CPB Contractors Pty Ltd v DEAL S.R.L. [2021] NSWSC 820

Supreme Court of NSW

 

 

Case Name: CPB Contractors Pty Ltd v DEAL S.R.L. [2021] NSWSC 820
Medium Neutral Citation: CPB Contractors Pty Ltd v DEAL S.R.L. [2021] NSWSC 820
Hearing Date(s): 3 June 2021
Date of Orders: 6 July 2021
Decision Date: 6 July 2021
Before: Rees J
Decision: THE COURT ORDERS THAT:

Pursuant to section 7(2) of the International Arbitration Act 1974 (Cth) that these proceedings be stayed and the parties be referred to arbitration, with such arbitration to be commenced in accordance with clause 46.9 of the Services Agreement for Design Services between the Rizzani Leighton Joint Venture and Deal S.R.L. entered into or about 27 July 2015.

The plaintiff to pay the defendant’s costs of the motion filed on 14 April 2021.

Catchwords: COMMERCIAL ARBITRATION – claim under the Australian Consumer Law – alleged pre-contractual representations – proceedings commenced on last day of limitation period – application for stay – whether court or arbitrator should determine scope of arbitration clause – kompetenz-kompetenz – principles at [48]-[59] – prima facie approach applied – arbitrator to determine jurisdiction – proceedings stayed.

 

CONDITIONS OF STAY – plaintiff seeks conditions on stay regarding limitation period and applicable law – principles at [92]-[111], [116]-[117] – condition regarding limitation period would substantively alter rights – conditions not imposed.

Legislation Cited: Commercial Arbitration Act 2010 (NSW)
International Arbitration Act 1974 (Cth) ss 7, 16, 39, sch 1, sch 2
Limitation Act 1969 (NSW) ss 70, 72
Trade Practices Act 1974 (Cth)
Cases Cited: A v B [2006] EWHC 2006 (Comm); [2007] 1 Lloyd’s Rep 237
Ansett Australia Ltd v Malaysian Airline System Berhad [2008] VSC 109; (2008) 217 FLR 376
Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; (2013) 298 ALR 666
Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; [2006] FCAFC 192
Dialogue Consulting Pty Ltd v Instagram, Inc [2020] FCA 1846
Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160
Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170
Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1997) 150 ALR 345
Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1
IBM Australia Ltd v National Distribution Services Pty Ltd (1991) 22 NSWLR 466
John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451
Lepcanfin Pty Ltd v Lepfin Pty Ltd (2020) 102 NSWLR 627; [2020] NSWCA 155
O’Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601
Orient Overseas Container Line Ltd v APL Co Pte Ltd (No 2) [2021] FCA 606
QH Tours Ltd v Ship Design and Management (Aust) Pty Ltd (1991) 33 FCR 227
Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514; [2019] HCA 13
Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332
Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57; [2016] 1 SLR 373
Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102
WesTrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd [2008] NSWSC 894; (2008) 219 FLR 461
Texts Cited: Malcolm Holmes and Chester Brown, The International Arbitration Act 1974: A Commentary (3rd ed, 2018, LexisNexis)
DIVISION:  Equity – Commercial List
Parties: CPB Contractors Pty Limited (Plaintiff)
Deal S.R.L. (Defendant)
Representation: Counsel:
Mr B Kremer (Plaintiff)
Mr J Giles SC / Mr M Sheldon (Defendant)Solicitors:
Corrs Chambers Westgarth (Plaintiff)
Vincent Young (Defendant)
File Number(s):  2020/223531
Publication Restriction: NIL
Appeal from: Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 2) [2020] FCA 1116; Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 3) [2020] FCA 1219

Judgment

 

  1. HER HONOUR: The defendant, Deal S.R.L., seeks an order under section 7(2) of the International Arbitration Act 1974 (Cth) for these proceedings to be stayed and referred to arbitration in Singapore by reason of an arbitration clause in its contract with the plaintiff, CBP Contractors Pty Ltd (formerly known as Leightons Contractors Pty Ltd). In addition, the defendant says that the issue as to whether the arbitration clause covers this dispute should be referred to arbitration pursuant to the kompetenz-kompetenz principle.
  2. The plaintiff does not accept that the kompetenz-kompetenz principle applies and says the only question is whether these proceedings, which are said to only concern pre-contractual matters, are covered by the arbitration clause. If the Court is minded to stay these proceedings, the plaintiff seeks the imposition of conditions on the stay to prevent the defendant from raising a limitations defence or denying the applicability of the Australian Consumer Law.
  3. For the reasons which follow, I have concluded that the defendant is entitled to the orders it seeks.

FACTS

 

  1. The defendant relied on affidavits by its Operations Director, Stefano Fabbro, and solicitor, Phillip Coady. The plaintiff relied on affidavits by its former Commercial Manager, David Simbaqueba, and solicitor, Carla Mills. There was no cross-examination.
  2. The defendant is an Italian company which designs infrastructure services, in particular, bridges and viaducts, and also supplies specialised equipment for infrastructure construction. According to Mr Fabbro, at all relevant times the defendant was based in Italy, performed its design services there, and had no offices in Australia.
  3. The defendant is a subsidiary of Italian company, Rizzani de Eccher SpA. Rizzani de Eccher Australia Pty Ltd is also part of a group of companies including Rizzani de Eccher SpA.

Tender Teaming Agreement

 

  1. According to the Technology and Construction List Statement, the WestConnex M4 widening project was a major road infrastructure project in Sydney to increase the carrying capacity of the M4 road between Silverwater Road (in the east) and Parramatta (in the west) by increasing the width of the road from three to four through lanes in each direction and improving exit and entry ramps.
  2. On 13 March 2014, the plaintiff and Rizzani de Eccher Australia were selected by the WestConnex Delivery Authority to submit a tender in respect of various works in connection with the M4 project, being construction of a viaduct, two bridges and the widening of an existing bridge. On 17 April 2014, the WestConnex Delivery Authority issued a Request for Tender in respect of the works.
  3. On 11 April 2014, a Tender Teaming Agreement was executed between the plaintiff and Rizzani de Eccher Australia. The plaintiff and Rizzani de Eccher Australia agreed to pursue the opportunity to deliver the M4 project as an unincorporated joint venture (the Rizzani Leighton Joint Venture). The parties agreed to work together to lodge a tender and, if selected to proceed to preferred contractor, to negotiate the final terms of the contractual arrangements necessary to deliver the project. The agreement contained an arbitration clause.
  4. In clause 4, the parties agreed to bear their own internal costs in connection with the tender. In respect of consultants engaged to assist in preparing the tender, clause 4.1(a)(ii)(A) provided:

[Rizzani de Eccher Australia] will bear all costs of engaging DEAL (including any subconsultants to DEAL);

DEAL is not defined in the Tender Teaming Agreement but is, presumably, a reference to the defendant.

  1. The defendant was not a party to the Tender Teaming Agreement. The plaintiff contended that the defendant had a separate contract with Rizzani de Eccher Australia, relying upon a suggested admission made by the defendant in subsequent correspondence. Whilst that is possible, the admission is unclear and I am not prepared to proceed on the basis that there was such a contract: see [37]-[38].
  2. According to the Technology and Construction List Statement, pursuant to the Tender Teaming Agreement, Rizzani de Eccher Australia engaged the defendant to provide designs and advice for bridge and viaduct structures for the M4 project to the plaintiff and Rizanni de Eccher Australia.

Design Management Plan

 

  1. On 29 April 2014, Rizzani de Eccher Australia issued a document entitled “Design Management Plan (Tender Phase) – WestConnex – M4 Widening”. According to clause 1 of the Design Management Plan, the document was prepared to define the planning and management of the concept design and its interface with the wider Bid Team. The Bid Team was the Rizzani Leighton Joint Venture team led by Bid Manager, Giammaria Gentile of Rizzani de Eccher Australia.
  2. Clause 3.1 of the Design Management Plan set out the Bid Team organisation structure, which included Rizzani Leighton Joint Venture personnel comprising:
  1. a support team;
  2. the Bid Manager from Rizzani de Eccher Australia; and
  3. a Construction Manager, Estimating Manager and Engineering Manager from the plaintiff.

According to the organisation structure, the Engineering Manager was supported by five designers, including the defendant as viaduct and structural designer.

  1. Clause 5 of the Design Management Plan described the Design Process, with the design to be developed in four phases: initial concept design and pre-tender deliverables; preliminary concept design and value engineering; finalised concept design; and submission documentation.

Defendant provides drawings for tender

 

  1. From 30 May 2014 on, the defendant prepared and circulated engineering drawings in respect of the tender. Mr Fabbro says these drawings were prepared by the defendant as part of its function under the Design Management Plan. The documents were preliminary drawings, being concept drawings which did not provide individual details in respect of each single structure within the drawing. According to Mr Fabbro, if the tender was successful, then the drawings were the starting point to be developed through further design stages before being issued for construction.
  2. According to the Technology and Construction List Statement, between May and July 2014, the defendant provided Rizzani de Eccher Australia and the plaintiff with designs and advice for bridge and viaduct structures to be used for the tender including: engineering drawings; advice about methods of construction; advice about quantities required for construction; and the cost of construction. In providing these designs and advice, it is said that the defendant represented to the plaintiff that the structures in the designs were compliant with the requirements of the tender “and were suitable to use in a tender for a fixed price contract”; the quantities derived from the designs or advised by the defendant would be sufficient; the method of construction would be suitable and adequate to construct the designs in accordance with the M4 project delivery time requirements, being by 22 December 2016.
  3. These representations are said to have been made by the defendant in trade and commerce and to have been false, including because the designs could not be developed into a final design without significant alterations and the use of significant additional resources; the designs significantly understated the quantities of resource needed to construct the structures; and it was not possible to construct the structures in the required time frame.

The tender

 

  1. On 30 July 2014, the plaintiff and Rizzani de Eccher Australia submitted its tender: the joint venture proposed to undertake the work for $261 million, with the works to be completed on 22 December 2016.
  2. According to the Technology and Construction List Statement, the plaintiff relied on the defendant’s representations when calculating its price and preparing a program for the works. The plaintiff further says that, from July to December 2014, the defendant failed to take any steps to correct the errors and deficiencies in its design or address the suggested falsity of its representations.
  3. The tender was successful. On 28 November 2014, the WestConnex Delivery Authority selected the Rizzani Leighton Joint Venture as the preferred contractor to enter into a contract for delivery of the project. On 4 December 2014, a Design and Construct Deed was executed between WCX M4 Pty Ltd (the Principal) and the Rizzani Leighton Joint Venture. After negotiating some additions to the scope of works, the lump sum contract price was $287.5 million.

Work begins

 

  1. According to Mr Simbaqueba, the construction program for the M4 project was ‘tight’ and the defendant began producing and supplying designs as soon as the Design and Construct Deed was executed, even though it did not itself have a signed contract. This led to some unhappiness. By February 2015, the defendant was seeking a first payment but the plaintiff was not prepared to pay until a contract had been signed, albeit Mr Simbaqueba and other representatives of Rizzani de Eccher Australia and the plaintiff looked at ways of doing so. The defendant continued to produce work nonetheless.
  2. On 24 April 2015, the defendant entered into a Supply Agreement with the Rizzani Leighton Joint Venture to supply equipment needed for construction. It contained an arbitration clause.
  3. On about 29 April 2015, the defendant issued an invoice to the Rizzani Leighton Joint Venture, making a payment claim under the contract then in negotiations. Some comments were made on the invoice on 19 June 2015, which was promptly re-issued, but Mr Simbaqueba says the invoice was not paid as the contract had yet to be signed.

Services Contract

 

  1. Finally, on 27 July 2015, a Services Contract was signed between the Rizzani Leighton Joint Venture and the defendant to provide design services for a fixed lump sum of $2.5 million. The Services Contract comprised a Contract Preamble, Contract Instrument, Contract Conditions, Annexures to the Contract Conditions and Special Conditions: clause 2.2, Contract Instrument.
  2. The Services Contract contained an arbitration clause, which is reproduced and considered at [70]-[77].
  3. By clause 2.1(1) of the Contract Instrument, the defendant agreed to perform the Services in accordance with the Contract. (The meaning of Services is considered further at [78].) In return, the Rizzani Leighton Joint Venture agreed to pay the defendant the Consultant’s Fee: clause 2.1(2), Contract Instrument.

Prior Services

 

  1. Clause 2 of the Contract Conditions provided: (emphasis added)

PRIOR SERVICES

If at [the Rizzani Leighton Joint Venture]’s request, the [defendant] performs, before the date of the Contract, any services that are part of the Services, then:

(a)   the terms of the Contract apply to any such services;

(b)   the terms on which any such services were performed are superseded by the terms of the Contract;

(c)   any payments made to the [defendant] by [the Rizzani Leighton Joint Venture] in connection with any such services before the Contract became operative, will be treated as payments under the Contract in part discharge of [the Rizzani Leighton Joint Venture’s] obligation to pay the [defendant’s] Fee.

  1. The defendant submitted that the drawings provided during the tender phase fall within the definition of “Prior Services”, whilst the plaintiff submitted otherwise, pointing to Mr Simbaqueba’s evidence as supporting a construction of the clause as limited to work done after the tender was successful, rather than work for the tender. This will be considered further at [63].

Limitation of liability

 

  1. Annexure A to the Services Contract contained Special Conditions, including clause 1.2, “Limitation of Liability”. By this clause, the defendant limited its maximum liability under the Contract, whether in contract, tort, equity or otherwise, to $2.5 million, such limitation not to apply to the defendant’s liability inter alia for gross negligence or wilful misconduct. In addition, the defendant excluded liability under the Contract for consequential loss suffered by the Rizzani Leighton Joint Venture. The defendant observed that, if these proceedings are not stayed, then these limitations will be pleaded in any defence filed in these proceedings.

Choice of law

 

  1. Clause 4(1) of the Contract Conditions provided that the Services Contract is governed by and must be construed according to the law of New South Wales. Clause 4(2) provided:

The parties irrevocably submit to the non-exclusive jurisdiction of the courts of New South Wales, and the courts competent to determine appeals from those courts, with respect to any proceedings that may be brought at any time relating to the Contract. Nothing in this clause 4(2) affects the operation of clause 46.9 or the enforcement in any place of an award made in an arbitration held under clause 46.9.

 

Finishing the job

 

  1. On 3 August 2015, the Rizzani Leighton Joint Venture issued subcontract progress certificate No 1 to the defendant, approving some $1 million in work on a $2.5 million contract. That is, whilst negotiation of the Services Contract were underway, the defendant had completed almost half of the contracted works.
  2. On 27 August 2015, a Joint Venture Deed was executed between the plaintiff and Rizzani de Eccher Australia, replacing the Tender Team Agreement. It contained an arbitration clause.
  3. According to the Technology and Construction List Statement, it is said that the Rizzani Leighton Joint Venture was unable to complete the Works in time, or at the cost estimated when submitting the tender. Construction took a year longer than planned. The joint venture lost some $122 million on the project, of which half (some $61.3 million) was borne by the plaintiff.

Correspondence

 

  1. Correspondence has ensued between the parties in which the plaintiff and defendant have articulated positions which are now at odds with their submissions advanced before the Court. Each seeks to rely on the other’s prior inconsistent statements as admissions as to the proper construction of the arbitration clause. What each party said they understood the clause to mean – at an early stage of commercial negotiations when it appears that neither were assisted by legal advice – is, of course, no substitute for construing the clause in accordance with established principles for interpretation of commercial contracts and arbitration clauses, which I will consider further at [67].
  2. For completeness, on 3 July 2019, the plaintiff sent a “claim document” to the defendant, in which the plaintiff primarily asserted that the defendant was contractually liable for suggested defects in the tender drawings under the Services Contract and, in the alternative, contended that the defendant was liable under the Australian Consumer Law. The defendant points to the plaintiff’s assertion in the claims document that its claim for loss for work both before and after the Services Contract arose out of, was related to and was in connection with the Services Contract:

1.1.2   [The defendant] was engaged on behalf of [the plaintiff] and [Rizzani de Eccher Australia] to prepare the structural design for the bridge and viaduct structures (and temporary works) of the M4 project. It did so in and prior to July 2014. …

1.1.18   After entry into of the Design and Construct Deed on 4 December 2014, the JV entered into a Services Contract with [the defendant] on 27 July 2015 for the provision of further design and related services in relation to the M4 Project. …

1.1.19   [The plaintiff] is entitled to recover loss from [the defendant] pursuant to the Services Contract in relation to services performed by [the defendant] for the JV both before and after the date of the Services Contract.

1.1.20   Clause 2 of the Services Contract is titled “Prior Services”. It provides that any services performed by [the defendant] prior to the date of the Services Contract (i.e. 27 July 2015) are effectively “picked up” by the Services Contract and the terms of the Services Contract apply to such services.

2.2.4   [The defendant] was firstly engaged and paid for by [Rizzani de Eccher Australia] during the tender phase, as detailed within the Teaming Agreement at Item 4.1 …

3.4.1   [The defendant] was required by the parties to what became the [Rizzani Leighton Joint Venture] to develop the Tender Design in compliance with specifications and all other design requirements of the project … including the provision of the construction methodology.

