

Following that conference on 8 February 1978 a deed of reference was executed between the parties and submitted the disputes set forth in the Schedule to the arbitrator.

The contractor delivered its points of claim in accordance with the time schedule laid down. The Corporation by letter of its solicitor dated 16 February 1978 claimed to have been taken by surprise by the volume of material delivered and sought an extension of time for delivery of defence until 24 February 1978. It claimed that this was the first occasion on which it had been supplied such extensive documentation and detailed quantification of the claims.

The Corporation claims that until that time it was under the impression that the main area of dispute was in respect to its legal liability and very little, if any, dispute of fact in relation thereto. It assumed that quantification of claims would be a matter of mere demonstration as it had not disputed the bona fides of the contractor’s claim that it had suffered an increase in costs. However the atmosphere changed after 10 February when the Corporation received the details to which I have referred.

Having looked at the documentation I do not find it surprising that the Corporation needed extra time to prepare its points of defence. In fact it achieved delivery of its points of defence to all five claims by 24 February 1978.

Whilst at the preliminary conference on 26 January it was anticipated by the parties that there were some six outstanding heads of claim that had to be determined — the points of claim and defences, with theconcurrence of the parties, were confined to five claims only.

The five claims fall into broad categories, namely: —

(a) Forged Bends;

(b) Barba’s skip;

(c) Radiographic services;

(d) Workers’ Compensation;

(e) Extension of time.

As the hearing before the arbitrator did not proceed beyond the forged bends claim, the claims in respect of the other matters have limited relevance. It is to be noted that the amounts claimed in respect of each of them were substantial. The forged bends claim was for a sum of $588,000; the claim designated as “Barba’s skip” was for $100,000 (a claim arising out of the contractor having to “skip” a property owned by a man called Barba who refused access); the radiographic services claim was for $717,000; the workers’ compensation claim for $263,000 and the claim in respect of delays in granting extensions of time for completion of the contract was for $800,000. The total claims were of the order of $2.5 million.

I have seen the documents with which the Corporation was provided at the time of the delivery of the points of claim. There are a substantial number containing extensive detail.

Some week or so after 20 February 1978 the parties obtained discovery by photocopying a large number of each other’s documents.

On 8 March, the parties asked the arbitration hearing to be stood down whilst they explored settlement of the claims. Settlement negotiations took place throughout what was to be the first day of the hearing, Wednesday 8 March 1978. They failed. However, on that day some time in the afternoon the contractor provided the Corporation with what it claimed to be a statement of a witness named Delaney it intended to call. This “statement” has been put in evidence before me. It comprises a 17-page narrative and several hundreds of pages of attachments. The attachments are said to contain calculations and photocopies of various documents including payroll sheets claimed to be relevant to the quantification of the contractor’s claim.

Now the settlement negotiations having broken down, it was decided to proceed with the arbitration on Thursday morning, 9 March.

On that day Mr. Cole of Queen’s counsel for the contractor opened its case. After some discussion between the arbitrator and counsel for the parties it appears that the arbitration proceeded to deal with the claim in respect of forged bends first and that evidence be led both in relation to liability and quantum.

The contractor’s claim in respect of forged bends was essentially one for a variation of the works or alternatively the contract. It claimed that it had been required by the Corporation to use forged bends of pipe wherever the pipeline deviated horizontally more than 30 degrees. It claimed that it had used 200 forgedbends because the corporation required it, but that under the contract there was no such requirement.

A forged bend is apparently a factory formed bend in a length of pipe. The alternative way of bending a pipe was by a method called “cold bending” which was performed by the use of a machine on the site (or in the “field”). There was some significance in whether a pipe had a forged or cold bend. A forged bend was normally in relatively short lengths of pipe and required welding to transition pieces and wider trench provision than cold bends to permit extra work and inspection. A cold bend could be put into the pipe on site and did not require other than the standard length of pipe used in the straight length construction provided it complied with the specifications.

The angle of a bend and the length of pipe encompassed by the angle had bearing on the line of trench construction and its positioning in the Corporation’s easements over the properties.

However, the issue between the parties was relatively simple to comprehend. The contractor said that its supply and installation of some 200 forged bends was an “extra” or “variation” of the works alternatively the contract and it was entitled to additional payment. The Corporation said two things. Firstly, there was no variation of the works or the contract. This was because the terms of the contract themselves on their proper interpretation provided that the contractor was under an obligation to install forged bends wherever there was a horizontal deviation in excess of 30 degrees. It also said that their interpretation of the contract had been explained by them to the contractor who had agreed at the time of their tender. If it did require forged bends as alleged it was not as an extra. They were allowed for, by agreement, in the tender. Secondly, the Corporation said that it did in fact indicate to the contractor that it would not require it to comply with those terms of the contract and would be satisfied if cold bends were used wherever they could be within the terms of the specification and provided the cold bend was within one length of pipe.

In other words the Corporation maintained by its points of defence and its statements to the arbitrator that there was no variation of the contract so as to entitle the contractor to extra payment. It said there was a requirement in the contract at the time of the tender but none by way of variation. It said it could have insisted on forged bends being used if it wanted to under the contract but had in fact relieved the contractor of strict compliance. If the contractor had put in forged bends then that was something it had been obliged to do in any event under the terms of the contract as construed by the Corporation.

It is worth noting at this stage that under CL32(a) of the contract the contractor was obliged not to alter “in any way whatsoever any part of the pipeline, except as directed in writing by the Corporation”. (My emphasis.) CL32(a) deals generally with the procedure in the event of a variation of the pipeline or the works.

The Law The motion before the Court is pursuant to s12(1) of the Arbitration Act 1958 which provides: “Where an arbitrator or umpire has misconducted himself, the court may remove him”.

Thus the Court is empowered to order the removal of an arbitrator prior to his making an award where it is established that he has “misconducted himself” within the meaning of the subsection. S12(2) may be applied where an award has been made.

The Act does not contain any definition of “misconduct”. A number of authorities cast some light on its meaning withoutproviding any all-embracing elucidation. In general it can be said that misconduct is seen to flow from “irregularity”, and to be disassociated from any concept of moral turpitude or overtone.

In Williams v Wallis and Cox, [1914] 2 KB 478 at p. 485; [1914-15] All ER Rep Ext 1531 at p. 1535 Atkin, LJ said in reference to “misconduct”: “That expression does not necessarily involve personal turpitude on the part of the arbitrator…the term does not really amount to much more than such a mishandling of the arbitration as is likely to amount to some substantial miscarriage of justice….”

In Melbourne Harbour Trust Commissioners v Hancock (1927) 39 CLR 571 at p. 587 Isaacs, J. said: “The last question is whether there has been what is called ‘misconduct’ on the part of the arbitrator. The word is here used only in its technical and often misleading sense. No one suggests, or could suggest, the smallest deviation from the strict path of honour. But the word ‘misconduct’ as employed in this connection includes even a mistake in the procedure which has or may have unjustly prejudiced a party.”

Isaacs, J. referred to the statement of Lord Watson in Adams v Great North of Scotland Railway Co., [1891] AC 31 at pp. 45-6 where his Lordship said: “I think I state the law correctly when I say that it will be a good ground of reduction at the instance of either party, if he is able to show…that in the course of the arbitration he (the arbitrator) has disregarded any one of the express conditions contained in the contract of submission, or any one of those important conditions which the law implies in every submission…and so in those cases where an act innocently committed by the arbiter amounts to misconduct which, in the opinion of the court, would naturally imply that justice had not been done between the parties, the award must be set aside, not according to the regulation, but according to those principles of law which existed before the regulation, and which were not in the least affected by it.”

In London Export Corp. Ltd. v Jubilee Coffee Roasting Co. Ltd., [1958] 1 WLR 661; [1958] 2 All ER 411 at p. 413, Jenkins, LJ as a member of the Court of Appeal said at WLR p. 665: “‘Misconduct’ is, of course, used in the technical sense in which it is familiar in the law relating to arbitrations as denoting irregularity, and not any moral turpitude or anything of that sort.”

The Court of Appeal, of which Jenkins, LJ was a member, affirmed a decision at first instance of Diplock, J. (as he then was) which is reported in [1958] 1 WLR 271; [1958] 1 All ER 494.

That judgment of Diplock, J. (as he then was) provides invaluable guidelines on which a court such as this may approach the question of “misconduct”. To other parts of that judgment I will return. However, at [1958] 1 WLR p. 277; Diplock, J. said the “use of expressions of ‘misconduct’, with its suggestion of moral values, to include the kind of alleged irregularity in procedure with which this case is concerned tends to misunderstanding…”. At pp. 276-7 he referred to “an irregularity in procedure” as more appropriate than “misconduct”.

It is clear that not every irregularity in procedure will constitute misconduct within the meaning of s12(1), or that if it does it should be regarded as compelling an order of the Court for removal.

In E. Rotheray and Sons Ltd. v Carlo Bedarida and Co., [1961] 1 Lloyd’s Rep 220 McNair, J. at p. 225 said: “I have reached the conclusion at this stage that…there has at least been a technical irregularity amounting to misconduct …The more difficult question, however, is whether the extent of that irregularity is such as to justify interference by this court either by way of setting aside the award or remitting the award. The determination of that issue, as it seems to me, depends upon whether the court is satisfied that there may have been–not must have been–or that this irregularity may have caused–not must have caused–a substantial miscarriage of justice that would be sufficient to justify setting aside or remitting of the award, unless those resisting the setting aside or remission could show that no other award could properly have been made than that which was in fact made, notwithstanding the irregularity.”

This test has since been followed in Western Australia (Van Dongen v Cooper, [1967] WAR 143 at p. 145) and in New Zealand (Wilson v Glover, [1969] NZLR 365).

There is a need to determine what constitutes an “irregularity” in proceedings which are not ordinary court proceedings. “Irregularity” connotes a deviation from what is “regular”. This begs the question as to what procedure can be said to be “regular” before an arbitrator in a case such as the one here under consideration. A superficial examination of the authorities indicates various differences of approach to alleged irregularities in such proceedings.

In this regard, the judgment of Diplock, J. (as he then was) in London Export Corporation Ltd. v Jubilee Coffee Roasting Co. Ltd., [1958] 1 WLR 271 at p. 277; [1958] 1 All ER 494 at pp. 497 et seq. contains analysis of principle which greatly assists reconciliation of any previous apparent conflict in the authorities. He said: “The first task of the court is to construe the arbitration agreement–that is, to ascertain to what procedure the parties have agreed. At this stage of its task the court is not directly concerned with whether the agreement ‘violates any rules of what is so often called natural justice’, to use the phrase of Lord Goddard, CJ in Mediterranean and Eastern Export Co. Ltd. v Fortress Fabrics (Manchester) Ltd.; although, as I shall point out later, the court’s views as to what procedure tends to achieve a just result will be one of the considerations which will influence it in deciding what terms as to procedure are to be implied where the written agreement is silent.

“Where the award has been made by the arbitrator in breach of the agreed procedure, the applicant is entitled to have it set aside, not because there has been necessarily any breach of the rules of natural justice, but simply because the parties have not agreed to be bound by an award made by the procedure in fact adopted. Contrast Spence v Eastern Counties Railway Co. (1839) 3 Jur 846.

“When the arbitration agreement has been construed and no breach of the agreed procedure found there may nevertheless arise a second and quite separate question: that is, whether, as a matter of public policy, a particular award, made pursuant to that agreed procedure ought not to be enforced and ought, therefore, to be set aside; for an arbitrator’s award, unless set aside, entitles the beneficiary to call upon the executive power of the State to enforce it, and it is the function of the court to see that that executive power is not abused. “It is in relation to this second and separate question that the rules of what is so often called natural justice may arise directly. There may be a variety of grounds of public policy on which an award may be set aside … “Much of the confusion is caused by the fact that the expression ‘misconduct of the arbitrator’ is used to describe both these quite separate grounds for setting aside an award; and it is not wholly clear in some of the decided cases upon which of these two grounds a particular award has been set aside.

“If my analysis is correct, it follows that where the court in a case such as this is engaged in its first task of construing the arbitration agreement it must first look to see if there is an express term authorising the particular procedure impugned….But arbitration agreements seldom contain a complete code of procedure, and where there is no express written term relating to the point of procedure impugned the court has to ascertain the terms to be implied, which it does from the language the parties have used in their written agreement, the provisions of the Arbitration Act 1950, the surrounding circumstances, and–particularly in the kind of arbitration which comes before this court–any custom or trade practice which must be taken to be incorporated in their agreement. A custom or trade practice is not, however, to be incorporated in an agreement if it is unreasonable–not because the parties to a contract cannot expressly agree to something unreasonable, but because the court will not draw the inference that they have done so by silence. It is in this connection that something like ‘the rules of natural justice’ are blown in by a side wind.

“In considering whether a particular customary procedure in the determination of a dispute is unreasonable, a relevant test must be whether it tends or may tend to an unjust result.”

Again at WLR p. 279: “Where an arbitration agreement is silent as to procedure, what attitude should the court adopt in seeking to imply terms? Obviously it does not imply terms which tend or appear to tend to an unjust award;….”

I have quoted at length from the above judgment as it appeals to me as stating correctly the principles appropriate for guidance in this case (as indeed they did to O’Brien, J. in Haddad v Norman Mir Pty. Ltd., [1967] 2 NSWR 676 at pp. 682-3).

Thus it can be seen that from early reported cases the courts have insisted that principles, if not of natural justice, then those akin thereto, were to be observed by arbitrators simpliciter. In In re Badger (1819) 2 B and Ald 689; 106 ER 517 Abbott, CJ said: “If an arbitrator acts contrary to a general rule of law it is undoubtedly the duty of the court to set aside his determination. But there is a material distinction between those rules which are founded on the immutable principles of justice, from which neither the court nor an arbitrator can be allowed to depart, and those which depend on the practice of the court…” (my emphasis).

See also Re an arbitration between Camillo Eitzen and Jewson and Sons (1896) 40 Sol Jo 438 in which the court comprising Pollock, B. and Bruce, J. said:

“Whether the arbitration was conducted on the footing that it was a mercantile or a legal arbitration, the first principles of justice must be equally applied in every case. Whatever, therefore, were the terms agreed to the arbitrator had acted wrongly, and the award must be set aside.”

See also A-G. v Davison, [1827] M’Cl and Y 158; [1825] EngR 405; 148 ER 366; Ramsden and Co. v Jacobs, [1922] 1 KB 640; Franklin v Minister of Town and Country Planning, [1947] UKHL 3; [1948] AC 87 at p. 103; Bunge (Aust.) Pty. Ltd. v Craft, [1961] NSWR 181; Wood v Woad (1874) LR 9 Ex 190 at p. 196; Andrews v Mitchell, [1905] AC 78; Owners of SS “Catalina” v Owners of MV “Norma” (1938) 82 Sol Jo 698; and de Smith: Judicial Review of Administrative Action 3rd ed. p. 223.

But, subject to the overriding principles of natural justice, arbitrators clearly have a discretion as to the way in which they conduct arbitrations (see Tillam v Copp [1847] EngR 937; (1847) 5 CC 210; 136 ER 857; Knox v Symonds [1791] EngR 1438; (1791) 1 Ves 369; 30 ER 390; Archin v Ellis (1862) 11 WR 281; Haigh v Haigh [1861] EngR 530; (1861) 31 LJ Ch 420; 3 De GF and J 157; Mediterranean and Eastern Export Co. v Fortress Fabrics (Manchester) Ltd., [1948] 2 All ER 186).

The proceeding before the arbitrator is still nonetheless judicial; (Haigh v Haigh (1861) 3 De GF and J 159; [1861] EngR 530; 45 ER 838 at pp. 841-2; Government of Ceylon v Chandris, [1963] 1 Lloyd’s Rep 214 at p. 225; Owners of The MV Myron v Tradex Exports SA, [1970] 1 QB 527 at p. 533; [1969] 2 All ER 1263; Gartside v Outram (1857) 26 (NS) Ch D 113; Enoch v Zaretzky, Bock and Co., [1910] 1 KB 327 at pp. 333, 334; [1908-10] All ER Rep 625), or quasi-judicial; (Franklin v Minister of Town and Country Planning, supra).

The proceeding being judicial or quasi-judicial in nature, the arbitrator was bound, unless expressly absolved from so doing, to observe the ordinary rules which are laid down for the administration of justice, (see Haigh v Haigh, supra) and to apply the existing law (see Ram Dutt Ramkissendass v E.D. Sassoon and Co. (1929) 56 LR Ind App 128, and the statement in that case of Lord Salveson approved by the House of Lords in Naamlooze Vennootschap Handels-En-Transport Maatschappij “Vulcaan” v ASJ Ludwig Mowinckels Rederi, [1938] 2 All ER 152 at p. 156; see also Chandris v Isbrandtsen- Moller Co. Inc., [1951] 1 KB 240 at p. 261; [1950] 2 All ER 618).

In a number of cases the courts have declined to intervene because normal court procedures were not followed by arbitrators. In general, the basis of this declination has been the Court’s interpretation of what the parties agreed, expressly or impliedly, as to the procedures to be followed. Thus in Owners of The MV Myron v Tradex Exports SA, [1970] 1 QB 527; [1969] 2 All ER 1263 Donaldson, J. held that in the context of London shipping arbitration the parties had impliedly agreed to waive an oral hearing. (See also Government of Ceylon v Chandris, [1963] 1 LR 214 per Megaw, J. at p. 225; Haddad v Norman Mir Pty. Ltd., [1967] 2 NSWR 676; Hounslow LBC v Twickenham Garden Developments Ltd., [1971] Ch 233 (concerning an architect’s certificate).)

Before turning to the agreement of reference to arbitration in this case, it is pertinent to observe that the principles enunciated by Diplock, J. (as he then was) in the Jubilee Coffee Case, supra, parallel almost precisely those observed by the courts in determining whether natural justice must be met by bodies, ministers or tribunals on whom certain duties affecting rights of individuals are conferred by statute. There, the courts have held that recourse is to be had to the statute solely for the purpose of determining whether, on its proper interpretation, it displaced the common law rule that a statutory authority having the power to affect the rights of a person is bound to observe the rules of natural justice (see Mobiloil Australia Pty. Ltd. v Commissioner of Taxation [1963] HCA 41; (1963) 113 CLR 475 at p. 504; [1964] ALR 517; [1963] HCA 41; 9 AITR 133; R v Commonwealth Conciliation and Arbitration Commission; ex parte Angliss Group (1969) 122 CLR 546 at pp. 552, 553-4: [1969] ALR 504; Cooper v Wandsworth Board of Works [1863] EngR 424; (1863) 14 CB (NSW) 180; 143 ER 414; R v Electricity Commissioners; ex parte London Electricity Joint Committee Co. (1920) Ltd., [1924] 1 KB 171 at p. 205; Twist v Randwick Municipal Council [1976] HCA 58; (1977) 51 ALJR 193 at p. 194; [1976] HCA 58; 12 ALR 379; Salemi v Minister for Immigration and Ethnic Affairs [1977] HCA 26; (1977) 51 ALJR 538; 14 ALR 1; Re McKellar; ex parte Ratu [1977] HCA 35; (1977) 51 ALJR 591; 14 ALR 317). On this aspect of the law the court approaches the construction of a statute with a presumption that the legislature does not intend to deny natural justice to the citizen (see Barwick, CJ at ALJR p. 194 of Twist’s Case, supra).

The approach of the courts to an arbitration agreement is similar, but, if anything, goes further. In so far as principles of natural justice are equated with “public policy” they may be held to apply irrespective of what the agreement provides.

However, in my view, it is necessary to look at an arbitration agreement in any particular case to determine whether the parties have in fact agreed to waive a particular procedure normally associated with the principles of natural justice.

The reference in this case was to private arbitration of the dispute between the Corporation and the contractor. The source of that reference is to be found in CL43 of the abovementioned contract dated 25 October 1976 and the deed of submission dated 8 February 1978. The contractual obligations therein contained must be considered in conjunction with the provisions contained in the Arbitration Act 1958. I make particular reference to s8(b), s11(1),s12 and s19 which would appear to import into any reference to arbitration a requirement that the arbitrator apply to the dispute existing substantive law.

In London Export Corporation Ltd. v Jubilee Coffee Roasting Co.Ltd., [1958] 1 WLR 661 at p. 675; [1958] 2 All ER 411 at p. 421, Jenkins, LJ said: “In my view, the provisions of the standard form of contracts relating to arbitration contain upon their true construction sufficient indications to support the conclusion that the arbitration in this case was to be carried out, in each of its two stages, in accordance with the ordinary manner of carrying out formal arbitrations as distinct from references of a less formal nature.”

Neither counsel for the parties in this case contended that the reference to arbitration was other than of the normal type, and neither contended that there was other than a requirement on the part of the arbitrator to conduct the arbitration in a judicial manner, in accordance with the rules of natural justice and to decide the questions submitted according to the legal rights of the parties (see Chandris v Isbrandtsen-Moller, [1951] 1 KB 240; [1950] 2 All ER 618).

In my view, in this case the reference to arbitration was by agreement between the parties, and having regard to the terms of that agreement and the circumstances in which it was executed I hold that the arbitrator was bound to act judicially, to decide the issues in accordance with the legal rights of the parties, and to conduct the proceedings in accordance with the ordinary rules which apply to legal proceedings (save where the parties were in agreement as to reception of written statements) and to observe the principles of natural justice.

As appears hereafter, the arbitrator from time to time made certain assertions about the rules of evidence and what he described as “legal technicalities”. The arbitrator was clearly bound to apply the rules of evidence. This must follow from what I have already said, but was clearly articulated in Enoch v Zaretzky, Bock and Co., [1910] 1 KB 327; [1908-10] All ER Rep 625 (see particularly Farwell, LJ at (KB) p. 336).

The Corporation has contended in this case that the arbitrator misconducted himself in breaching one or more of the principles of natural justice. It is necessary to say something about what those principles involve.

There are two rules or principles of natural justice (de Smith: Judicial Review of Administrative Action 3rd ed. p. 134; Fairness and Natural Justice, by GDS Taylor (1977), 3 Monash Law Review 191 at p. 202) The first is that an adjudicator must be disinterested and unbiased. This is expressed in the Latin maxim–nemo judex in causa sua. The second principle is that the parties must be given adequate notice and opportunity to be heard. This in turn is expressed in the familiar Latin maxim–audi alteram partem. In considering the evidence in this case, it is important to bear in mind that each of the two principles may be said to have sub-branches or amplifications. One amplification of the first rule is that justice must not only be done but appear to be done; (Lord Hewart, CJ in R v Sussex Justices; ex parte McCarthy, [1924] 1 KB 256 at p. 259; [1923] All ER Rep 233). Sub-branches of the second principle are that each party must be given a fair hearing and a fair opportunity to present its case. Transcending both principles are the notions of fairness and judgment only after a full and fair hearing given to all parties.

The principles of natural justice and their ramifications have been the subject of much judicial discussion. It is now only necessary to refer shortly to what the High Court has said recently on the question.

I refer to R v Watson, J.; ex parte Armstrong [1976] HCA 39; (1976) 9 ALR 551. At p. 564 the majority cited with approval the exposition of the Master of the Rolls in Metropolitan Properties Co. (FGC) Ltd. v Lanon, [1969] 1 QB 577; [1968] 3 All ER 304, as follows: “Those requirements of natural justice are not infringed by a mere lack of nicety but only when it is firmly established that a suspicion may reasonably be engendered in the minds of those who come before the tribunal or in the minds of the public that the tribunal or a member or members of it may not bring to the resolution of the questions arising before the tribunal fair and unprejudiced minds. Such a mind is not necessarily a mind which has not given thought to the subject matter or one which, having thought about it, has not formed any view or inclination of mind upon or with respect to it.”

The High Court majority went on to say at p. 564: “The view that a judge should not sit to hear a case if in all the circumstances the parties or the public might reasonably suspect that he was not unprejudiced and impartial, and that if a judge does sit in those circumstances prohibition will lie, is not only supported by the balance of authority as it now stands but is correct in principle… It is of fundamental importance that the public should have confidence in the administration of justice. If fair-minded people reasonably apprehend or suspect that the tribunal has pre-judged the case, they cannot have confidence in the decision.”

At p. 565: “The question is not whether there was a real likelihood that Watson, J. was biased. The question is whether it has been established that it might reasonably be suspected by fair-minded persons that the learned judge might not resolve the questions before him with a fair and unprejudiced mind.”

The Court held that in the unusual circumstances of that case it had been established that the wife might reasonably suspect the Watson, J. had pre-judged an important question in the case and that she might therefore reasonably have no confidence in the result if he proceeded to decide the matter.

Before turning finally to what happened in the arbitration proceedings here under consideration, it is desirable that I say something related to the submissions on behalf of the contractor.

Without conceding that he did, counsel for the contractor contended that if the arbitrator did make errors as to law or fact then those errors could not be said to constitute misconduct. Similarly it was put that a misconception by the arbitrator of contentions put forward on behalf of a party or his mis-statement of those contentions could not amount to misconduct.

It is true, I think, that there is much authority to support what was there put forward in its bald form. In Gillespie Bros. and Co. v Thompson Bros. and Co (1922) 13 Ll LR 519 it was by Atkin, LJ at pp. 524-5 that it is no ground for overturning an award that the facts were wrongly found. He said: “The facts have got to be treated as found… Nor is it even a ground for setting aside an award that there is no evidence on which the facts could be found, because that would be a mere error of law and it is not misconduct to come to a wrong conclusion in law and would be no ground for ruling aside the award unless the error in law appeared on the face of it.”

Following Gillespie’s Case in Tersons Ltd. v Stevenage Development Corp., [1965] 1 QB 37 at p. 51; [1963] 3 All ER 863 at p. 869, Upjohn, LJ said: “It is not misconduct to go wrong in law so long as any mistake of law does not appear on the face of the award.”

Upjohn, LJ also said: “All questions of fact are, and always have been, within the sole domain of the arbitrator and only a limited control will be exercised over him in relation to questions of law.”

(See also RS Hartley Ltd. v Provincial Insurance Co. Ltd., [1879] LRSC 2; [1957] 1 LlR 121; A-G for Manitoba v Kelly, [1922] 1 AC 268; [1922] All ER Rep 69; Gold Coast City Council v Canterbury Pipelines (Australia) P/L [1968] HCA 3;(1968) 41 ALJR 307; [1968] ALR 97; Oleificio Zucchi STA v Northern Sales Ltd., [1965] 2 LlR 496; Giacomo Costa Fu Andrea v British Italian Trading Co. Ltd., [1962] 2 All ER 53 at p. 63.)

In my view, the principle is clear. In so far as questions of fact have been referred to an arbitrator for his decision then there is no provision in the law for overturning his decision on appeal. As in cases before the courts, it would be necessary to find some defect in his finding that amounted to an error of law. But there is limited provision in the arbitration scheme for reviewing errors of law. It may be done if a party asks the arbitrator to state a case (s8(b)), or an arbitrator may be directed by the Court or a judge to state a special case on a question of law (s19), or the Court may set aside an award on the face of which there appears an error in law. As to what constitutes the award and therefore its face need not be discussed here. But all this necessarily means that errors of law otherwise occurring are not subject to correction. They cannot be said to constitute misconduct because like questions of fact they have by agreement of the parties been referred to the arbitrator for his decision. (See Fidelitas Shipping Co. Ltd. v V/O Exportchleb, [1966] 1 QB 630; [1965] 2 All ER 4, per Diplock, LJ at (QB) pp. 643-4.)

Similarly there is authority that the mere misconception of the nature of contentions put forward on behalf of a party or mis-statement of the contentions do not constitute misconduct (see McPherson Train and Co. v J. Milhem and Sons, [1955] 2 Lloyd’s Rep 59).

All this is consistent with misconduct being related more to irregularity in procedure. Irregularities in law and fact in themselves are outside the concept of misconduct.

In so far as the arbitrator mis-stated and/or misconceived the submissions or contentions of counsel and/or was mistaken in fact or law, I hold that such things in themselves did not constitute misconduct capable of founding an order for his removal.

This is not to say however, that if he did one or more such things that they are deprived of significance for all purposes. In my view such things may be looked at, particularly in their setting, for the purpose of determining in the context of the rules of natural justice what impression may have been made by them on the fair-minded observer, whether a party or member of the public.

I have said that they must be considered in their setting. In saying “setting”, I refer, but not exclusively, to the nature of the mistake, mis-statement or misconception, the educational standard, qualifications and experience of the arbitrator and thus what might reasonably be expected of his powers of comprehension, the simplicity or otherwise of the submissions or contentions concerned and the procedure by which and manner in which they were handled by the arbitrator. In considering the question of technical bias a court must be able to look at a mistake or alleged mistake or misconception or mis-statement of argument by an arbitrator in combination with the process or path by which he came to make the impugned pronouncements. Further, a mistake, misconception or mis- statement in one setting may take on a more suspect appearance when considered together with other impugned pronouncements made in another.

In my view, a mistake in law or fact or a misconception or mis-statement of argument by an arbitrator is capable of scrutiny in order to determine whether it was so expressed and/or occurred in such a setting and/or was itself of such a nature, that a reasonable suspicion might be aroused in the mind of a fair-minded observer that the mistake, misconception or mis-statement stemmed from or was associated with a failure to consider relevant contentions and/or submissions with a fair and unprejudiced mind. Further, such examination may be made to determine whether particular mistakes, misconceptions or mis-statements occurring in one setting, when considered in a general context in which there were other mistakes, misconceptions, mis-statements and/or irregularities, contribute to an overall or generally based suspicion of the kind with which we are concerned.

A further point of such an exercise may be to determine whether there developed a trend or pattern which had the effect or appeared with reason to have the effect or unfairly disadvantaging a party.

The Proceedings before the Arbitrator As I have said the proceedings before the arbitrator took place on Thursday and Friday, 9 and 10 March 1978. In accordance with the understanding between the parties those proceedings were transcribed and a transcript of some 102 pages has been agreed by the parties.

It is convenient, I think, to consider what took place under four main topics.

The topic description is mine and has no significance as such:–

A. The Shaw Memorandum.

B. The Sittings Application.

C. The Delaney Statement.

D. The Defence Evidence Ruling.

In considering what I have had to determine I have had recourse to the whole of the proceedings as revealed in the transcript, the pleadings and documentary material which were at the relevant times before the arbitrator. I attribute relevance to all of it as necessarily providing the background against which specific parts of the proceedings must be considered. I propose to set out excerpts from the transcript which in the said context command particular attention. I will deal with each topic separately, and discuss the context which helps to explain the significance, if any, of the excerpts which follow.

I will state my findings as far as I consider it necessary in respect of each topic, and then, bearing in mind any inter-relationship between the proceedings related to each topic, state my final conclusion.

A–The Shaw Memorandum

The Context The contractor, in its points of claim, alleged that the claim for forged bends was by way of a variation to the works; or alternatively, an addition to, alteration, variation or amendment of the works within the meaning of CL32 of the conditions of contract, which clause provided for consequent additions to the contract price.

CL32 provided that the contractor in effect would not make any alteration of the nature alleged except as “directed in writing” by the Corporation. There is no need to set out CL32 in full. Although it had not done so in its points of defence to date, it was open to the Corporation to submit that any direction or requirement for variation relied on by the contractor had to be in writing and that there was none.

In his opening which took place on Thursday 9 March Mr. Cole of Queen’s counsel for the contractor made no reference to any requirement or direction in writing by the Corporation. For that matter, nor did he make any reference to the evidence on which he proposed to rely in order to establish the variation. It must be remembered, as was conceded by counsel in argument before me, that the contractor had the burden of establishing its claim. Further, there was no indication by the contractor in its points of claim as to how the requirement or direction or “ordering” of the forged bends by way of extra was sought to be established. This was so despite the understanding stated at the preliminary conference of 26 January that each party would provide details of the points of claim and defence with a view to avoiding a need for particulars.

What happened, then, was that the first witness called on behalf of the contractor was John Mervyn Shaw, the assistant general manager of the Corporation. On 6 August 1976 a letter had been sent by the contractor to the Corporation setting out its point of view on a number of matters in dispute between them. Included in para. 8(1) of that letter was the contractor’s statement of requirement for extra payment for “factory bends” (which are the same as “forged” bends). The contractor’s letter did not claim that the forged bends had been ordered as an extra by the Corporation, but merely that the claim was based on the lack of specification of them in the plans and specifications. The letter of 6 August was signed by George W. Noe, director of the contractor. On 13 August 1976 Mr. Shaw had made rough notes following a telephone conversation with Mr. Noe on 12 August 1976 relating to his letter dated 6 August 1976.

Now what happened in the proceedings before the arbitrator was that Mr. Cole, QC for the contractor called Mr. Shaw and put to him an extract from those rough notes. The extract which was put to Mr. Shaw in that way was as follows:–

“13 August” 76.

JMS:GG: 36

ROUGH NOTES FOLLOWING TELEPHONE CONVERSATION WITH MR. G. NOE,

APC-JL. 12/8/76, relating to his letter dated 6/8/76:

(Item Nos. as per G. Noe letter.)

(1) I advised that as far as GFC is concerned, forged bends have to be installed at all horizontal direction changes above 30 degrees.”

As appeared from [certain excerpts set out in the judgment] Mr. Shaw was called by the contractor and simply asked whether he had in fact made that note. Mr. Shaw said he had no recollection of making it but agreed that he must have. In the excerpts it was to be seen that the full note in which the above sentence appeared was eventually placed before the arbitrator. I set out below the full note:–

“(1) I advised that as far as GFC is concerned, forged bends have to be installed at all horizontal direction changes above 30 degrees. While this requirement is admittedly not specifically stated in the contract documents it is clearly implied in a number of places but, in any case, the point was made clear to all of the ‘short list’ tenderers prior to our awarding the Contract, to ensure that our Contract comparisons were on a fair basis. At that time, GFC’s interpretation was accepted without question by APC-JL representatives and this is recorded in our letter dated October 17, 1975. It would be quite wrong for GFC to now make additional contract payments. This is fundamental to GFC and not negotiable.

“Noe replied that additional payments for forged bends are also fundamental to APC-JL and not negotiable. Arbitration may be necessary.”

On this topic I refer to the following six excerpts from the transcript of the proceedings. Mr. Shaw was the only witness at this time. [The six excerpts, numbered A.1-A.6 were then set out.]

Comment. In my view the single sentence statement when taken out of context was most misleading. In context it was capable of bearing a meaning that was consistent with the defence as the Corporation had explained it and as counsel for the Corporation again explained it in excerpt A.6. The plausibility, feasibility or maintainability of that defence was not, at the relevant time, pertinent. I make no comment in that regard at all. The only relevant matter is that it was a defence in respect of which the Corporation was entitled to be heard and heard fully.

It is to be observed that counsel for the contractor resisted the tender of the entire note showing the context of the single sentence which he had tendered. In my view the single statement, out of context, was capable of misleading the arbitrator. It is to be noted that the “requirement” suggested within the single sentence was not stated to arise from the contract, a variation or otherwise. When looked at in the context of the whole note, it is clear that Mr. Shaw from his point of view maintained the source was in the contract or as agreed by the parties to be in the contract, certainly not in a variation.

No criticism of counsel for the contractor was made by the arbitrator, although in my view it would have been well merited. This is only of significance when one comes to consider criticisms, with which I will deal later, made by the arbitrator of counsel for the Corporation.

I further observe that, as appears in A.4, the arbitrator did not apply his mind to whether the meaning of the single sentence was in any way qualified by looking at it in context but rather the weight that he could give to the single sentence, in the light of the witness Shaw’s inability to remember writing it. The arbitrator’s remarks (particularly those in A.6) indicate that he paid little or no heed to the repeated submission by counsel for the Corporation that the single sentence statement in context was consistent with the Corporation’s defence as explained at the proceedings.

Further, despite the entitlement of the Corporation to have the whole note (1) of Mr. Shaw tendered so that consideration could properly be given to the meaning to be attributed to the single sentence, the arbitrator said: “I do not want to admit the document now. I want to see if he can recollect the writing of this.” (A.4) When Mr. Charles, QC for the Corporation said that was not the point, but that his opponent was seeking to tender the document out of context, the arbitrator again said: “I have not let it in. I have it in front of me but have not let it in yet because I do not want to let that in. To me that is not admissible as such.”

In excerpt A.5, the arbitrator said, “I do not want to see the document. If you want to tender it, I cannot stop you doing so.” The arbitrator addressed this remark to counsel for the Corporation and referred to the document containing the whole of the note made by Mr. Shaw.

Although at the invitation of counsel for the Corporation, the arbitrator said that he had read the statement in context, his remarks in A.6 indicate that he did not or did not appear to give full consideration to the submission available to the Corporation as to the true relationship between the entire note (1) of Mr. Shaw’s telephone conversation with Mr. Noe and the Corporation’s defence as described. It must be remembered that at this stage of the proceedings there was still no evidence before the arbitrator that the forged bends were required by the Corporation as a variation and none had been opened by counsel for the contractor.

Before me, Mr. Cole, QC for the contractor conceded that the whole note (1) was capable of placing a different construction on the single sentence that if it were looked at in isolation. He submitted it did not in fact alter the meaning of the single sentence but he conceded that there was an argument that it could.

I also observe that it is contended that the arbitrator’s remarks set out in excerpt A.6 might reasonably be suspected by a fair-minded person as containing a flavour of prejudgment on a vital issue going to the heart of the defence of the Corporation.

In my opinion, however, the arbitrator was bound to receive the whole of Mr. Shaw’s note (1) on the basis contended for by counsel for the corporation. Although he did receive it, it does not appear that he so received it on the correct basis or with a proper understanding of its true significance. The tender by Mr. Charles of the whole note was proper and should have been received. The objection by counsel for the contractor in my view was untenable.

In themselves, the misconceptions and errors to which I have referred were not themselves such as to constitute misconduct and it has not been so contended.

On the other hand, each error and misconception to which I have referred operated adversely to the Corporation, as indicated particularly by what the arbitrator said in A.6.

What Mr. Charles, QC submitted, in my opinion, was simple, that is, the single sentence in context of the whole note bore no meaning helpful to the contractor. The arbitrator, who was a professor of engineering, appeared not to grasp it and appears to have drawn an opposite inference.

Nevertheless, the excerpts A.1-A.6 do not by themselves, in my opinion, reveal a case of denial of natural justice. Considered in conjunction with the remainder of the proceedings, however, I consider them relevant and capable of adding to a reasonable suspicion of bias.

B–The Change of Sitting Times Application

Context The parties and their representatives had met on 26 January 1978 in the presence of the arbitrator at the premises of the Corporation, 171 Flinders Street, Melbourne. The points of claim at that time had not been delivered. It was agreed that there would be a hearing of the arbitration which would commence on 8 March 1978 and proceed to 23 March 1978 when it was anticipated that the arbitrator would leave for overseas. The timetable involved sitting hours between 10 a.m. and 5 p.m. each day for six days per week. The minutes of that conference noted that “On 15, 16 and 17 March Mr. Cole, QC may be absent and that the question whether the hearing will proceed on those days will be later determined”. Also, the location was to be in Sydney and evidence was to be taken on oath.

The Corporation received from the contractor on or about 10 February 1978, in accordance with the timetable, the points of claim relating to the various claims including the forged bends claim. The contractor’s points of that claim set out in Schedule G the quantification of its additional costs in respect of the installation of forged bends at horizontal changes of direction greater than 30 degrees. The quantification covered some 14 pages of calculations and attached some seven appendices covering some further 16 pages of figures, tables and schedules. Although the contractor gave the Corporation discovery on or about 27 February 1978, it is not clear that the precise documents on which were based the calculations contained in Schedule G and the appendices were identified. It is true that this discovery took place some few days later than was envisaged by the timetable.

On 8 March 1978, the first day of the intended hearing of the arbitration, the contractor provided the Corporation with Delaney’s statement. On that day negotiations for settlement of all the claims took place pursuant to the wishes of both parties and with the concurrence of the arbitrator. Delaney’s statement was delivered in the afternoon and purported to provide the Corporation for the first time with the actual documents or copy documents on which the contractor intended to rely to substantiate its calculations by way of quantification of its claim. The statement and annexed documents contained several hundreds of pages. Delaney’s statement has been put in evidence before me but I have not attempted to count the number of pages involved. They would take many hours to peruse and absorb.

On Friday morning, 10 March, counsel for the Corporation applied to the arbitrator for alteration of the sitting times and days. His application was that the arbitrator sit five days a week between the hours of ten till four in order to give the Corporation a chance to obtain full instructions on the material with which it had then been provided. Counsel for the Corporation said that after receipt of the material which had taken place since the time of the preliminary conference on 26 January 1978, a reassessmentof the matters at issue had taken place. He said that, having received the points of claim and the documents, the Corporation now wished to contest the correctness of methods of quantification and challenge fundamental matters associated with it. The Corporation by its counsel conceded that it had misapprehended the true areas of conflict between itself and the contractor. He said that the Corporation had, in effect, thought that the main issue was in relation to the legal liability of the Corporation to pay additional moneys and that in respect of the legal aspects the Corporation had considered there was little, if any, issue as to fact, Having received the material, it now saw that there was a live issue as to what additional costs, if any, the contractor had incurred as a result of installation of “forged” as distinct from “cold” bends.

In the course of his submission Mr. Charles, QC told the arbitrator that there now was a factual dispute on almost every issue in Mr. Delaney’s document. He referred by way of example to the number of blasting locations in the pipeline where forged bends were used. He said that the Corporation claimed there were only five such blastings whilst the contractor apparently alleged there were 46. He said that the differences in fact were as great as that. He also intimated that it must have taken the Contractor a considerable number of weeks to prepare the documents and the Corporation would be at a great disadvantage if it had to work within the timetable originally agreed upon, as it would leave little or no time for the obtaining of instructions and doing whatever else was necessary to prepare proper cross-examination and assemble witnesses who now appeared to be necessary in the light of the information provided by the contractor.

Mr. Charles, QC, in his submissions, also referred to the conditions under which he and his instructors were endeavouring to work in Sydney. He pointed out that the Corporation was Victorian based and that because of the Easter Show in Sydney, accommodation in Sydney had been impossible to obtain near the locality of the arbitration, and that it was difficult to obtain ready access to a law library and that the room set aside for counsel for conferences at the site of the arbitration was unsatisfactory.

Counsel for the contractor opposed the application and put his opposition on the basis that they delay in the hearing was due to the fault of the Corporation and that the Corporation had agreed at the preliminary conference to the hours and they should not be changed. It said that the records had been available for discovery by the Corporation since 20 February and that since that time the Corporation could have checked the documents. It also said that the Corporation had known for a considerable time that there was to be an arbitration in relation to the forged bends and had eight to twelve months to prepare themselves for the case.

Reference to the following excerpts is made but again in the context of the whole of the proceedings as recorded in the transcript: [Certain excerpts, numbered B. 1-B.9 were then set out.]

Comment In my opinion, the application on behalf of the Corporation should have been granted. There was no contravention of the basic reality that the Corporation was handicapped, in the circumstances, in the presentation of its case. The arbitrator had a duty, if he was to consider the matter judicially, to consider the application fairly on its merits. That meant that he should have considered only relevant matters and satisfied himself that no unfairness to the Corporation would result from his ruling. His statement that he had by his ruling put pressure on the Corporation was a concession that the Corporation was handicapped, at least in part, in the way it contended.

The fundamental importance, in a judicial hearing, of ensuring that each party has equal and proper opportunity to present his own case (which involves full and proper challenge to the case of the opposite party) has been well expressed in a number of the authorities. In R v Medical Appeal Tribunal (Midland Region); ex parte Carrarini, [1966] 1 WLR 883, Parker, LCJ at p. 888 said: “…It seems to me that the Deputy Commissioner’s decision could only have been arrived at because he misdirected himself in some way as to the law or as to the facts. Put another way, once the decision of the Medical Appeal Tribunalis analysed, and once one directs oneself properly as to the law, the only conclusion which any reasonable tribunal could come to is that the Medical Appeal Tribunal were not acting judicially in refusing the adjournment and accordingly that the appeal should have been allowed on the ground of an error of law.”

Parker, LCJ was speaking in respect of a case where an appellant before the Medical Tribunal had sought an adjournment in order to call a medical witness to contradict evidence already provided.

In the setting of a commercial arbitration Megaw, J. said in Montrose Canned Foods Ltd. v Eric Wells (Merchants) Ltd. [1965] 1 Lloyd’s Rep 597 as one of three justices sitting in the Queen’s Bench division at p. 602: “In my judgment, it is incumbent upon arbitrators to take steps to ensure, so far as is reasonably possible, before they make an award, that each of the parties to the dispute before them know the case which has been put against them, and have had the opportunity to put forward that party’s own case….It was the duty of the arbitrators as a matter of natural justice, before they proceeded to make an award on the basis of the arguments and submissions of one side only, to make sure that the buyers did not wish to put their case before the arbitrators.”

In the Owners of the MV Myron v Tradex Exports SA, [1970] 1 QB 527; [1969] 2 All ER 1263 Donaldson, J. said at (QB) p. 535: “If, however, the arbitrators have the slightest grounds for wondering whether one of the parties has fully appreciated what is being put against him or whether he might reasonably wish to supplement his evidence or argument in the light of what has been submitted by the other party, it is their duty to take appropriate steps to resolve these doubts….If either party wishes to see the whole of the other party’s evidence and to be informed in detail of its arguments, he should require a formal hearing. Any such request must be granted and at the hearing the usual court procedure will be followed. The usual court procedure includes the granting of an adjournment on appropriate terms if the justice of the case so requires.”

Donaldson, J. was, of course, in that case referring to a situation which arose from time to time in informal arbitration hearings. The importance of his remarks is, however, that even in such hearings the duty of the arbitrators was clear and required their ensuring that each party had full and proper opportunity to consider the case of the other. It is common in the performance of such duty to grant adjournments or any necessary time to a party requiring it for the same purposes. (See also Whatley v Morland (1833) 2 Dowl 249; 3 LJ Ex 58.)

In my view, the audi alteram partem rule of natural justice commanded that the Corporation be not handicapped at all in the presentation of its case. I also express the view that the statements by the arbitrator about the preparedness of the Corporation and its previous stand at the conference, were diversionary of the main point with which he was obliged to deal. In any event, they reflected a lack of fair consideration of the total information at his disposal at the time he was asked for the amendment of sitting times.

The failure itself to grant the application in the circumstances constituted, in my view, a denial of natural justice and therefore misconduct.

I should add, that the arbitrator was also wrong to delay final ruling on the application on the basis of him seeing how, as he put it, the Corporation was “going to perform” on the Monday and Tuesday of the following week. It is not part of the function of a judicial officer to make judgments on how a party “performs”. He must judge an application on its apparent merits as stated to him and on the material at his disposal.

It is to be noted that in so far as the arbitrator made observation on the conduct of the parties or the merits of their contentions or submissions only those in respect of the Corporation were adverse. In my view, none appeared to have been properly merited. Further, what the arbitrator said on a number of occasions showed that he misconceived what was being put to him. Every misconception was adverse to the Corporation, for example, as to the nature and purpose of the February discovery by the Corporation (B.8), as to the basis on which originally sitting times were fixed (B.6), as to the change in all the circumstances which the Corporation claimed, as to the ramifications of the recent delivery of the Delaney documents, as to the practicalities of an early conclusion to the hearing of all the claims (B.9), as to the reason why counsel referred to the dispute as to the degree of blasting (B.4), as to the content of the Corporation’s defence (B.4,B.5), by referring to the contractor’s documentation as “back-up material” in the context of its true or potential significance (B.1), as to the distinction between inadmissible evidence and evidence (B.1), and as to the distinction between a general unpreparedness and a particular unpreparedness to contest the contents of material recently delivered (B.7).

I refer further to the following statements the arbitrator made:

“If you are worrying about the shortage of time your client can take a good deal of the problem.” (B.1) “It is not my fault surely, or Mr. Cole’s fault, if your people cannot tell us how long they want to do things.” (B.1) “I get up at five o’clock in the morning or so and I can work till 10 or 11 o’clock at night.” (B.1) “You pick up one hour a day which is a day a week and then you want to take a sixth day off, which is two days a week we are losing.” (B.1) “…my impression is that nothing was done by your people until all of a sudden we are right on the case.” (B.1)

In answer to the suggestion that certain material put before the arbitrator was mostly inadmissible the arbitrator said:–

“I do not know but the point is that is the evidence.” (B.1) “What I do not want to do, quite frankly, is to go back to a 10 till 4 situation unless there is absolutely irrefutable evidence that you cannot possibly get ready because you are not ready now.” (B.3) “I do not like procrastinating the matter any further.” (B.6) “The impression I have is that the Corporation came along and now finds itself somewhat unprepared.” (B.7) “I am not au fait with the details of your case but it seems extraordinary to me that you are taken by surprise by what is in there–I do not know what is in there yet–you are taken by surprise by disputation as to fact.” (B.7)

In my view, a fair-minded observer mightreasonably have suspected that the arbitrator was minded to criticize the Corporation in respect of matters he had not fully investigated and without giving proper understanding to the problem with which the Corporation claimed it was faced. Further, it might reasonably have been suspected that the arbitrator had it in mind that his own convenience was a matter of some importance in dealing with the application and further that he had tentatively, at least, set a time limit on the total duration of the hearing of the arbitration and that tentative fixation of time limit bore some influence on his ruling(see Van Dongen v Cooper,[1967] WAR 143). It was not proper for the arbitrator to allow matters of personal convenience to have influenced his ruling. It is contrary to the concept of fairness to put “pressure” (as he admitted) on one party so as to disadvantage it.