  1. On 7 August 2019, the defendant replied, noting that it had completed a preliminary review of the claim document and a detailed review was ongoing. As to the suggestion that Clause 2 of the Services Contract applied to conduct before entry into the Services Contract: (emphasis added)

The development of a concept design for use by the [Rizzani Leighton Joint Venture] for its tender does not constitute prior services that form part of the “Services” as defined by reference to Annexure C of the Services Contract. Instead, as noted by [the plaintiff] in paragraph 2.2.4 of the Claim Document, [the defendant] developed the concept design under an earlier Tender Teaming Agreement with [Rizzani de Eccher Australia]. [The plaintiff] was not a party to the Tender Teaming Agreement, and [the plaintiff] (or the [Rizzani Leighton Joint Venture]) did not pay [the defendant] for its work performed under the Tender Teaming Agreement. …

  1. The plaintiff relied on the italicised text as an admission by the defendant that it had a prior contract with Rizzani de Eccher Australia to supply the tender drawings. The admission is tenuous. By this letter, Mr Fabbro, presumably writing in a language other than his first language and with admirable but imperfect English, appears to have “picked up” the plaintiff’s reference to the Tender Teaming Agreement in the claim document. The result is confusing. It may be that the defendant and Rizzani de Eccher Australia had a contract alongside the Tender Teaming Agreement between the plaintiff and Rizzani de Eccher Australia, but the state of the evidence is presently unsatisfactory.

These proceedings

 

  1. On 30 July 2020 – being precisely six years after submission of the tender – these proceedings were commenced. By Summons, the plaintiff seeks damages under the Australian Consumer Law or, alternatively, damages for negligence. The Technology and Construction List Statement describes the designs and advice said to have been provided by the defendant, said to be false representations on which the plaintiff relied when finalising the tender.
  2. The plaintiff claims that, if the defendant had not made these representations, then the plaintiff would not have entered into the Design and Construct Deed at all, or would only have submitted a tender at a higher lump sum price and, if accepted, entered into the contract on different terms such that it would not have suffered a loss on the project of some $61.3 million, being half of the joint venture’s loss. In addition, it is said that the defendant owed the plaintiff a duty to exercise reasonable skill and care in providing designs and advice for the bridge and viaduct structures for the M4 project, which duty is said to have been breached.
  3. Steps were taken for this Court to request service of the pleadings on the defendant in Italy. On 13 November 2020, the plaintiff also sent a letter of demand to the defendant for alleged breaches of the Service Contract, noting:

[The plaintiff] notes that the matters above sit along-side separate proceedings commenced by [the plaintiff] against [the defendant] in the New South Wales Supreme Court in respect of incorrect advice provided by [the defendant] during the tender period.

… in the event that [the plaintiff] does not receive payment … a Dispute will have arisen under the Services Contract, in which case [the plaintiff] intends to issue a Notice of Dispute pursuant to clause 46.2 [and] require that any Dispute be referred to arbitration under clause 46.9.

  1. The defendant notes that the loss claimed in the letter of demand – said to be a claim under the Services Contract – was $61,318,288.50, being the same loss claimed in these proceedings by reason of pre-contractual matters.

  2. In about March 2021, the defendant was served. On 14 April 2021, the motion presently before the Court was filed.

SECTION 7

 

  1. Section 7 of the Act provides: (emphasis added)

7   Enforcement of foreign arbitration agreements

(2)   Subject to this Part, where:

(a)   proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and

(b)   the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration;

on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter.

(5)   A court shall not make an order under subsection (2) if the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed.

  1. When exercising its powers under section 7 of the Act, the Court must have regard to the statement of objects in section 2D and the matters set out in section 39(2) of the Act: section 39(1)(a)(vi), (1)(a)(vii) and (1)(c). The objects of the Act are, relevantly, to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes, to facilitate the use of arbitration agreements made in relation to international trade and commerce, and to give effect to Australia’s obligations under international conventions: section 2D. Section 39(2) requires the Court to have regard to the fact that arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes: sub-section (b)(i).
  2. The onus of establishing the requirements of section 7(2) rests on the party seeking the stay: Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 at 353 per Deane and Gaudron JJ. Where the requirements are satisfied, “the court shall” stay the proceedings. A stay is mandatory and there is no discretion: Tanning Research at 350; WesTrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd [2008] NSWSC 894; (2008) 219 FLR 461 at [7] per Barrett J.
  3. The plaintiff accepts that the Act applies and section 7(2)(a) is satisfied. The defendant contends that there are two bases on which these proceedings should be stayed:
  1. the proceedings should be stayed to permit an arbitrator to determine whether they have jurisdiction under the kompetenz-kompetenz principle; or
  2. a proper construction of the arbitration clause has the consequence that the subject matter of these proceedings “involve[s] the determination of a matter that … is capable of settlement by arbitration”, under section 7(2)(b).

KOMPETENZ-KOMPETENZ

 

  1. The principle of kompetenz-kompetenz is that the arbitrator may rule on the question of whether they have jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement, without having to resort to a court: Malcolm Holmes and Chester Brown, The International Arbitration Act 1974: A Commentary (3rd ed, 2018, LexisNexis) at [Sch 2 Art 16-1]. This principle is enshrined in Article 16(1) of the UNCITRAL Model Law on International Commercial Arbitration (being Schedule 2 to the Act), which states:

The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. …

  1. Section 16(1) of the Act provides:

Subject to this Part, the Model Law has the force of law in Australia.

  1. The plaintiff submitted that section 16 of the Act did not confer power on this Court to make orders. That may be so, but section 7 of the Act does give the Court power to stay the proceedings and the section must be read together with the kompetenz-kompetenz provision in Article 16: Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170 at [147]; Dialogue Consulting Pty Ltd v Instagram, Inc [2020] FCA 1846 at [193] per Beach J.
  2. The plaintiff also submitted that Article 1(2) of the Model Law provides that the provisions of the Model Law “apply only if the place of arbitration is in the territory of this State”, whereas here the place of arbitration is in Singapore. However, as Beach J held in Dialogue v Instagram at [189]:

… the fact that Art 16 of the Model Law does not apply to foreign-seated arbitrations is also irrelevant. The key requirement under Hancock for application of the prima facie test is whether a competence-competence provision exists under the procedural law of the seat of arbitration. If such a provision exists, then the foundation for the prima facie test is established.

  1. As to how the competence principle is applied in Australia, one need go no further than Hancock, where the Full Federal Court considered the two approaches generally taken around the globe (as comprehensively canvassed by Menon CJ of the Singapore Court of Appeal in Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57; [2016] 1 SLR 373). (Whilst Hancock concerned the comparable provisions of the Commercial Arbitration Act 2010 (NSW), for ease of reference I have interposed the provisions of the Act.) The first approach is the “prima facie approach”, described in Hancock at [141]:

[This] approach … is to give significant weight to the authority of the arbitrator and to the principle of Kompetenz-Kompetenz recognised by s 16 of the CA Act [being in the same terms as Article 16 of the Model Law]. Under this approach, the Court does not reach a final view on the balance of probabilities in respect of the matters in s [7 of the International Arbitration Act], including the scope of the arbitration agreement. If there appears to be a valid arbitration agreement which prima facie covers the matters in dispute, the matter should be referred to the arbitrator to deal with questions of jurisdiction, including the scope of the arbitration agreement.

  1. The second approach is the “full merits approach”, where the Court hears evidence and argument and finally determines the existence and scope of the arbitration agreement and whether the disputes fall within it: at [142].
  2. In Hancock, the Court commended the “prima facie” approach, although not necessarily in all cases. At [145]-[147]: (emphasis added)

145   We think that any rigid taxonomy of approach is unhelpful, as are the labels “prima facie” and “merits” approach. How a judge deals with an application under [section 7 of the International Arbitration Act] will depend significantly upon the issues and the context. Broadly speaking, however, and with some qualification, aspects of the prima facie approach have much to commend them as an approach that gives support to the jurisdiction of the arbitrator and his or her competence, as recognised by the common law and by [Article 16], whilst preserving the role of the Court as the ultimate arbiter on questions of jurisdiction … . Broadly, the approach is consonant with the structure of the [International Arbitration] Act and the Model Law. However, it is difficult to see how the Court can exercise its power under s [7] without forming a view as to the meaning of the arbitration agreement.  Further, it may be that if there is a question of law otherwise affecting the answer to the question of jurisdiction, especially one that is confined, which might be dispositive, it might be less than useful for the Court not to deal with it. …

146 … it will often not be possible fully to delineate the metes and bounds of a dispute without fully hearing the dispute. To do so, that is to hear the facts to decide the width of the dispute, would undermine the practical and effective operation of s [7]. The application must be brought early (not later than when submitting the party’s first statement on the substance of the dispute). The boundaries of the dispute may be unclear, but it will have to be characterised on the material available to be assessed as to whether it can be seen to be the “subject of” the arbitration agreement. That latter assessment will require some stability or clarity as to the meaning of the arbitration agreement. The Court is then required to construe the clause, at least to the point of being satisfied that the disputes forming the matter are the subject of the agreement, or not, as the case may be. …

147 … It can be accepted that as a general rule, unless there is an established legal basis for refusing to do so, a court should, upon legitimate request, exercise jurisdiction conferred on it. However, s [7] is found in an Act of Parliament the paramount object of which is the facilitation of the work of impartial arbitral tribunals. One of the features of that facilitation is the express recognition of the authority of the arbitral tribunal to rule on its own jurisdiction. This includes, expressly, any objection “with respect to the existence or validity of the arbitration agreement”, including any objection with respect to the existence or validity of the arbitration agreement: s 16(1) [of the Commercial Arbitration Act being in the same terms as Article 16 of the Model Law]. Section [7] should be read with s 16(1) [of the Commercial Arbitration Act being in the same terms as Article 16 of the Model Law] and thus, the word “finds” should not be read as requiring that the matters in the proviso cannot be part of the reference to the arbitrator. …

  1. The Court observed, “Of course, if there is no sustainable argument that a matter or dispute can be characterised as falling within the agreement, it should not be referred to arbitration”: at [149]. But the enquiry should not travel into the merits of the case beyond determining whether the argument is sufficiently weak not to be sustainable; “That would be to usurp the role of the arbitrator. The Court’s role in [section 7] is not to act as a court of summary disposal filtering the matters that are suitable for arbitration”: at [149]. The Court should take a broad view characterising the dispute to assess whether it is the subject of the arbitration agreement, rather than engage substantially in the merits of the case: at [151]. Further, at [377]-[378]:

377   The real issue in any case is whether the Court should hear the separate attack or permit the arbitral tribunal to hear it, by staying its own proceeding.  The proper answer to this question will depend on the nature of the attack and all the circumstances.

378 Thus, the words of Art 8 and s [7] should be read and given content against the background, first, that the Court is not required to decide the matters in the proviso [equivalent to s 7(5)]; secondly, that the competence principle is wide enough to permit the arbitral tribunal to decide any question of jurisdiction, including whether the arbitration agreement came into existence; and, thirdly, that that decision by the arbitral tribunal is not final, the Court having the final say on the question. A further consideration is that s [7] should, conformably with its language, be construed to facilitate, not impede, the process of arbitration: s [39(2)(b)(i)].

  1. In Hancock (at [148], [390]), the Court endorsed A v B [2006] EWHC 2006 (Comm); [2007] 1 Lloyd’s Rep 237, where Colman J was concerned with whether to order a trial in respect of the validity of the arbitration agreement (under the equivalent of section 7(5)) or whether a stay should be granted and the question of substantive jurisdiction should be left to the arbitrators. At [137]-[138]:

137   Whether the latter course is adopted may in many cases depend heavily on the extent to which the resolution of that issue will involve findings of fact which impact on substantive rights and obligations of the parties which are already in issue and whether in general the trial can be confined to a relatively circumscribed area of investigation or is likely to extend widely over the substantive matters in dispute between the parties. If the latter is the case the appropriate tribunal to resolve the jurisdictional issues is more likely to be the arbitration tribunal, provided it has Kompetenz-Kompetenz.

138   … The emphasis in modern international arbitration law is to maximise the arbitrators’ opportunity to determine their own jurisdiction: see in particular the judgment of Thomas J in Vale Do Rio Navegacao SA v Shanghai Bao Steel Ocean Shipping Co Ltd [2000] 2 All ER (Comm) 70.

  1. In Hancock, the Court described this passage as of considerable assistance “because it throws up the point that it is a practical question not a logical question with which we are dealing”: at [390]. In A v B, the place of arbitration was Switzerland, the law to be applied was Swiss law, the arbitrator had kompetenz-kompetenz in relation to jurisdiction and his decisions were subject to supervision and review by the Swiss courts. Colman J concluded that this was a typical case where the English court, being unable to resolve to its satisfaction the matters referred to in the equivalent provision to section 7(5), “should stand back and allow the arbitrator to proceed to determine his own jurisdiction”: at [139].
  2. Applying the same principles in Dialogue v Instagram, Beach J accepted that the kompetenz-kompetenz principle applied, however, at [196]-[198]:

196   In summary, I accept the respondents’ argument that the competence-competence principle applies … . But the fact that I could apply the principle does not entail that I should. There are no hard and fast rules. Context is everything. I do not propose to apply the principle for the following reasons shortly put.

197   First, there are tricky choice of law questions. What law should be applied to determine the existence of the arbitration agreement? I am best placed to answer this. Further, whatever choice is made I now have all bases covered in terms of being fully informed on Australian law, and by Judge Ware on US law, in order to determine (under whichever law applies) whether there is an arbitration agreement.

198   Second, I now have all the evidence in to make a final assessment on the merits as to the existence of the arbitration agreement. To leave any decision at the lower threshold of the prima facie stage would be a limp effort.

  1. Beach J considered that he was better placed than the Californian arbitrator to deal with a cross-application concerning unfair contract terms and the question of Australian statutory unconscionability and, further, was better placed to deal with the choice of law on a question of waiver. In the result, Beach J decided to determine on a final basis whether an arbitration agreement existed.

  2. The plaintiff submitted that the competence principle was only invoked when there was a challenge to the arbitration agreement itself, being one of the grounds contemplated by section 7(5). There was no such challenge here but only that arbitration agreement did not cover these proceedings. This submission does not, I think, fairly reflect the structure of section 7 nor the breadth of the competence principle as described in Hancock. Rather, the arbitrator has jurisdiction to determine whether the dispute falls within the scope of the arbitration clause and whether the arbitration agreement exists and is operative. This Court can determine such questions but, generally speaking, should leave these matters to the arbitrator unless the context in which these questions arise make it preferable for the Court to determine such matters. The question is what the context dictates in this case.
  3. The defendant submitted that, to the extent a question remained about the proper application of the arbitration agreement, particularly to the extent the question remains because of disputed facts as to how the concept designs were used, how it was developed, whether there was an opportunity to rectify the design at an earlier stage under the Services Contract, the parties’ objective intentions and the correctness of any defences under the Services Contract, the scope of the arbitration agreement should be referred to arbitration for determination. The defendant noted, in particular, that the plaintiff relied on extrinsic evidence to construe the Services Contract, and this was best left for an arbitrator to determine.
  4. The parties did not suggest that an arbitrator in Singapore, conducting the arbitration in accordance with the Rules of the International Chamber of Commerce (as the arbitration clause dictates) will lack kompetence-kompetence in relation to jurisdiction. As there is no suggestion that the arbitration agreement is null and void, inoperative or incapable of being performed, the only question for the arbitrator or this Court is whether the issues the subject of these proceedings fall within the scope of the arbitration clause. Critical to this question is the construction of Clause 2 of the Contract Conditions, “Prior Services”, reproduced at [28].
  5. At the hearing of the motion, the plaintiff relied on the evidence of Mr Simbaqueba as pointing to a conclusion that Clause 2 was drafted with the object of ensuring that work done by the defendant after winning the tender but before entry into the Services Contract was covered by the Services Contract, but not work which the defendant did in preparing designs for the tender. Mr Simbaqueba’s evidence was proffered in fairly general terms – perhaps unsurprisingly given the nature of the interlocutory hearing – and not squarely addressed by the defendant’s evidence, again, presumably by reason of the nature of the interlocutory hearing. I expect that the defendant would wish to, and could, bring forward detailed evidence in answer to Mr Simbaqueba’s version of events, being evidence more usually received at a final hearing.

  1. I am most reluctant to construe Clause 2 having regard to extrinsic evidence, in circumstances where I have only a partial picture. Whilst there is no doubt that this Court can determine this matter on a final basis, the question is whether it should, where the arbitrator may also rule on this question.
  2. Having regard to the statement of objects in section 2D and the matters set out in section 39(2) of the Act, the issues and the context in this case, there is no unique issue of law arising which points to this Court as being the obvious and convenient place to determine this issue. There is nothing particularly unusual about the context in which the scope of the arbitration clause is to be considered. These proceedings, for practical purposes, have just commenced. The evidence before the Court on this application appears incomplete. There is no question of law arising which, if disposed of by this Court, will dispose of the proceedings. It is not necessary to hear and determine the dispute in order to determine whether it falls within the arbitration clause. The prima facie approach should be followed here. The arbitral tribunal should rule on its own jurisdiction.

ARBITRATION CLAUSE

 

  1. All that remains to be satisfied is that the arbitration agreement prima facie covers the matters in dispute. As explained in Hancock, the Court needs to construe the clause “at least to the point of being satisfied that the disputes forming the matter are the subject of the agreement”, taking a broad view and not travelling into the merits of the case beyond determining whether the argument that the dispute falls within the arbitration clause is unsustainable: at [146], [151].
  2. The principles concerning the construction of an arbitration agreement, and whether a “matter” is within the scope, or in pursuance, of an arbitration agreement were recently reviewed by Bell P (Payne and McCallum JJA agreeing) in Lepcanfin Pty Ltd v Lepfin Pty Ltd (2020) 102 NSWLR 627; [2020] NSWCA 155 at [78]-[94]. In short, a dispute resolution clause is to be construed like any other clause of a commercial contract, in accordance with the parties’ intention, objectively ascertained by reference to the language used by the parties, the circumstances known to them and the commercial purpose of the contract. The context in which the dispute resolution clauses have been entered into is important and may assist in interpreting the intended reach of dispute resolution clauses. Arbitration clauses are generally afforded a broad and liberal construction. In construing such clauses, it will generally be presumed that the parties intended that all aspects of their relationship would be determined by a single forum, rather than some disputes being dealt with by an arbitrator and others dealt with by the courts. Such an approach will obviously give way to the clear language of a clause identifying certain matters as being excluded from the arbitrator’s jurisdiction.