The remarks of the arbitrator in the various excerpts (B.1-B.9) showed a reluctance to deal with the actual merits of the Corporation’s application and in my view, contained criticisms of the Corporation which were unfair in the light of the information with which he was then seized. The arbitrator’s demand for irrefutable evidence (B.3) of the Corporation’s inability to present its case satisfactorily was unreasonable and clearly unsupportable. Not only his ruling then, but the process by which his ruling was arrived at and his remarks in the course of that process are relevant to the question of technical bias in his conduct of the entire proceedings.

C — The Delaney Statement Context Immediately following the arbitrator making his ruling by which he, in effect, refused the application for alteration in sitting times (save as to the Saturday, 11 March) and deferred further consideration until the following week, Mr. Charles on behalf of the Corporation indicated that it desired the evidence of Mr. Delaney to be given on oath and without reference to the statement, a copy of which had been supplied to him. He made it clear that as his client had not been able to provide him with sufficient instructions as to its accuracy, and because on the face of it the statement contained inadmissible evidence, he would require strict proof of the matters contained in it.

It appears that the witness Delaney, whom the contractor proposed to call immediately, had not been on the pipeline construction site before October 1976. Therefore it was not clear in respect of what matters he could give direct evidence. The Corporation at that time had not been provided with the statement of any other witness. It therefore did not know what eye witness evidence was to be called on behalf of the contractor. It expressed the fear that its non-objection to Delaney’s statement might deprive it of the opportunity of cross-examining persons who were directly associated with the work the subject of the contractor’s claim.

There can be little doubt that the Corporation was entitled in law to take the stand which its counsel took. There was nothing improper in it. The transcript of the proceedings shows that the arbitrator did not entirely accept the situation which Mr. Charles, QC said he took and was entitled to take. It was in this context by reference back to the ruling as to sitting times that the exchange took place as set out in B.9. But in addition there was lengthy exchange between the arbitrator and counsel in which it was apparent that the arbitrator expressed some disaffection with the course proposed. In that exchange there are excerpts as follows to which I now refer: [Excerpts numbered C.1-C.10 were set out.] Comment

The interchange between the arbitrator and counsel for the Corporation in respect of this topic extended over some 17 to 18 pages of the transcript. The objection raised by counsel for the Corporation was one which could have been ruled upon in a relatively short space of time. The excerpts C.1 to C.10 in their context indicate that the arbitrator discussed critically with counsel for the Corporation the stand that it took rather than rule on it.

Counsel for the contractor has submitted to me that no complaint could be made about the arbitrator’s conduct in relation to the Delaney statement because he ruled as requested that Mr. Delaney give his evidence in the normal way. However, what the arbitrator said was contained in C.2 above, namely, “If you (the Corporation) want it conducted that way, then I am afraid I am bound to do it, otherwise you are going to object to the evidence and dash off to the Supreme Court and get an award or this arbitration stayed.” This did not reflect a proper judicial approach to his function.

The excerpts C.1-C.10 show that the arbitrator might well have appeared non-judicial in approach:–

(1) in designating proper objections by counsel to the admissibility of evidence as “taking technical points” (C.1, C.6, C.10);

(2) in asking the defence what he, the arbitrator, was to do if the maker of a statement was unavailable (C.1) or a witness for the contractor was not available (C.4);

(3) in suggesting that a document was admissible so long as it was “authentic” (C.2);

(4) in saying he, the arbitrator, did not want a witness to be called but he could not stop the Corporation’s counsel from insisting (C.2);

(5) in failing to rule according to law on whether a witness had been established as an expert, and, if so, in what field or fields (C.5, C.6);

(6) in stating in advance that he would not grant adjournments to enable consideration of evidence (C.6);

(7) in stating that the objection of counsel for the Corporation to the statement of the witness Delaney was “not wanting to be forewarned” (C.6);

(8) in saying that the taking of the objection to admissibility of evidence and tendering of a statement of evidence was “endeavouring to bamboozle” the arbitrator (C.7);

(9) in interpreting the submission of counsel for the Corporation as “trying to delay the proceedings” (C.8);

(10) in stating in advance that he would not accept evidence to be called by the Corporation (C.9);

(11) in describing submissions of counsel as “beating the air” (C.10);

(12) in referring, without it being relevant to do so, to the contractor being “out of his money”.

In each instance what was said by the arbitrator bore overtones which were adverse to the Corporation.

D — The Defence Evidence Ruling Context In the course of his opening, counsel for the contractor referred to para. 2 of the Corporation’s defence to its forged bends claim and submitted to the arbitrator that the Corporation thereby was attempting to adduce evidence in aid of interpretation of the written contract and that this was not in law permitted. He said to the arbitrator that the contractor would be objecting to any evidence which was sought to be led in relation to sub-paras.(a), (b), (c) and (d) of the said para. 2. As soon as that submission was made the arbitrator said: “It is my position — perhaps I should ask you if you will let me interrupt you to ask Mr. Charles what he has to say to this?”

Mr. Charles, QC then said: “We are in total conflict on this point, Mr. Arbitrator.”

After some further discussion Mr. Charles, QC said that the time and place to argue the point was for the arbitrator to decide. The arbitrator then requested Mr. Charles to be ready to argue it in due course “because it is not going to be very long before I have to decide whether I have to admit it or not admit it”.

Counsel then agreed to argue the question of what broadly had been described as the admissibility of “pre-contract negotiations”. This took place just before and just after the mid-day adjournment on Friday 10 March. Mr. Cole put his argument, as appears from the transcript, without any interruption whatsoever from the arbitrator. After the adjournment at 1:30 p.m., junior counsel for the Corporation Mr. Hayes commenced his argument in favour of the admissibility of the evidence. In the course of his argument the arbitrator sought the submissions of Mr. Hayes on the meaning of CL32 of the contract which provided: “Save as provided by supplemental deed of even date between the parties this Contract supersedes and annuls all previous agreements between the parties hereto, and there are no extraneous agreements representations or understandings expressed or implied except as they may relate to the quality of the Works, affecting this agreement.”

In the course of the discussion on this aspect, the arbitrator said:–

D.1 — “Mr.Hayes, I may stand corrected, if I had an Oxford English Dictionary to look up the word annuls — I have no doubt in my mind what it means here when it says that there are no extraneous agreements, representations or understandings. All the cases that Mr. Cole has put to me and the texts that you have have not qualified an annulment clause — no extraneous agreements, representations or understandings clause. To me, we are just wasting time. As far as I am concerned nothing before this contract has any bearing on the matter.”

Mr. Hayes then asked whether the arbitrator was ruling to that effect and the arbitrator said he was. Mr. Hayes then asked the arbitrator to state a case and he then said he would.

There followed some discussion about the appropriate time for the preparation of the case stated. In the course of that discussion the arbitrator said:–

D.2– “I am not prepared to postpone this arbitration hearing because you want a case stated for the court to determine whether any previous evidence is admissible or not.”

Later on he said:–

D.3– “We will take the evidence this afternoon and we will write the case after 5, if it takes till midnight.”

The arbitrator was then asked by Mr. Charles to disqualify himself on the grounds of bias and Mr. Hayes also said to him that he had decided the point before he had argued it. The arbitrator said that he was repeating his argument but did not invite Mr. Hayes to put any further argument in support of his submissions.

The following also took place:–

D.4– To Mr. Hayes–

“THE ARBITRATOR: Do you mind. I would just like to ask you something. We have come here to arbitrate an engineering contract, that is one thing. If we have come here to argue all legal technicalities, that is another.

“MR. HAYES: Which legal technicality was it, I ask?

“THE ARBITRATOR: I do not mind what you ask, sir. I do not have to answer you. What I have come here today, as I understand it, is to settle a dispute over an engineering contract between two parties. They selected me as the arbitrator and I remind you, you might look up Halsbury on that one…”

D.5– “MR. CHARLES: I merely would ask that it be noted that the ruling was given when argument had not been completed in relation to our side of the case.

“THE ARBITRATOR: I am quite happy for you to make that because Mr. Hayes did not wish to answer what he understood by the word annuls.

“Mr. Hayes: I would like it on record that I was answering the question and that you, sir, would not listen to my answer.

“THE ARBITRATOR: You can have that noted. Where do we proceed from here, Mr. Cole?”

After Mr. Charles for the Corporation had indicated that he would apply to this court for removal of the arbitrator, the following further exchanges took place:–

D.6– “THE ARBITRATOR: It is quite obvious to me that the Corporation rightly or wrongly, expects the forged bends for nothing– by nothing I mean for no extra cost.”

D.7– “THE ARBITRATOR: … I am not objecting to you taking the right course. What concerns me of course, as I said already today, is I thought this was an arbitration about a dispute with respect to forged bends and, that is the only one we have dealt with, that has been delayed by your statement that if I would not grant you shorter hours — and I will have to get the transcript to quote you precisely — that you would insist on taking objection to everything…

“MR. CHARLES: Every proper objection.

“THE ARBITRATOR: Everything proper, in spite of the hours we agreed to and in spite of the method of presentation of evidence that we agreed to.”

Comment

The question on which the arbitrator was asked to rule was not an easy one particularly at that stage of the proceedings. It was also particularly difficult in the light of the pleadings. On one view, the submission which counsel for the contractor had put was attractive and the arbitrator may well have thought with all honesty that Mr. Cole’s submission was unarguably correct. I am not satisfied that the arbitrator’s actual ruling, although it was expressed somewhat generally, has any direct relationship to a denial of natural justice.

However, the arbitrator did cut off counsel for the Corporation before he had finished putting his argument. Although counsel for the Corporation before me submitted that there were many other arguments that it proposed to put, I cannot in my deliberations take cognisance of any fact other than that its submission had not been completed. In my view, there were a number of arguments that were open to the Corporation to put in support of the admissibility of the evidence under discussion. One of them clearly was that the evidence may very well have become admissible as a result of Mr. Shaw’s evidence about what the Corporation had required. The facts and circumstances surrounding that requirement were capable of being admissible on the question as to whether or not an “extra” or “variation” had been duly requested by the Corporation. However, I do not regard those matters as necessary for me to determine or particularly pertinent.

What does seem germane is the fact that the arbitrator did make a premature ruling — premature, that is, in the sense that he had effectively prevented the completion of the submission to be put on behalf of the Corporation. From the Corporation’s point of view, the admissibility of the evidence under consideration was vital to its defence.

Although, as I have said, the arbitrator may have been forgiven for thinking at that stage that his ruling was unarguably correct, I think that he was obliged to hear counsel for the Corporation complete his argument.

Further, there were features of his approach to this question which can only be described as non-judicial. He attempted to decide the point when, in my view, he was insufficiently informed about all the facts and circumstances of the case. It was not necessary for him to have decided the question so early and in my view it was difficult for him to have come to a conclusive opinion, as he purported to do, without being better informed or having a better understanding of the way in which the contractor was to establish his claim and the precise evidence by which the Corporation proposed to refute it.

Further, in describing the submissions of counsel as “wasting time” he might be reasonably suspected of refusing to give to the arguments the consideration to which they were entitled.

It is also to be noted that the arbitrator mis-stated counsel for the Corporation’s stance on admissibility of evidence and imputed to him deliberate delaying tactics (D.7).

In D.6 he mis-stated in a tendentious way the nature of the Corporation’s defence.

It is also to be noted that the ruling which the arbitrator purported to make was based on an argument which he himself originated and which was different from what was put on behalf of the contractor.

There can be little doubt that the failure on the part of the arbitrator to hear out fully the submission made by the Corporation on a vital issue constituted a breach of the audi alteram partem principle of natural justice and therefore misconduct.

Conclusion It follows from what I have already said that I regard the arbitrator as having misconducted himself in respect of topic “A” in failing to permit at least the time requested on behalf of the Corporation for preparation of cross-examination and presentation of its case; and in pre-judging and/or failing to hear fully the submissions of counsel for the Corporation on topic “D”.

Nevertheless, I believe I should express my view, those matters apart, on whether, when the proceedings are looked at as a whole, the arbitrator misconducted himself by displaying technical bias, that is, bias as defined in Watson’s Case, supra. For this purpose I do no more than consider, in the light of what I have already said, the rulings, approaches and conduct of the arbitrator referable to topics A, B, C and D in combination against the following background:–

(a) the contractor had the civil onus of proving its claim against the Corporation to the satisfaction of the arbitrator. But although the contractor by its counsel had not opened any evidence or called any to show how it would prove the “variation” relied on in its points of claim, let alone one in writing, no question was directed by the arbitrator to counsel for the contractor on these aspects;

(b) although the arbitrator had described his discussions with counsel for the Corporation on his submissions as “beating the air” and had said of that counsel that he was not wanting to speed the hearing, that he was just wasting time and that he had attempted “to bamboozle him”, that the Corporation had done nothing until all of a sudden it was right on the case, and that it could take a good deal of the problem, no criticism at any time was directed to counsel for the contractor. In my view, the criticisms and statements made against the Corporation and against their counsel, to a fair-minded observer, might well appear to have been unwarranted and unfair in the circumstances.

(c) although the arbitrator appeared to misconceive and/or mis-state a number of submissions made on behalf of the Corporation, for example, as to the nature of its defence, the true basis of its objections to Delaney’s statement and the true basis for its application for amendment of sitting times, no misconceptions adverse to the contractor appeared to have occurred in respect of any submission made on its behalf:

(d) the arbitrator at the preliminary conference and impliedly at the hearing indicated his willingness not to sit for three of the allotted days should counsel for the contractor have requested it;

(e) the proposal to sit six days per week between the hours of 10 a.m. and 5 p.m. was only to operate until 23 March 1978 after which the arbitrator was to be away overseas until August. The period till 23 March was critical for the Corporation if it wished to refute at all the contractor’s claim by cross-examination of its witnesses. It was important from its point of view that cross-examination be well prepared on instructions some of which required perusal by the Corporation’s experts of the figures and documents presented on behalf of the contractor. There was no arrangement as to times for sitting days for the period or resumption after August. In any event, the contractor would have the benefit of five intervening months to prepare for cross-examination of the witnesses to be called on behalf of the Corporation;

(f) the arbitrator was a professor of engineering and presumably therefore a man of high intellectual capacity;

(g) all the excerpts under topics A, B, C and D contain a large number of statements by the arbitrator adverse to the Corporation, its case and its counsel;

(h) the transcript shows that the arbitrator did not make any statements adverse to the contractor, its case or its counsel.

As a consequence, it has, in my view, been firmly established that a suspicion may reasonably have been engendered in the minds of the Corporation or in the minds of the public that the arbitrator did not and would not bring to the resolution of the questions arising before him a fair and unprejudiced mind. On this basis also, I am satisfied the arbitrator misconducted himself within the meaningof s12(1) of the Arbitration Act 1958.

The order of the Court will be that in the arbitration between Wood Hall Ltd. and Leonard Pipeline Contractors Ltd. on the one part and the Gas and Fuel Corporation of Victoria on the other part, the arbitrator, Professor James Antill, be removed with costs to be paid by the said Wood Hall Limited and Leonard Pipeline Contractors Ltd.

Order accordingly.

Structural Monitoring Systems Ltd v Tulip Bay Pty Ltd [2019] WASCA 16

SUPREME COURT OF WESTERN AUSTRALIA
THE COURT OF APPEAL (WA)

STRUCTURAL MONITORING SYSTEMS LTD
(Appellant)

V

TULIP BAY PTY LTD
(First Respondent)

KENNETH JOHN DAVEY 
(Second Respondent)

 

CORAM: Quinlan CJ, Murphy JA, Mitchell JA
HEARD: 9 November 2018
DELIVERED: 29 January 2019
FILE NO: CACV 2 of 2018
CATCHWORDS: Arbitration – Commercial Arbitration Act 1985 (WA) – Appeal against decision dismissing application to set aside arbitral award on ground of misconduct – Whether denial of procedural fairness – Whether excessive delay in delivery of award – Matter heard and determined by two arbitrators where three arbitrators had been appointed – Majority of the arbitrators heard and determined the matter

 

JUDGMENT OF THE COURT:

 

  1. The appellant, Structural Monitoring Systems Ltd, appeals against the decision of the primary judge dismissing its application to set aside an award made by arbitrators Peter John Hannan and Philip George Clifford on the grounds of misconduct, and remove arbitrators Peter John Hannan, Philip George Clifford and Kelvin Lord.
  2. The application was made pursuant to s 42 and s 44 of the Commercial Arbitration Act 1985 (WA) (the Act).
  3. Before the primary judge, the appellant contended that the misconduct was constituted by:

(a) a denial of procedural fairness, by taking into account submissions from the respondents, Tulip Bay Pty Ltd (Tulip) and Kenneth Davey, to which the appellant had no opportunity to respond;

(b) excessive delay in the delivery of the award; and

(c) the matter being decided by two of the arbitrators (Mr Hannan and Mr Clifford) in circumstances where three arbitrators had been appointed.

  1. The primary judge concluded that there had, relevantly, not been any misconduct within the meaning of the Act of a kind which would justify setting aside the award. His Honour dealt separately with each of the identified allegations of misconduct.
  2. Before turning to the grounds of appeal, it is necessary to set out some of the background to, and the conduct of, the arbitration.

Background The Technology Agreement

  1. The appellant and the respondents are parties to an agreement dated 29 November 1999 entitled ‘Technology Agreement’.
  2. The Technology Agreement recited that:

(a) Mr Davey was the inventor of the technology the subject of the agreement, and had assigned full beneficial ownership of the technology to Tulip; and

(b) the appellant had acquired from Tulip the exclusive worldwide licensing rights and the option to purchase the intellectual property rights pertaining to the technology.

  1. By the terms of the Technology Agreement, the appellant exercised the option to acquire the intellectual property rights in the technology in return for a payment of $500,000 and a continuing obligation to make an annual royalty payment for so long as any patent remains in existence. In that regard, the agreement provides for a minimum annual royalty of $60,000 adjusted in accordance with the Consumer Price Index.
  2. Clause 2.3 of the Technology Agreement records an acknowledgement and agreement by the respondents to the effect that the appellant had, by the agreement, acquired full beneficial right, title and interest in the intellectual property rights relating to the technology, together with each ‘Enhancement’. The word ‘Enhancement’ is defined by the agreement to mean each ‘improvement, update, revision, modification, extension or change to the Technology, the Products and the Intellectual Property Rights’ made by or on behalf of the parties.
  3. By cl 17 of the Technology Agreement, the parties agreed that all claims arising out of or in connection with agreement were to be exclusively and finally settled by arbitration (arbitration agreement).
  4. Clause 17.2 of the Technology Agreement provides that a single arbitrator is to be appointed with the unanimous consent of the parties, failing which consent:

[T]he arbitration shall be heard and determined by three (3) arbitrators.

  1. In those circumstances, the Technology Agreement provided that each party is to appoint an arbitrator, who will together appoint a presiding arbitrator.
  2. Clause 17.3.3 of the Technology Agreement provides:

[W]here there is more than one arbitrator, all decisions and awards shall be made by majority vote of the arbitrators.

The dispute and arbitration

  1. In June 2006, Mr Davey lodged an application for a patent, designated AAPA 2006903137 (the 2006 patent application). In June and July 2009, Tulip and Mr Davey lodged two more applications for patents.
  2. By a Notice of Arbitration dated 7 June 2012, the appellant alleged that each of the patent applications was an ‘Enhancement’ within the meaning of the Technology Agreement, and that making the applications for patents constituted breaches of that agreement. The appellant alleged that the breaches constituted a repudiation of the Technology Agreement by the respondents, which the appellant had accepted, bringing that agreement to an end. The appellant claimed damages for breach of the Technology Agreement, including return of all royalties it had paid since 2006, plus costs and expenses it claimed to have incurred.
  3. In the Notice of Arbitration, the appellant consented to the appointment of Mr Clifford as the arbitrator and, failing agreement, stated that it would appoint Mr Clifford as one of the three arbitrators. Mr Clifford is a barrister.
  4. On 14 September 2012, the respondents nominated Mr Lord and, on 30 January 2013, the nominated arbitrators appointed Mr Hannan as presiding arbitrator. Mr Lord is a patent and trade mark attorney and Mr Hannan is a barrister.
  5. On 14 February 2013, at a preliminary conference before Messrs Hannan and Clifford, the respondents raised an objection to the jurisdiction of the arbitrators on the ground of a misdescription of the appellant in the Notice of Arbitration. That objection was dismissed in reasons published on 18 March 2013 by Mr Hannan, with which Mr Lord and Mr Clifford agreed on 18 March 2013 and 19 March 2013 respectively.
  6. The only relevance of that preliminary decision, for present purposes, is that the letter from Mr Lord to Mr Clifford dated 18 March 2013 advising that he agreed with Mr Hannan’s reasons is the last recorded involvement of Mr Lord in the arbitration until after Messrs Hannan and Clifford delivered their final reasons.
  7. Thereafter, various steps were taken in the arbitration. It is not necessary to set out all of the history of the arbitration. As the primary judge observed, the arbitration as a whole fell well short of an efficient and cost-effective dispute resolution process. It was replete with unnecessary delay and procedural disputes, for which all involved must bear some responsibility.
  8. It suffices to refer to the following matters.
  9. On 30 April 2013, the respondents served their response to the points of claim, and a counterclaim (the Response and Counterclaim). In essence, while the respondents admitted lodging the various patent applications, they denied that their conduct constituted a breach or a repudiation of the Technology Agreement. The Response and Counterclaim included a counterclaim by the respondents seeking both debts and damages. In particular, the respondents claimed payment of unpaid royalties under the Technology Agreement for the years 2010/2011 and 2011/2012.
  10. Following various directions and extensions, the appellant served its response to the Response and Counterclaim on 18 March 2014 (seven months after it was due). That response was largely concerned with the counterclaim, and maintained that the appellant was not obliged to make royalty payments by reason of the termination of the Technology Agreement as a consequence of its acceptance of the respondents’ alleged repudiatory breach.
  11. On 20 March 2014, Messrs Hannan and Clifford made directions relating to the provision of written witness statements and submissions. While all witness statements were served within the times specified by Messrs Hannan and Clifford, the appellant failed to comply with a direction to serve its submissions by 20 May 2014.
  12. There then followed unsuccessful settlement negotiations and the arbitration sat in abeyance until April 2015 when, following correspondence between the parties, the appellant served its written submissions on 20 April 2015 (some 11 months after they were due).
  13. Further programming orders were made (in the name of all three arbitrators) requiring the respondents to file responsive submissions on or before 4 May 2015. The respondents’ solicitor sought, and obtained, a number of extensions of time within which to serve those submissions. The submissions were ultimately served at 5.01 pm on 9 July 2015, seven hours after the final deadline.
  14. In his email attaching the submissions the respondents’ solicitor wrote:

Please accept my apologies for the delay today, which was due to a serious and recent health issue currently being experienced by a family member.

  1. The appellant’s allegation, before the primary judge and in this Court, that it was denied natural justice by the arbitrators relates to the arbitrators having considered material served after 10 am on 9 July 2015.
  2. As was the case before the primary judge, however, it is unnecessary for us to deal with the effect of the submissions served on 9 July 2015. That is because, before the primary judge and on appeal, the appellant did not rely upon any aspect of those submissions in support of its assertion that it was denied procedural fairness. Rather, its assertion that procedural fairness was denied arose from written submissions lodged by the respondents in January 2016.
  3. On 18 December 2015, following correspondence between the parties and the arbitrators in relation to their progress in October and November that year, Mr Clifford provided a memorandum to the solicitors for the parties and his fellow arbitrators in which he identified 22 issues to be resolved in the arbitration.
  4. Mr Clifford’s memorandum invited the parties to consider whether the 22 issues accurately reflected the issues for resolution, whether the parties wished to jointly concede that any of those issues did not require resolution, and whether there were additional issues.
  5. The memorandum also drew the parties’ attention to three decisions on the subject of repudiation. While the memorandum did not require the parties to make any submissions, it advised that they should feel free ‘to make a further submission of law or mixed fact and law on how the cases mentioned above apply to their case theory’ should they wish to do so.
  6. The memorandum also advised that the arbitrators did not require an oral hearing and proposed to resolve the issues on the papers, but invited either party wanting an oral hearing to advise the arbitrators of that fact, and why. The memorandum directed that any further materials were to be provided not later than 20 January 2016.
  7. On 20 January 2016 the respondents’ solicitor served written submissions with respect to each of the 22 issues identified in Mr Clifford’s memorandum.
  8. By email sent at 12.24 pm on 28 January 2016 to the parties’ solicitors and the other arbitrators, Mr Clifford acknowledged receipt of the materials that had been sent by the respondents’ solicitor on 20 January 2016 and further materials (not submissions) sent on 27 January 2016 and advised that:

Those documents are being considered by the arbitrators now. The arbitrators will send a further communication to the parties shortly regarding this material and the timing of the final resolution of the contentious issues between the parties in the arbitration.

  1. At 9.15 pm on 28 January 2016, the appellant’s solicitor sent an email to the arbitrators and the respondents’ solicitor objecting to the provision of further materials by the respondents. The email related only to the letter and materials provided by the respondents’ solicitor on 27 January 2016, the appellant’s solicitor stating that he had not been provided the response dated 20 January 2016.
  2. In response, the respondents’ solicitor, by letter dated 29 January 2016, confirmed that the submissions had been sent to the appellant’s solicitor in the same email as that which provided them to the arbitrators. The respondents’ solicitor nevertheless provided another copy to the solicitor for the appellant under cover of the letter dated 29 January 2016.
  3. By email dated 4 February 2016, the appellant’s solicitor maintained the objection to the 20 January 2016 response.
  4. The arbitrators did not respond directly to the objection relating to the receipt of the material provided by the respondents’ solicitor at this time. Nevertheless, as the primary judge noted, the arbitrators did not resile from Mr Clifford’s email advice on 28 January 2016 that the material was being considered.
  5. On 8 March 2016 the respondents’ solicitor enquired of the arbitrators’ progress. By email dated 9 March 2016, Mr Clifford advised that Mr Hannan was working on the decision and was expected to discuss it with the other arbitrators shortly.
  6. On 18 March 2016 Mr Clifford advised the parties that he had had an opportunity to discuss deliberations with Mr Hannan but not yet with Mr Lord. He advised that he was unable to provide a fixed date for delivery and publication of the reasons (and an award) but expected it to be a matter of a few weeks.
  7. On 26 April 2016 Mr Clifford sent another email to the parties’ solicitors and the other arbitrators advising that further work done by the arbitrators suggested that the arbitral decision would be ready in three to four weeks.
  8. On 16 June 2016 Mr Clifford sent another email to the parties’ solicitors and the other arbitrators advising that the decision was not likely to be ready for publication before 30 June 2016.
  9. On 30 June 2016 the respondents’ solicitor wrote to the arbitrators, copied to the appellant’s solicitor, foreshadowing an application for leave to adduce fresh evidence and proposing that the tribunal reserve its decision until that application had been made and determined.
  10. By joint memorandum dated 4 July 2016, Messrs Hannan and Clifford set out the matters that they considered would be relevant to any application to adduce fresh evidence.
  11. Significantly, in that memorandum Messrs Hannan and Clifford referred to the invitation in Mr Clifford’s memorandum of 18 December 2015 to make submissions by reference to facts (and documents) already adduced in evidence. The memorandum continued:

Under cover of an email dated 20 January 2016, the Respondents filed submissions in response to the 18 December 2015 memo. Subject to anything the Applicant may say to the contrary, the preliminary view of Arbitrators Hannan and Clifford is that those submissions do not go beyond identifying the issues identified in the 18 December 2015 memo.

  1. On 27 July 2016 the respondents’ solicitor advised that no application to adduce fresh evidence would be made.
  2. The appellant’s solicitor did not cavil with, or communicate anything to the contrary in relation to, Messrs Hannan and Clifford’s view that the 20 January 2016 submissions did not go beyond the issues identified in the 18 December 2015 memorandum.
  3. On 14 September 2016 the respondents’ solicitor again enquired of the arbitrators’ progress. Mr Clifford replied by email on 19 September 2016 advising that:

The delay in publishing arbitral reasons for decision is presently due to Presiding arbitrator Hannan and myself working to agree a common set of conclusions and reasons. We anticipate a common set of both will be agreed and publication of those reasons will be only a few (meaning 3 or 4) weeks.

  1. On 30 September 2016, by memorandum sent to the parties’ solicitors and copied to the other arbitrators, Mr Clifford advised that:

Presiding arbitrator Hannan and myself have been working toward an agreed set of reasons, conclusions and orders to finalise an award. I expect arbitrator Lord will have some comments on the reasons in due course.

  1. On 28 October 2016 Mr Clifford sent another memorandum to the parties’ solicitors and the other arbitrators advising:

Presiding arbitrator Hannan and I have agreed, in principle, upon the arbitral award presently in draft awaiting comments from arbitrator Lord, and are finalising the written arbitral reasons supporting the draft award that are also agreed in principle and substance between us.

  1. On 7 November 2016 Mr Clifford sent another memorandum to the parties’ solicitors and the other arbitrators advising that the reasons for arbitral decision and draft arbitral award had now been finalised as between presiding arbitrator Hannan and himself, and that comments were awaited from arbitrator Lord.
  2. On 18 November 2016, by email to the parties’ solicitors and the other arbitrators, Mr Hannan provided reasons for decision signed by himself and Mr Clifford.
  3. The reasons for decision were thorough, and comprehensive, running to 389 paragraphs (without schedules). In very broad summary, Messrs Hannan and Clifford found that:
    • (a) each of the patent applications made by the respondents in 2009 constituted a breach of the Technology Agreement;
    • (b) those breaches were nonetheless not sufficiently serious to amount to a repudiation of the Technology Agreement by the respondents;

(c) the appellant was not entitled to terminate the Technology Agreement as a result of the respondents’ breaches;

(d) the appellant had adduced no evidence of damage flowing from the breaches, and so was entitled only to nominal damages (assessed at $300) in respect of the breaches; and

(e) Tulip’s claim for unpaid royalties was confined to amounts claimed to be owing as at 31 October 2011 and 31 October 2012, and was found to be established in the amount of $241,958.37 inclusive of interest.

  1. Messrs Hannan and Clifford considered that it was not necessary to determine whether the 2006 patent application amounted to a breach of the Technology Agreement by the respondents. This was because, even if the 2006 patent application were made in breach of the Technology Agreement, the appellant did not terminate the agreement at that time.
  2. Eight schedules were attached to the reasons dealing with a number of matters, often with detailed discussion and reference to authority and the material before the arbitrators. One schedule comprises a draft substantive award. Another schedule gives detailed consideration to the various materials that were provided to the arbitrators and sets out reasons for accepting some and rejecting other parts of those materials.
  3. By email dated 21 November 2016, Mr Clifford advised the parties that, although the reasons which had been previously circulated referred to a draft award, the reasons were not to be considered a draft, but were final ‘subject only to finalising the exact terms of the arbitral award (orders) and costs’.
  4. There then followed a series of communications between Messrs Hannan and Clifford and the parties in relation to the provision of submissions with respect to the costs of the arbitration. While Mr Lord was copied into those communications, there is no evidence to suggest any engagement on his part in the exchanges. On the contrary, the correspondence from Mr Clifford suggested only the active involvement of himself and Mr Hannan. On 13 December 2016, for example, Mr Clifford sent another memorandum to the parties’ solicitors and the other arbitrators advising that he and presiding arbitrator Hannan would like to make and sign all final orders early in the following week.
  5. In the meantime, on 9 December 2016, the appellant had commenced these proceedings to set aside the award (notwithstanding that final orders had not been made). The application included the allegation that the award should be set aside for misconduct on the basis of the matter having been decided by two arbitrators when three had been appointed.
  6. It is apparent, from an email from Mr Clifford to the parties’ solicitors and the other arbitrators dated 14 December 2016, that he was made aware of the proceedings brought by the appellant on 13 December 2016. In that regard, Mr Clifford’s email of 14 December 2016 makes comment questioning the basis for the application.
  7. On 23 December 2016, Messrs Hannan and Clifford published further reasons in relation to the costs of the arbitration. There is nothing to suggest any involvement of Mr Lord in that process (indeed, a copy of the reasons was provided to Mr Lord along with the parties’ solicitors).
  8. On 23 December 2016, Mr Clifford also sent an email to the parties’ solicitors and to Mr Hannan advising that he had been authorised by Mr Lord to publish a letter which Mr Lord had sent to him dated 20 December 2016. In that letter, Mr Lord wrote:

I wish to advise that I have read the reasons for the decision of Philip Clifford and Peter Hannan in the above matter. Further, I wish to advise that I agree with the said reasons.

  1. In the email to the parties, Mr Clifford stated that the reference in the letter to ‘the reasons’ is a reference to the reasons dated 18 November 2016 signed by Messrs Clifford and Hannan. Mr Clifford also advised the parties that ‘Arbitrator Lord has also graciously decided to waive his fees for the arbitration’.
  2. Following further correspondence between Messrs Hannan and Clifford and the parties’ solicitors, in relation to costs and certain mathematical errors, by a memorandum dated 24 January 2017 Mr Clifford advised that he and Mr Hannan had formulated a draft Corrected Final Award which was dated 23 January 2017.
  3. While it is unclear precisely when it occurred, it is that Corrected Final Award that was signed by the arbitrators.

The court’s power to set aside an award for misconduct

  1. The application before the primary judge sought to invoke the power conferred by s 42 and s 44 of the Act.
  2. Section 42 relevantly applies where ‘there has been misconduct on the part of an arbitrator’ or an arbitrator ‘has misconducted the proceedings’. Section 42 provides that, in those circumstances, the court ‘may, on the application of a party to the arbitration agreement, set the award aside either wholly or in part’.
  3. Section 44 relevantly applies where the court is satisfied that ‘there has been misconduct on the part of an arbitrator’ or an arbitrator ‘has misconducted the proceedings’. If it is so satisfied, the court may, on the application of a party to the arbitration agreement, remove the arbitrator.
  4. ‘Misconduct’, under the Act, is defined inclusively and extends to:

corruption, fraud, partiality, bias and a breach of the rules of natural justice.

  1. In Oil Basins Ltd v BHP Billiton Ltd, the Victorian Court of Appeal considered a similar power in s 42 of the Commercial Arbitration Act 1984 (Vic). The court observed:

The expression ‘misconduct’ as used in relation to arbitration does not necessarily or indeed often involve moral turpitude on the part of the arbitrator. As was said in Williams v Wallis and Cox, ‘misconduct’ does not really amount to much more than such a mishandling of the arbitration as is likely to amount to some substantial miscarriage of justice. In our view, failure of an arbitrator to deal in his or her reasons with relevant evidence and substantial submissions is a mishandling of the arbitration and thus is ‘misconduct’ within the meaning of s 42.

  1. Similarly, in Gas & Fuel Corporation of Victoria v Wood Hall Ltd, in reviewing the authorities as to the meaning of misconduct, Marks J summarised the position as follows:

In general it can be said that misconduct is seen to flow from ‘irregularity’, and to be disassociated from any concept of moral turpitude or overtone.

  1. We agree with these remarks. Indeed, that construction of s 42 of the Act is reinforced by the reference in that section not only to ‘misconduct’ but to whether the arbitrator ‘has misconducted the proceedings’. The notion of the proceedings being ‘misconducted’ is redolent of irregularity, rather than moral turpitude.
  2. It is clear that, where misconduct has occurred, the court retains a discretion whether to set aside the award.
  3. The nature of that discretion was discussed by Steytler J in Shirley Sloan Pty Ltd v Merril Holdings Pty Ltd t/as Airen Constructions:

There is no question as to the proposition that breach of the rules of natural justice amounts to ‘misconduct’ for the purposes of s 42(1)(a) of the Act. That is the effect of the definition of that term in s 4 thereof. The real question is whether, where there is misconduct of that kind, it is such as should attract an exercise of the discretion which s 42(1) affords to the court, on the application of a party to the arbitration agreement, to set aside the award either in whole or in part. It is unlikely that a court would exercise its discretion in that way, even in the case of a denial of natural justice, unless the denial was such as (to use the words of Isaacs J in Melbourne Harbour Trust Commissioners v Hancock [1927] HCA 26; (1927) 39 CLR 570 at 588) ‘has or may have unjustly prejudiced a party’ in a respect material to the outcome of the arbitration (cf Doran Constructions Pty Ltd v Health Administration Corporation (NSW) (1994) 12 BCL 59 at 62 – 63 and Van Dongen v Cooper [1967] WAR 143 at 145).

  1. Similarly, in Oil Basins Ltd v BHP Billiton Ltd, the Court observed:

Granted, not every technical irregularity is sufficient to warrant setting aside an award. Indeed, the court will not intervene at all unless it is demonstrated that the misconduct in question may have been productive of a ‘substantial miscarriage of justice’ (as was put by Marks J in Gas & Fuel) or ‘some injustice’ in the sense explained by Lord Donaldson in King v Thomas McKenna Ltd.

  1. It is generally necessary, therefore, to determine whether any ‘misconduct’ established by the evidence was such as to give rise to a ‘substantial miscarriage of justice’ or has or may have ‘unjustly prejudiced’ the party seeking to have the award set aside in a respect material to the outcome of the arbitration.
  2. We turn then to the three grounds of appeal, which correspond to the three issues determined by the primary judge. We have addressed the issues in the order in which they were addressed in the primary reasons.

Ground 1 – Procedural fairness

  1. Ground 1 of the appeal turns upon the proposition that the arbitrators denied the appellant procedural fairness by taking into account material lodged with the arbitrators after 10 am on 9 July 2015 in circumstances in which:
    • (a) the appellant objected to the receipt of the material; and
    • (b) the arbitrators did not give notice that they would consider the material prior to delivering the reasons for decision on 18 November 2016.
  2. While the ground refers to all material lodged after 10 am on 9 July 2015 (including the submissions served at 5.01 pm on that day), the appellant’s assertion that it was denied procedural fairness in reality arises from the written submissions lodged by the respondents in January 2016. It is those submissions that the appellant identifies as including matters in relation to which it was denied the opportunity to put its case.
  3. The primary judge identified the scope of that allegation as follows:
    1. … I pressed counsel for SMS on this question during the course of oral argument. He confirmed that the only matter to which he could point as being a matter upon which SMS was denied an opportunity to present its case to the arbitrators related to the following passages in the reasons published by Mr Hannan and Mr Clifford on 18 November 2016:
      1. … Tulip Bay and Mr Davey 2nd point out that AAPA2006903137 was assigned to SMS. See 2nd TB/Davey Submissions (as defined in para 21 of the 3rd schedule hereto) at para 3(b). That submission is supported by Mr Davey’s First Witness Statement at para 20. The instrument of assignment has not, however, been put in evidence.
      2. We have, however, found that on 25 May 2007, Mr Davey executed a document by which AAPA2006903137 was assigned to Structural Monitoring Systems PLC (rather than SMS). See para 102 above.
      3. Tulip Bay and Mr Davey submit that, having regard to the assignment referred to in para 166 above, whether or not AAPA2006903137 was an ‘Enhancement’ for the purposes of the Technology Agreement ‘is not an enquiry that would lead to any productive end’. See 2nd TB/Davey Submissions at para 3(c).
      4. Tulip Bay and Mr Davey also submit that, having regard to the assignment referred to in para 166 above, the issue of whether or not AAPA2006903137 was an ‘Enhancement’ for the purposes of the Technology Agreement was ‘resolved between Mr Davey, Tulip Bay and SMS by agreement without any need for a determination’ of that issue. See 2nd TB/Davey Submissions at para 3(d).
      5. No submission has been made on behalf of SMS in response to the submissions (on behalf of Tulip Bay and Mr Davey) referred to in paras 167 & 168 above. Further, no submission has been made on behalf of SMS as to the impact (if any) on the issues in this arbitration of the assignment (on 25 May 2007) of AAPA2006903137 from Mr Davey to Structural Monitoring Systems PLC (rather than SMS).
      6. We uphold the submission (on behalf of Tulip Bay and Mr Davey) referred to in para 167 above. Accordingly we make no finding as to whether or not AAPA2006903137 was an ‘Enhancement’ for the purposes of the Technology Agreement.

  1. Subject to the caveat referred to in para 205 below, even if the 1st Alleged Conduct constitutes a breach of the Technology Agreement by Tulip Bay and/or Mr Davey, the assignment AAPA2006903137 to Structural Monitoring Systems PLC (rather than SMS), referred to in para 166 above, effectively remedies any breach by Tulip Bay and/or Mr Davey.
  2. The caveat to para 204 above is that AAPA2006903137 was assigned to Structural Monitoring Systems PLC rather then SMS.
  3. Counsel for SMS drew particular attention to par 169 above, and asserted that, if SMS had known that reliance was to be placed on the matters to which reference was made in pars 167 and 168 above, it would have made submissions with respect to them. Counsel confirmed that this is the only respect in which SMS is said to have been denied procedural fairness.

81 The primary judge rejected the claim of a denial of procedural fairness. In that regard, his Honour held that:

(a) as the submissions of 20 January 2016 were specifically in response to the 22 issues identified in Mr Clifford’s memorandum, it was inherently unlikely that the response to those issues would deal with any matter that was not alive as between the parties; 

(b) the appellant had every opportunity to put its case in relation to the passages of the arbitrators’ reasons relating to the 2006 patent application identified by the appellant;

(c) counsel for the appellant could not identify any new proposition it would have put in relation to the 2006 patent application. In particular, whether there was an earlier breach in relation to the 2006 patent application could not affect the characterisation of the 2009 breaches, which were determined not to be of such a character as to constitute a repudiation of the Technology Agreement; 

(d) the appellant, in effect, unilaterally determined that it would not respond to the 9 July 2015 materials, in an attempt to force the arbitrators into accepting its proposition that the materials should not be considered because they were served seven hours after the time specified, a position that his Honour described as manifestly unreasonable and entirely unjustified; and

(e) the appellant, similarly, unilaterally determined that it would not respond to the 20 January 2016 materials, in circumstances in which it was not reasonable to adopt that position.

  1. In our view, the appellants have not demonstrated any error on the part of the primary judge in relation to these conclusions. In light of the sequence of events identified by the primary judge we agree that there is no basis for the contention that the appellant was denied the opportunity to respond to the submissions and other materials provided by the respondents.
  2. Indeed, we would go further. As set out above, in their joint memorandum of 4 July 2016, Messrs Hannan and Clifford specifically referred to the 20 January 2016 submissions, advising the parties of their preliminary view that those submissions did not go beyond the issues identified in the 18 December 2015 memorandum. In our view, the expression of that preliminary view, with which the appellant did not cavil, made clear that the arbitrators proposed to have regard to the 20 January 2016 submissions.
  3. We should add that, in its submissions on appeal, the appellant also sought to identify further matters, in addition to those it identified before the primary judge, in relation to which the appellant alleged it was denied the opportunity to respond. The appellant, however, did not challenge the primary judge’s findings (at [91] and [92]) as to the scope of the matters in relation to which it alleged it was denied the opportunity to respond.
  4. For that reason alone, in our view, the primary judge could hardly be in error in not dealing with matters that were not raised before him. In any event, for the reasons we have given, the primary judge was correct to hold that the appellant was not denied the opportunity to respond to the submissions and other materials provided by the respondents.
  5. Ground 1 must fail.

Ground 3 – Delay

  1. Ground 3 challenges the primary judge’s finding that the delay in the delivery of the award did not constitute misconduct of a kind that would justify the setting aside of the award.
  2. There is no challenge to the findings of fact in relation to this ground. Indeed, as a matter of fact, the primary judge concluded that there was excessive delay in the delivery of the award. In that respect, his Honour noted that more than 16 months elapsed between the lodgement of the evidence and submissions of the parties (9 July 2015) and the delivery of the reasons by Messrs Hannan and Clifford (18 November 2016), and 18 months elapsed before Mr Lord indicated his agreement (on 20 December 2016).
  3. During that period of time, however, it is to be noted that other steps were taken in relation to the arbitration, including Mr Clifford’s memorandum of 18 December 2015, the respondents’ submissions of 20 January 2016, the foreshadowed application to lead further evidence on 30 June 2016 and the joint memorandum of Messrs Hannan and Clifford of 4 July 2016.
  4. It may be accepted that the time taken for the completion of the reasons of Messrs Hannan and Clifford was longer than anyone involved in the process would have desired. However, the time taken to complete those reasons must be assessed having regard to the long and sorry history of delay in the arbitration generally, the material which the arbitrators were required to consider, the number of issues identified as potentially requiring resolution and the range of matters with which it was necessary to deal in resolving the issues. In the present case, where it is sought to set aside an award which has been made, it is also permissible to have regard to the content of the arbitrator’s reasons. The reasons provided by Messrs Hannan and Clifford in this case would have taken significant time and effort to prepare.
  5. There will be cases where inordinate delay in the making of an award will constitute misconduct within the meaning of the Act. However, even where inordinate delay is found to constitute misconduct, it remains necessary to consider whether the misconduct is such as to justify setting aside the award.
  6. We agree with the primary judge that assistance is gained in this regard from authorities dealing with delay in delivering judgment in courts. The principles were recently summarised by this court in G v O:

Excessive delay in judgment delivery after trial is not itself a ground of appeal. It remains necessary to demonstrate error in the Primary Decision or a miscarriage of justice. Inordinate delay (which a period of over 2 years clearly constitutes) is commonly recognised as being relevant for the exercise of appellate jurisdiction in the following ways:

(1) In rare cases where the delay disables a primary court or tribunal from considering a party’s case at trial, or possibly if it gives rise to a real and substantial risk that capacity for competent evaluation of the evidence is diminished, there may be a failure to accord procedural fairness or an unfair trial.

(2) There may be a need for greater clarity and specificity in the reasons of the primary court or tribunal. Assertive general statements which would normally be taken to reflect a comprehensive consideration of the evidence are to be treated with reserve.

(3) The appellate court may look at the findings of the primary judge, including credit-based findings, with special care and may more readily infer that the judicial function has miscarried.

(citations omitted)

  1. The appellant, in seeking to distinguish the authorities in relation to court proceedings, draws attention to differences between court proceedings and arbitration, the latter being intended to provide informality, flexibility and expedition. In our view, those differences do not require any different principles to be applied in considering whether delay is a basis for setting aside an arbitral award under s 42 of the Act. While delay may be regrettable, to be a basis for setting aside a delivered award the delay must impact on the decision-making process.
  2. In our view, there is no basis in the present case for apprehending that the delay in delivering reasons in the present case (whether or not it is classified as inordinate) gives rise to a miscarriage of justice or operated to the prejudice of the appellant in relation to the determination of the matters in dispute. Because the hearing was conducted on the papers, and there were no seriously contested issues of fact resolved by credit based findings, there is no basis for apprehending that the arbitrators’ capacity for competent evaluation of the evidence might have been diminished by the delay. The reasons address the evidence and submissions in meticulous detail, and reflect a comprehensive consideration of the material. Nothing in the appellant’s submissions, or in our reading of the reasons, gives any reason to doubt the correctness of the conclusions which the arbitrators reached on critical issues. The delay has not been shown to have had, actually or potentially, any impact on the decision-making process.
  3. Therefore, the primary judge was correct to conclude, for the reasons which his Honour gave, that the delay in provision of reasons by Messrs Hannan and Clifford could not constitute misconduct of a kind which would justify setting aside the award.
  4. There is a further reason for this court to decline to exercise its discretion under s 42 of the Act even if the delay in providing reasons were found to constitute misconduct within the meaning of the Act. The appellant was aware of the delay, yet did not make, or foreshadow, an application under s 44 of the Act to remove the arbitrators prior to the reasons being made available to it. The appellant chose to wait until a decision was given adverse to its interests before taking any action.
  5. None of the above should be taken to say that delay, per se, can never give rise to misconduct in the context of an arbitration. Indeed, unlike in court proceedings, where there has been inordinate delay in an arbitration it is open to a party to the arbitration to seek the removal of an arbitrator for misconduct prior to the delivery of the arbitral decision. However, in all the circumstances of the present case, delay by Messrs Hannan and Clifford providing their reasons did not constitute misconduct of a kind which justified setting aside the award.
  6. Ground 3 must fail.

Ground 2 – Did three arbitrators hear and determine the dispute

  1. Ground 2 relates to the primary judge’s finding that the appellant had not established misconduct on the part of the arbitrators on the basis of the matter having been decided by two of the arbitrators (Messrs Hannan and Clifford) in circumstances where three arbitrators had been appointed.
  2. The primary judge identified that the critical question in relation to this ground was a question of fact, namely whether Mr Lord ‘heard and determined’ the arbitration as required by cl 17.2 of the Technology Agreement.
  3. The primary judge’s findings in relation to this question of fact were as follows:
    1. The pertinent features of the evidence which bear upon this question are as follows:

(a) Mr Lord was copied into all communications between the parties and the other arbitrators;

(b) throughout the proceedings express provision was made for Mr Lord’s contribution, should he have formed a view different to that of the other arbitrators;

(c) there were a number of occasions upon which Mr Lord expressed no view in relation to procedural issues addressed by the other arbitrators, albeit in a context in which his concurrence with the views formed by those other arbitrators might be inferred;

(d) there is no reason to suppose that Mr Lord was not provided with the evidence and submissions upon which the parties relied at the time those materials were served;

(e) it is a fair inference from the evidence that the joint reasons published by Mr Clifford and Mr Hannan were developed by conferral between those two arbitrators with little or no input from Mr Lord;

(f) the joint reasons to which I have referred were provided to Mr Lord who indicated his concurrence with those reasons;

(g) the reasons with which Mr Lord concurred included a draft award;

(h) Mr Lord has not signed either the first or amended award, which has been signed by the other arbitrators, and no provision was made for Mr Lord to sign any award; and

(i) Mr Lord did not charge any fees for his services as arbitrator.