  3. Clause 46 of Contract Conditions dealt with dispute resolution. “Dispute” was defined in clause 1.1 of the Contract Conditions as follows:

“Dispute” means any dispute or difference between the parties in respect of any fact, matter or thing arising out of, or in any way in connection with, the Contract or the Services, including:

(a)   any disputed claim for additional payment, adjustment of the Consultant’s Fee, an extension of time or breach of contract or for rectification, termination, frustration or invalidity of the Contract;

  1. Clause 46.2 and 46.3 provided for Notices of Dispute to be served, followed by negotiations, with the Rizzani Leighton Joint Venture – but not the defendant – having the right to refer a Dispute to arbitration:

46.2   Notice of Dispute

(1)   If a Dispute arises, either party may give a written notice to the other party that:

(a)   states that it is a notice under this clause 46.2;

(b)   adequately describes and gives particulars of the alleged Dispute, including the amount of the Dispute;

(c)   in the case of a notice from the [defendant], is signed by a director or company secretary of the [defendant]; and

(d)   in the case of a notice from [Rizzani Leighton Joint Venture], states whether [Rizzani Leighton Joint Venture] requires the Dispute to be referred to arbitration under clause 46.9 if not resolved by negotiation under clause 46.3

(“Notice of Dispute”).

(2)   Within 20 Business Days of a Notice of Dispute being given by the [defendant] to [the Rizzani Leighton Joint Venture], [the Rizzani Leighton Joint Venture] may give a written notice to the [defendant] stating that [the Rizzani Leighton Joint Venture] requires the Dispute to be referred to arbitration under clause 46.9 if not resolved by negotiation under clause 46.3. …

46.3   Negotiations

Within 5 Business Days of service of a Notice of Dispute, a senior representative of each of the parties must confer at least once to attempt to resolve the Dispute, and if they cannot resolve the Dispute, they must endeavour to agree upon a procedure to resolve the Dispute. Unless the parties agree otherwise, the meeting will be held in Sydney, New South Wales.

  1. The arbitration clause is clause 46.9(1), which provided: (emphasis added)

Any dispute, controversy or claim arising out of, relating to, or in connection with this Agreement, including any question regarding its existence, validity or termination must be resolved by arbitration to be conducted in accordance with the Rules of the International Chamber of Commerce. The seat of the arbitration will be Singapore. …

  1. The defined terms “Dispute” and “Contract” are not used in the arbitration clause, whilst “Agreement” – which is not a defined term – is used. It may be that clause 46.9 is a ‘boilerplate’ clause which has not been amended to incorporate the defined terms used in the Contract Conditions, as has occurred elsewhere in clause 46. More likely, the Notice of Dispute and negotiation regime applies to Disputes, as defined, whilst the arbitration clause applies more broadly. Whilst it may be argued before the arbitrator that the definition of “Dispute” should be used to construe clause 46.9, I will consider the clause 46.9 on its face for the purposes of this application. I will also proceed on the basis that “Agreement” means “Contract”, although it is arguable that it does not and, by referring to “Agreement”, the arbitration clause is not limited to the Contract but applies to disputes arising from the parties’ agreement considered more broadly.
  2. By the arbitration clause, the parties agreed to arbitrate “any dispute, controversy or claim arising out of, relating to, or in connection with this Agreement”. These phrases are “of the widest import and should not, in the absence of compelling reasons to the contrary, be read down”: IBM Australia Ltd v National Distribution Services Pty Ltd (1991) 22 NSWLR 466 at 483. In IBM Australia, Clarke JA considered these words to be sufficiently wide to encompass claims of pre-contractual misrepresentations, said to be misleading or deceptive conduct in breach of section 52 of the Trade Practices Act. At 483:

There are no indications in the contract that the words should be construed narrowly. Nor, in my opinion, are there any compelling reasons in favour of reading down the meaning of the phrase. On the contrary there are powerful considerations in favour of the contrary view. The consequence of an interpretation of the arbitration clause which excludes the claims under the Act would be that the causes of action based upon breaches of the contract would remain with the arbitrator, and be decided by him, and those in which reliance were placed upon ss 52, 82 and 87 of the Act would be determined in a court of law. As I earlier pointed out this conclusion would follow even in a case in which the same representations were said to ground claims in breach of contract and under the Act.

The parties could hardly be thought to have contemplated that the arbitration clause would work in that way. It is far more likely that they intended that all disputes between them concerning the terms of the contract, the performance of it and matters connected, in a real sense, with the contract should be referred to the one tribunal for determination. For my part I would find it difficult to ascribe to the parties to a contract an intention to submit only part of a dispute to an arbitral tribunal reserving the remainder for consideration by the Court as this would, on any view, be inefficient and costly.

  1. Likewise in Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; [2006] FCAFC 192, the Full Court held that an arbitral clause requiring disputes “arising out of this contract” to be arbitrated in London was sufficiently wide to encompass a claim for misleading or deceptive conduct in contravention of the Trade Practices Act: at [7], [9], [49], [175]-[176] and [187]. See likewise Westrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd at [24]; Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1; QH Tours Ltd v Ship Design and Management (Aust) Pty Ltd (1991) 33 FCR 227.
  2. In Hancock, the Full Court considered it important in construing such clauses to bear in mind that “sensible parties do not intend to have possible disputes that may arise heard in two places. Effect is given to that assumption by interpreting words liberally when they permit that to be done”: at [193]. I note that, according to the plaintiff’s letter of demand (see [41]-[42]), the plaintiff intends to refer the dispute under the Services Contract to arbitration whilst maintain these proceedings in this Court. In the absence of a stay, two disputes in relation to the same project will be dealt with in two venues. It seems unlikely that the parties would have considered such an outcome as desirable when negotiating the terms of the Services Contract, including the arbitration clause.
  3. Clause 46.9 extends to “any question regarding [the Contract’s] existence [or] validity”. Such questions will usually require consideration of pre-contractual dealings. This supports a construction of the clause as including disputes which encompass pre-contractual conduct: see likewise Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514; [2019] HCA 13 at [48].
  4. For the purpose of the exercise I am here undertaking, I do not think it much matters whether the misleading and deceptive conduct is said to have induced a party to enter into the contract containing the arbitration clause or whether it is said that such conduct induced the plaintiff to enter into a contract with a third party (the Design and Construct Deed) on particular terms, or at all. “[F]ine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument” should not determine which tribunal resolves the parties’ disputes: Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 at 165.
  5. Thus, while not definitively construing the arbitration clause, on its face it is broadly worded to encompass pre-contractual representations such that the disputes the subject of these proceedings – viewed broadly – are the subject of the clause.

Services

 

  1. The plaintiff submitted that, while clause 46.9 uses words of broad reach, the clause does not extend to disputes concerning work done by the defendant long before entry into the Services Contract and which could not be considered on any view to be “Prior Services” or “Services” under the Services Contract. The Services Contract did not require the defendant to produce the tender drawings. The defendant’s work under the Services Contract was to take those designs and develop them and the plaintiff made no complaint in these proceeding about the designs produced by defendant under the Services Contract. A complaint about the tender drawings did not arise out of or relate to, and nor is it in connection with, the Services Contract. The complaint concerned alleged errors in producing the tender design, that made them unfit for use in a tender and led to a deficiency in its tender price. This was not a claim under the Services Contract and had nothing to do with that contract. However, this distinction appeared to me to be artificial and unlikely to be maintainable if these proceedings continue in parallel with an arbitration in respect of losses said to be sustained under the Services Contract.

  2. The defendant submitted that, when the parties entered into the Services Contract, they were aware that previous design work had been performed by the defendant. With that knowledge, the parties chose not to limit the ambit of the arbitration agreement to a dispute to work performed after entry into the Services Contract, but rather one arising out of, relating to, or in connection with that contract. They chose broad words of submission to arbitration with the knowledge that previous design work relating to or connected with the Services Contract had already been performed. They did not expressly seek to exclude that earlier work from the scope of the Services Contract. Reading the Services Contract as a whole, the language of the arbitration agreement was apt to encompass a claim of misleading or deceptive conduct in relation to the tender design.

  3. This submission requires a brief review of the relevant contractual provisions. It will be recalled that, under the Prior Services clause, the Services Contract applied to “any services that are part of the Services” which were performed by the defendant at the request of the Rizzani Leighton Joint Venture before the date of the Contract.“Services” was defined in clause 1.1. of the Contract Conditions as: (emphasis added)

Services” means all the services, activities, tasks and other things that the [defendant] is or may be required to perform under the Contract and includes the services set out in and reasonably inferred from Annexure C, Variations, rectification work and the provision of Contract Material;

  1. Annexure C to the Services Contract, entitled “Brief and Services”, noted that the Brief comprised the Design and Construct Deed and the “DEAL Scope of Works”, which was annexed to the Services Contract. The DEAL Scope of Works noted in paragraph 2.9:

The detailed design will in principle be developed from the Tender Design.

  1. Paragraph 2.11 of the DEAL Scope of Works, “Design Input”, noted that, throughout the entire design phase, the defendant was responsible for ensuring that all the required input was included in the design.

As a minimum the following input will be incorporated:

•   Tender design; …

  1. Paragraph 2 of Annexure C described the defendant’s role, including:

2.1   Commission

The Services include all design and engineering work required for the Main Contract Works, including but not limited to:

(a)   all design work as detailed in the DEAL Scope of Works document (referred to in the Brief 1(1)); and

(d)   All design works required in the DEAL Scope of Works document (Section 5).

  1. Paragraph 2.5 of Annexure C provided:

2.5   Concept Designs

To the extent relevant to the Services, the Consultant must:

(a)   prepare an outline design solution (including alternative proposals where required) examining Site options for review with other contractors (including design consultants) and [the Rizzani Leighton Joint Venture];

(b)   further develop the approved outline design solution:

(i)   ensuring all feasible concepts are reviewed; and

(ii)   preparing all necessary drawings, schedules and other material;

for review with other contractors (including design consultants and [the Rizzani Leighton Joint Venture];

(i)   Any other requirements specified in the DEAL Scope of Works document …

  1. Clause 1.1. of the Contract Conditions provided: (emphasis added)

Contract Material” means any documents (including specifications and drawings), software, designs, samples, models, prototypes, patterns, videos and other things prepared by or on behalf of the [defendant] for or in connection with the Contract, the Services or the Project (whether in electronic format or hard-copy format or both);

  1. As to interpretation of the Contract, clause 1.2(j) of the Contract Conditions provided:

the words ‘include’, ‘including’ and ‘includes’ and the expressions ‘for example’ and ‘such as’, are not words or expressions of limitation;

  1. By reference, in particular, to the italicised portions of these provisionsthe definition of “Services” is widely cast and inclusive such that the work done by the defendant in the tender phase may fall within “Prior Services”. But I consider this to be the wrong debate. The focus must be on the drafting of the arbitration clause, which is not limited to “Services” or, for that matter, “Prior Services” but to “any dispute, controversy or claim arising out of, relating to or in connection with this Agreement …”. Viewed broadly, the sequence of events from the defendant preparing the tender designs with a view, if the tender was accepted, to developing those designs for construction is consistent with the arbitration clause recording an agreement between the parties to submit all disputes, including in relation to the tender drawings, to arbitration.
  2. The provisions of the Services Contract on which the plaintiff relied do not provide a compelling reason to read down the arbitration clause. Nor do I think it can be said that there is no sustainable argument that the dispute falls within the arbitration agreement such that this Court should refrain from staying these proceedings and referring the matter to the arbitrator. Thus I conclude that these proceedings should be stayed pursuant to section 7(2) of the Act.

CONDITIONS

 

  1. The plaintiff sought that the stay be made subject to the following conditions:
  1. The defendant cannot raise any limitation point, in particular, any limitation defence that was unavailable to it when the proceeding was filed.
  2. The defendant will not argue that the Australian Consumer Law is inapplicable and will accept that, insofar as its conduct is alleged to contravene section 18 of the Australian Consumer Law or entitles the plaintiff to any remedy, the Australian Consumer Law is a mandatory law that the arbitrator must apply.
  1. The plaintiff submitted that both conditions were for the purpose of promoting and enforcing the agreement of the parties to resolve their disputes by arbitration, rather than by making orders which would be inconsistent with, or subversive of that agreement (Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; (2013) 298 ALR 666 at [84]).
  2. The defendant submitted that section 7(2) does not give the Court power to impose conditions, nor would it be appropriate to do so. The conditions sought are directed to substantive defences which the defendant has or may have: O’Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601. Where the plaintiff commenced these proceedings in breach of the arbitration agreement and the defendant has a right to have the proceedings determined by an arbitral tribunal, it would be wrong to only enforce that right subject to a condition that defeated a defence that the defendant may otherwise be able to establish.

Power to impose conditions

 

  1. The oft-cited principle as to how the power to impose conditions is to be exercised is that of Kirby P in O’Brien at 622: (emphasis added)

It is true that the subsection is expressed in apparently wide terms (“upon such conditions (if any) as it thinks fit”). But it is obvious that the conditions are incidental and ancillary to the achievement of the main purpose of s 7(2). This is to hold the parties to international commercial agreements to an agreement to arbitrate. I do not consider, in this context, that it would be proper to impose a condition which effectively distorted the agreement initially entered between the parties. Nor should such a condition be imposed as would manipulate the rights of the parties under that agreement, notwithstanding their agreement to arbitrate. Nor should conditions frustrate the achievement of the policy of the statute to enforce that agreement. The “conditions” which s 7(2) of the Act contemplates are machinery conditions. They relate to hearing and the like procedures and not to conditions which determine, in effect, the substantive rights of the parties. Those substantive rights were, relevantly, fixed by the agreement. The Court should neutrally hold the parties to that agreement. In my opinion it would be wrong for the Court to distort and frustrate that agreement (whilst requiring the stay necessitated by the statute) to impose conditions which were not within the agreement which it is the purpose of the Act to enforce.

  1. This statement was approved in WesTrac Pty Ltd v Eastcoast OTR Tyres Pty Ltd, where Barrett J noted that it was thus clear that it was not open to the Court to impose conditions upon a stay which would detract from the integrity of the arbitration process the Act mandates: at [30]. See likewise Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd at [90], [101] per Martin CJ (Buss JA agreeing), at [125] per McLure P; Orient Overseas Container Line Ltd v APL Co Pte Ltd (No 2) [2021] FCA 606 at [14] per Stewart J.
  2. In Cape Lambert Resources, Martin CJ considered that the legislature intended that the power to attach conditions “should be utilised for the purpose of promoting and enforcing the agreement of the parties to resolve their disputes by arbitration, rather than by making orders which would be inconsistent with, or subversive of that agreement”: at [84]. The Chief Justice considered that courts should refrain from imposing conditions which may pre-empt the decision of the arbitrator and the operation of the arbitration cause, observing at [93]:

This approach to the ambit of the powers conferred upon the court by s 7 of the Act is consistent with the limited role which national courts play when parties have agreed to resolve their disputes by international commercial arbitration. National courts are not properly regarded as competitors or rivals for the jurisdiction which the parties have agreed to confer upon an arbitral tribunal. As I have already noted, the exercise of judicial power to facilitate the agreement of the parties to resolve their disputes by arbitration, and the strictly limited supervisory role usually conferred upon national courts by the lex arbitri, which is generally limited to containing arbitral tribunals within the jurisdiction conferred upon them by the parties and ensuring that the jurisdiction is exercised, is fundamentally different in character to the role of the arbitral tribunal in resolving the dispute by making an award defining the substantive rights and obligations of the parties. International comity requires national courts to faithfully respect these limitations upon their role – in this case by appropriately construing the ambit of the powers conferred upon the court by s 7 of the Act having regard to such limitations.

  1. Martin CJ considered that conditions should not be imposed which usurp the powers of the arbitrator in circumstances where there is no pressing need or justification for such conditions. Facilitative machinery orders, on the other hand, did not usurp or subvert the powers of arbitrators in a resolution of a dispute which the parties had agreed to refer to arbitration: at [101].
  2. Most recently, in Orient Overseas Container Line, Stewart J observed that there is nothing in the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (set out in Schedule 1 to the Act and with which Part II of the Act is concerned to enforce) giving power to the Court to impose conditions upon a stay of proceedings and referral to arbitration, “That is an indication that the power to impose conditions is to be read in a restricted way”: at [11]. Further, at [12]: (emphasis added)

The principle underlying Art II [of the Convention], and hence s 7, is that arbitration agreements should be recognised and enforced by staying court proceedings in favour of arbitration where the subject of the proceedings is covered by the arbitration agreement. There is no justification for construing the power to impose conditions on such a stay as including conditions which interfere with the jurisdiction and power of the arbitral tribunal or which alter the rights of the parties under their arbitration agreement; the purpose is, after all, to uphold and enforce that agreement, not to alter or undermine it or the parties’ rights under it.

  1. Stewart J was therefore hesitant to exercise any power under section 7(2) to impose conditions that would “trespass upon the arbitration which the parties agreed to and which this Court is bound to support, not undermine”: at [18].

Statute of limitations

 

  1. Section 70 of the Limitation Act 1969 (NSW) provides:

70   Application of this Act

(1)    This Act applies to an arbitration in like manner as it applies to an action.

(2)   An arbitration for any difference or matter under any provisions for arbitration is not maintainable if commenced after the date of the expiration of the period of limitation fixed by or under this Act for a cause of action in respect of the same difference or matter.