  1. As I have indicted, I would infer, and find, that Mr Lord did not confer with Mr Hannan and Mr Clifford in relation to the terms of their reasons. However, I would not construe the arbitration agreement as requiring the arbitrators to confer with each other prior to the publication of reasons as a condition of the exercise of their jurisdiction even though, in the ordinary course, such conferral would be expected. It is sufficient for the valid exercise of jurisdiction if each arbitrator turns his (or her) mind to the evidence, the submissions of the parties, and the terms upon which the dispute should be resolved, and either expresses or concurs in reasons which reveal the intellectual process which was followed.
  2. Mr Lord has produced a document which has been distributed to the other arbitrators and the parties in which he records his concurrence with the reasons prepared by Mr Hannan and Mr Clifford. There is no reason to suppose that he did not have the evidence and the submissions of the parties at the time he expressed that concurrence. In the absence of any evidence, I am not prepared to infer that Mr Lord expressed that concurrence without turning his mind to the evidence and submissions which he presumably had, or without turning his mind to the terms upon which the dispute between the parties should be resolved. To express concurrence without giving genuine consideration to the evidence and submissions, or without turning his mind to the proper determination of the dispute, would be an abdication of Mr Lord’s responsibilities as arbitrator, and I am not prepared to infer that he would take that course without some evidence to that effect.
  3. Neither party drew my attention to the fact that Mr Lord had not charged any fee for his services, or presented any submissions with respect to the inferences which might be drawn from that fact. In my view it is a fact of considerable significance to the question of the extent of Mr Lord’s engagement. However, it does not follow from the fact that Mr Lord charged no fees that he did not consider the evidence or submissions served by the parties, or turn his mind to the terms upon which their dispute should be resolved. In the absence of evidence it is of course a matter of speculation and conjecture, but there might be reasons for Mr Lord’s failure to render a fee other than his failure to engage with the issues in the arbitration – such as, for example, a desire to maintain favourable commercial relations with one or other party, or perhaps as a result of embarrassment arising from the delay in resolving the dispute.
  4. For these reasons I conclude that SMS has failed to discharge the burden of proving that Mr Lord did not consider the evidence and submissions presented by the parties or determine the terms upon which their dispute should be resolved. In the words of the arbitration agreement, SMS has failed to prove that Mr Lord did not ‘hear and determine’ the dispute.
  5. Ground 2 expressly challenges the primary judge’s finding of fact that the appellant failed to discharge the burden of proving that Mr Lord did not consider the evidence or submissions of the parties, and implicitly challenges the primary judge’s conclusion that Mr Lord’s lack of involvement did not amount to ‘misconduct’.
  6. We would uphold the challenge to the primary judge’s finding of fact.
  7. The gravamen of his Honour’s reasons for the finding was that his Honour was not prepared to infer that Mr Lord expressed concurrence with the reasons published by Messrs Hannan and Clifford without turning his mind to the evidence and submissions which he presumably had, or without turning his mind to the terms upon which the dispute between the parties should be resolved. To do so, his Honour went on, would be an abdication of Mr Lord’s responsibility as an arbitrator.
  8. In our view that finding fails to have regard to a number of critical features of the history of the matter.
  9. First, the events in December 2016 must be understood in light of the history of the arbitration as a whole. As set out above, the last recorded involvement of Mr Lord in the arbitration was a letter from Mr Lord to Mr Clifford dated 18 March 2013 advising that he agreed with Mr Hannan’s reasons in relation to the first issue raised in the arbitration. That was more than three years and six months prior to his concurrence with the reasons of 18 November 2016.
  10. Notwithstanding that Mr Lord was copied into email correspondence, given the lack of any involvement by him in the matter over that period, together with other references in the material to the other arbitrators not having heard from Mr Lord, the most probable inference is that well prior to 18 November 2016, for whatever reason, Mr Lord had become disengaged from the arbitration.
  11. Second, there were a number of important features of the timeline, not referred to by the primary judge at [142]-[146], that occurred before Mr Lord expressed his agreement with the reasons by letter dated 20 December 2016:

(a) Mr Clifford had expressly advised the parties, on 21 November 2016, that the reasons were not in draft and were final ‘subject only to finalising the exact terms of the arbitral award (orders) and costs’;

(b) the originating summons to set aside the arbitral award was issued by the Court on 9 December 2016. The application included the allegation that Messrs Hannan and Clifford proceeded to decide the matter, whereas three arbitrators had been appointed; and

(c) Mr Clifford became aware of, and had considered, the originating summons by at least 14 December 2016. An email from Mr Clifford on that date includes the following:

In any event the application does not appear, at all, to challenge the substantive reasons for the Arbitral award published jointly by Presiding Arbitrator Hannan and myself or suggest the reasons are in any way incomplete.

  1. It is apparent, therefore, that the very issue of Mr Lord’s non-involvement in the decision had been raised by way of the application, and considered by Mr Clifford, prior to Mr Lord’s concurrence with the reasons.
  2. It is significant, then, that the letter from Mr Lord expressing his concurrence with the reasons was a letter written to Mr Clifford and communicated by Mr Clifford to the parties by the email of 23 December 2016. In that email Mr Clifford also advised the parties that the reference in the letter to ‘the reasons’ was a reference to the reasons dated 18 November 2016 and that Mr Lord had decided to waive his fees. Mr Clifford and Mr Lord had, therefore, clearly conversed in relation to the letter.
  3. In all of the circumstances, in our view, the clear inference is that the concurrence of Mr Lord with the reasons for decision was the product of an attempt by him, after the event, to rectify his failure to have engaged in the arbitration process prior to that time. It is significant that his letter only refers to having read the reasons. It does not say that he had independently considered the evidence and the submissions. Given the impetus for providing the letter, and the events leading to it, in our view the proper inference is that he had not done so.
  4. This is not to conclude that Mr Lord did not genuinely agree with the reasons once he had read them. The reasons themselves were comprehensive. Nevertheless, particularly given that the parties had already been advised that the reasons of Messrs Hannan and Clifford were ‘final’, the circumstances are such that someone in Mr Lord’s position would be predisposed (consciously or unconsciously) to agree with them.
  5. Nor, in our view, is the inference that Mr Lord had not independently considered the evidence and the submissions tantamount to a conclusion that he had ‘abdicated’ his responsibilities as an arbitrator, as the primary judge considered. As we have said, there is no reason to give Mr Lord’s failure a pejorative connotation; he may well have genuinely, albeit mistakenly, considered that it was sufficient for him to have read the reasons.
  6. For these reasons, in our view, the evidence before the primary judge did establish, on the balance of probabilities, that Mr Lord had failed to independently consider the evidence and submissions of the parties. The primary judge was in error to hold otherwise.
  7. Similarly, in relation to the characterisation of that failure, in our view, the failure of Mr Lord to meaningfully engage in the arbitration, up to and including the preparation of the reasons for decision, was ‘misconduct’ for the purposes of the Act. As has been emphasised in a number of recent decisions of this court, actually considering the submissions and evidence adduced by a party who is entitled to be heard is an aspect of what procedural fairness requires. Failure to consider the material submitted by the appellant constitutes a breach of the rules of natural justice, which the definition of ‘misconduct’ expressly includes.
  8. While it was not misconduct for Messrs Hannan and Clifford to publish their draft reasons, in our view the failure of Mr Lord to engage in the arbitration, and to independently consider the submissions and evidence submitted by the appellant, constitutes misconduct. His belated, and limited, involvement in the case after the primary proceedings were commenced did not cure that deficiency. There was a mishandling of the arbitration in the relevant sense and thus misconduct within the meaning of the Act.
  9. In a properly conducted multi-member arbitration, it should be apparent that each arbitrator has engaged with and given serious consideration to the evidence and the submissions. How that may appear will vary from case to case, and may be inferred from the publication of reasons attributed to each of them. In the present case, however, it is properly to be concluded that Mr Lord considered only the reasons of Messrs Hannan and Clifford (which had been declared to be final) and, as such, that the arbitration was mishandled.

Notice of Contention – Discretion

  1. As noted above, the conclusion that there has been misconduct on the part of an arbitrator does not necessarily result in the award being set aside.
  2. By its notice of contention, the respondents contend that the Court should not exercise its discretion to set aside the award, given that:

(a) only one of the three arbitrators did not fulfil the function of hearing and determining the matter; and

(b) a majority decision was permissible under the Technology Agreement.

  1. In our view, in the particular circumstances of this case, it cannot be said that there has been a substantial miscarriage of justice or that the appellant has been unjustly prejudiced.
  2. First, as the respondents submitted, the arbitration was mishandled by reason of the insufficient involvement of Mr Lord. There is no basis to conclude that there was any misconduct on the part of Mr Hannan or Mr Clifford.
  3. Secondly, cl 17.3.3 of the Technology Agreement provides that where there is more than one arbitrator all decisions and awards shall be made by majority vote of the arbitrators. That is consistent with s 15(b) of the Act, which provides:

Unless a contrary intention is expressed in the arbitration agreement, where an arbitration agreement provides for the appointment of 3 or more arbitrators —

(b) any decision to be made in the course of the proceedings may be made by a majority …

  1. In the present case, the terms of the award were clearly agreed by a majority of the arbitrators, notwithstanding Mr Lord’s insufficient involvement. Messrs Hannan and Clifford did not diverge on any issue on which Mr Lord’s vote might have been required to establish a majority.
  2. Thirdly, it is apparent from the reasons for decision that the consideration of the issues by Messrs Hannan and Clifford was comprehensive and thorough. It is also clear that the outcome of the arbitration turned entirely upon legal issues and, in particular, on whether particular breaches of the Technology Agreement amounted to a repudiation of the agreement.
  3. It may be noted that the issues on which the resolution of the dispute turned were legal matters within the expertise of Messrs Hannan and Clifford and outside the area of expertise of Mr Lord. Mr Lord, being a patent attorney, could be expected to bring a particular understanding of the nature of patents in the context of the arbitration. In this case, however, it was accepted (in the appellant’s favour) that the 2009 patent applications were breaches of the Technology Agreement. Whether those breaches of the Technology Agreement amounted to a repudiation of the agreement was a legal question.
  4. Fourthly, in the present case, the reasons of Messrs Clifford and Hannan, in dealing with the legal issues, are not attended by any obvious error. As noted above, nothing in the appellant’s submissions or our reading of the reasons gives us reason to doubt the correctness of the critical aspects of the arbitrators’ decision.
  5. In light of all of these considerations, in our view it may be confidently concluded that Mr Lord’s misconduct could have had no effect on the outcome in this case. In those circumstances, there was no prejudice to the appellants and no substantial miscarriage of justice by reason of the misconduct.
  6. We would therefore not exercise the discretion in s 42 to set aside the award. It follows that we would not exercise the power to remove the arbitrators.
  7. Accordingly, while the appellant has demonstrated error on the part of the primary judge in relation to Ground 2, we would uphold the notice of contention and dismiss the appeal.
  8. We should observe that, while an important consideration in this case, as a general proposition the fact that the decision was made by two (and thereby a majority of) arbitrators will not, by itself, lead to the conclusion that there has not been a substantial miscarriage of justice in all cases. The provision for majority decisions cannot, and should not, be regarded as a licence to disregard the involvement of a minority of the arbitrators. However, in all of the circumstances of this particular case, the misconduct of Mr Lord does not provide a proper basis for setting aside the award.

Conclusion

  1. The appeal must be dismissed.

 

Cases referred to in decision:

American International Group, Inc and Another V X Company [2016] HKCFI 1530; HCCT 60/2015

IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO 60 OF 2015

AMERICAN INTERNATIONAL GROUP, INC (1st Plaintiff)
AIG CAPITAL CORPORATION (2nd Plaintiff)

V

X Company (Defendant)

BEFORE: Hon Mimmie Chan J in Chambers
DATES OF HEARING: 17 & 18 August 2016
DATE OF DECISION: 30 August 2016

 

DECISION

 

Introduction

1. This is an application made by American International Group, Inc and AIG Capital Corporation (“Plaintiffs”), to set aside an arbitral award dated 23 September 2015 (“Award”) made in an arbitration (“Arbitration”) between the Plaintiffs, X Company (“Defendant”) and Y Company (“Y”). By a majority of 2 (“Majority”) out of the 3 arbitrators constituting the tribunal (“Tribunal”), the Tribunal ordered that a deposit of US$475 million be returned by the Plaintiffs to the Defendant. The Arbitration was seated in Hong Kong. The Plaintiffs’ application to the Hong Kong supervisory court is for the Award to be set aside under s 81 (1) (2) (a) (iii) of the Arbitration Ordinance Cap 609 (“Ordinance”), on the ground that the arbitrators had exceeded their mandate in that the Award dealt 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; and/or s 81 (1) (2) (a) (iv) of the Ordinance, on the ground that the arbitral procedure was not in accordance with the agreement of the parties and/or s 64 of the Ordinance. Under s 64, which applies Article 28 of the Model Law, an arbitral tribunal is required to decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute, and under Article 28 (3), the tribunal “shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorized it to do so”. The parties had never given express authorization to the Tribunal, to act as amiable compositeur.

2. The Arbitration relates to disputes which had arisen between the parties under a Share Purchase Agreement which was made between the Plaintiffs and Y on 9 December 2012 (“SPA”), whereby the Plaintiffs agreed to sell up to 90% of one of its subsidiaries (“Subsidiary”) to Y for approximately US$4.75 billion. Y was at all material times a “mere acquisition vehicle” funded by a consortium of potential investors. The Defendant was one of the intended investors. The SPA provides for a Long Stop Date for closing of the sale and purchase under the SPA to take place. The SPA further provides for a deposit of US$475 million (“Deposit”), representing 10% of the purchase price, to be paid into an escrow account. A separate agreement was made between the Plaintiffs, Y, the Defendant (as a potential investor providing the funds) and JP Morgan as escrow agent (“Escrow Agreement”). Pursuant to the Escrow Agreement, the Defendant paid the Deposit into the escrow account with the escrow agent’s branch in Beijing.

3. Under clause 7.18 of the SPA, the Plaintiffs as sellers and Y as purchaser agreed and acknowledged that the Deposit “constitutes a reasonable estimate of the damages that will be suffered by (Plaintiffs) as a result of any breach or failure” which would give rise to an event of breach entitling the Plaintiffs to terminate the SPA.

4. In brief, Y failed to raise the necessary funds for the purchase of the Subsidiary, and completion did not take place as envisaged under the SPA. The Plaintiffs terminated the SPA on 16 December 2013, and entered into an agreement with a third party for the sale of the shares in the Subsidiary. The dispute for determination by the Tribunal in the Arbitration focused on whether the Plaintiffs were entitled to the Escrow Deposit as liquidated damages under the SPA, or whether the Defendant had the right under the Escrow Agreement to seek the return of the Deposit by reason of its failure to obtain the regulatory approvals required for it to complete the purchase.

5. After a 7 day hearing in Hong Kong in March 2015, the Tribunal issued the Award on 23 September 2015. The Tribunal found that Y was in breach of the SPA for failing to complete the transaction, and that an LD Breach Trigger Event as defined in clause 7.11 of the SPA had occurred, which entitled the Plaintiffs to terminate the Agreement. Despite its finding that Y was in breach of the SPA, the Majority of the Tribunal found that the Plaintiffs were not entitled to the Deposit, which should be returned to the Defendant, on 2 grounds. First, the Majority found that the liquidated damages clause in the SPA constituted an unenforceable penalty. Secondly, the Majority held that there was an oral collateral agreement made between the parties, to the effect that the Deposit would be returned to the Defendant, if the Defendant failed to obtain all the necessary PRC regulatory approvals for the transaction.

6. Both the SPA and the Escrow Agreement provide for the laws of the State of New York to be the governing law, and for disputes arising out of or in connection with these agreements to be settled exclusively by arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce. The arbitration clause provides for the Arbitration to be conducted by 3 arbitrators, each of whom shall be qualified to practise law under the laws of the State of New York, and for the seat of the Arbitration to be Hong Kong.

7. On the Plaintiffs’ case, it was argued that the plain and express terms of the SPA call for the Deposit to be forfeited to the Plaintiffs as liquidated damages in the event of Y’s breach (which breach the Tribunal had found). However, the Majority considered that forfeiture of the Deposit would create a hardship for the Defendant, since the Deposit represented 5% of the Defendant’s total assets and 60% of its shareholder equity. The Plaintiffs argued that in coming to its eventual decision, the Majority had taken into consideration the fact that the Plaintiffs were “one of the world’s largest players in the financial markets” (paragraph 100 of the Award), and that the US Government had in 2008 injected a total capital of approximately $182 billion into the Plaintiffs, as the Plaintiffs were considered “too big to fail”. In particular, the Majority considered that as the Plaintiffs had been able to find another buyer to purchase the Subsidiary for more than the Plaintiffs had agreed to sell to Y, the Plaintiffs had suffered no actual loss, such that to allow the Plaintiffs to recover the Deposit as damages would give them a windfall, and it would not be just or fair to award the return of the Deposit to the Defendant.

8. On behalf of the Plaintiffs, Mr Coleman SC argued that clear principles of New York law, which the parties had agreed would govern the dispute, precluded the findings made by the Majority. The arbitrators were experienced lawyers qualified to practise New York law, and in making the findings which led to the Award, the Majority had (it is claimed) ignored or consciously disregarded basic principles of New York law concerning the enforceability of liquidated damages clauses, and the inadmissibility of parol evidence to vary or contradict the express terms of a written contract, in order to arrive at what the Majority considered to be the fair or equitable result. This, it was argued, goes beyond mere erroneous application of New York law, but amounts to the Majority impermissibly deciding the dispute ex aequo et bona or as amiable compositeur. Since the Tribunal is required under Article 28 to decide the dispute in accordance with New York law chosen by the parties, and cannot decide ex aequo et bona or as amiable compositeur without the parties’ authorization, the Tribunal had exceeded its mandate, and the Arbitration was not in accordance with the agreed arbitral procedure, such that the Award should be set aside.

Amiable compositeur

9. Arbitrators may have power conferred upon them by so-called “equity clauses” to settle a dispute by determining it on the basis of what is “fair and reasonable”, rather than on the strict basis of the law (paragraph 3.192, Redfern and Hunter on International Arbitration, 6th edition). Amiable compositeurs may, when authorized to do so, “decide in equity” which may mean applying the relevant rules of law to the dispute, but ignoring any rules that are purely formalistic, or rules which appear to operate harshly or unfairly on the facts of the particular case. Whatever this concept means, and whatever it empowers arbitrators to do, there is no dispute in this case that the parties in the Arbitration never authorized the Tribunal to decide as amiable compositeurs.

10. Section 9 of the Ordinance adopts Article 2A of the Model Law, and its emphasis on its international origin and general principles. Article 2A (1) states that in the interpretation of the Model Law, regard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith. I agree with Mr Coleman that authorities from other Model Law jurisdictions can and should be taken into account when this Court seeks to interpret the Model Law and provisions of the Ordinance which adopt the Model Law. Of course, it has to be borne in mind that there may be differences in the applicable domestic law which may affect the outcome of the decisions.

11. Mr Coleman relies on the decision of the English court in B v A [2010] 2 CLC 1, to submit that “conscious disregard of the agreed governing law” is the relevant consideration in determining whether to set aside an award in the case of unauthorized amiable composition. He further relies on cases decided by the German and Canadian courts, which apply the Model Law, for the proposition that an arbitral tribunal exceeds its mandate where it acts as amiable compositeur without express authorization, rendering its award liable to be set aside under the Model Law. I agree that these are relevant and persuasive decisions for these propositions.

12. Mr Coleman accepts, of course, that mere errors of law made by the Tribunal cannot be relied upon by the Plaintiffs as a ground to set aside the Award. The real question for determination, in the context of the argument of amiable composition, is whether the errors of law contended by the Plaintiffs to have been made by the Majority amount to their “conscious disregard” of the agreed New York law, in order to reach the equitable or fair decision which the Majority intended to make.

13. On a review of the Award, it can be seen that the Tribunal had considered and referred to a host of authorities, including decisions of the Court of Appeals of New York (New York’s highest court), and of the Supreme Court. It cannot be said that it is plain from the Award itself, that the Tribunal or the Majority had totally disregarded or ignored the governing law. What the Plaintiffs seek to argue is that notwithstanding the references to New York law and the Majority’s purported legal analysis, the Majority had reached conclusions which are errors of law and these errors could not have been made but for the Majority’s conscious and deliberate decision to disregard the law. To this end, Mr Coleman relies on the fact that the legal principles involved in the analysis are so fundamental and well established, that no experienced US lawyer (such as the Majority) could have failed to correctly apply them, on not one but two basic points. In support of the Plaintiffs’ case, expert evidence on New York law was adduced by Hon Robert S Smith, a member of the New York bar and a former Associate Judge of the New York Court of Appeals (“Judge Smith”).

14. In Judge Smith’s opinion, the Majority was wrong in finding that the liquidated damages clause in the SPA is unenforceable under New York law as a penalty, when both the Plaintiffs and Y had agreed and acknowledged at the time they signed the SPA that the Deposit was a reasonable estimate of the Plaintiffs’ damage in the event of a material breach by Y. The Tribunal made no finding that such estimate was unreasonable at the time when the SPA was made, but the Majority wrongly took into consideration the fact that as a result of the breach, the Plaintiffs had suffered no actual damage. Secondly, Judge Smith is of the opinion that the Majority was wrong on trite New York law, by considering extrinsic evidence of an oral and collateral agreement between the Defendant and the Plaintiffs that the Deposit would be returned to the Defendant, thus overriding the express terms of the Escrow Agreement and the SPA, when the Tribunal had found that Y was not entitled to the Deposit under the SPA, and that the 2 conditions of clause 3.8 of the Escrow Agreement were not met for the Defendant to recover the Deposit.

15. On the Defendant’s part, it relies on the expert evidence of Hon Albert M Rosenblatt, member of the New York bar and another former Associate Judge of the New York Court of Appeals and the New York State Supreme Court (“Judge Rosenblatt”). On behalf of the Defendant, Mr Ho SC sought to demonstrate that the Tribunal had correctly applied New York law, but in my view, it is not necessary for this Court to be satisfied that the Majority had reached the right conclusions in their application of New York law to the dispute. It is trite that the Court does not review the merits of the dispute or the correctness of an award on an application to enforce, or set aside, an arbitral award. Even if the findings made by the Majority are clearly wrong in law, that is not a ground for the Award to be set aside, or for recognition of the Award to be refused (Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1) [2012] HKCA 200; [2012] 4 HKLRD 1). The setting aside remedy under Article 34 of the Model Law is not an appeal. The Court is only concerned with the structural integrity of the arbitration process.

16. Mr Coleman does not dispute these basic principles. He accepts that the Plaintiffs must show that the circumstances of the case give rise to a clear inference that the Majority made its erroneous findings of law, in conscious disregard of New York law, and “intentionally reached a result contrary to New York law that comported with their own notions of justice and equity, and disguised this equitable decision making as a purported application of the law” (paragraphs 63 and 64 of Counsel’s skeleton argument).

Whether there was a conscious disregard of New York law

17. The gravaman of the Plaintiffs’ case is that there was no genuine attempt on the Majority’s part to apply the agreed governing law. The facts of B v A are unique (where the dissenting arbitrator issued an opinion criticizing the majority of the Tribunal for consciously disregarding Spanish law in their reasoning), and the Plaintiffs accept that it would not be usual or expected, for those who decide as amiable compositeurs without the necessary express authorization, to openly declare their disregard of the applicable law, or their intent to decide on equity, as opposed to the applicable governing law. As Mr Coleman put it, the decision based purely on principles of equity and reasonableness may nevertheless “be cloaked in purported legal analysis”, such that the Court should look beyond the purported analysis to assess and infer that the governing law had been deliberately disregarded. He was quick to point out that an arbitrator’s departure from the core duty to decide the dispute in accordance with the agreed governing law may be for a “righteous” purpose, although it is nevertheless still an impropriety.

18. On behalf of the Defendant, Mr Ho highlighted the fact that the approach advocated by the Plaintiffs in this case necessitates an inference to be made by this Court that the Tribunal was intellectually dishonest, based purely on “inconsequential circumstances”, the bare assertions of the Plaintiffs and the purported expert evidence of Judge Smith.

19. In this respect, I bear in mind the caution made by Ribeiro PJ in the Court of Final Appeal’s decision in Nina Kung v Wang Dan Shin [2005] HKCFA 54; (2005) 8 HKCFAR 387, in the context of drawing inferences of forgery (admittedly misconduct much more serious in nature). At paragraph 185 of the judgment, Ribeiro PJ stated:

“Where, as in the present case, the court is invited to reach a conclusion of forgery as an inference to be drawn on the basis of circumstantial evidence, any such inference must be properly grounded in the primary facts found. The court guards against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question. As the High Court of Australia stated:

Of course as far as logical consistency goes many hypotheses may be put which the evidence does not exclude positively. … The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while in the latter you need only circumstances raising a more probable inference in favor of what is alleged. In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture…” (Emphases added)

20. Mr Ho also relies on HKSAR v Lee Ming Tat & Securities and Futures Commission [2003] HKCFA 34; (2003) 6 HKCFAR 336, where Sir Anthony Mason NPJ affirmed the need for a disciplined approach to the drawing of inferences, and in particular for inferences of serious misconduct, to be drawn only where such inferences are compelling, rather than on a mere balance of probabilities.

21. Mr Ho highlighted the fact that the Plaintiffs have accused the Tribunal not only of consciously disregarding New York law, and intentionally reaching a result contrary to New York law, but have accused the Majority of “disguising” their disregard of the proper governing law “through disingenuous citation of New York law”, and “deliberate distortion of the law”. These, it was pointed out, are serious attacks on the professional integrity of the Majority, when there is simply no primary evidence of facts which can be found to support any inference.

22. Whether or not the accusations made against the Majority are sufficiently serious to support the necessity for “compelling evidence” as required in the circumstances of Lee Ming Tat, it cannot be disputed that there must be sufficiently clear evidence from which the Court can logically and reasonably infer that the Majority of the Tribunal had consciously ignored New York law and deliberately failed to apply the principles set out in the cases decided by the US courts which are binding on them, with the intent to arrive at their conclusions which contradict the legal authorities. In my judgment, there is no evidence in this case which, on its own or read in the whole, can support such inference.

23. On a careful reading of the Award, and on a review of the US authorities to which the experts and Counsel have referred in this case, it appears to me that the Majority had considered the relevant decisions of the New York Court of Appeals, and had made a genuine effort to analyze these cases and to apply what the Majority understood the cases to establish. Rightly or wrongly, they considered the decisions in Truck Rent-A-Center, Inc v Puritan Farms 2nd, Inc, 41 NY, 2d 420 (1977), JMD Holding Corp v Congress Financial Corp, 4 NY 3d 373 (2005), Parente v Drozd 171 AD 2d 847 (1991), Equitable Lumber Corp v IPA Land Dev Corp, 38 NY 2d 516 (1976), 172 Van Duzer Realty Corp v Globe Alumni Student Assistance Association, Inc, 24 NY 3d 528 (2014) and Wing Ming Props (USA) Ltd v Mott Operating Corp, 561 NYS 2d 337, 340 (Sup Ct NY Cnty 1990), affirmed, 568 NYS 2d 605 (1991), affirmed, 79 NY 2d 1021 (1992), in the context of the enforceability of liquidated damages clauses, and the admissibility of parol evidence. On reviewing the reported cases and the analyses set out in the Award, I cannot agree that the Majority had “distorted” the law, or the legal principles set out in the Opinions of the New York Court of Appeals, or any of the Opinions of the Court of Appeals in the cited cases (including Equitable Lumber). If (as Judge Smith considers) the Majority have misunderstood the Opinions of the New York Court and erroneously applied the relevant legal principles, then the Majority can only be said to be wrong in law. If they have erroneously applied even the most basic legal principles, then they can only be said to be wrong in law, in its most basic aspects. Experienced lawyers and arbitrators may still make mistakes. It is unjustifiable to conclude, from these errors, that the Majority understood that they had made errors, but chose deliberately to ignore them. It is even more difficult to conclude, or to infer from the fact they had made these errors of law, that the Majority had deliberately made these errors for the purpose of arriving at what the Majority perceived, as amiable compositeurs, to be the fair result.

24. To the extent that Judge Smith expresses the opinion in his expert report that “the Tribunal majority understood that it was not following the law”, and that “the Tribunal majority, thinking the result compelled by New York law to be inequitable and unfair, intentionally put the law aside to reach what it considered a more just result”, such is simply his opinion on the state of mind or motives of the Majority. As Mr Ho submits (by reference to passages of the decision in Newmark Capital Ltd v Coffee Partners Ltd[2007] HKCFI 113; [2007] 1 HKLRD 718), this is not in the proper realm of admissible expert evidence on New York law, or how well established specified principles of New York law are. The proper ambit of expert opinion was also highlighted in the judgment of Gleeson NPJ in Fu Kor Kuen Patrick v HKSAR [2012] HKCFA 39; (2012) 15 HKCFAR 524 (at paras 49-51). Judge Smith’s opinion evidence on the Majority’s intention, purpose and state of mind is accordingly inadmissible. In any event, they remain Judge Smith’s opinions, and not this Court’s.

25. The Court should not speculate on the reasons or “motives” for the Tribunal’s decisions, nor second-guess the analyses or findings made by the Tribunal, whether on law or on facts, such as the Tribunal’s acceptance of the evidence of the factual witnesses. The Majority have set out in the Award their reasons for the findings they made and the Award they issued, including their order as to costs. The description of the Plaintiffs (in paragraphs 100 and 111 of the Award), of Y and the Defendant in the context of the background or inherent probabilities of the case, and even any views expressed by the Majority as to the equities or fairness of the case, such as the Plaintiffs’ perceived “windfall” from the resale, and the perceived unfairness to the Defendant as a victim of a 3rdparty’s fraud, cannot be said to be unusual in any form of judgment or award on the merits of the dispute, and should not be given either a hostile construction or as factors which can support an inference that the Majority would flout legal principles to reach a particular decision not justified by the governing law.

26. As Ribeiro PJ highlighted in Nina Kung v Wang Din Shin, there must be proper foundation for any inference to be drawn, and “it is not permissible merely to choose what may be considered to be the more likely of 2 guesses if neither is properly justified by the primary facts found”. If, as the Plaintiffs submit, the Majority had made errors of law in their findings on the enforceability of the liquidated damages clause and in considering parole evidence, they may simply have made these errors because they failed to understand the correct analyses of the binding New York authorities, and this in my judgment is just as equally probable as the Majority having made a conscious and deliberate choice to ignore the binding New York authorities, to come to a contrary conclusion in order to arrive at what the Majority perceived to be the fair result in the Arbitration. The latter inference involves a quantum leap which is not justified by a fair, objective reading of the Award.

27. Since the Plaintiffs have failed at the 1st hurdle, and have not established the Majority’s conscious disregard of the agreed governing law which applies to the Arbitration, it is not necessary to decide whether or not the Tribunal had exceeded its mandate, such that there are any grounds for the Court to exercise its discretion under Article 34 and s 81 of the Ordinance to set aside the Award.

Orders made

28. For the above reasons, I dismiss the Plaintiffs’ application to set aside the Award, and make an order nisi that the costs of the unsuccessful application (including any costs reserved) should be paid by the Plaintiffs to the Defendant on an indemnity basis with certificate for 2 counsel.

(Mimmie Chan)
Judge of the Court of First Instance
High Court

Tronic International Pte Ltd (Singapore) v Topco Scientific Co Ltd (Taiwan) and Others [2016] HKCA 371; [2017] 4 HKC 481; CACV 235/2013

IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO 235 OF 2013
(ON APPEAL FROM HCCT 54/2011)

TRONIC INTERNATIONAL PTE LTD (SINGAPORE)
(Plaintiff)

V

TOPCO SCIENTIFIC CO LTD (TAIWAN) (1st Defendant)
BEST TEC CO LTD (HONG KONG) (2nd Defendant)
JEFFREY CL PAN (TAIWAN) (3rd Defendant)

 

BEFORE: Hon Lam VP, Kwan JA and Barma JA in Court
DATE OF HEARING: 26 September 2014
DATE OF JUDGMENT: 26 September 2014

 

REASONS FOR JUDGMENT

Hon Barma JA (giving the Reasons for Judgment of the Court):

1. This was an appeal by the plaintiff against the order of Au J dated 17 October 2013 refusing to set aside a final award in favour of the defendants in an ICC arbitration between the plaintiff and the defendants. At the end of the hearing, we dismissed the appeal and ordered that the plaintiff should pay the defendants their costs of the appeal on an indemnity basis. These are our reasons for doing so.

2. The background to the appeal can be summarised as follows:

(1) The arbitration concerned disputes arising out of four agreements (two between the plaintiff and the 1st defendant, and one each between the plaintiff and the 2nd and 3rd defendants respectively). The plaintiff claimed damages against the defendants, alleging that the defendants had breached the agreements. In turn, the defendants counterclaimed damages against the plaintiff alleging that the plaintiff had wrongfully terminated the agreements between itself and the 1st defendant.

(2) The arbitral tribunal initially delivered a Partial Award dealing with the issue of liability, by which it dismissed the plaintiff’s claims and found that the plaintiff had breached and wrongfully terminated the agreements it had entered into with the 1stdefendant.

(3) After further hearings, the tribunal delivered its Final Award, upholding part of the counterclaims and awarding the 1st defendant damages of US$1,715,868 plus interest, the 2nd defendant US$400,000 plus interest, and further ordering the plaintiff to pay the fees and expenses of the tribunal and of the ICC in the total amount of US$780,000 and to reimburse the defendants their legal fees and costs of the arbitration in the amount of HK$5,160,226.

3. Dissatisfied, the plaintiff applied to have the Final Award set aside, relying for this purpose on Articles 34(2)(a)(ii) and (iii) of the UNCITRAL Model Law on Commercial Arbitration, which applied to the arbitration.

4. Under Article 34(2)(a)(ii), an arbitral award may be set aside if the applicant furnishes proof that:

“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”.

5. Under Article 34(2)(a)(iii), an arbitral award may be set aside if the applicant furnishes proof that:

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

6. The plaintiff contended that it could bring itself within Article 34(2)(a)(ii) in two respects, each relating to an alleged inability to present its case. The first related to a decision by the tribunal to refuse the plaintiff’s application to inspect the originals of the documents and equipment and material on which the defendants relied for their counterclaims. The second related to a decision by the tribunal refusing to stay the arbitration pending the outcome of criminal proceedings in Taiwan against certain employees of the 1st and 2nd defendants for forgery and the use of forged documents. It was said, in respect of each of these decisions, that they had the result that the plaintiff was unable to properly present its case as it wished to, and that in consequence, Article 34(2)(a)(ii) was engaged.

7. The judge rejected these submissions. He held that when considering an application to set aside an award under Article 34, the court was not hearing an appeal against the outcome of the arbitration, and thus was not concerned with the substantive merits of the dispute or the correctness of the award, but rather with the fairness of the arbitral process. He was of the view that this approach applied to all decisions by the arbitral tribunal, whether procedural or substantive in nature, so that the court should not be concerned with the correctness of those decisions, but rather by the fairness of the process by which they were reached. Having reviewed the circumstances in which the decisions relating to production of documents and stay of proceedings were reached, the judge concluded that both decisions were reached fairly, in that the plaintiff was afforded the opportunity to make such submissions as it wished to before the decisions were made. He therefore declined to set aside the Final Award on these grounds.

8. So far as Article 34(2)(a)(iii) was concerned, the plaintiff’s complaint was that although neither of the parties had raised any issue in the terms of reference for the arbitration (which provide an outline of the parties’ respective positions in the arbitration and, under Article 18 of the ICC Rules of Arbitration 1998, define the scope of the submission to arbitration) as to the potential applicability of the Sale of Goods Ordinance (Cap 26) (“SOGO”) for the purposes of assessing the quantum of any award to be made in the arbitration, the tribunal had, of its own motion, raised the question whether or not the SOGO was applicable. The plaintiff argued that by doing this, and ultimately assessing the defendants’ damages in accordance with the SOGO, the tribunal had decided on matters beyond the scope of the submission to arbitration.

9. The judge also rejected this complaint. He held that Article 19 of the ICC Rules permitted a party to raise new issues beyond the limits of the terms of reference if authorised to do so by the tribunal, having regard to the nature of the new claims, the stage of the proceedings and other relevant circumstances. He held that even if an issue that had not been raised by the parties were raised by the tribunal, it was open to the tribunal to permit such an issue to be argued, provided that the parties were given an opportunity to make submissions on such issue, including whether or not the issue should be canvassed. The judge held that in this case, the plaintiff had had the opportunity to make submissions on these matters, and that there was thus no infringement of Article 34(2)(a)(iii).

10. Before us, Mr Cooney SC (who appeared for the plaintiff, as he had in the court below) renewed each of these arguments. As in the hearing below, the first and second grounds of appeal relied on Article 34(2)(a)(ii) in the context of the refusal of the inspection and stay applications respectively, while the third ground of appeal relied on Article 34(2)(a)(iii) in respect of the determination of the quantum issues on the basis of the SOGO.

11. Dealing first with the first ground of appeal, in relation to the refusal of the application for inspection, Mr Cooney submitted that the judge had erred in declining to look into the correctness of the tribunal’s decision as to the outcome of the application. Although he accepted that, when dealing with an application to set aside an arbitral award, the court was not hearing an appeal from the arbitrators, but was concerned with whether or not the parties had been afforded a fair hearing, or due process, he contended that in the context of a procedural decision, it was open to the court to look into the correctness of the decision itself, and, provided that the decision was both wrong and related to a “serious” matter (or would have “serious” consequences), the court would be justified in setting aside the award under Article 34(2)(a)(ii).

12. We are unable to accept this submission. It is well established, as Mr Cooney accepted, that the court hearing an application to set aside an arbitral award is not concerned with the substantive merits of the dispute between the parties, or the correctness of the award, but with the fairness of the process. See Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liquidation) (No. 1) [2012] HKCA 200; [2012] 4 HKLRD 1, per Tang VP (as he then was) at paragraph 7. In our view, the correct approach is as set out by Recorder Chow SC (as he then was) at paragraph 29 of his judgment in Pang Wai Hak v Hua Yunjian [2012] HKCFI 972; [2012] 4 HKLRD 113 (quoted in paragraph 15 of the judgment below). For present purposes, we would emphasise the following aspects of that summary:

(1) To justify setting aside an arbitral award on this ground, a party must have been denied due process in a respect that is serious, or even egregious (see principles (2) and (3) stated by Recorder Chow).

(2) The nature of the deprivation that is required is well illustrated by the examples given by Recorder Chow – situations where the tribunal carries out its own investigations or inquiries as to primary facts, or decides a case on the basis of a new point (whether or law or fact) without giving the parties an opportunity to consider and respond to it. Both of these are situations in which a party is, in effect, not given a hearing on matters that are critical to the tribunal’s decision (see principle (5) stated by Recorder Chow).

(3) The ultimate question is one of the fairness of the arbitral process (see principle (7) stated by Recorder Chow).

13. While it might be argued that the limitation on consideration of the merits of a decision by the arbitral tribunal should be restricted to decisions relating to the substantive dispute, we do not think it should be so restricted. Given that the court’s concern, when considering Article 34(2)(a)(ii), is to ensure the fairness of the overall process of the arbitration, it seems to us that so long as the parties are able to make representations in respect of any decision that might affect the arbitration, whether procedurally or substantively, they will have been afforded due process and will have been given a fair hearing. In such a case, the actual merits of any particular decision (whatever its nature) made as a result of such submissions is not a matter with which the court should be concerned on an application to set aside under Article 34(2)(a)(ii). In relation to procedural decisions, it should also be noted that the requirements of fairness will necessarily be a factor to be taken into account. But there will be other factors to be considered, such as the need for a sense of proportion and procedural economy, and the need to progress with the arbitration with due speed. The decision reached will necessarily involve a weighing of the various factors, which is an exercise which the tribunal, which is much more intimately involved with the arbitral proceedings than a court could ever be, will be far better placed to carry out.

14. We therefore reject the submission that it is open to the plaintiff to seek to challenge the correctness of the procedural decision reached by the tribunal in relation to the inspection application. That being so, given that the parties had the opportunity to make submissions to the tribunal as to the inspection application before the tribunal ruled on it, the judge was right to conclude that there had been no such failure of due process as to justify the court in setting aside the Final Award on the basis of Article 34(2)(a)(ii) in respect of the inspection application.

15. We would also note, as the judge did, that the tribunal in fact afforded the plaintiff a further opportunity to make submissions as to the nature of the “serious issues” it claimed to have with the documentary evidence put forward by the defendants in support of their claims, in the email by which the tribunal notified the plaintiff of its rejection of the inspection application. This invitation was declined. This is, we think, significant in two respects. First, it shows clearly that the plaintiff was given ample opportunity to make out its case in relation to the inspection application. Second, the failure to pursue the matter casts doubt (to put it no higher) on the importance which the plaintiff attached to the need to inspect the documents in question.

16. Even if we were to have accepted Mr Cooney’s submission as to the ability of the court to examine the merits of the tribunal’s decision on procedural applications such as the inspection application, we would not have been minded to set aside the Final Award on this ground. First, we do not consider that it has been demonstrated that the tribunal’s decision in relation to the inspection application was clearly wrong. Bearing in mind the nature of the application, and the stage of the proceedings at which it was made, it seems to us that it was open to the tribunal to come to the conclusion that it did. Second, we do not think that it could be said that the refusal of the application could be said to have amounted to a serious or egregious breach of due process.

17. Turning to the second ground of appeal, this is also based on Article 34(2)(a)(ii), but this time in the context of the application for a stay of proceedings pending the outcome of Taiwanese criminal proceedings for forgery against certain employees of the 1stand 2nd defendants.

18. Mr Cooney acknowledged that the legal principles applicable to this ground of appeal were necessarily the same as those to be applied to the first ground. So far as the procedural fairness of the way in which that application is concerned, there is no suggestion that the plaintiff was not given a fair opportunity to present its arguments in support of the application. Again, the submission is that the decision to refuse the stay was wrong, and rendered the proceedings as a whole unfair because it severely hampered the plaintiff in its ability to present its case as it wished to. For the reasons we have already given, we are satisfied that we should not enter upon a consideration of the merits of the tribunal’s decision to refuse the stay applied for. That being so, this ground of appeal necessarily fails.

19. Further, as with the first ground of appeal, we do not consider that the tribunal’s decision was in fact wrong, or that it had as significant an impact on the plaintiff’s ability to make out its case as the plaintiff suggests. It therefore did not have the effect of rendering the proceedings procedurally unfair, and provides no basis for the court to interfere under Article 34(2)(a)(ii).

20. We turn finally to deal with the third ground of appeal, based upon Article 34(2)(a)(iii). As we have noted, Mr Cooney’s argument was that because the defendants had not raised the SOGO in their pleadings, issues based on the SOGO did not fall within the scope of the arbitration. Mr Manzoni SC, for the defendants, did not dispute that the SOGO issue was not raised in the pleadings, and that no application to amend to plead it was made. He submitted, however, that it was open to the tribunal to raise the issue of its own motion, and provided that the parties were given the opportunity to deal with the issue, as they in fact were, it was in order for the tribunal to rule upon it (see Brunswick Bowling & Billiards Corp v Shanghai Zhonglu Industrial Co Ltd [2011] HKLRD 707 at paragraph [28]), and that the failure of a party to amend its pleading to incorporate the point would not be fatal to any award made (see PT Prima International Development v Kempinski Hotels SA [2012] 4 SLR 98 at [49]).

21. In our view, Mr Manzoni is correct. Article 19 of the ICC Rules clearly enables the scope of an arbitration to be expanded beyond the original terms of reference where the tribunal authorises the new claim to be made. In our view, where the tribunal raises a matter or issue of its own motion, and makes it clear to the parties that it will deal with it after having heard submissions in relation to the matter or issue, and the parties make such submissions (as they did here), the party relying on the issue raised by the tribunal can properly be said to be making a claim based on that issue, and (if allowed by the tribunal to do so) to have been authorised by the tribunal to make it. That being so, we are satisfied that even if the SOGO issue was not within the original terms of reference, it was an issue that was raised with the authority of the tribunal so as to expand the scope of the arbitration to cover it.

22. Mr Cooney also sought to argue that the tribunal had predetermined the question of whether or not the SOGO issue should be considered. However, as was pointed out to Mr Cooney in the course of the hearing, this was a different complaint from that embodied in the third ground of appeal – it was in fact a complaint of procedural unfairness which would give rise to a challenge under Article 34(2)(a)(ii) rather than (iii). No such challenge having been made in the plaintiff’s notice of appeal, we refused to permit it to be made before us at the hearing.

23. For the foregoing reasons, we were satisfied that none of the grounds of appeal relied on by the plaintiff were meritorious, and accordingly dismissed the appeal.

(M H Lam) (Susan Kwan) (Aarif Barma)
Vice-President Justice of Appeal Justice of Appeal

Blanalko Pty Ltd v Lysaght Building Solutions Pty Ltd [2017] VSC 97

IN THE SUPREME COURT OF VICTORIA
MELBOURNE 
COMMERCIAL COURT

BLANALKO PTY LTD

LYSAGHT BUILDING SOLUTIONS PTY LTD

JUDGE: Croft J
WHERE HELD: Melbourne
DATE OF HEARING: 23 February 2017
DATE OF JUDGMENT: 10 March 2017
CATCHWORDS: ARBITRATION – Application for a stay of court proceedings in favour of arbitral proceedings – Application to set aside arbitral award – Whether arbitral award final where all issues referred to arbitration not determined – Extent to which correction and interpretation provisions of the legislation are applicable where arbitrator decides, expressly, not to determine an issue – Extent to which arbitrator’s mandate subsists – Johnson v Latham (1850) 19 LJQB 329 – Gatoil International Inc v National Iranian Oil Company (unreported, 22 February 1990, EWCA) – Administration of Norfolk Island v SMEC Australia Pty Ltd (2004) NFSC 1 – CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] 4 SLR 305 – TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd (2014) 232 FCR 361 – BLC v BLB [2014] 4 SLR 79 – Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd [2016] SGHC 238 – Commercial Arbitration Act 2011, s 5, 14, 32, 33 and 34 – Arbitration Act 1996 (Eng), s 68.

 

HIS HONOUR:

Introduction

  1. This dispute has been before this Court since 2012.  It deals with two proceedings, both of which now relate to unresolved legal costs arising out of the first proceeding. Specifically, the parties dispute whether Lysaght Building Solutions Pty Ltd (“Lysaght”) must pay the costs of Blanalko Pty Ltd (“Blanalko”) of and incidental to the first proceeding, including the reference to the Court of Appeal (“the Supreme Court Costs”).
  2. The first proceeding was commenced in 2012 by Blanalko which alleged that Lysaght had breached a design and construction contract that existed between the two parties.  After an extensive procedural history that need not be recounted, it was partially settled in April 2016, with the remaining issues being referred to arbitration by the settlement deed of 21 April 2016 (“the Settlement Deed”).
  3. The arbitrator delivered an interim award on 15 June 2016 which resolved the majority of the remaining substantive issues and invited the parties to make submissions on, among other things, costs.  This invitation did not distinguish between the costs of the arbitration and the costs of the Supreme Court proceeding. Lysaght and Blanalko made submissions on both kinds of costs.
  1. In the award delivered on 9 August 2016, an award which was styled as a “Final Award” (“the Award“), the arbitrator found that the parties had the power to refer the question of the Blanalko’s Supreme Court Costs to arbitration.  Further, the arbitrator found that they had done so:

I have no doubt that the parties did agree that the Arbitrator should have the jurisdiction to consider and determine the costs of the Supreme Court proceedings brought by the parties, in the Arbitration.

The arbitrator did not, however, decide the issue of Blanalko’s Supreme Court Costs because he found that he lacked the necessary information.