  1. As such, the time within which an arbitration must be commenced is the same as the limitation period applicable to the cause of action pursued in proceedings in this Court.
  2. As to when an arbitration is commenced, section 72(1) of the Limitation Act provides:

72 Commencement

(1)    For the purposes of this Division:

(a)    where the provisions for arbitration require or permit a party to the arbitration to give notice in writing to another party:

(i)    requiring the other party to appoint or concur in appointing an arbitrator, or

(ii)    requiring the other party to submit or concur in submitting a difference or matter to a person named or designated in the provisions for arbitration as arbitrator, or

(b)    where, in a case to which paragraph (a) does not apply, a party to the arbitration takes a step required or permitted by the provisions for arbitration for the purpose of bringing a difference or matter before an arbitrator and gives to another party notice in writing of the taking of the step,

the arbitration is commenced, as between the party giving the notice and the party to whom the notice is given, on the date on which the notice is given.

  1. Here, the arbitration clause does not provide for a notice in writing; a Notice of Dispute may be served in respect of a Dispute, but the arbitration clause does not incorporate this mechanism. Thus section 72(1)(b) applies, such that an arbitration is commenced on the date on which the plaintiff “takes a step required or permitted by the provisions for arbitration for the purpose of bringing a difference or matter before an arbitrator and gives to another party notice in writing of the taking of the step”. Commencing proceedings in this Court is unlikely to satisfy this requirement.
  2. Similar to the case at hand, in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451, the plaintiff commenced proceedings in this Court the day before a limitation period expired, notwithstanding an arbitration clause. As to whether this had the effect of preventing the limitation period from expiring if the matter was referred to arbitration, Hammerschlag J observed at [130]:

This raises issues of significant complexity concerning, amongst others, the status of an action subject to a request under [s 7(2)], and the juridical effect of the court referring the parties to arbitration and the interplay between ss [7 of the Act] and [s] 14 of the [Limitation] Act, and ss 70(1) and 72 of the Limitation Act, the latter sections having been in force for many years prior to s [7] coming into force. Counsel informed the court that they had been unable to find any pertinent authority on these issues.

(Whilst John Holland concerned the comparable provisions of the Commercial Arbitration Act 2010 (NSW), for ease of reference I have again interposed the provisions of the Act.) Ultimately, it was unnecessary for Hammerschlag J to “delve into the intricacies” of this issue: at [130].

  1. This complex issue was not the subject of argument during the hearing before me, nor canvassed in subsequent written submissions which the plaintiff sought leave to make. Nor does it appear that the issue has been the subject of judicial consideration since John Holland. Rather, the problem has been addressed from time to time by the imposition of conditions similar to the condition now sought by the plaintiff.
  2. Such a condition was sought, but refused, in O’Brien as the condition would have had the effect of extending the limitation period to that which would apply if the arbitration agreement was adhered to. There, the contract between a New South Wales company and a Florida company had an arbitration clause and provided that the agreement was governed by the laws of Florida. The New South Wales company went into liquidation, which had the effect of suspending the limitation period in respect of claims against the company. The liquidator commenced proceedings against the Florida company in Florida, which were determined by arbitration (four years later), with no damages awarded to either side.
  3. The Florida company then lodged a proof of debt (which was rejected) and commenced proceedings seeking to review the liquidator’s decision. The liquidator sought, and was granted, a stay of the proceedings by reason of the arbitration clause. If the arbitration took place in Florida – for which the liquidator contended – the Florida company’s claim was arguably statute barred. The trial judge had posited that, if a stay was granted, it should be subject to conditions so that the liquidator could not take advantage of a statute of limitation in the forum in which the arbitration was to be heard. Kirby P did not agree. At 622:

The parties should be held to the arbitration to which they agreed. That arbitration should take place in Florida, according to the terms of the agreement and by arbitrators appointed as the agreement specified. I see nothing in the slightest wrong with the conduct of the liquidator in seeking to invoke the Act. On the contrary, I believe that in doing so he is acting properly to protect the assets of the company because he believes that he may, by asserting this legal right, secure for [the NSW company], and its creditors, the protection against the claim of [the Florida company] of a limitation bar. Whether he succeeds or fails in this respect will be determined by the arbitrators. But there is nothing improper in the liquidator’s claiming the right which he derives through [the NSW company] from the agreement with [the Florida company].

  1. In Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1997) 150 ALR 345, such a condition was imposed where the proceedings were stayed and referred for arbitration in London. (As recorded in the appeal judgment, the claim concerned negligence, breach of contract, misrepresentations and contraventions of the Trade Practices Act 1974 (Cth): Hi-Fert (No 5) at 7 per Emmett J). The plaintiff had sought a condition that the defendant “shall take no objection as to the time within which the arbitration has been commenced”: at 346. The defendant sought a more confined condition, saying that it should be in no worse position as a result of its successful stay application than it would have been if the arbitration proceedings had been commenced at the same time as court proceedings. Tamberlin J agreed, at 347: (emphasis original)

In my view, this submission should be accepted because it preserves the rights of the parties. It operates to avoid the conferring of any possible additional benefit on either party beyond the rights and obligations which would have prevailed if the arbitration proceeding provided for in the agreement had been commenced.

  1. In the result, Tamberlin J imposed a condition that the arbitration “be treated as if it had been commenced with the appointment of the … arbitrator on the same day as the commencement of these proceedings”. The condition may be explicable by the fact that the proceedings concerned claims which were subject to the arbitration clause and claims which were not. The Full Court made an order that the arbitration not commence until after the non-arbitrable claims had been determined by the Federal Court. Where the applicant had properly commenced proceedings in the Federal Court, at least in respect of the claims not the subject of the arbitration clause, and where, by reason of the passage of time until determination of the Federal Court proceedings and commencement of the arbitration, limitation issues may arise, the condition preserved the status quo.
  2. A condition similar in form to that ordered in Hi-Fert was made by Hollingworth J in Ansett Australia Ltd v Malaysian Airline System Berhad [2008] VSC 109; (2008) 217 FLR 376. In that case, Ansett commenced proceedings in time. By the time the defendant obtained a stay, after a series of procedural delays, the limitation period has expired. The defendant argued that Ansett chose to commence the proceedings rather than refer its claim to arbitration and, to the extent that Ansett was now prejudiced by the grant of a stay, Ansett was the author of its own misfortune and should not be assisted by the Court: at [30]. Hollingworth J considered that this submission “completely ignores [the defendant’s] own contribution to Ansett’s current predicament, through repeated delays in this proceeding”: at [30]. Had the defendant acted promptly in seeking a stay, the stay application could have been heard and determined before the limitation period expired. At [33] and [35]:

33   In the circumstances, I would impose conditions necessary to ensure that Ansett is not prejudiced by [the defendant]’s delaying conduct.  That is to say, Ansett should not now be faced in an arbitration with any limitation periods which it did not face at the time it commenced this proceeding.

35   [The defendant] should be entitled to rely at the arbitration on any limitation period which was applicable under the proper law of the agreement at the time this proceeding was commenced. However, it should not be able to benefit from its own delays in making a stay application under the IAA.

  1. Hollingworth J considered that, if such a condition was not imposed, defendants would have an incentive when served with court proceedings in respect of a dispute covered by an arbitration agreement “to sit on their hands and allow time limits to expire before applying for a stay”. Thus, there were sound public policy reasons for imposing such a condition: at [37].
  2. The same condition was made in Orient Overseas Container Line, albeit by consent. Therefore, Stewart J did not determine whether it was otherwise appropriate to impose the condition: at [22].
  3. Having reviewed the case law, and bearing in mind that the imposition of conditions involves the exercise of judicial power (Hi-Fert (No 5) at 14) conferred by the Act, the following considerations may be relevant to whether a condition should be imposed in respect of limitation periods:

  1. whether the plaintiff has properly commenced proceedings in this Court, at least in respect of part of its claim;
  2. whether the potential expiration of limitation period is referable to the defendant’s delay or other events beyond the parties’ control, such as an order that the arbitration not take place until court proceedings are concluded;
  3. whether the condition will substantively alter the rights of the parties or preserve the status quo; and
  4. whether the condition will change the bargain between the parties to arbitrate.
  1. Here, the Services Contract provides that the law of contract is the law of New South Wales. Thus, the application of any limitation period will likely be the same, whether determined by this Court or by the arbitrator. However, as the plaintiff commenced these proceedings on – perhaps – the last day of the limitation period, the plaintiff’s claim may not be brought in time if the starting point is taken to be the date when the arbitral proceedings are commenced.
  2. The defendant submitted that Hollingworth J’s reasoning in Ansett did not engage with the scope of the power to impose conditions but, in any event, the circumstances of this case were very different. The defendant was not served with the originating process until March or April 2021. An application for a stay was made promptly, before the first directions hearing and before the time to file a List Response had expired. There was no delay by the defendant. Any delay was occasioned by the plaintiff given the time it took to file the originating process and the time after that for the plaintiff to effect service. The defendant submitted that, if the plaintiff established at the arbitration that the defendant had engaged in disentitling conduct which, for example, gave rise to an estoppel, then the arbitral tribunal would be able to prevent reliance on a limitation period.
  3. To be fair to the plaintiff, delay in effecting service overseas cannot readily be laid at the plaintiff’s door. This is an inter-Court process relying on a request to be issued by this Court and actioned, in this case, by the Italian Central Authority. Sometimes this process just takes time. That said, the fact that the plaintiff commenced these proceedings six years after the tender was submitted likely has the consequence that the conditions sought by the plaintiff will substantively alter the rights of the parties rather than preserve the status quo. The defendant is presently entitled to argue before the arbitrator that the plaintiff’s claim is out of time whilst, if I impose the condition sought, then the defendant will be deprived of this defence notwithstanding that, if the arbitrator finds that this dispute falls within the arbitration clause, the commencement of these proceedings was in breach of that clause. If the arbitrator determines that this dispute does not fall within the arbitration clause, then the plaintiff will be entitled to lift the stay and pursue its claims in this Court.
  4. The condition sought by the plaintiff is not incidental or ancillary to the achievement to the main purpose of section 7(2) but will distort the agreement initially entered into between the parties. I decline to impose the condition sought. I may have come to a different decision if the plaintiff had commenced these proceedings earlier and/or subsequent delays had been referrable to the defendant or delays inherent in the Court’s processes. But having left it to the last moment, I am not minded to affect the substantive rights of the parties. Of course, whether in fact an arbitration now commenced by the plaintiff is time-barred is a matter for the arbitrator to decide.

Australian Consumer Law

 

  1. A condition in the form of the second proposed condition was made by Allsop J (as his Honour then was) in Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102 at [111]:

… I would impose a condition upon the parties to the arbitration to consent to all aspects of any [Trade Practices] Act claims, which would have been justiciable in this Court, being litigated in the arbitration irrespective of any conclusion as to the proper law. Such a condition would solve the potential conflict of Australian domestic statutory public policy and the operation by a foreign arbitrator of the rules of conflicts of law to set at nought governing Australian law. The arbitration agreement is a contract about submission. Its enforcement should not undermine the operation of a statute such as the [Trade Practices] Act.

His Honour noted that he had not heard the parties on this condition, and would do so: at [112].

  1. A year later, however, in Comandate Marine Corporation v Pan Australia Shipping Pty Ltd, Allsop J referred to the condition made in Walter Rau and noted at [245]:

Having had the benefit of argument in the appeal here I would not impose such a condition. At least in the circumstances here, I do not see such a term as appropriate. It would, to use the expression of Gleeson CJ in Francis Travel 39 NSWLR at 167, pre-empt the decision of the arbitrator and the operation of the arbitration clause. In any event, here, Comandate Marine has undertaken to the Court to agree to the determination in the arbitration of the Trade Practices Act claims.

There, the dispute was to be governed by English law.

  1. The defendant submitted that there was no need for the second condition as it would not make inconsistent submissions to this Court and to an arbitral tribunal. In this Court, the defendant submitted that the plaintiff’s claim for damages under the Australian Consumer Law fell within the scope of the arbitration agreement. The defendant would not contend otherwise in any arbitration.
  1. Given the choice of law clause and the defendant’s contention that the plaintiff’s claim under the Australian Consumer Law falls within the arbitration clause, the second proposed condition is not appropriate. It is a matter for the arbitrator.

ORDERS

 

  1. The plaintiff and defendant each sought their costs of the motion. The defendant, however, has succeeded and should have its costs. For these reasons, I make the following orders:
  1. Order pursuant to section 7(2) of the International Arbitration Act 1974 (Cth) that these proceedings be stayed and the parties be referred to arbitration, with such arbitration to be commenced in accordance with clause 46.9 of the Services Agreement for Design Services between the Rizzani Leighton Joint Venture and Deal S.R.L. entered into or about 27 July 2015.
  2. The plaintiff to pay the defendant’s costs of the motion filed on 14 April 2021.

**********

Hub Street Equipment Pty Ltd v Energy City Qatar Holding Company [2021] FCAFC 110

FEDERAL COURT OF AUSTRALIA

 

 

Case Name: Hub Street Equipment Pty Ltd v Energy City Qatar Holding Company [2021] FCAFC 110
Medium Neutral Citation: [2021] FCAFC 110
Hearing Date(s): 25 February 2021
Date of Orders: 25 June 2021
Decision Date: 25 June 2021
Before: ALLSOP CJ, MIDDLETON AND STEWART JJ
Decision: THE COURT ORDERS THAT:

 

1. The appeal be allowed.

2. The orders and declaration of the Court on 26 August 2020 in NSD 94 of 2020 be set aside and substituted with an order that the proceeding be dismissed.

3. The parties file and serve written submissions of no more than five pages on the questions of costs of the proceedings below and on appeal, which questions will be decided on the papers unless otherwise ordered, as follows:

(a) the appellant within seven days of these orders; and

(b) the respondent within seven days thereafter.

 

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

Catchwords: ARBITRATION – international arbitration – enforcement of award – where supervisory court appointed the arbitral tribunal – whether composition of the arbitral tribunal was in accordance with the agreement of the parties – comity – whether enforcing court should accept that the appointment of the tribunal by the supervisory court was in accordance with the agreement of the parties

 

ARBITRATION – international arbitration – enforcement of award – nature of the burden of proving a ground for non-enforcement – whether discretion to enforce award should nevertheless be exercised – nature of the discretion

 

PRACTICE AND PROCEDURE – settlement – where parties settled “in principle” – where judgment was complete subject to administrative matters prior to settlement – whether Court can hand down judgment notwithstanding settlement “in principle” – Court has a discretion to hand down judgment where it is in the public interest to do so

Legislation Cited: Civil Law and Justice Legislation Amendment Act 2018 (Cth) Sch 7 item 2

Federal Court Rules 2011 (Cth) r 36.73(1)(b)(ii)
International Arbitration Act 1974 (Cth) ss 2D, 3, 8, 39, Schs 1-2

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature 10 June 1958, 330 UNTS 3 (entered into force 7 June 1959)

UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended on 7 July 2006)

Civil and Commercial Arbitration Law (Qatar) (Law No. 2 of 2017) Art 33

Civil and Commercial Code of Procedure (Qatar) (Law No. 13 of 1990) Art 195

Cases Cited: AKN v ALC [2015] SGCA 18
Barclay’s Bank plc v Nylon Capital LLP [2011] EWCA Civ 826; [2012] 1 All ER (Comm) 912
Beijing Jishi Venture Capital Fund (Limited Partnership) v Liu [2021] FCA 477
Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314
Blatch v Archer (1774) 1 Cowp 63; 98 ER 969
Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336
British American Tobacco Australia Services Ltd v Laurie [2009] NSWCA 414
Cameron Australasia Pty Ltd v AED Oil Ltd [2015] VSC 163
China Nanhai Oil Joint Service Corp Shenzhen Branch v Gee Tai Holdings Co Ltd [1994] HKCFI 215; [1994] 3 HKC 375
Clarke v Great Southern Finance Pty Ltd [2014] VSC 516
CSR Ltd v Cigna Insurance Australia Ltd [1997] HCA 33; 189 CLR 345
Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46; [2011] 1 AC 763
Dardana Ltd v Yukos Oil Co [2002] EWCA Civ 543; [2002] 2 Lloyd’s Rep 326
Dickenson’s Arcade Pty Ltd v Tasmania [1974] HCA 9; 130 CLR 177
Encyclopaedia Universalis SA v Encyclopaedia Britannica Inc, 03 Civ 4363 (SAS) (S.D.N.Y. Dec. 3, 2003)Encyclopaedia Universalis SA v Encyclopaedia Britannica Inc, 403 F 3d 85 (2nd Cir, 2005)Enka Insaat ve Sanayi AS v OOO “Insurance Company Chubb” [2020] UKSC 38; [2020] 1 WLR 4117
F&C Alternative Investments (Holdings) Ltd v Barthelemy (No 1) [2011] EWHC 1851 (Ch); [2012] Bus LR 884
Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International NV [2007] FCAFC 43; 157 FCR 558
Glaxo Group Ltd v Genentech Inc [2008] EWCA Civ 23; Bus LR 888Greenwich Inc Ltd (In Administration) v Dowling [2014] EWHC 2451 (Ch); WLR (D) 334Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109; 304 ALR 468
Gurney Consulting Engineers v Gleeds Health & Safety Ltd [2006] EWHC 536 (TCC); 108 Con LR 58

Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] HKCFA 40; [1999] 2 HKC 205
Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) [1998] FCA 1485; 90 FCR 1
Hilton v Guyot 159 US 113 (1895)
House v The King [1936] HCA 40; 55 CLR 499
IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSC 248; 38 VR 303
Liaoning Zhongwang Group Co Ltd v Alfield Group Pty Ltd [2017] FCA 1223
Liverpool Roman Catholic Archdiocesan Trustees Inc v Goldberg (No 3) [2001] EWHC 396 (Ch); 4 All ER 950 (Ch D)