  1. Neither party requested an additional award under s 33(5) of the CAA, nor took any steps, it seems, to otherwise communicate with the arbitrator for the purpose of resolving the Supreme Court Costs issue.
  1. In a summons dated 16 November 2016 (“the Summons”), Blanalko sought an order of the Court that Lysaght pay Blanalko’s Supreme Court Costs.
  1. In response to the Summons, on 2 December 2016 Lysaght filed an interlocutory application for stay under section 8 of the Commercial Arbitration Act 2011 (“the CAA”). This application relied upon the arbitration agreement in the Settlement Deed.
  1. The second proceeding was commenced on 4 November 2016 when Blanalko filed an originating application to set aside an award under s 34 of the CAA. Section 34 empowers the Court to set aside an arbitral award in limited specified circumstances. Blanalko sought to set aside the award to the extent that the arbitrator declined to determine the Supreme Court Costs, on the basis that the arbitrator had no power to so decline and, further, in so doing referred the issue to a “third party” for determination—namely, the Court.
  1. Issues were raised as to whether the arbitrator was functus officio from 8 September 2016, being 30 days after the arbitrator’s Final Award on 9 August 2016, having regard to ss 32 and 33(5) of the CAA. The essence of the dispute now is whether, if the arbitrator is presently functus officio, there is a tribunal or court before which Blanalko may pursue its claim for the Supreme Court Costs which the arbitrator did not decide and, if the arbitrator is not functus officio, what is the position of the parties.
  1. Although in light of the authorities it now almost goes without saying, it is vital to interpret the CAA in light of its status as a domestic application of an international model law—the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”). Notwithstanding the fact that the CAA is a domestic statute in the State of Victoria, it should be interpreted in conformity with international norms with respect to the Model Law, “so far as practicable”.  The following principles of interpretation were distilled by the Court of Appeal in Subway:

(a)          certainty and uniformity of application are of paramount importance;

(b)          to that end, the rules generally applicable to the interpretation of domestic statutes give way to the rules applicable to the interpretation of treaties;

(c)          because the international agreement is addressed to a much wider and more varied judicial audience than an act of a domestic legislature, the interpretation of the domestic enactment should be unconstrained by technical rules of interpretation and should instead be informed by “broad principles of general acceptation”; and

(d)          recourse may be had to the working documents of the international body by which, or through which, the agreed rules were developed.

The prima facie requirements for a stay under section 8 are satisfied

  1. Section 8(1) of the CAA governs the circumstances in which a court must decline to hear a dispute that is subject to an arbitration agreement:

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. Lysaght correctly sets out the positive elements that must be satisfied in order for a stay of the 2012 proceedings to be granted under s 8 of the CAA:

(a)          the existence of an arbitration agreement;

(b)          that the matter pending before the court is the subject of (i.e. within the scope of) the arbitration agreement; and

(c)          that the party requesting a stay has done so not later than when submitting its first statement on the substance of the dispute.

  1. The parties do not dispute the existence of an arbitration agreement.  Nor do they dispute before me that the Supreme Court Costs were within the scope of the arbitration agreement.  That the request for a stay was in time was similarly uncontroversial.  Thus unless Blanalko can establish that the arbitration agreement is “null and void, inoperative or incapable of being performed”, the stay will be granted and the Court will not hear Blanalko’s application in the 2012 proceedings.

Blanalko’s three possible courses or options

  1. In light of the prima facie position with respect to the application for stay under s 8 of the CAA, Blanalko proposes three possible courses or options that the Court might take in order for its claim for costs to be heard. It is helpful in understanding the position of the parties to state and consider these possible courses or options before returning to consider them and the issues they raise in the latter part of these reasons. These position courses or options are:

(1)          not refer the matter to arbitration under s 8 because the Arbitrator is functus officio and therefore incapable of making an effective award.  Instead the Court will hear and determine the question itself; or

(2)          refer the matter to arbitration under s 8 because doing so re-establishes the arbitrator’s jurisdiction such that he ceases to be functus officio; or

(3)          under s 34(2)(a)(iii), quash so much of the award as regards the issue the arbitrator has refused or declined to decide on the basis that this was a decision on a matter beyond the scope of the submission to arbitration, but allow the arbitrator the opportunity to correct the irregularity under s 34(4).

None of these courses is available.  As is explained in the reasons which follow, the mere fact that an arbitrator is functus officio will not result in an arbitral agreement being inoperative or incapable of being performed. Thus, the first option is not a viable course. The second option relies on an incorrect analysis of the effect of a stay by the Court under s 8, and the third assumes that the decision of the arbitrator was, properly analysed, a decision which he was not authorised to make; which, in my view, is not the case.

  1. Before turning to the reasons why each of these options is unavailable, it is desirable to comment on the possible consequences of that conclusion if it is accepted that the arbitrator is functus officio.  In those circumstances, the effect of denying Blanalko’s applications would be that Blanalko would be unable to recover significant costs by way of the Supreme Court Costs to which it may well have a substantive entitlement.  This may, at first sight, seem unjust.  The fairness of this result, were the arbitrator to be found to be functus officio, arises out of the fact that the two parties freely agreed to a particular dispute resolution procedure. Party autonomy is paramount in arbitration. Although the arbitration may not have functioned as planned, this was a risk to which the parties consented. Blanalko submits that natural justice entails that there be some avenue of redress where an arbitrator declines to deal with the whole of their reference and suggests that avenue of relief is under s 34 of the CAA. It is not necessary in the present circumstances to determine if natural justice requires some kind of redress. Here, were the arbitrator functus officio, there was a mechanism provided in s 33(5) of the CAA for Blanalko to have the Supreme Court Costs determined assuming the arbitrator’s failure to do so himself can be characterised as an “omission” for the purposes of these provisions.

Section 33(5) of the CAA: an opportunity not taken?

  1. The CAA contains a mechanism for correction and interpretation of an award and provisions empowering the arbitrator to make an additional award in the circumstances specified. Thus, s 33(5) provides:

Unless otherwise agreed by the parties, a party, with notice to the other party, may request, within 30 days of receipt of the award, the arbitral tribunal to make an additional award as to claims presented in the arbitral proceedings but omitted from the award.

This mechanism balances two crucial features of any domestic law of arbitration: fairness and efficiency.  In order for procedural fairness to be granted to both parties, they must have a reasonable opportunity to present their case; the corollary of which includes the right, necessarily limited to preserve finality of arbitral decision making, to request correction, interpretation and supplementation of the arbitral award.  Clearly, in order for arbitration to be fair, efficient and cost-effective, a degree of finality and certainty is required, hence any impediment to an award being final and unchallengeable must be subject to strict temporal limitations; such as the 30 day limit in s 33(5) of the CAA.

  1. The extent of the finality of a particular arbitral award does, however, depend upon its true ambit, however it might be labelled—whether as an interim award, a partial award, a final award or otherwise. Thus, s 33 of the CAA is directed to an “award”. Consequently, the provisions of s 33(5) of the CAA operate with respect to any “award” to the extent that the issue subject to a request under those provisions is properly characterised as “final”—whatever the “label” placed on the “award” by the arbitrator. This is critical to keep in mind when considering the meaning of the word “omitted” in s 33(5). In this respect, it is relevant to observe that the dichotomy between an award properly characterised as a “final award” and an award not so properly characterised is maintained in s 32 of the CAA, which deals with the termination of arbitral proceedings.

  2. Counsel for Blanalko submitted that s 33(5) of the CAA does not operate as a “guillotine” in that a failure to make a request under s 33(5) of the CAA will not be a bar to applications under ss 34, 34A and 36 of the CAA. In a sense, this is correct. The merits of applications under other sections, such as s 34(2)(a)(iii) of the CAA must be assessed independently; though this is not to say that their operation may not be more or less interrelated depending on the particular circumstances. Thus, the failure of a party to make use of s 33(5) of the CAA may be relevant to the Court’s exercise of discretion under such a provision. However, it is unnecessary to take this aspect further, as the application under s 34(2)(a)(iii) fails on other grounds. In another sense, however, s 33(5) of the CAA does operate as a guillotine. Under s 32 of the CAA, the arbitral tribunal will be functus officio upon delivery of the final award, subject to ss 33 and 34(4). Thus, if no request is made within the time limits of those sections, the guillotine will fall and the arbitrator’s power will be beyond unilateral revival. After that time, only a fresh arbitration agreement would suffice to grant the arbitrator jurisdiction. It will, however, be appreciated that s 32 is directed, expressly, to the position in the event of a final award (and other circumstances not presently relevant). Sections 33 and 34 are not so limited and apply to an “award”, final or otherwise.

Section 33(5) of the CAA: accidental omissions only?

  1. It was submitted by counsel for Blanalko that s 33(5) of the CAA does not apply to conscious decisions by an arbitrator not to decide a matter falling within the reference to arbitration but only to accidental or inadvertent omissions to decide such a matter. The use of the word “omitted” does, as a matter of ordinary English usage, tend to suggest a quality of “inadvertence”. This would suggest that s 33(5) is not intended to address the situation where, as in the present circumstances, the arbitrator made a conscious and express decision not to decide one of the “claims presented in the arbitral proceedings”. There are, however, contrasting views in this respect; views to which I now turn.
  1. It is true that if s 33(5) applies only to inadvertent omissions, there may be circumstances where it is not clear whether or not the omission was inadvertent or intentional. Circumstances of this kind may involve some difficulty in determining the position, particularly having regard to the need for the Court to avoid examining the arbitration process in a manner inconsistent with the approach of the CAA, which is for minimum court involvement and the absence of merits appeals (the latter except in the confined circumstances of s 34A, and then only with respect to domestic arbitrations, to which the CAA applies). In the present circumstances, no such difficulty arises as the arbitrator has made it quite clear that the Award does not decide all “claims presented at the arbitral proceedings”.
  1. The commentary on s 33(5) in Australian Commercial Arbitration provides a broad statement of the plain meaning of the section:

It is unclear as to what could be dealt with in an additional award, but the provision is there to ensure that any issues which have not been covered—but which are mandated by the arbitration agreement—are ultimately resolved to enable one or both of the parties to make a request seeking to ensure the tribunal discharges its duties.

  1. There is, however, some tension in other scholarly analyses of s 33(5) of the CAA and its equivalents derived from Article 33 of the Model Law. Commentary on the New Zealand legislation implementing the Model Law supports the view that the omission must be accidental:

The Arbitration Act 1908 allowed the court to remit the award back to the arbitrator for reconsideration in cases where the award plainly failed to deal with a claim.  There is no such power in either the [Model Law] or the NZ Act.  Instead, when an arbitral tribunal has overlooked a claim or issue in making its award, the art 33(3) power allows either party to request the tribunal to provide an additional award.  In the event that the tribunal improperly refuses to do so, this could constitute a ground for setting aside the award on the grounds of breach of natural justice under art 34(2)(b)…  In New Zealand, a party claiming that the award is incomplete must apply under art 33(3).

The word “overlooked” clearly refers to an inadvertent failure to decide.

  1. Other commentary explicitly suggests that the failure to decide need not be inadvertent:

Section 33 [of the CAA] covers both errors of omission, as well as errors of commission. In SIAC Arbitration No. 6 of 1996, it was argued that the operation of Art 33 of the Model Law was narrower than the “slip rule” developed in common law jurisdictions.  Therefore, Art 33 would not permit a correction of an award of costs where some costs had been omitted.  The presiding arbitrator held that this was incorrect and that Art 33 of the Model Law was best understood as being in contradistinction to errors of judgment, whether of law or fact, which the tribunal was not empowered to correct.  In this case, as it was a matter concerning the omission of a particular head of costs, the tribunal was empowered to correct a certificate of costs.

On this view, s 33(5) allows an arbitrator to revisit his decision to the extent that doing so does not re-agitate previous findings. This is, in a sense, unhelpful, because a tribunal deciding matters that it has previously decided not to decide may be seen as re-agitating an issue with which the tribunal has already dealt; though in all probability in an award not properly characterised as a final award, given the conscious omission and decision not to decide the matter.

  1. The UNCITRAL debates on the drafting of the Model Law do not shed any light directly on the intended meaning of the word “omitted” in Article 33(3) (now enacted in s 33(5) of the CAA). There is, however, some strong indication in the following UNCITRAL materials that the word—hence the ambit of Article 33(3)—was intended to be no more broad than minor corrections, most likely arising from inadvertence. This is, in my view, indicated in the following extracts from the UNCITRAL Secretariat Notes (16 December 1983 and 25 March 1985):

FOURTH SECRETARIAT NOTE
COMMENTS AND SUGGESTIONS ON THE FOURTH DRAFT

A/CN.9/WG.II/WP.50 (16 DECEMBER 1983)

G.  Suspension of award (articles 33, 34, 36)

20.  The draft model law refers to the procedural possibility of a suspension of the award only indirectly in article 36(1)(a)(v) and (4), stating certain legal consequences of a suspension or an application for suspension.  The Working Group may wish to consider adding a positive provision which would grant a right to request suspension of an award made under this Law.  Such a right may be appropriate in conjunction with the right to request a correction under article 33(1)(a), possibly in conjunction with the right to request an interpretation under article 33(1)(b), and certainly in conjunction with an application for setting aside under article 34.  [Editors’ Note: This proposal does not appear to have been discussed by the Working Group or the Commission in subsequent sessions.]

H.  Additional award requiring further hearings or evidence (articles 33, 34)

21.  Article 33(2) envisages the making of an additional award as to claims presented in the arbitral proceedings but omitted from the award only where such omission can be rectified without any further hearings or evidence.  The question therefore remains what would happen in those cases where further evidence or hearings are required.

22.  From a practical point of view, the suggested answer would be that the arbitral tribunal could still be entitled or required to make the additional award since it did not completely fulfil the mandate entrusted to it.  If this view were adopted, it would mean that the restriction contained in article 33(2) would be abolished, although this provision might be retained for the residual purpose of setting a time-limit of sixty days for these restricted cases.  A supplementary consideration would be to include in article 34 a provision to the effect that the award may be set aside if the points dealt with therein cannot be separated from the points omitted.  In this context, the possibility of remission under article 34(4) may prove to be a very useful device.

23.  The need for an express rule on this question becomes apparent when one looks at the present draft provisions.  It is at least a possible interpretation of articles 33(2) and 34 that omission of a claim requiring further hearings or evidence constitutes a ground for setting aside the award, irrespective of whether the omitted points can be separated from the points dealt with in the award.  The omission could then be rectified by the arbitral tribunal if the award would be remitted to it for completion.  If, however, the Court would not remit the award but would set it aside, a problem of general relevance arises which is treated in the following section (paras. 24-26).  …

SEVENTH SECRETARIAT NOTE
ANALYTICAL COMMENTARY ON DRAFT TEXT

A/CN.9/264 (25 MARCH 1985)

Article 33.  Correction and interpretation of awards and additional awards

[….]

1.  Article 33 extends the mandate of the arbitral tribunal beyond the making of the award for certain measures of clarification and rectification, which may help to prevent continuing disputes or even setting aside proceedings.  The first possible measure is to correct any error in computation or any clerical, typographical or similar error, either upon request by a party or on its own initiative.  The second possible measure is to give an interpretation of a specific point or part of the award, as specified by a party, and to add this interpretation to the award.  The third possible measure is to make an additional award as to any claim presented in the arbitral proceedings but omitted from the award (e.g., claimed interest was erroneously not awarded).  If the arbitral tribunal considers the request, not necessarily the omitted claim, to be justified, it shall make an additional award, irrespective of whether any further hearing or taking of evidence is required for that purpose.

2.  The period of time during which a party may request any such measure is thirty days of receipt of the award.  The same period of time, calculated from the receipt of the request, is accorded to the arbitral tribunal for making the correction or giving the interpretation, while a time-limit of sixty days is set for the usually more difficult and time-consuming task of making an additional award.  However, there are circumstances in which the arbitral tribunal would be unable, for good reasons, to comply with these time-limits.  For example, the preparation of an interpretation may require consultations between the arbitrators, the making of an additional award may require hearings or taking of evidence, and in any case initially sufficient time must be given to the other party for replying to the request.  The arbitral tribunal may, therefore, extend the time-limits, if necessary.

This follows from the discussion in relation to the subsistence or otherwise of the arbitrator’s mandate because if the arbitral tribunal has purported to discharge the mandate—but with an omission, caused by error or otherwise—in other words, an omission by inadvertence, the mandate is discharged, hence the need for the provisions of Article 33 (s 33 of the CAA) to extend the mandate to enable the correction or clarification. On the other hand, a conscious decision not to deal with an issue—that is, not to fully discharge the mandate—leaves the arbitral tribunal with the undischarged mandate to complete the task, hence does not require the assistance of Article 33 (s 33 of the CAA) to extend the mandate.

  1. For the preceding reasons, particularly having regard to the language used and the UNCITRAL Model Law and the UNCITRAL materials, I am of the opinion that s 33(5) of the CAA is only applicable to inadvertent omissions and not to a situation where an arbitrator decides not to decide a “claim” which was “presented in the arbitral proceedings”. It follows, of course, that such a claim must be one within the scope of the arbitration agreement. This is also consistent with the position that, properly characterised and regardless of its “label” as final or otherwise, an award not dealing with all such claims is not, certainly in the present circumstances, likely to be construed as a final award thus rendering the arbitrator functus officio with respect to all “claims presented in the arbitral proceedings”. Intentional “omissions” which do not detract from the position that all such claims have been decided fall into another category and may, on a purposive approach and the possible absence of other remedies under the CAA—other than under s 33(5)—be subject to s 33(5). That is not, however, the position here, so the point is not necessary to decide.
  2. Upon a plain reading of the Award, the claim with respect to the Supreme Court Costs was not decided; and was entirely open to revisitation. The arbitrator’s reason for not dealing with this claim was the lack of evidence before the arbitrator. There is no indication in the Award that the arbitrator was not prepared to deal with the Supreme Court Costs claim if and when the requisite evidence was provided. It was clearly open to either party to engage with the arbitrator to assist the determination of this outstanding claim—whether in fulfilment of general duties of parties to assist the arbitral process under s 24B of the CAA or out of legitimate self-interest. For the reasons which follow, the arbitrator was clearly able to entertain the claim and to resolve it by decision.

Blanalko did not have to make a strategic decision

  1. For the sake of completeness, reference should be made to the complaint by Blanalko that if this Court were now to find that the only avenue available to Blanalko was an application unders 33(5) of the CAA, which is now time barred, this would occasion unfairness because Blanalko could only impugn the award on one ground and it could not know which ground would succeed. Even if it was forced to make such a choice, parties are bound by their strategic decisions and their inability to foresee the correct choice does not generally provide any basis for a remedy.  Blanalko was not, however, forced to choose between requesting an additional award and bringing an application in this Court for the award to be set aside insofar as it failed to deal with the issue of the Supreme Court Costs.  This assumes, of course, that the Award was properly characterised as “final” and that there was a ground available on which an application to set aside could be established.  As these reasons indicate, I am of the view that neither assumption can be sustained.
  2. In any event, a party may both request an additional award and apply for an award to be set aside simultaneously.  For example, a German court found that an arbitral tribunal was obliged to make an additional award despite an application being made to set aside the main award on the grounds that the tribunal incorrectly determined its jurisdiction.  Thus, there was no basis for Blanalko’s belief that it had to elect either to request an additional award or seek to have the award set aside, at least partially.  Indeed, the latter avenue may have had better prospects of success if the former avenue had been unsuccessful in yielding a result from the arbitrator.  Thus, counsel for Blanalko’s submission that “a second bite of the cherry” would be unavailable is simply incorrect, as is apparent from a plain reading of the CAA. Blanalko has not referred to any basis for that proposition in either the CAA or the case law.

A request under s 33(5) of the CAA would not have been an abuse of process

  1. Counsel for Blanalko also submitted that making a request under s 33(5) of the CAA “would be putting ourselves into a position of abuse of process”. At first sight, this appears to be a curious submission having regard to the rights and obligations of parties and arbitrators under the CAA. Nevertheless, I understand this submission to be that a request for a further award on an issue that an arbitrator has finally determined would be in breach of a party’s obligations under both the CAA and the Civil Procedure Act 2011.  Abstractly, this point may have some merit, as Allsop CJ observed in TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd, a party ought not to make “a disguised attack on the factual findings of the arbitrators dressed up as a complaint about natural justice”. This would not have been the case had a request been made under s 33(5) of the CAA, for the preceding reasons; and, for those which follow, it would have been open to the parties to request the arbitrator to complete his mandate under the arbitration agreement—a request not reliant on s 33(5)—as the Award is not a final award.

The arbitrator could have taken further evidence

  1. It was submitted by counsel for Blanalko that an arbitrator could not take further evidence before the making of an additional award in answer to a request under s 33(5) of the CAA and that consequently, s 33(5) did not apply in circumstances where an arbitrator declined to deal with an issue due to insufficient evidence. The conclusion reached by Blanalko that s 33(5) did not apply was relied upon to strengthen its claim that it was entitled to redress elsewhere by way of setting aside under s 34, and could thus avoid the time bar in s 33(5) of the CAA. While this point was not really explored before me, and I believe that nothing turns on it, in the present context it is, nevertheless, useful to say something about the point.
  1. In arguing that s 33(5) only applied where all the evidence was in, counsel for Blanalko relied on the UNCITRAL Analytical Commentary on the Draft Text of a Model Law on International Commercial Arbitration (“the UNCITRAL Analytical Commentary”). The UNCITRAL Analytical Commentary makes it inescapably clear that an arbitrator may take further evidence to enable him or her to make an additional award (material previously set out but repeated for the sake of clarity and emphasis):

1. Article 33 extends the mandate of the arbitral tribunal beyond the making of the award for certain measures of clarification and rectification, which may help to prevent continuing disputes or even setting aside proceedings…  The third possible measure is to make an additional award as to any claim presented in the arbitral proceedings but omitted from the award (e.g. claimed interest was erroneously not awarded).  If the arbitral tribunal considers the request, not necessarily the omitted claim, to be justified, it shall make an additional award, irrespective of whether any further hearing or taking of evidence is required for that purpose.

2. The period of time during which a party may request any such measure is thirty days of receipt of the award.  The same period of time, calculated from the receipt of the request, is accorded to the arbitral tribunal for making the correction or giving the interpretation, while a time-limit of sixty days is set for the usually more difficult and time-consuming task of making an additional award.  However, there are circumstances in which the arbitral tribunal would be unable, for good reasons, to comply with these time-limits.  For example, the preparation of an interpretation may require consultations between the arbitrators, the making of an additional award may require hearings or taking of evidence, and in any case initially sufficient time must be given to the other party for replying to the request…

  1. The fourth draft of the Model Law, which preceded the draft upon which the UNCITRAL Analytical Commentary was made, did not allow for further taking of evidence before an additional award was made.  Specifically, the fourth draft provided:

Unless otherwise agreed by the parties, a party, with notice to the other party, may request, within thirty days after the receipt of the award, the arbitral tribunal to make an additional award as to claims presented in the arbitral proceedings but omitted from the award; if the arbitral tribunal considers such request to be justified and that the omission can be rectified without any further hearings or evidence, it shall make that additional award [within sixty days after the receipt of the request].

The deletion of the explicit requirement that there must be no need for further hearings or evidence is telling.  The basis for allowing further evidence is that to do otherwise would entail that an entire award might be set aside due to deficiencies in the evidence that could have been efficiently remedied before delivery of an additional award. Given that no case law or other material that contradicts the UNCITRAL Analytical Commentary has been put before me, Blanalko’s allegation that s 33(5) only applies when no further evidence need be taken is rejected.

Option 1 fails: the arbitration agreement is not inoperative or incapable of being performed

  1. Section 24 of the Supreme Court Act 1986 empowers the Court to make an award of costs in proceedings before the Court. Blanalko submits that other than entering into an arbitration agreement, it “never released or abandoned its claim for a liability finding that [Lysaght] pay the unresolved costs of the Supreme Court proceedings” and consequently that it “is entitled to ask the Court for an Order in favour for those costs pursuant to s 24 of the Supreme Court Act 1986”. Thus Blanalko correctly observes that the only barrier to the Court hearing an application for an award of costs under s 24 of the Supreme Court Act 1986 is s 8 of the CAA. The question is therefore whether the arbitration agreement, insofar as it relates to the Supreme Court Costs, is inoperative or incapable of being performed.
  2. ‘[I]noperative or incapable of being performed’ is a high bar to satisfy.  As stated by Bingham LJ in Gatoil International Inc v National Iranian Oil Company:

The words “incapable of being performed” are a strong expression, in my judgment denoting impossibility, or practical impossibility, and certainly not mere inconvenience or difficulty.  A mere change of circumstances rendering arbitration a less attractive mode of resolving a dispute or rendering the forum or the procedural rules chosen for any reason unattractive, could never be enough.  For a party who has agreed to resolve any dispute by arbitration to be freed from his obligation under s 1(1) it is, in my judgment, necessary for him to show that the arbitration agreement simply cannot, with the best will in the world, be performed.  I am satisfied that the words of exception should be strictly construed so as to reflect the intention of the Convention and the Act.

  1. Vinodh Coomaraswamy J observed in Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd that:

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

His Honour concluded that “inoperative” “contemplates… the parties’ contractual obligation to arbitrate their disputes ceasing to have effect or being discharged by events or circumstances arising outside the contract.”  Thus it seems that the cause of the discharge of the contract is relevant to whether the contract is “inoperative”.