Minmetals Germany GmbH v Ferco Steel Ltd [1999] 1 All ER (Comm) 315
Osborne v Auckland Council [2014] NZSC 67; 1 NZLR 766
Paklito Investment Ltd v Klockner (East Asia) Ltd [1993] 2 HKLR 39
Povey v Qantas Airways Ltd [2005] HCA 33; 223 CLR 189
Prudential Assurance Co Ltd v McBains Cooper [2000] EWCA Civ 172; 1 WLR 2000
PT First Media TBK v Astro Nusantara International BV [2014] 1 SLR 372; [2013] SGCA 57
PT First Media TBK v Astro Nusantara International BV [2018] HKCFA 12; [2018] 3 HKC 458
TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83; 232 FCR 361
TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia [2013] HCA 5; 251 CLR 533
Voss v Davidson [2003] QCA 252

 

Texts Cited: Allsop JLB, “Comity and Commerce” (Address to the 16th Conference of Chief Justices of Asia & the Pacific, Sydney, 8 November 2015)

Bennett H and Broe GA, “The Civil Standard of Proof and the ‘Test’ in Briginshaw: Is There a Neurobiological Basis to Being ‘Comfortably Satisfied’?” (2012) 86 ALJ 258
Blackaby N, Partasides C, Redfern A and Hunter M, Redfern and Hunter on International Arbitration (5th ed, Oxford University Press, 2009)

Born G, International Commercial Arbitration (3rd ed, Kluwer Law International, 2021)

Herzfeld P and Prince T, Interpretation (2nd ed, Lawbook Co, 2020)

Gageler S, “Alternative Facts and the Courts” (2019) 93 ALJ 585
Gageler S, “Evidence and Truth” (2017) 13 TJR 1

Van den Berg AJ, The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation (Kluwer Law International, 1981)

DIVISION: General Division
Parties: BETWEEN:
HUB STREET EQUIPMENT PTY LTD (ABN 52 109 882 617)AppellantAND:
ENERGY CITY QATAR HOLDING COMPANY (REGISTERED IN THE CR UNDER NO. 34913)Respondent
Representation: Counsel for the Appellant: T Mehigan SC

Solicitor for the Appellant: Henry William Lawyers

Counsel for the Respondent: T D Castle SC

Solicitor for the Respondent: Cowell Clarke Commercial Lawyers

File Number(s): NSD 1045 of 2020
Publication Restriction: NIL
Appeal from: Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 2) [2020] FCA 1116; Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 3) [2020] FCA 1219

REASONS FOR JUDGMENT

ALLSOP CJ:

  1. I have read the reasons of Stewart J to be published.  I agree with his Honour’s reasons and I agree with the orders proposed by his Honour.  Recent events, however, have necessitated that I make some additional remarks.
  2. The appeal was heard on 25 February 2021.  On Monday, 21 June 2021, the Court was in full agreement as to the judgment to be handed down and intended to hand down judgment on Wednesday, 23 June 2021, subject to administrative matters.  The parties were to be notified on the morning of 21 June 2021.  At 10:26am on that same morning (Monday, 21 June) the appellant (with the consent of the respondent) sent an email to the chambers of Middleton and Stewart JJ and me in the following terms:

    These proceedings have settled in principle, although the settlement remains subject to its terms being carried out. Should that occur, the parties anticipate that they will seek the leave of the Court to discontinue the appeal within 30 days. We are informing the Court of this development as a courtesy.

    At my request, my associate informed the practitioners that the Court had intended to hand down judgment on 23 June 2021, and requested that the parties communicate as soon as possible to the Court their view as to whether the judgment should be handed down.  The Court received no response.  On 22 June 2021 I informed the parties, through my associate, that the matter would be listed for judgment on 25 June 2021.  Again, the Court received no response.

  3. This raises an important question as to whether the Court can or should proceed to hand down its judgment notwithstanding that the proceedings have “settled in principle”. The parties have not yet sought leave to file a notice of discontinuance pursuant to r 36.73(1)(b)(ii) of the Federal Court Rules 2011 (Cth); nor have they requested that the Court delay handing down its judgment.
  4. The issue has arisen for consideration in a number of English authorities:  Prudential Assurance Co Ltd v McBains Cooper [2000] EWCA Civ 172; 1 WLR 2000; Liverpool Roman Catholic Archdiocesan Trustees Inc v Goldberg (No 3) [2001] EWHC 396 (Ch); 4 All ER 950 (Ch D); Gurney Consulting Engineers v Gleeds Health & Safety Ltd [2006] EWHC 536 (TCC); 108 Con LR 58; Glaxo Group Ltd v Genentech Inc [2008] EWCA Civ 23; Bus LR 888; F&C Alternative Investments (Holdings) Ltd v Barthelemy (No 1) [2011] EWHC 1851 (Ch); [2012] Bus LR 884; Barclay’s Bank plc v Nylon Capital LLP [2011] EWCA Civ 826; [2012] 1 All ER (Comm) 912; Greenwich Inc Ltd (In Administration) v Dowling [2014] EWHC 2451 (Ch); WLR (D) 334. These authorities have been applied in Australia (Voss v Davidson [2003] QCA 252; Clarke v Great Southern Finance Pty Ltd [2014] VSC 516) and New Zealand (Osborne v Auckland Council [2014] NZSC 67; 1 NZLR 766).
  5. Putting to one side the complexities in the English cases arising from the English practice of circulating the draft judgment to practitioners prior to its delivery (see Practice Direction (Court of Appeal: Handed Down Judgments) [1995] 1 WLR 1055) important considerations of public policy and public interest support the judgment in this case being handed down.
  6. First, this appeal raises points of law of general interest pertaining to the nature of the burden and onus of proving grounds for the non-enforcement of arbitral awards, and, where such grounds have been made out, the nature of the discretion which permits enforcement notwithstanding the existence of vitiating irregularity.  It is thus in the public interest that these views are made the subject of a published judgment in order to facilitate the development of the law, and the provision of guidance to others, including the reduction of risks as to costs of others:  F&C Alternative Investments at [9] (Sales J).
  7. Secondly, the judgment corrects errors of both law and fact in the judgment below:  Prudential at [31] (Brooke LJ, with whom Walker and Gibson LJJ concurred); Barclay’s Bank v Nylon at [74] (Lord Neuberger MR);  Voss at [6] (Davies JA, with whom Williams and Wilson JJA concurred).
  8. Thirdly, the stage at which preparation of judgment had reached is a relevant consideration.  It is, as Lord Neuberger MR said, a highly questionable use of judicial time to prepare a judgment on a matter that has been settled:  Barclay’s Bank v Nylon at [75].  Here, the judgment was complete at the time of notification.
  9. Finally, whilst nothing in these reasons is intended to derogate from the dictum of Somervell LJ in Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314 at 321 that “the law … encourages reasonable settlements”, the parties had a long time in which they could have settled their dispute. They did not do so. The Court is unaware of the nature of the “in principle” settlement. The Court has a discretion in circumstances such as these to publish judgment where the private interests of the parties to settle the dispute without publication of judgment are outweighed by the countervailing public interest in making the judgment publicly available: F&C Alternative Investments at [1], [7]–[8] (Sales J);  Barclay’s Bank v Nylon at [74] (Lord Neuberger MR);  Clarke at [23]–[24] (Croft J); Osborne at [40]–[44] (Young J with whom Elias CJ, McGrath, Glazebrook and Tipping JJ concurred); Voss at [5]–[7] (Davies JA with whom Williams and Wilson JJA concurred); Greenwich at [131]–[137] (Smith J).
  10. In the light of the lack of clarity of the factual position concerning settlement “in principle” it is unnecessary to say anything about “matter” (in the Constitutional sense).
  11. Accordingly, I am of the opinion that judgment ought to be handed down and published.
I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Chief Justice Allsop.

 

Associate:

 

Dated: 25 June 2021

REASONS FOR JUDGMENT

MIDDLETON J:

  1. I agree with Stewart J’s reasons and proposed orders.  I agree with the additional remarks of the Chief Justice.
I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment of the Honourable Justice Middleton.

 

Associate:

 

Dated:       25 June 2021

 

REASONS FOR JUDGMENT

STEWART J:

 

Introduction

 

  1. This is an appeal from a judgment enforcing an arbitration award under s 8(3) of the International Arbitration Act 1974 (Cth) (IAA). The principal ground on which the appellant contends that the award should not be enforced is that the composition of the arbitral tribunal was not in accordance with the agreement of the parties as envisaged by s 8(5)(e) of the IAA notwithstanding that the tribunal was appointed by a court at the seat of the arbitration, namely the Plenary Court of First Instance of the State of Qatar. The respondent’s principal contention in response is that the appointment, having been made by the Qatari Court, must be regarded as valid under the law of the seat and that the appellant’s remedy was to challenge it there rather than to resist enforcement in Australia. The respondent also contends that even if it is concluded that the ground for non-enforcement in s 8(5)(e), or any other ground, is made out, as a matter of discretion the Court should nevertheless enforce the award. The appeal therefore raises questions as to the nature and exercise of that discretion.
  2. For the reasons that follow, I have come to the conclusion that the appeal should be allowed.  In essence, the award should not be enforced in Australia because the arbitral tribunal was not composed in accordance with the agreement of the parties and that is a proper basis to resist enforcement, it not being necessary for the award debtor to seek to set the award aside at the seat of the arbitration.  Also, because a failure to compose the arbitral tribunal in accordance with the agreement of the parties is fundamental to the jurisdiction of the arbitrators, there is little if any scope to exercise the discretion to enforce in this case and it should not be so exercised.The statutory provisions
  3. It being common ground that the award in question is a “foreign award” as referred to in Pt II of the IAA, relevant provisions of the IAA for present purposes are the following:

    2D          Objects of this Act

    The objects of this Act are:

    (a)          to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes; and

    (b)          to facilitate the use of arbitration agreements made in relation to international trade and commerce; and

    (c)          to facilitate the recognition and enforcement of arbitral awards made in relation to international trade and commerce; and

    (d)          to give effect to Australia’s obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration at its twenty-fourth meeting; and

    3            Interpretation

    (1)          In this Part, unless the contrary intention appears:

    arbitral award has the same meaning as in the Convention.

    foreign award means an arbitral award made, in pursuance of an arbitration agreement, in a country other than Australia, being an arbitral award in relation to which the Convention applies.

    8            Recognition of foreign awards

    (1)           Subject to this Part, a foreign award is binding by virtue of this Act for all purposes on the parties to the award.

    (3)           Subject to this Part, a foreign award may be enforced in the Federal Court of Australia as if the award were a judgment or order of that court.

    (3A)         The court may only refuse to enforce the foreign award in the circumstances mentioned in subsections (5) and (7).

    (5)           Subject to subsection (6), in any proceedings in which the enforcement of a foreign award by virtue of this Part is sought, the court may, at the request of the party against whom it is invoked, refuse to enforce the award if that party proves to the satisfaction of the court that:

    (c)           that party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his or her case in the arbitration proceedings; or

    (e)          the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

    (7)           In any proceedings in which the enforcement of a foreign award by virtue of this Part is sought, the court may refuse to enforce the award if it finds that:

    (b)       to enforce the award would be contrary to public policy.

    (7A)         To avoid doubt and without limiting paragraph (7)(b), the enforcement of a foreign award would be contrary to public policy if:

    (b)          a breach of the rules of natural justice occurred in connection with the making of the award.

    39          Matters to which court must have regard

    (1)          This section applies where:

    (a)       a court is considering:

    (i)           exercising a power under section 8 to enforce a foreign award; or

    (ii)          exercising the power under section 8 to refuse to enforce a foreign award, including a refusal because the enforcement of the award would be contrary to public policy; or

    (2)          The court or authority must, in doing so, have regard to:

    (a)       the objects of the Act; and

    (b)       the fact that:

    (i)          arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes; and

    (ii)         awards are intended to provide certainty and finality.

  4. As recognised in s 2D(d), s 8 was enacted following Australia’s accession to, and to give effect to, the New York Convention, i.e., the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature 10 June 1958, 330 UNTS 3 (entered into force 7 June 1959) which is reproduced as Sch 1 to the IAA: TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia [2013] HCA 5; 251 CLR 533 (TCL HCA) at [47] per Hayne, Crennan, Kiefel and Bell JJ. Section 8 closely mirrors the provisions of Art V of the Convention – Art V(1) is reflected in s 8(5) and Art V(2) in s 8(7). The same grounds for not enforcing an international arbitral award are also found in Art 36 of the UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended on 7 July 2006) which is reproduced as Sch 2 to the IAA.  The origins of Art 36 of the Model Law are also to be found in the New York Convention: TCL HCA at [7] per French CJ and Gageler J. Thus, Art 36(1)(a) of the Model Law mirrors Art V(1) of the New York Convention and Art 36(1)(b) of the Model Law mirrors Art V(2) of the New York Convention.
  1. It can thus be observed that the New York Convention and the Model Law represent a uniform framework for the recognition and enforcement of arbitral awards.  As explained in TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83; 232 FCR 361 (TCL FCAFC) at [58] per Allsop CJ, Middleton and Foster JJ, the Model Law deals with many aspects of arbitration and arbitral procedure not touched upon by the New York Convention, which is broadly limited to protecting, recognising and enforcing awards in the field of international commercial arbitration. There is overlap between the Model Law and the New York Convention on these matters.
  2. Insofar as foreign awards are concerned, it is noteworthy that of the 193 member states of the United Nations, 165 are signatories to the New York Convention (from 168 signatories in total); the regime is not only uniform, it is also remarkably widespread.  That underscores the importance of interpreting the provisions of the IAA that implement the New York Convention, and the corresponding provisions of the Model Law, with the aim of achieving international uniformity in their interpretation: Povey v Qantas Airways Ltd [2005] HCA 33; 223 CLR 189 at [25] and [32] per Gleeson CJ, Gummow, Hayne and Heydon JJ. Due regard should be paid to the reasoned decisions of the courts of other countries where their laws are either based on, or take their content from, international conventions or instruments such as the New York Convention and the Model Law; it is of the first importance to attempt to create or maintain, as far as the language employed in the IAA permits, a degree of international harmony and concordance of approach to international commercial arbitration: TCL FCAFC at [75].
  3. Section 8(3A) of the IAA, by use of the word “only”, makes it clear that an enforcing court has no residual discretion to refuse enforcement; enforcement can be refused only if one or other of the grounds for refusal in sub-ss (5) and (7) is made out. In that regard, once the party seeking enforcement has established that it relies on a foreign award to which it (leaving aside any assignment for the present) and the respondent are parties, the onus is on the respondent who seeks to resist enforcement to establish one or other of the enumerated grounds. That much is clear from the wording of the chapeau to s 8(5) that the court may refuse to enforce the award if the party against whom it is invoked “proves to the satisfaction of the court” that a ground for non-enforcement is made out.
  4. As will be seen, a question nevertheless arises as to the standard of the burden on the party resisting enforcement.  I will return to that question in the context of the first issue to be determined in the appeal.  A question also arises as to the court’s discretion to enforce an award even when a ground for non-enforcement is established.  I will return to that question in the context of the second issue to be determined in the appeal.Background
  5. The following facts are not in dispute.  They are principally drawn from the primary judgment, Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd (No 2) [2020] FCA 1116 at [7]-[26].
  6. The respondent, Energy City Qatar (ECQ), the award creditor, is a company incorporated in Qatar.  The appellant, Hub Street Equipment Pty Ltd (Hub), the award debtor, is a company incorporated in Australia with its principal place of business in Sydney.
  7. In 2010, ECQ and Hub entered into a contract for Hub to supply and install street lighting equipment and accessories, and street furniture and accessories, in Doha, Qatar.
  8. Relevant contractual provisions include:

    (1)          Article 46, headed “SETTLEMENT OF DISPUTES – ARBITRATION”:

    Any dispute connected with inter alia the formation, performance, interpretation, nullification, termination or invalidation of this Agreement or arising there from [sic] or related thereto in any manner whatsoever which is not amicably settled within 28 days, or such other period as the parties may subsequently agree, shall be referred to arbitration in accordance with the rules of arbitration in Qatar.  An Arbitration Committee shall consist of three members, one member being appointed by each party within 45 days of one party receiving a written notice from the other party to start arbitration proceedings.  The third member shall be mutually chosen by the first two members and shall chair the Arbitration Committee and issue the decision of the Arbitration Committee which shall be by a majority vote and shall be binding on both parties.  If a decision as to the appointment of the third such member cannot be reached within 28 days from the last date of the appointment of the member by the Parties and their appointed Tribunal Members, the matter of appointment of such member shall be referred by either party to the competent Qatari Courts.

    (2)          Article 47, which provides that the contract was made in the State of Qatar and is subject to the laws of the State of Qatar.

    (3)          Article 50, which provides that the English language shall be the ruling language of the contract and accordingly all matters relating to the contract shall be in English.

  9. In August 2011, ECQ paid US$820,322.16 to Hub under the contract as an advance payment.  However, in 2012 ECQ decided not to proceed with the contract and sought repayment of the money paid under the contract.  Following some email communications and meetings in 2012 in which ECQ continued to seek repayment of the money, Hub informed ECQ that it would identify its position after obtaining legal advice.  However, Hub never communicated again with ECQ in circumstances where Hub retained the money ECQ had paid to it.
  10. Crucially, ECQ never sent a notice to Hub under Art 46 of the contract giving Hub 45 days to appoint one member of the arbitration committee.  Instead, in June 2016 ECQ filed a statement of claim in the Plenary Court of First Instance of the State of Qatar seeking orders that the Court appoint an arbitral tribunal of three arbitrators including an arbitrator nominated by ECQ.  In doing so, ECQ relied on Art 195 of Law No. 13 of 1990 promulgating the Civil and Commercial Code of Procedure (Qatar) (the Civil Procedure Code) which was in force at the relevant time (and until February 2017).  The English translation of Art 195 of the Qatari Civil Procedure Code that was available in the proceeding is in the following terms:

    If a dispute arises between the parties prior to an agreement between them as to the arbitrators, or if one or more of the arbitrators refuses to act as such, or withdraws, or is dismissed, or is prevented from acting due to an encumbrance, and no agreement exists between the parties in this respect, the court which has jurisdiction to consider the dispute shall appoint the necessary number of arbitrators at the request of one of the parties, filed in accordance with the normal procedure for filing a claim.  The court shall hear the application in the presence of the other parties or in their absence after being summoned to appear before the court.  The court’s decision in respect of the foregoing may not be appealed in any way whatsoever.  However, its decision to reject the appointment of arbitrators shall be subject to appeal pursuant to the relevant provisions of Article 205.

  11. In November 2016, ECQ sent a notice of the court proceeding to Hub at the office of a related company in Qatar, not to the nominated address in Sydney at which Hub had agreed in the contract to receive notices.  The notice was translated from Arabic to English by an employee of the related company and brought to the attention of the directors of Hub in December 2016.  Hub did not participate in the Qatari Court proceeding.
  12. The Qatari Court made orders in January 2017 appointing an arbitral tribunal.  Thereafter, the arbitral tribunal sent to Hub’s nominated address six notices in English about the conduct of the arbitration between April 2017 and July 2017, with the arbitration being adjourned on three occasions due to Hub’s failure to attend.  Hub did not participate in the arbitration proceeding.
  13. The primary judge was satisfied that notice of the court proceeding was given to Hub’s directors, and that each of the six letters from the arbitral tribunal were given to Hub and that Hub understood from them that ECQ had commenced an arbitration against Hub for recovery of the US$820,322.16 which had been paid to Hub.  The primary judge inferred that Hub decided not to involve itself in the arbitration because it decided that was what was in its best commercial interests at the time.
  14. On 1 August 2017, the arbitral tribunal issued the award obliging Hub to pay ECQ:

    (1)          US$820,322.16, being the full value of the advance payment;

    (2)          US$75,000.00, as compensation against damages incurred by ECQ; and

    (3)          US$150,000.00, as full fees of the arbitration.

  15. The award is in Arabic.  It is apparent from the English translation of the award that the arbitral tribunal was satisfied that it had notified Hub of the conduct of the arbitration on three occasions, after which it adjourned the arbitration, but that as there was never any appearance by Hub it proceeded to determine the dispute and make the award in Hub’s absence.The primary judgment
  16. On the basis of the factual findings made by her Honour, which are not challenged on appeal, the primary judge (at [28]) rejected Hub’s grounds for resisting enforcement of the award based on its factual contentions that it had not received proper notice of the arbitration proceeding (s 8(5)(c) of the IAA), that it was unable to present its case in the arbitration proceeding as it never received notice of the proceeding (also s 8(5)(c)), and the arbitral award involved a breach of the rules of natural justice and thus the award should not be enforced as it would be contrary to public policy to do so (ss 8(7) and 8(7A)(b) of the IAA).
  17. The primary judge (at [30]) rejected Hub’s contention that the award should not be enforced because the arbitral procedure was not in accordance with the agreement of the parties in that contrary to Art 50 of the contract it was not conducted in English and the award was issued in Arabic (relying on s 8(5)(e) of the IAA). That was on the basis that the notices from the arbitral tribunal to Hub about the arbitration were in English, and Hub decided to ignore them and take no part in the arbitration despite knowing that it was being conducted. Having done so, there was no prejudice to Hub occasioned by the fact that the arbitral proceeding was conducted in and the arbitral award issued in Arabic. For those reasons, the primary judge, as a matter of discretion, would have decided to enforce the award against Hub notwithstanding the fact that the arbitral procedure was not in accordance with the agreement of the parties.
  18. The remaining grounds on which Hub resisted enforcement of the award were related, namely that it did not receive proper notice of the appointment of the arbitrators and the composition of the arbitral authority was not in accordance with the agreement of the parties as the Art 46 procedure in the contract had not been followed. These grounds relied on paragraphs (c) and (e) of s 8(5) of the IAA. The primary judge dealt with these grounds together (at [31]-[60]).
  19. The primary judge observed (at [34]) that the Qatari Court stated (in the English translation of its judgment):

    Whereas the two parties failed to agree upon tribunal of arbitrators, with which the court decides to appoint a tribunal consisted of three arbitrators…

  20. With reference to that statement by the Qatari Court and Art 195 of the Qatari Civil Procedure Code, the primary judge (at [59]) reasoned that it must be taken that the Qatari Court was satisfied that a dispute had arisen between ECQ and Hub prior to an agreement between them as to the arbitrators, and, whether that is so or not, Hub had not proved that according to Qatari law Art 195 of the Qatari Civil Procedure Code did not apply to the circumstances of the case.  That was because Hub’s expert on Qatari law, Dr Al-Adba, did not in his affidavit take into account the judgment of the Qatari Court and did not consider whether Art 195 was engaged by the factual circumstances of the case.  Further, the primary judge found that there was a factual foundation in the evidence for the conclusion that a dispute had arisen between the parties prior to an agreement between them as to the arbitrators, being Hub’s failure to revert to ECQ once it had obtained legal advice.  The primary judge found that refusal to respond to a request for repayment is capable of constituting a dispute within the meaning of Art 195.
  21. In essence, the primary judge (at [59]) held that the onus of proof lay on Hub and that Hub had not proved that Art 195 did not operate so as to allow the appointment of arbitrators in the circumstances of the case.  As such, it was held that Hub had not proved that the appointment of the arbitrators by the Qatari Court was not in accordance with Art 46 of the contract.
  22. With regard to the burden of proof, the primary judge (at [60]) cited IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSC 248; 38 VR 303 at [53] per Warren CJ that “the enforcing court should start with a strong presumption of regularity in respect of the tribunal’s decision and the means by which it was arrived at” and “the conduct of the parties to the agreement at each of the various stages prior to an enforcement order being sought in these courts, and its consistency with the defence subsequently asserted, will be a relevant factor to consider when deciding whether that burden has been discharged to the necessary standard.”
  23. Finally, the primary judge (at [61]) stated that if her Honour’s conclusions in rejecting Hub’s grounds for resisting enforcement of the award were incorrect, then she would nevertheless have declined to exercise the discretion to refuse enforcement given by s 8(5) of the IAA in Hub’s favour. The reasons identified by the primary judge were that Hub had received actual notice of the proceeding by ECQ in the Qatari Court and knew that the notice concerned ECQ seeking repayment of the money yet did nothing to ascertain what the proceeding was about, and Hub received actual notice of the constitution of the arbitral tribunal and the conduct of the arbitration in ample time to take a role in the arbitration but chose not to do so. The primary judge thus concluded (at [62]) that there would be no unfairness to Hub by enforcement of the award against it as it had had adequate opportunity to participate and had chosen not to do so.
  24. In the result, the primary judge entered judgment for ECQ against Hub in the amount of US$1,045,322.16 and ordered that Hub pay the cost of the proceeding.The grounds of appeal
  25. Although the notice of appeal identifies four grounds of appeal, they were grouped together in argument in such a way that there are in effect two principal issues in the appeal.
  26. First, Hub contends that the award should not be enforced because Hub was not given proper notice of the arbitration proceeding and the composition of the arbitral tribunal was not in accordance with the agreement of the parties under Art 46 of the contract (in reliance on paragraphs (c) and (e) of s 8(5) of the IAA). Hub submits that Art 195 of the Qatari Civil Procedure Code did not override the parties’ agreement as to the mode of commencement and notification of the arbitral proceeding, and the requirement to give notice of the commencement of the arbitral proceeding under Art 46 of the contract could not be cured by giving notice of the proceeding before the Qatari Court to appoint an arbitral tribunal. Hub submits that the existence of a dispute between the parties did not constitute a failure to agree on the composition of the tribunal within Art 195 of the Qatari Civil Procedure Code and the appointment of arbitrators by the Qatari Court under Art 195 did not cure the failure to constitute the arbitral tribunal in accordance with Art 46 of the contract.
  27. Secondly, Hub contends that any residual discretion under s 8(5) of the IAA to enforce the foreign award despite a ground for non-enforcement being established – whether as to the language of the arbitration as found by the primary judge or the composition of the tribunal as contended on issue 1 – was not enlivened or should not be exercised. In that regard, Hub submits that the primary judge ought to have concluded that the failure to conduct the arbitration in English was a fundamental departure from the agreed arbitral procedure with the consequence that the Court’s narrow residual discretion under s 8(5) to enforce an arbitral award was not enlivened. A similar submission is made with regard to the composition of the tribunal.Issue 1: the appointment of the arbitral tribunal
  28. Article 46 of the contract provides in the customary way for each party to a dispute to appoint an arbitrator and for the two arbitrators so appointed to appoint the third member of the tribunal.  To an Australian lawyer, Art 195 of the Qatari Civil Procedure Code provides in the customary way for the court at the seat of the arbitration to appointment arbitrators where the parties’ agreed procedure has failed.  It does not, on the face of it, provide for the court to appoint arbitrators contrary the parties’ agreed procedure simply because the parties are in a contractual dispute.  If that were the case, then the court could always appoint arbitrators whatever the parties had agreed which would be contrary to the fundamental premise underlying arbitration, and the court’s enforcement of arbitration awards, which is that the jurisdiction of the tribunal arises from the agreement or consent of the parties: Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) [1998] FCA 1485; 90 FCR 1 at 14 per Emmett J, Beaumont and Branson JJ agreeing; TCL HCA at [9] and [29] per French CJ and Gageler J and [81] and [109] per Hayne, Crennan, Kiefel and Bell JJ. As it was put by Menon CJ in AKN v ALC [2015] SGCA 18 at [37], “a critical foundational principle in arbitration is that the parties choose their adjudicators” (cited with approval in Cameron Australasia Pty Ltd v AED Oil Ltd [2015] VSC 163 at [21] per Croft J).
  29. However, it is not for the court where enforcement is sought, being this Court, to construe Art 46 of the contract or Art 195 of the Qatari Civil Procedure Code with reference to the law of the forum.  Those are matters for, respectively, the law governing the agreement to arbitrate and the law of the seat, which in the present case is in both instances Qatari law.  In that regard, it is uncontroversial in the present case that the law governing the substance of the dispute, the agreement to arbitrate and the arbitration process were all the same.  On that tripartite distinction, see Enka Insaat ve Sanayi AS v OOO “Insurance Company Chubb” [2020] UKSC 38; [2020] 1 WLR 4117 at [1]-[6] and [170].
  30. That appreciation leads to an examination of the evidence before the primary judge of Qatari law.  In that regard, it is important to acknowledge at the outset that ECQ does not contend that the Qatari Court judgment that appointed the arbitrators is an authoritative statement of Qatari law or that it creates an issue estoppel or res judicata between the parties, but rather that it is a ministerial act which has force and effect in the State of Qatar, being the place of the seat of the arbitration, and should be given recognition as a matter of comity.
  31. It should also be observed that in opening the case before the primary judge, the advocate for Hub said that the Qatari Court had made its decision on the basis that it had power to appoint the tribunal because the process set out in Art 46 had been attempted but had not achieved an outcome.  It was said that the Qatari Court was misled, and that it viewed Art 195 in exactly the same way as that provision would be viewed in Australia, namely that it is “a backstop that the Court can use when the agreement between the parties has broken down”.
  1. In opening the case before the primary judge, counsel for ECQ accepted that there was no notice under Art 46 prior to the Qatari Court proceeding, and that by saying that the Qatari Court was misled was to in effect ask the primary judge “to sit on appeal from a Qatar court”.
  2. In the light of what was said in opening, and contrary to what was at least hinted at on behalf of ECQ on the appeal hearing, I am satisfied that the point under consideration was properly raised before the primary judge.  That point is whether Hub can resist enforcement of the award in Australia on the basis that the arbitral tribunal was not appointed in accordance with the parties’ agreement notwithstanding the appointment of the tribunal by the Qatari Court because the Qatari Court misapprehended what had taken place between the parties with regard to the appointment of a tribunal.
  3. ECQ’s statement of claim in the Qatari Court by which it sought the appointment of three arbitrators, after citing Art 195 of the Qatari Civil Procedure Code, stated the following:

    Whereas and as the Defendant had refrained from execution of its legal and contractual obligations then accepting to recourse to arbitration despite being agreed upon in the agreement connecting the two parties, against that the Plaintiff instituted this lawsuit with the request to appoint a triple arbitral tribunal by which the Plaintiff nominates the arbitrator Yarub Rayan

  4. It is not clear from that translation whether the Qatari Court was being informed that Hub had not observed its legal and contractual obligation to submit to arbitration, or whether it was that Hub had not observed its underlying legal and contractual obligations, i.e., to repay the money paid in advance.
  5. The reasons for judgment of the Qatari Court records that the Court had “heard pleading and reviewed the documents and deliberated legally”, the facts were summed up in the statement of claim of which Hub was legally notified, a docket of exhibits was submitted which included a copy of the contract, and ECQ had appeared by an attorney and Hub had not appeared despite being legally notified.  The Qatari Court quoted Art 195 of the Civil Procedure Code and referred to Art 46 of the contract.  It then stated as follows:

    Whereas the Plaintiff had instituted this lawsuit alleging that the Defendant had breached its obligations as per the contract and adhered to the condition of arbitration contained in the contract subject matter of lawsuit.  Later, it had contacted it by a letter by its virtue it had nominated Mr. Moneer Abdulaziz Shalabi as an arbitrator for its behalf and asked to appoint an arbitrator by its side and the Defendant failed to appear before the court despite of the legal notification accordingly it had not objected against the submitted arbitration application.  Whereas and as Items of the contract in Article (46) thereof provided for on appointment triple arbitral tribunal, each party shall appoint one member and the third member shall be nominated by the first and second members who will chair the committee and issue the decision of the arbitral decision and in case of failure to agree upon appointment of those members it shall be referred by either party to the competent Qatari Courts.  Whereas the two parties failed to agree upon tribunal of arbitrators, with which the court decides to appoint a tribunal consisted of three arbitrators from the table of court’s experts as arbitrators to decide in the dispute subject matter of lawsuit with which the court adjudicate as will be contained in the pronouncement.

    (Emphasis added.)

  6. From this it is apparent that the Qatari Court was advised, or in any event understood, that after the institution of the proceeding before the Court, ECQ had notified Hub that it had nominated Mr Shalabi as an arbitrator and it asked Hub to appoint an arbitrator but that Hub had failed to appear before the Court, and presumably had failed to appoint an arbitrator.  That was apparently the basis for the conclusion that the parties had failed to agree upon a tribunal of arbitrators which the Qatari Court regarded as enlivening its power to appoint the tribunal under Art 195 of the Civil Procedure Code.  On that basis it proceeded to appoint a tribunal of three: a civil engineer, an electrical engineer and an accountant.  Neither Mr Rayan, who had been nominated in the statement of claim, nor Mr Shalabi who was said to have been nominated after the court proceeding had been commenced, was appointed.
  7. Since it is an uncontroversial finding of fact of the primary judge that Hub had not been notified of the appointment by ECQ of an arbitrator and invited to appoint an arbitrator, as required by Art 46 of the contract, it is apparent that the Qatari Court proceeded upon a misapprehension as to the facts.  The reason for the misapprehension is not apparent, or particularly relevant.  It is nevertheless tolerably clear, the imperfections of translation accounted for, that the Qatari Court appointed the tribunal because, as it understood the position, ECQ had invoked the Art 46 procedure but Hub had failed to respond.
  8. Only Hub adduced expert evidence on Qatari law.  As indicated, its expert was Dr Al-Adba, a practising Qatari lawyer with a Bachelor of Laws (Qatar University), Master of Laws (Institute of International and Development Studies, Geneva), Graduate Diploma in Law (Harvard Law School) and Doctor of Philosophy (Manchester University).  Dr Al-Adba’s affidavit included the following statements of opinion:

    (1)          The most important thing to validly commence an arbitration is legal notification as agreed in the agreement.  Without this, the dispute might be premature and the arbitration deed and verdict will be invalid.

    (2)          The valid way either party to the contract with the wording of Art 46 may begin an arbitration against the other party is for the claimant to send a written notice by prepaid post to the respondent to the address provided in the contract and, within 45 days of that notice, each party may appoint an arbitrator.

    (3)          In the event that the notice under the contract is not responded to, the claimant may apply to the court for a judicial notification to appoint an arbitrator.

  9. In cross-examination, Dr Al-Adba gave the following evidence:

    (1)          With reference to the judgment of the Qatari Court, of which he was not aware at the time he prepared his affidavit, he said that the court had adjudicated to appoint the arbitral tribunal.  He then agreed with the proposition that until a judgment is set aside it represents the law in the State of Qatar.

    (2)          In response to the proposition that since the court appointed the arbitrators the award would not be null and void, he said that if the arbitrators are appointed by the court, “for some extent the appointment might be okay, if the notification is delivered”, but the award of the arbitrators might be null and void.  Dr Al-Adba would seem to have meant that if notification under Art 46 of the contract had been given and not responded to, then the appointment of the arbitrators would be valid but that whether or not an arbitration award would be valid and enforceable would depend on other considerations.