  1. Blanalko relied on Vinodh Coomaraswamy J’s statements and went further, submitting that a contract discharged by deficient performance is similarly inoperative.  Put another way, it was submitted that an arbitration agreement is inoperable where an arbitrator does not decide, or decides not to decide, all of the matters contained in the reference to arbitration.  This seems problematic for two reasons.  First, the statements referred to in the immediately preceding paragraph, upon which Blanalko relied, suggest that an agreement will be inoperative in significantly different circumstances to those present.  Particularly, a discharge of the contract by performance seems to be an event or circumstance arising inside the contract, in the sense of being the result of the operation of its provisions; precisely the opposite of that to which Vinodh Coomaraswamy J was referring.
  1. Secondly, where an arbitral tribunal delivers an award that deals with the whole of the reference to arbitration, it is s 8 of the CAA, not res judicata or some other general doctrine, which prevents the substance of the award being re-litigated. The arbitration agreement continues to operate in this sense. Similarly, where an arbitral tribunal delivers an award that deals with most of its reference, as is the case here, it is s 8 of the CAA which prevents the re-litigation of those matters which have been finally decided in the award. This means that the arbitration agreement is operative and therefore that those matters which were decided in the award may not be re-litigated. Thus, an arbitration agreement will not be inoperative or incapable of being performed merely because it is not fully performed. It is for this reason that whether the arbitrator is wholly or partially functus officio is irrelevant for the purposes of s 8 of the CAA.
  2. In Administration of Norfolk Island v SMEC Australia Pty Ltd, Beaumont CJ approved of the following extract from Halsbury’s Laws of Australia, which remains current:

The onus lies on the party resisting the stay of proceedings application on the ground that the arbitration agreement is null and void, inoperative or incapable of being performed, to show that there is some flaw in the agreement, for example:

(1)          want of offer and acceptance;

(2)          want of consideration;

(3)          the arbitration agreement is illegal or otherwise void ab initio; or

(4)          the arbitration agreement has become void ab initio by operation of law or court order.

An arbitration may be described as “inoperative”, at least in so far as the arbitration of a given dispute is involved, where the arbitral tribunal declines to proceed with the reference, where the right to arbitrate has been waived or where the court has ordered that it cease to have effect.  The requirement that the arbitration be “incapable of being performed” involves proof of more than delay or inconvenience and more than some procedural bar or the effect of a time bar.  The fact that a party was unwilling or unable to satisfy an award which might be made is also insufficient.  What is required is that there exists some obstacle which cannot be overcome by parties who are ready and willing to perform the agreement.

While this passage may seem to support the general position that the arbitration agreement is inoperative, where an arbitral tribunal “declines to proceed with the reference”, this proposition must be viewed in the particular context of such a situation.  Here, the arbitrator did not determine one of the issues within the submission to arbitration and was not pressed to decide the issue by the parties.  Consequently, insofar as the arbitrator declined to proceed with the reference, a position which will shortly be explored in greater detail, it was not an “obstacle which [could not] be overcome by parties who [were] ready and willing to perform the agreement”.  Moreover, Fowler v Merrill Lynch Pierce & Smith Inc, which is the case cited as authority for the emphasised proposition of the above quote, does not, in my view, support the proposition for which it is cited.

  1. For the preceding reasons, the arbitral agreement remains operable and thus the Court is required to stay the application under s 8 of the CAA.

Option 2: The Court cannot revive the arbitrator’s jurisdiction by a reference under section 8

  1. A successful application under s 8 of the CAA will not have the result of granting an arbitral tribunal jurisdiction it does not already possess. Here, the only source of the jurisdiction of the arbitral tribunal is the agreement of the parties. The Court will only refer a matter to arbitration where a party has the right to commence or continue an arbitration. No such right would exist here if a final award had been delivered and the jurisdiction of the arbitral tribunal thus terminated in accordance with s 32 of the CAA. As these reasons indicate, the position is otherwise where the award, properly characterised, is not a final award.

Option 3: Neither the Final Award nor any part of it may be set aside

  1. In the alternative to having the Supreme Court Costs determined by the Court, Blanalko seeks to have the award set aside insofar as it fails to determine the Supreme Court Costs. The only recourse against an arbitral award is under Part 7 of the CAA.
  1. Blanalko, in support of this course or option, sought to rely on Mustill and Boyd and a number of cases to which the learned authors refer in making the following submissions:

Where an Arbitrator fails to decide upon an issue which he ought to have decided then the Award is defective…

This submission does not, however, reflect the position being put by Mustill and Boyd.  Rather, for reasons the reference to Mustill and Boyd where these cases are cited goes, in my view, to the position that, properly characterised, the Award is not a final award. In any event, the effect of s 34(1) of the CAA is plain—an arbitral award will only be set aside on the grounds specified in the Act. Thus, the failure of an arbitrator to decide a matter falling within the submission to arbitration is, without more, not a ground on which an award will be set aside.

  1. More particularly, Blanalko seeks an order under s 34(2)(a)(iii) of the CAA “setting aside the award insofar as it declines to determine the question of the costs of the Supreme Court proceeding”. Section 34(2)(a)(iii) of the CAA provides:

(2)          An arbitral award may be set aside by the Court only if—

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

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

  1. No order is granted under this subsection for the reasons that follow. Ultimately, the arbitrator’s failure to decide the Supreme Court Costs was, properly analysed and in the context of an award, not properly characterised as a final award capable of being set aside under s 34(2)(a)(iii).

The identity of the impugned decision

  1. Section 34(2)(a)(iii) of the CAA empowers the Court to set aside an award insofar as it “contains decisions on matters beyond the scope of the submission to arbitration”. Thus, in order for an application under s 34(2)(a)(iii) of the CAA to succeed, the applicant must be able to identify a decision which is alleged to fall within this description. There is some confusion in Blanalko’s submissions regarding the identity of the decision that they seek to set aside. Blanalko variously identified the arbitrator’s decision as “permitting the parties to make application to the Supreme Court for it to determine the question”, “a decision not to make a decision” and even that the arbitrator “did not make any decision at all”.  Counsel for Blanalko provided an equally ambiguous summary:

The arbitrator had no power to resolve the Supreme Court costs the way he did.  What he did was contrary to the mandate the parties gave him to resolve the issue and to publish an award disposing of that issue.  In his purported disposition of the issue he acted beyond the scope of the submission by determining that the issue had to be referred to a third party, namely this court.

[H]e was correct to have not made a decision on the point in circumstances where he told himself he was uncertain and needed more information.

  1. Counsel for Lysaght submitted that “[t]he arbitrator in substance, upheld the no or insufficient evidence submission that [Lysaght] had made”.  Yet counsel for Lysaght also characterised the decision as a “non-decision” which does not prejudice the rights of parties, whatever they may be, to apply to the Supreme Court of Victoria for the costs issue to be determined. Consequently, it was said that it was not a positive direction that parties could have their dispute determined by the Court.
  2. I do not accept that the arbitrator attempted to permit or direct the parties to apply to this Court.  The arbitrator did not have this power and his award does not suggest that he tried to exercise such a power.  The arbitrator said in paragraph 6 of the dispositive part of the Award that the fact that he was not prepared to decide the Supreme Court Costs was “without prejudice to either party making an application to the Supreme Court”.  I accept Lysaght’s submission that this language clearly indicates that, at least in the arbitrator’s view, that the rights of parties to apply to the Supreme Court of Victoria, whatever they may be, were not prejudiced by the Award.  As indicated in these reasons, I am of the opinion that the arbitrator’s view in this respect was not correct.  However, it is one thing for an arbitrator to leave a claim undetermined and express a view that the parties may, nevertheless, find determination elsewhere, and quite another to decline to resolve a claim and purport to direct and delegate the arbitral decision making role to another.  In my view, as I now discuss in detail, the arbitrator’s view and conduct was of the former, rather than the latter, type.
  3. If the arbitrator “did not make any decision at all” the application under s 34(2)(a)(iii) will necessarily fail. While finding that he had jurisdiction to make an award of costs, the arbitrator stated:

23.          In the circumstances, I am not prepared to determine the issue of the Supreme Court costs.  I do not have sufficient information to enable me to do so.  It is not appropriate that I should guess what occurred in each application and hearing.  Accordingly, I will not make any decision on the issue and this is without prejudice to either party making an application to the Supreme Court.  That may be the quickest and cheapest way to finalise it.

24.          I make the following final award —

6.           That the issue of the payment of costs of the Supreme Court proceedings between the Claimant and the Respondent is not decided, without prejudice to the rights of the parties to apply for the costs in the Supreme Court of Victoria.

This extract from the critical part of the Award, for present purposes, shows that the arbitrator considered whether to make an award on the Supreme Court costs. As the arbitrator undertook that consideration and reached a conclusion, it is clear that the arbitrator did decide, expressly, not to decide this claim. Yet to the extent that there was a decision not to decide, it was implicitly, and in my view very clearly, a decision not to decide at that time on the then available evidence. Although, in general terms, a decision not to decide a matter may, in the particular circumstances, provide a basis for setting aside under s 34(2)(a)(iii) of the CAA, a decision not to decide on the evidence presently before an arbitrator in circumstances like the present does not provide any such ground. All the arbitrator has done is not discharge his whole mandate; he has not gone beyond it. As to the latter, particularly, there is no delegation to, or direction to, the parties to take the Supreme Court Costs claim to a “third party” decision maker; namely the Court in this instance.

  1. What is more, the history of the CAA indicates that s 34(2)(a)(iii) applies to decisions that exceed the tribunal’s jurisdiction rather than decisions which do not exercise the tribunal’s jurisdiction. Section 34 of the CAA is based on article 34 of the Model Law which in turn is based on article V of the New York Convention.  The predecessor of the New York Convention, the Geneva Convention on the Execution of Foreign Arbitral Awards, specifically allowed for an award to be set aside for failure to deal with the whole of its reference:

[R]ecognition and enforcement of the award shall be refused if the Court is satisfied:—

(c) That the award does not deal with the differences contemplated by or falling within the terms of the submission to arbitration or that it contains decisions on matters beyond the scope of the submission to arbitration.

The italicised section was omitted from Art V(1)(c) of the New York Convention and subsequently, from s 34(2)(a)(iii) of the Model Law and s 34(2)(a)(iii) of the CAA. This supports the notion that a “decision not to make a decision” is not a decision that may be set aside under s 34(2)(a)(iii) of the CAA.

  1. Had the arbitrator decided the dispute on the evidence—or lack of it—then before him, he would no doubt have been criticised on the basis of there being insufficient or no evidence in which he could make a determination. Arbitrators cannot be expected to make decisions based on guesswork and assumptions not supported by evidence and—as I have said—would be criticised for so doing and, in any event, an award on this basis would most likely be set aside. It is, of course, in situations like this that the parties are expected—indeed mandated—by Parliament to assist the arbitral process. The duties provided for in s 24B of the CAA (and, of course in the paramount object of the CAA in s 1AC) make this crystal clear.

A decision not to decide: within the power of an arbitrator?

  1. The crux of Blanalko’s complaint is that the arbitrator did not decide the Supreme Court Costs, which was an issue within the scope of the reference to arbitration, the mandate. Due to the interim nature of the decision not to decide in this case, nothing turns on the abstract question of whether a final decision not to decide may possibly be set aside under s 34(2)(a)(iii). As indicated previously, this will depend upon all the circumstances and the nature and extent of the arbitrator’s mandate. Nevertheless, a final refusal by the arbitrator to discharge the mandate may, in the circumstances, amount to a failure to act for the purpose of s 14 of the CAA, leading to remedies provided under those provisions. On one view, the fact that Blanalko did not make a request under s 33(5) of the CAA for the remaining issue of the Supreme Court Costs to be the subject of a further award may guide the Court’s discretion. In this respect, the Singaporean Court of Appeal observed in BLC v BLB:

53.          The setting aside application is not to be abused by a party who, with the   benefit of hindsight, wished he had pleaded or presented his case in a different way before the arbitrator.

109. It is clear that the Model Law supports the principle of minimal curial intervention.  To this end, as long as the parties do not agree otherwise, the Model Law provides via Art 33(3) a mechanism for a party to seek redress from the arbitrator first before turning to the courts when he believes that the arbitrator had omitted to deal with a stand-alone claim presented to him.  In such circumstances, should a party be entitled to ignore Art 33(3) and instead apply to set aside the entire award under Art 34, knowing that the court may in appropriate circumstances fall back on its powers to remit part of the award back to the tribunal under Art 34(4) if it decides that setting aside the entire award is not the appropriate remedy?

110. On the one hand, it is arguable that a party ought to be penalised if he does not invoke Art 33(3) before invoking Art 34 (assuming that the relevant circumstances permitted recourse to Art 33(3)).  If not, Art 33(3) would be rendered toothless and moribund as there is simply no incentive for a disgruntled party to invoke it.  If a party is not penalised for relying on Art 34 without first invoking Art 33(3), this could potentially be seen as an abuse of the setting-aside process under Art 34 of the Model Law, particularly in situations where the party is alleging that the tribunal had failed to deal with a relatively minor claim in the light of that party’s entire claim.

116. It is possible to reconcile these two seemingly opposed positions … by recognising that whilst a party is not obliged to invoke Art 33(3), he takes the risk that the court would not, in a setting-aside application, exercise its discretion to set aside any part of the award or invoke the powers of remission under Art 34(4) of the Model Law.  However, as this question was not before this court and we did not have the benefit of parties’ argument on this, this question will have to be definitively resolved on a future occasion when it is necessary to do so.

117. In future cases, however, the applicant’s reasons for failing to resort to Art 33(3) (where applicable) might have an impact upon whether the courts will exercise its discretion to set aside an award under Art 34 of the Model Law.

  1. Counsel for Blanalko sought to distinguish BLC v BLB on the basis that the issue not dealt with and comprised less than 3% of the total claim. This was contrasted with the total of the Supreme Court Costs, which were said to be in the range of $1.1 to $1.2 million. Without more, the differences in the amount or proportion of the claim that the omitted issue represents is irrelevant. It has no bearing on the principles that apply and the circumstances of a particular application of s 33(3) of the Model Law do not prevent the application of those principles to similar circumstances. In any event, as I have already indicated, s 33(5) of the CAA was not able to be invoked in the present circumstances, hence the failure by Blanalko to do so has no consequences.

Procedural unfairness is necessary for a decision not to decide to be set aside under section 34(2)(a)(iii)

  1. Counsel for Blanalko referred to CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK, which stated that Art 34(2)(a)(iii) of the Model Law does apply to failures to decide issues before the tribunal:

It is useful, at this juncture, to set out some of the legal principles underlying the application of Art 34(2)(a)(iii) of the Model Law… [I]t applies where the arbitral tribunal improperly decided matters that had not been submitted to it or failed to decide matters that had been submitted to it.  In other words, Art 34(2)(a)(iii) addresses the situation where the arbitral tribunal exceeded (or failed to exercise) the authority that the parties granted to it.

  1. Yet as counsel for Lysaght helpfully observed, this principle was not without a proviso:

[I]t must be noted that a failure by an arbitral tribunal to deal with every issue referred to it will not ordinarily render its arbitral award liable to be set aside.  The crucial question in every case is whether there has been real or actual prejudice to either (or both) of the parties to the dispute.

While Blanalko maintained that the prejudice arose in being unable to obtain an award for costs to which it is substantively entitled, Lysaght, while not denying the substantive unfairness, submitted that “real or actual prejudice” had to be prejudice in a procedural sense.

  1. In TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd, the Full Court of the Federal Court found that:

[I]n CRW Joint Operation VK Rajah JA, delivering the judgment of the Court at [25]–[27], expressed the balance between finality and interference in a helpful way, emphasising that whilst courts should not interfere lightly in the arbitral process, due process (and fairness accordingly) was fundamental, and the Court should not hesitate to interfere if a ground under Art 34 were clearly established. Later in the reasons, the Court expressed the view at [97] that if the existence of a ground under Art 34 were made out the exercise of discretion would be “virtually automatic”. With respect, care needs to be taken when one is dealing with the rules of natural justice. As long as one recognises and emphasises that there is likely to be no breach of such rules unless real unfairness or real practical injustice be demonstrated, the expression of the matter thus will not mislead. There is sometimes, however, a tendency of some to speak of a technical or minor breach of the rules of natural justice: see for instance the primary judge here at J[30]. To the extent that such expression may be acceptable in some contexts, it will be important to recognise that for the discretion under Arts 34 and 36 to be exercised, real unfairness or real practical injustice will need to be demonstrated. Whilst the IAA does not use phraseology of “prejudice” as does the Singapore Act, such a notion inheres in the conceptions of fairness, unfairness, practical justice and practical injustice. Thus, the expression of view by the Court in Soh Beng Tee at [65] that “only meaningful breaches of the rules of natural justice that have actually caused prejudice are ultimately remedied” can be seen to be concordant with a notion that real unfairness or real practical injustice must be demonstrated.

Thus, if a failure to decide all of the matters within an arbitrator’s reference may leave an award vulnerable to being set aside under s 34(2)(a)(iii), the failure to decide the relevant matters must occasion substantial prejudice in the procedural sense.

  1. It is plain that Blanalko was afforded procedural fairness.  The settlement deed, which referred the issue of costs to arbitration, provided that Blanalko would put on short evidence as to costs.  Following the delivery of the interim award on 15 June 2016, the arbitrator gave the parties seven days to make written submissions on costs.  There was no objection by either party to the absence of oral submissions on the issue.  The parties submissions were conveyed to the arbitrator on 22 July 2016, after which there was a further exchange of submissions before 1 August 2016.  In its submissions of 22 July, Lysaght submitted that:

[T]he Tribunal has been provided with no evidentiary basis on which to determine such a claim concerning the events and conduct of the litigation, which as a matter of law, comprised a distinct and separate legal proceeding to the arbitration.

Consequently, Blanalko cannot maintain that it was unaware of the case against it or that it was denied procedural fairness. Indeed, this may be why they did not bring an application for the award to be set aside on the basis of a lack of procedural fairness under s 34(2)(a)(ii) of the CAA.

  1. On 22 August 2016, Lysaght’s solicitors wrote to Blanalko’s solicitors:

Our client does not agree with your proposed approach to the costs of the Supreme Court proceedings.

It seems to us that the correct analysis is that the costs of the arbitration were referred to Mr Gillard under the Settlement Deed.  Mr Gillard has determined that there was not enough evidence before him to enable him to make a decision.  Your client has failed to discharge the onus it bore to prove its claimed entitlement to the Supreme Court costs.  Mr Gillard has delivered a final award and is functus officio.

Lysaght maintained this position at trial, save for their analysis of when the arbitrator was functus officio, which they contended was 30 days after delivery of the final award. While Blanalko may complain that they were misled, s 32 of the CAA is clear.

  1. In my view, the preceding discussion, while of relevance to particular circumstances of the kind the subject of the CRW Joint Operation proceedings, is not applicable in the present circumstances where the Award properly characterised is not a final award and, consequently, there is no basis for invoking any setting aside grounds under s 34 with respect to the outstanding claim with respect to the Supreme Court Costs.

Proper characterisation of the Award

  1. In my view, as indicated in the preceding reasons, the key to the resolution of these proceedings is the proper characterisation of the Award.
  2. Mustill and Boyd address the substantive requirements of an arbitral award which, relevantly for present purposes, include the requirement of finality, in the following terms:

4 Finality

The arbitrator should dispose of all the issues himself, and should not leave some of them to be decided by a third party: for if he does, the award is not final, and is invalid.  There is a possible exception to this principle, where the decision reserved is of a “ministerial” rather than a judicial character.  If this distinction still exists, it is of a very limited application, and the arbitrator should not rely upon it, but should decide all the issues himself.  Not only should the arbitrator avoid the delegation of issues to third parties, but he should also take care not to reserve matters for his own future decision, for his award will be bad for want of finality: unless, of course, he wishes to issue an interim award, in which case he should make it clear what the award is intended to do.

Reference was made to all or part of this passage in Blanalko’s submissions.

  1. In considering this statement of the law and the authorities upon which it is based, it must be remembered that it was written prior to the enactment of the English Arbitration Act 1996—a piece of legislation that was very much the product of the work of the Departmental Advisory Committee which was chaired by Sir Michael Mustill (as his Lordship then was).  In light of this, it is important to have regard to the provisions of s 68 of the English Arbitration Act 1996, which provides for the challenging of an award on the basis of serious irregularity:

Section 68—Challenging the Award: Serious Irregularity

68.—(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award.

A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).

(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant—

(a)          failure by the tribunal to comply with section 33 (general duty of tribunal);

(b)          the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction: see section 67);

(c)          failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties;

(d)          failure by the tribunal to deal with all the issues that were put to it;

(e)          any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award exceeding its powers;

(f)          uncertainty or ambiguity as to the effect of the award;

(g)          the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy;

(h)          failure to comply with the requirements as to the form of the award; or

(i)          any irregularity in the conduct of the proceedings or in the award which is admitted by the tribunal or by any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award.

(3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may—

(a)          remit the award to the tribunal, in whole or in part, for reconsideration,

(b)          set the award aside in whole or in part, or

(c)          declare the award to be of no effect, in whole or in part.

The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.

(4) The leave of the court is required for any appeal from a decision of the court under this section.

  1. For present purposes, the provisions of s 68 which are of significance are contained in sub-s 68(2)(d): “failure by the tribunal to deal with all the issues that were put to it”. Whilst these provisions would appear to reflect the previous common law position, as stated by Mustill and Boyd, these provisions are not to be found in the setting aside provisions of s 34 of the CAA. This is not to say that the provisions of s 34 leave the common law in this respect intact—clearly they do not, having regard to the provisions of s 5 of the CAA with respect to the limited extent of court intervention permitted in the arbitral process and the limited powers of remittance conferred on the Court under s 34. Rather, the significance of the common law position—which, in my view, subsists to this extent—is that a deliberate and articulated decision by an arbitrator not to deal with all issues which are within the arbitral mandate does not produce a final award. The consequences of not doing so are now, as contrasted with the common law position, different and more constrained by the provisions of s 34 of the CAA—but the position remains that the award, properly characterised, is not final.
  1. Against this background it is helpful to consider some of the authorities cited by Mustill and Boyd in support of their statement of the law; together with some later cases in which these authorities have been considered.
  2. In Tomlin v Fordwich Corporation, the arbitrators awarded that the defendant should put the subject premises in repair to the satisfaction of a third party.  It was held that the arbitrators could not confer power on a third party; hence the award not being final was bad.  Similarly, in Johnson v Latham, it was held that the award was not final as it contained a direction that for the purposes of defining and perpetuating the depth at which the defendant might maintain the weir, “such durable marks and directions be placed on the land adjoining the weir as [a third party] may direct”.  The direction was found to be a delegation of the arbitrator’s authority, hence bad.  Similar issues were canvassed in Goddard v Mansfield with respect to a delegation by the umpire to a third party to settle certain releases.  The award was upheld but the direction with respect to the settling of the releases was vitiated.  In Dresser v Finnis, a dispute as to the merchantable quality of sleepers, the award was found to be bad for want of finality as a result of what was found to be the imposition of selling process which imposed a duty on the parties more complex and over which the plaintiff had no control.  It was found that the arbitrator had given the plaintiff no effectual remedy.  Johnson v Latham has been referred to in other cases on issues not directly on point for present purposes, but not otherwise doubting the decision.

  3. The other case referred to by Mustill and Boyd in their statement of the law is Stockport Metropolitan Borough Council v O’Reilly.  In the present context, this case stands for the proposition that an interim award will be bad for uncertainty if it does not clearly delimit its ambit.  Otherwise, Judge Edgar Jay said:

This was an interim award; in so far as it reaches findings, it is binding but in so far as it does not, the issues are still open.

  1. On the basis of this discussion and consideration of the authorities and the preceding reasons with respect to the proper characterisation of the Award, I find that, in spite of its labelling, it was clearly not a final award.  The Award did not decide all issues put to the arbitrator within the arbitrator’s mandate and did not involve an order or direction that might be characterised as an invalid delegation of power to a third party.  At common law the Award is not final, but the consequences that might have flowed at common law—or under s 68 of the English Arbitration Act 1996—do not now flow having regard to the provisions of ss 5 and 34 of the CAA. The arbitration agreement does, as I have found, subsist and so the arbitrator’s mandate remains with respect to the issue of the Supreme Court Costs.

Conclusion

  1. Consequently, Blanalko’s application in the 2016 proceedings under s 34(2)(a)(iii) of the CAA fails. Lysaght’s application for a stay under s 8 of the CAA of Blanalko’s application for costs in the 2012 proceedings is successful. Moreover, the arbitrator’s mandate under the arbitration agreement subsists as the Award is not, properly characterised, a final award. It follows that it is open to either Blanalko or Lysaght to apply to the arbitrator to engage the arbitral procedure once more for the determination of the Supreme Court Costs claim.
  1. The parties are to bring in orders to give effect to these reasons.  I otherwise reserve the question of costs.