    (3)          He agreed with the proposition that “if you wanted to argue that the court should not have appointed the arbitrators then you have to make an application under article 33 of the Qatari Arbitration Law”.  That was a reference to Art 33 of the Civil and Commercial Arbitration Law (Law No. 2 of 2017) which was in force from March 2017, i.e., at the time of the hearing before the primary judge but not at the time of the judgment of the Qatari Court.  It provides for recourse against an arbitral award on narrow grounds that mirror those in Art 34 of the Model Law, the State of Qatar having adopted domestic legislation based on the Model Law.

    (4)          He did not agree with the proposition that it is a normal part of the procedure in Qatar to give notice of appointment of an arbitrator under the contract in the statement of claim commencing a lawsuit in which the court is asked to appoint arbitrators.

  10. It was not put to Dr Al-Adba that Art 195 of the Civil Procedure Code gave the court the power to appoint arbitrators where the procedure agreed by the parties for the appointment of arbitrators had not been followed. The high point of the cross-examination was that if Hub disagreed with the appointment by the Qatari Court it had to apply to set aside the award. That, of course, does not deal with the position in January 2017 when the appointment was made, which was when Art 195 of the Qatari Civil Procedure Code applied which states that the appointment of arbitrators under that provision “may not be appealed in any way whatsoever”. Also, it does not answer whether enforcement of the award can be resisted in Australia under s 8(5)(e) of the IAA. It merely speaks to what could be done in Qatar.
  11. In re-examination, Dr Al-Adba said that the statement of claim by which the lawsuit to appoint the arbitrators was commenced would not be considered as a notice of the kind contemplated by the arbitration agreement in Art 46 of the contract.
  12. The conclusions to draw from the evidence are that Art 46 required the notice and invitation to appoint an arbitrator procedure to be followed and Art 195 of the Civil Procedure Code gave to the court the power to appoint arbitrators where the parties had failed to agree.  That is also apparently what the Qatari Court understood that it was doing.  The evidence does not support the proposition that Art 195 empowered the court to override the agreement of the parties as to the appointment of the arbitral tribunal.  The Qatari Court apparently acted on the misapprehension that the Art 46 procedure had been followed but had failed to produce the appointment of a tribunal and on that basis it exercised its power of appointment.
  13. In those circumstances, under Qatari law as the applicable law, the composition of the arbitral tribunal was not in accordance with the agreement of the parties. The basis to resist enforcement of the award in reliance on s 8(5)(e) of the IAA was accordingly established. In my respectful view, the primary judge was in error in concluding that Hub had not proved that according to Qatari law Art 195 of the Civil Procedure Code did not apply to the circumstances of the case. Although there was a factual foundation to, and evidence to support, the conclusion that a dispute had arisen between the parties, that had not been prior to an agreement between them as to the arbitrators. They agreed on the method and procedure for the appointment of arbitrators in their contract at the outset, long before any dispute arose. There was also no dispute between them with regard to following the procedure required by Art 46 of the contract; ECQ, for whatever reason, had simply not followed that procedure and had gone prematurely to court which resulted in the appointment of a tribunal that was contrary to the parties’ agreement.
  14. Because the primary judge decided this point on the basis that Hub had not discharged the burden on it to prove that the composition of the arbitral tribunal was not in accordance with the agreement of the parties, it is necessary to consider the question of the standard of the burden of proof.  As indicated, the primary judge cited and apparently applied dicta of Warren CJ in IMC Aviation.  However, differing views were expressed on that question in IMC Aviation.
  15. The case concerned which party bore the onus on the question of whether the award debtor was a party to the arbitration agreement as referred to in s 8(1) of the IAA as it was then worded. Subsequent amendment of s 8(1) in response to the judgment in IMC Aviation (by the Civil Law and Justice Legislation Amendment Act 2018 (Cth), item 2 of Sch 7) makes it clear that for enforcement the award must be between the parties to the award, rather than the parties to the agreement. The Court was unanimous in the result, namely that the appeal should be allowed, but there were two judgments with different approaches to the burden of proof, one by Warren CJ and the other by Hansen JA and Kyrou AJA. It is to the joint judgment that one must look to find the rationes decidendi or, if the relevant point is not ratio, the majority dicta: Dickenson’s Arcade Pty Ltd v Tasmania [1974] HCA 9; 130 CLR 177 at 188 per Barwick CJ.
  16. The joint judgment in IMC Aviation (at [127]) recognised that s 39(2) of the IAA provides that in interpreting the IAA the court must have regard to its objects set out in s 2D as well as the stated facts that arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes and that awards are intended to provide certainty and finality.
  17. With regard to what has been described as the “pro-enforcement bias” of the New York Convention, the joint judgment (at [128]) reasoned that that means that the IAA, and the Convention, recognising the role and importance of arbitration in international trade and commerce and the certainty and finality of awards, has simplified the procedure for enforcing foreign awards while also limiting the grounds upon which the enforcement of such awards may be resisted and placed the onus of establishing those grounds upon the party resisting enforcement.  In support of that statement the judgment cited Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46; [2011] 1 AC 763 at [101] per Lord Collins of Mapesbury JSC; Blackaby N, Partasides C, Redfern A and Hunter M, Redfern and Hunter on International Arbitration (5th ed, Oxford University Press, 2009) p 588 [10.09] and Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] HKCFA 40; [1999] 2 HKC 205 at [99] per Sir Anthony Mason NPJ. Those references are all good authority for the proposition for which they were cited, and they reflect the approach with regard to the Convention in two significant common law jurisdictions.
  18. In Dallah, Lord Mance JSC (at [30]) expressed the matter as follows:

    The scheme of the New York Convention, … may give limited prima facie credit to apparently valid arbitration awards based on apparently valid and applicable arbitration agreements, by throwing on the person resisting enforcement the onus of proving one of the matters set out in article V(1) … . But that is as far as it goes in law.  Dallah starts with advantage of service, it does not also start 15 or 30 love up.

  19. Lord Hope of Craighead DPSC, Lord Saville of Newdigate JSC and Lord Clarke of Stone-cum-Ebony JSC agreed with the reasons of Lord Mance and Lord Collins JJSC.
  20. The joint judgment in IMC Aviation concluded (at [191]-[192]) that the primary judge in that case had been in error in concluding that the party resisting enforcement bears an onus that is “very high” and that “clear, cogent and strict proof” is required. Their Honours concluded that the IAA neither expressly nor by necessary implication provides that the standard of proof under ss 8(5) and (7) is anything other than the balance of probabilities, as one would expect in a civil case. The true position, it was concluded, is that what may be required, in a particular case, to produce proof on the balance of probabilities will depend on the nature and seriousness of that sought to be proved. See also Beijing Jishi Venture Capital Fund (Limited Partnership) v Liu [2021] FCA 477 at [25] per Middleton J where this approach was adopted. This includes the elementary maxim that all evidence is to be weighed according to the proof of which it was in the power of one side to have produced, and in the power of the other to have contradicted: Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970.
  21. Warren CJ, in contrast, reasoned (at [52]-[53]) that the enforcing court should start with “a strong presumption of regularity” and that it should treat allegations of vitiating irregularity, which her Honour had identified as being the grounds to resist enforcement in s 8(5)(a)-(e), as “serious”. On that basis, with reference to Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336 at 362 per Dixon J, her Honour concluded that a “correspondingly heavy onus falls upon the award debtor if it wishes to establish such an allegation on the balance of probabilities.”
  22. In my view, the expression of the point in the joint judgment is to be preferred to that of the Chief Justice for the reasons given in the joint judgment referred to above.  The nature of the “vitiating irregularity” and hence how “serious” it should be regarded to be may differ.  In one case it may involve allegations of or akin to fraud and in another case, such as the present where the issue is in essence whether the agreed commencing procedure was followed, it may be quite bland without any moral taint of “seriousness” although obviously of great importance; the “seriousness” or “gravity” of an allegation of fact on which an award debtor relies in order to establish a ground of non-enforcement is not necessarily of the nature of seriousness contemplated in Briginshaw such as by its nature to be more exacting to prove before the court will have “comfortable satisfaction” (Rich J at 350) or “feel an actual persuasion” (Dixon J at 362) of its having been established. See British American Tobacco Australia Services Ltd v Laurie [2009] NSWCA 414 at [10]-[13] per Allsop P; Bennett H and Broe GA, “The Civil Standard of Proof and the ‘Test’ in Briginshaw: Is There a Neurobiological Basis to Being ‘Comfortably Satisfied’?” (2012) 86 ALJ 258; Gageler S, “Evidence and Truth” (2017) 13 TJR 1 at 6-8; Gageler S, “Alternative Facts and the Courts” (2019) 93 ALJ 585 at 590-591.
  23. I respectfully agree with the joint judgment that the IAA neither expressly nor by necessary implication provides that the standard of proof under ss 8(5) and (7) is anything other than the balance of probabilities as ordinarily applied in a civil case. The point about the IAA having a pro-enforcement bias is that the grounds upon which enforcement may be resisted are finite and narrow, and not that they must be established to a standard that is higher than the ordinary standard. This is also the approach that better accords with that followed internationally.
  24. Finally on IMC Aviation, I do not see how, as stated by Warren CJ (at [53]) and cited by the primary judge, the conduct of the parties to the agreement at each of the various stages prior to an enforcement order being sought, and its consistency with the defence subsequently asserted, will be a relevant fact to consider when deciding whether the burden of establishing vitiating irregularity has been discharged to the necessary standard.  Such conduct may conceivably be relevant to the question of discretion, to which I will shortly turn.  The grounds for non-enforcement are, however, narrow and specific.  The conduct of the parties between the points at which the dispute arises and an enforcement order is made in the court cannot be relevant to, for example, the questions of whether a party to the arbitration agreement was under some legal incapacity at the time when the agreement was made, or the arbitration agreement is valid under the law applicable to it, or the award debtor was given proper notice of the appointment of the arbitrator, or the composition of the arbitral authority was in accordance with the agreement of the parties.
  25. In the result, Hub proved to the requisite standard that the composition of the arbitral tribunal was not in accordance with the arbitration agreement. It has thus established the ground for non-enforcement expressed in s 8(5)(e) of the IAA and Art V(1)(d) of the New York Convention. The question then turns to the matter of the court’s discretion to nevertheless enforce the award. But before doing so, it is necessary to consider one further submission made by ECQ.
  1. ECQ submits that Hub’s remedy was to seek to set aside the appointment of the arbitral tribunal or the award at the seat, i.e., Qatar, rather than to rely on the wrong composition of the tribunal as a ground to resist enforcement.  As indicated, that is on the basis that as a ministerial act the decision of the Qatari Court to appoint the arbitrators exists and is effective in Qatar and as a matter of comity this Court should regard it as effective until set aside.
  2. It is well established that as a general rule an award debtor does not have to take positive steps at the seat of the arbitration to set aside the award and can wait until the award is sought to be enforced before raising any defences to enforcement.  That arises from the text and structure of the New York Convention and the Model Law which provide for the same grounds for recourse against an award and resisting enforcement of any award and do not expressly or by implication require an award debtor to take one course rather than the other; the award debtor has a choice: it can actively seek to set aside the award in the supervisory court at the seat of the arbitration or it can wait and raise defences to the award in the enforcing court when the award is sought to be enforced.
  3. In Dallah (at [23] per Lord Mance JSC) it was said that a person who denies being party to any relevant arbitration agreement has no obligation to participate in the arbitration or to take any steps in the country of the seat of what they maintain to be an invalid arbitration leading to an invalid award against them. The party initiating the arbitration must try to enforce the award where it can. Only then and there is it incumbent on the award debtor denying the existence of any valid award to resist enforcement. It was also said (at [28]) that there is nothing in the text containing any suggestion that a person resisting recognition or enforcement in one country has any obligation to seek to set aside the award in the other country where it was made. See also [103] per Lord Collins JSC.
  4. What Lord Mance JSC had said on this point in Dallah was endorsed by Hansen JA and Kyrou AJA in IMC Aviation at [320]. The same position has been recognised in Singapore: PT First Media TBK v Astro Nusantara International BV [2014] 1 SLR 372; [2013] SGCA 57 (PT First Media SG) at [71] per Menon CJ for the Court, adopted in Liaoning Zhongwang Group Co Ltd v Alfield Group Pty Ltd [2017] FCA 1223 at [117]-[118] per Gleeson J.
  5. The position is, however, different where the court at the seat of the arbitration has itself rejected a challenge to the award.  It will generally be inappropriate for the enforcement court of a Convention country to reach a different conclusion on the same question of asserted defects in the award as that reached by the court of the seat of arbitration: Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109; 304 ALR 468 at [65] per Allsop CJ, Besanko and Middleton JJ. The Court in Gujarat endorsed the observations of Coleman J in Minmetals Germany GmbH v Ferco Steel Ltd [1999] 1 All ER (Comm) 315 (at 331) that outside an exceptional case such as where the powers of the supervisory court are so limited that they cannot intervene even where there has been an obvious and serious disregard for basic principles of justice by the arbitrators or where for unjust reasons, such as corruption, they decline to do so, any suggestion that procedural defects in the conduct of the arbitration which have already been considered by the supervisory court should be reinvestigated by the enforcing court is to be most strongly deprecated.
  6. In Hebei, the Hong Kong Court of Final Appeal similarly held (at [84]-[85]) that the New York Convention recognises that although an award may be valid by the law of the place where it is made, its making may be attended by such a grave departure from basic concepts of justice as applied by the court of enforcement that the award should not be enforced. Thus, the refusal by a court of supervisory jurisdiction to set aside an award does not debar an unsuccessful applicant from resisting enforcement of the award in the court of enforcement. It is implicit in the reasoning that the circumstances in which opposition to enforcement will be successful in such an event are necessarily constrained.
  7. In PT First Media TBK v Astro Nusantara International BV [2018] HKCFA 12; [2018] 3 HKC 458 (PT First Media HK), awards made in Singapore and subject to the supervision of the courts in Singapore had been denied enforcement in Singapore on the fundamental basis that the arbitrators lacked jurisdiction, but they had not been set aside there (see PT First Media SG referred to above). Indeed, there had been no application there to set them aside. When enforcement was sought in Hong Kong, the award debtors resisted enforcement in reliance on the lack of jurisdiction of the arbitrators and the award creditor countered by arguing that since the awards had not been set aside in Singapore they were still a valid source of debt. The Court of Final Appeal (at [75] and [79]) reaffirmed the principle that absent considerations such as waiver an award debtor has a choice whether to actively pursue setting aside the award in the supervisory court or passively resisting enforcement in the enforcing court. Thus the failure to seek to set aside the awards in Singapore was no obstacle to resisting their enforcement in Hong Kong.
  8. The present case fits neither the paradigm case of the award debtor having a choice between whether to challenge the award at the seat or resist enforcement nor the case where the award has been endorsed by the supervising court at the seat, by rejecting a challenge to it, and the award debtor seeks to challenge it again at the enforcement stage.  In the first case there is no supervisory court endorsement of the award and in the second there is, whereas in the present case there is involvement of the supervisory court at the stage of appointment of the arbitral tribunal but no endorsement of the award.  ECQ consequently relies on comity rather than the structure of the common international regime for the recognition and enforcement of arbitral awards to justify this Court’s acceptance of the Qatari Court’s appointment of the tribunal notwithstanding the Qatari Court’s misapprehension already identified.
  9. In CSR Ltd v Cigna Insurance Australia Ltd [1997] HCA 33; 189 CLR 345 at 395-396, per Dawson, Toohey, Gaudron, McHugh, Gummow and Kirby JJ, citing Hilton v Guyot 159 US 113 (1895) at 163-164, it was recognised that “comity”, in the legal sense, is neither a matter of absolute obligation, on the one hand, nor of mere courtesy and goodwill, on the other. It is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws. See also Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International NV [2007] FCAFC 43; 157 FCR 558 at [18]-[19] per Black CJ, Allsop and Middleton JJ. Thus, comity is not an uncritical, automatic or unexamined recognition of a foreign court’s process or judgment; it is nuanced and depends on the nature of what is sought to be recognised, the purpose for which recognition is sought, domestic rights and the ramifications of recognition. See Allsop JLB, “Comity and commerce” (Address to the 16th Conference of Chief Justices of Asia & the Pacific, Sydney, 8 November 2015) [43].
  10. There is no detraction from the principle of comity, so understood, by not enforcing the award in this case on the basis that the Qatari Court acted on a misapprehension of the true position in appointing the arbitral tribunal. There are several considerations that lead to that conclusion. First, there is no disrespect of, or lack of goodwill towards, the Qatari Court to recognise that it acted upon a misapprehension of what we now know the facts to be. Secondly, any exercise of jurisdiction of the Qatari Court to appoint arbitrators to the dispute of the parties rested on the parties’ agreement, and since what they agreed was not followed the basis for the exercise of that jurisdiction was lacking; the failure goes to the very heart of the decision that ECQ would have this Court recognise. Thirdly, Hub did not invoke the process of the Qatari Court the result of which it is now seeking to resile from; it agreed a particular procedure for the commencement of arbitral proceedings and the appointment of an arbitral tribunal and when that was not followed it ignored what was subsequently done to appoint the arbitral tribunal, which it was entitled to do. Fourthly, Hub has the right (subject to the question of discretion which I will come to) under the law of Australia to not have enforced against it here an arbitral award by an arbitral tribunal that was not composed in accordance with what it had agreed. Section 8(5)(e) of the IAA is a law of the Commonwealth of Australia that the Court cannot merely brush aside in the interests of comity; the Court is duty bound to apply it.
  11. Support for that approach is to be found in the decision of the United States Court of Appeals for the Second Circuit in Encyclopaedia Universalis SA v Encyclopaedia Britannica Inc, 403 F 3d 85 (2nd Cir, 2005).  The arbitration agreement provided for each party to appoint an arbitrator and for them to jointly appoint the third arbitrator, but in the event of disagreement between them the third arbitrator would be appointed by the President of the Tribunal of Commerce of Luxembourg (apparently a chamber of the Luxembourg District Court) at the request of the arbitrator who was first to make such a request.  Encyclopedia Universalis SA (EUSA) appointed Danziger and Encyclopaedia Britannica Inc (EB) appointed Layton, and they conferred on various matters but not on the identity of the third arbitrator.  Then, Danziger wrote to the President of the Tribunal stating that he and Layton had been unable to agree on a third arbitrator.  The Presiding Judge of the Tribunal appointed the third arbitrator, Decker.  There was then a dispute about the appointment of the third arbitrator which went to a hearing before the Presiding Judge who ordered that Decker proceed with the arbitration.  EB and Layton did not participate in the ensuing arbitration proceeding which produced an award in favour of EUSA.
  12. EUSA then sued in the Southern District of New York seeking recognition and enforcement of the arbitration award pursuant to the New York Convention.  The Second Circuit agreed (at 91) with the District Court that “the Tribunal’s premature appointment of Decker irremediably spoiled the arbitration process” – it was premature because Danziger had sought the appointment before he and Layton had reached disagreement on it.  It was held that courts must not overlook agreed-upon arbitral procedures in deference to the strong public policy in favour of international arbitration, and that the New York Convention required that the parties’ commitment to the form of their arbitration be respected.  On that basis, the District Court’s refusal to enforce the award was upheld.  That conclusion was reached notwithstanding that the arbitral tribunal had been appointed by the Tribunal de Commerce in Luxembourg after a hearing at which both EB and EUSA were represented by counsel.  The District Court concluded that the defect in the proceedings was not attributable to any decision made by the Tribunal, but rather to the premature involvement of the Tribunal as a result of Danziger’s actions: Encyclopaedia Universalis SA v Encyclopaedia Britannica Inc, 03 Civ 4363 (SAS) (S.D.N.Y. Dec. 3, 2003) at 10.
  13. The present case is similar.  The defect in the proceeding is not attributable to the decision of the Qatari Court to appoint the arbitral tribunal, but to the premature involvement of the Qatari Court at the suit of ECQ.
  14. For these reasons, Hub’s reliance on s 8(5)(e) of the IAA is not answered by reliance on any regularising effect of the Qatari Court’s judgment.Issue 2: the discretion
  15. The essential questions are whether, as a matter of discretion, the award can or should be enforced notwithstanding that, first, the arbitration proceeding was conducted in Arabic, not English, and, second, the arbitral tribunal was prematurely appointed by the Qatari Court, both contrary to the procedure agreed by the parties.
  16. As indicated, the primary judge concluded in relation to the arbitral proceeding not being conducted in English, which her Honour found to have been a ground for non-enforcement that was established, that as a matter of discretion the award should nevertheless be enforced.  The exercise of that discretion is challenged in the appeal in which House v The King [1936] HCA 40; 55 CLR 499 error is required to be established, i.e., that the primary judge acted upon a wrong principle, allowed extraneous or irrelevant matters to guide or affect the decision, mistook the facts, or did not take into account some material consideration (at 505 per Dixon, Evatt and McTiernan JJ).
  17. The primary judge also said that had she found that the ground of non-enforcement that the arbitral tribunal was not composed in accordance with the agreement of the parties had been established, she would nevertheless have exercised the discretion to enforce the award.  Since the primary judge did not, in fact, exercise the discretion, because of the conclusion that the ground for non-enforcement had not been established, this Court, on finding that that ground is established, must exercise the discretion for itself – no question arises as to finding an error with the exercise of the discretion by the primary judge in accordance with the principles expressed in House v The King.
  18. Article V(1) of the New York Convention provides that recognition and enforcement of the award “may be refused” on one or more of the enumerated grounds. Article V(2) similarly provides that recognition and enforcement of an arbitral award “may also be refused” on one or other of the grounds then set out. Article 36(1) of the Model Law and ss 8(5) and (7) of the IAA use the same permissive language of “may”. It is that language that is the source of the contention that there vests a discretion in the enforcing court to enforce an award even if one of the enumerated grounds for non-enforcement is made out, i.e., the court may, not must, refuse to enforce an award if a ground for non-enforcement is established. In domestic statutory interpretation, a provision which uses the word “may” is prima facie permissive: Herzfeld P and Prince T, Interpretation (2nd ed, Lawbook Co, 2020) [4.220] and the authorities there cited.
  19. In TCL FCAFC, this Court stated (at [55]), relevantly, that an international commercial arbitration award will not be denied recognition or enforcement under Art V of the New York Convention “unless there is demonstrated real unfairness or real practical injustice in how the international litigation or dispute resolution was conducted or resolved, by reference to established principles of natural justice or procedural fairness”. Although referred to by Hub in argument, those statements do not speak generally to the discretion to enforce an award even where a ground for non-enforcement is made out. Rather, they were made in the context of the public policy ground for non-enforcement which, uniquely, takes account of what might otherwise be discretionary factors in its assessment of the ground on non-enforcement. This is apparent from the Court’s statement (at [111]) that it is not profitable to seek to differentiate between the engagement of public policy under the relevant articles and a supposedly separate and a later question whether to exercise the discretion to enforce.
  20. Hub is correct in submitting that there is no authoritative statement in Australia of the nature of the discretion to enforce an award that is conveyed by ss 8(5) and (7) of the IAA. It was accepted in TCL FCAFC (at [48]) that there is a discretion to enforce, and that is supported by the use of “may” as indicated. For the reasons already explained, it is necessary to look to international authorities in reaching a view on the nature of the discretion.
  21. Dr van den Berg in The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation (Kluwer Law International, 1981) p 265, with reference to the permissive language of “may be” in both the first and second paragraphs of Art V of the New York Convention, said that for the first paragraph it means that even if a party against whom the award is invoked proves the existence of one of the grounds for refusal of enforcement, the court still has a certain discretion to overrule the defence and to grant the enforcement of the award.  The learned author reasoned that such overruling would be appropriate, for example, in the case where the respondent can be deemed to be estopped from invoking the ground for refusal.  For the second paragraph, it would mean that a court can decide that, although the award would violate domestic public policy of the court’s own law, the violation is not such as to prevent enforcement of the award in international relations.
  22. In Dardana Ltd v Yukos Oil Co [2002] EWCA Civ 543; [2002] 2 Lloyd’s Rep 326, Mance LJ (at [8] and [18], with whom Thorpe LJ and Neuberger J agreed) was not impressed with the suggestion that there is no discretion to enforce an award even where one of the grounds for non-enforcement is established, but, citing the passage from van den Berg referred to above, held that it is not “an open discretion”:

    The use of the word “may” must have been intended to cater for the possibility that, despite the original existence of one or more of the limited circumstances, the right to rely on them had been lost, by for example another agreement or estoppel.

  23. In Hebei the Hong Kong Court of Final Appeal considered the discretion to enforce an award even where a ground for non-enforcement had been made out. Sir Anthony Mason NPJ, with whom Li CJ and Ching and Bokhary PPJ agreed, agreed (at [93]) with Kaplan J in China Nanhai Oil Joint Service Corp Shenzhen Branch v Gee Tai Holdings Co Ltd [1994] HKCFI 215; [1994] 3 HKC 375 at [48]-[49] that the New York Convention confers a residual discretion on the court of enforcement to decline to refuse enforcement, even if a ground for refusal might otherwise be made out. That arises from the use of the permissive “may” in Art V of the Convention. In China Nanhai the discretion to enforce was exercised on the basis that the established irregularity was not prejudicial, or made no difference, as had been the position in Paklito Investment Ltd v Klockner (East Asia) Ltd [1993] 2 HKLR 39, also per Kaplan J.
  24. In Hebei it was said (at [94]) that whether the respondent’s conduct which justified the exercise of the discretion was described as giving rise to an estoppel, or a breach of the bona fide principle, or simply as a breach of the principle that a matter of non-compliance with the governing rules shall be raised promptly in the arbitration, was beside the point. It was said that on any of those bases, the respondent’s conduct in failing to raise in the arbitration its objection to unilateral communications having been made to the Chief Arbitrator was such as to justify the court of enforcement in enforcing the award. The factual basis for that (which was described at [104]) was that although the respondent had been aware of the irregularity at an early stage it had failed to take various steps that might have rectified the irregularity, including applying for the removal of the Chief Arbitrator, and had simply proceeded with the arbitration as if nothing untoward had happened.
  25. In PT First Media HK, the Court of Final Appeal held (at [42]) that the absence of a valid arbitration agreement between the parties is a fundamentally important factor militating against discretionary enforcement. It was thus concluded (at [44]) that the primary judge had misdirected himself by failing to take into account the fundamental defect that the awards were sought to be enforced against parties who were not parties to the arbitration agreement in respect of whom the awards were made without jurisdiction, and that had he taken this into account he could only have exercised his discretion to refuse enforcement.
  1. In Dallah, where the issue was whether the award debtor was a party to the arbitration agreement, Lord Mance JSC referred (at [67]) with approval to what he had said in the Court of Appeal in Dardana (referred to at [94] above) with regard to the discretion to enforce being restricted and to cover, as possible examples, circumstances of another agreement or estoppel. His Lordship said (at [68]) that absent some fresh circumstance such as another agreement or an estoppel, it would be a remarkable state of affairs if the word “may” enabled the court to enforce or recognise an award which it found to have been made without jurisdiction. It was also said (at [69]) that general complaints that the respondent did not behave well, unrelated to any known legal principle, were equally unavailing in a context where the respondent had proved that it was not party to the arbitration agreement.
  2. In the final sentence of [69] Lord Mance JSC said: “There is here no scope for reliance upon any discretion to refuse enforcement which the word ‘may’ may perhaps in some other contexts provide.”  It seems that what must have been meant is that “there is here no scope for reliance upon any discretion to refuse non-enforcement which the word ‘may’ may in some other contexts provide.”
  3. Lord Collins JSC (at [127]) also referred to what Mance LJ had said in Dardana about there being no arbitrary discretion and that the use of the word “may” was designed to enable the court to consider other circumstances, which might on some recognisable legal principle affect the prima face right to have an award set aside.  In addition to the example of estoppel that had been given in Dardana, Lord Collins JSC gave as another possible example where there had been no prejudice to the party resisting enforcement, and added that “it is not easy to see how that could apply to a case where a party had not acceded to an arbitration agreement.”
  4. It is to be noted that Gary Born in International Commercial Arbitration (3rd ed, Kluwer Law International, 2021) vol III p 3746 [§26.03[B][6]] reasons (with reference to Dallah) that it would be exceptional to recognise an award in cases where a recognition court (i.e., an enforcing court) concludes that no valid arbitration agreement was concluded or that the dispute exceeds the scope of the arbitration agreement, and also that it is difficult to see how awards that violate applicable public policy could ordinarily be subject to discretionary recognition.  This is the point made in TCL FCAFC (referred to at [91] above) and is presumably because any discretionary considerations would already have been taken into account in considering whether enforcement would be contrary to public policy. The learned author contrasts such cases with cases involving procedural irregularities where considerations of materiality, prejudice, waiver and estoppel may make recognition appropriate notwithstanding a technical basis for non-recognition.
  5. As already identified, the New York Convention has a pro-enforcement bias.  That finds expression in the narrow and limited grounds for non-enforcement which the award debtor must establish.  There is, however, no justification in the text and structure of the Convention to justify a broad-ranging or unlimited discretion to enforce even when one of the narrow grounds for non-enforcement is made out.  There is, equally, no justification in the text and structure to conclude that there is no discretion, or to limit it to such an extent that in cases of irregularity that has caused no material prejudice the court must nevertheless not enforce the award.
  6. Relevantly, the parties agreed by Art 50 of their contract that the English language would be the ruling language of the contract and that all matters relating to the contract would be in English, but contrary to that the arbitration was conducted in Arabic. There is no challenge to the primary judge’s conclusion that that was an irregularity within the meaning of s 8(5)(e) of the IAA as the arbitral procedure was not in accordance with the agreement of the parties. Contrary to the submission by Hub, in my view the primary judge was correct to conclude that the irregularity had no prejudice to Hub because it had received notices of the arbitration in English and it had elected not to participate. Such immateriality of the irregularity would fully justify the exercise of the enforcement discretion notwithstanding the irregularity. Hub’s submissions to the contrary, and in particular that the language irregularity affected the “structural integrity of the arbitration”, are not accepted. No House v The King error is established in the exercise of the discretion in relation to the language ground.
  7. Insofar as the other ground is concerned, the composition of the arbitral tribunal other than in accordance with the agreement of the parties is fundamental to the structural integrity of the arbitration; it strikes at the very heart of the tribunal’s jurisdiction.  That is a fundamental matter, much like in Dallah and PT First Media where the award debtor was not party to the arbitration agreement, such that the discretion to nevertheless enforce was not available.  Equally fundamental was a failure to give notice of the arbitration which precluded the exercise of the discretion to nevertheless enforce the award: Beijing Jishi at [155]-[156]. I would accordingly not exercise the discretion to enforce the award. ECQ’s reliance on the conduct of Hub in not responding to the Qatari Court proceeding or the notices from the arbitral tribunal, in divesting itself of its assets (even if established, on which no finding is required to be made) and in falsely contesting in the proceeding before the primary judge that it had received various notices, is to no avail in the circumstances.Conclusion
  8. In the result, the appeal should be allowed.  The orders of the primary judge on 26 August 2020 should be set aside and substituted with orders dismissing ECQ’s application to enforce the award.  Because most of Hub’s grounds for resisting enforcement, in particular those that were evidence-heavy such as that it received no notice of the arbitration proceeding, failed before the primary judge whose findings thereon were not challenged on appeal, it is not clear that Hub should have the costs of the proceeding at first instance.  I would therefore invite the parties to make brief written submissions on these costs.
  9. Although there is no immediately apparent reason why the costs of appeal should not follow the event, we did not hear the parties on the costs of the appeal so I would give them the opportunity to make written submissions on these costs as well.
  10. I have also read the additional remarks of the Chief Justice with which I agree.
  11. In the result, I would make the following orders:

    (1)          The appeal be allowed.

    (2)          The orders and declaration of the Court on 26 August 2020 in NSD 94 of 2020 be set aside and substituted with an order that the proceeding be dismissed.

    (3)          The parties file and serve written submissions of no more than five pages on the questions of costs of the proceedings below and on appeal, which questions will be decided on the papers unless otherwise ordered, as follows:

    (a)          the appellant within seven days of these orders; and

    (b)          the respondent within seven days thereafter.

     

I certify that the preceding ninety-six (96) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.

 

Associate:

Dated:       25 June 2021

Orient Overseas Container Line Ltd v APL Co Pte Ltd (No 2) [2021] FCA 606

FEDERAL COURT OF AUSTRALIA

 

Case Name: Orient Overseas Container Line Ltd v APL Co Pte Ltd (No 2) [2021] FCA 606
Medium Neutral Citation: [2021] FCA 606
Hearing Date(s): 3 June 2021
Date of Orders: 3 June 2021
Decision Date: 3 June 2021
Before: STEWART J
Decision: THE COURT ORDERS THAT:

 

1. Pursuant to s 7(2) of the International Arbitration Act 1974 (Cth) and in accordance with cl 15.3 of the Joint Service Agreement (referenced in the plaintiff’s Amended Concise Statement) and cl 22.2 of the Cross Slot Charterparty that is an appendix to that Agreement, this proceeding NSD 645 of 2020, brought in the Court by the plaintiff against the defendants and by the cross-claimants against the cross-respondent, be stayed until further order.

2. The stay the subject of order 1 above be on the following conditions:

(a) Any arbitration once commenced shall be treated as if it had been commenced on the date on which this proceeding was commenced.

(b) Unless and until otherwise ordered by this Court, any arbitration involving the matters the subject of this proceeding is not to proceed until the earlier of the determination, dismissal, discontinuance or withdrawal at first instance of the claims made by the applicants in proceeding NSD 66 of 2021 against either of the plaintiff or the first defendant in this proceeding.

(c) The parties to this proceeding are released from the implied undertaking to the extent of using documents and information which are produced or obtained in this proceeding or in proceeding NSD 66 of 2021 for any arbitration commenced that involves the matters the subject of this proceeding.

(d) The defendants are to preserve evidence in accordance with order 4 of the orders of 11 June 2020 and orders 2 and 3 of the orders of 18 June 2020 until the conclusion of any arbitration commenced that involves the matters the subject of this proceeding.

3. No order as to costs.

4. The parties have liberty to apply, including to apply to vary any of the conditions the subject of orders 2(b) to 2(d).

 

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

Catchwords:

ARBITRATION – application for stay of proceeding subject to conditions under s 7(2) of the International Arbitration Act 1974 (Cth) – stay and certain conditions by consent, other conditions contested – scope of the power to order conditions – whether proposed conditions intrude on the arbitration – whether power to order injunction as a condition to a stay

ADMIRALTY – stay of slot-charterer’s claim against vessel interests for indemnity for any liability to cargo interests in favour of arbitration – conditions of stay with respect to cargo interests’ separate proceeding against vessel interests – common issues

Legislation Cited: Federal Court of Australia Act 1976 (Cth) Pt IVA

International Arbitration Act 1974 (Cth) Pt II s 7(2), Sch 1
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (opened for signature 10 June 1958, 330 UNTS 3 (entered into force 7 June 1959))

Cases Cited: Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; 298 ALR 666
Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1
O’Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601
Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547; 100 FCR 420
Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102Holmes M and Brown C, The International Arbitration Act 1974 – A Commentary (3rd ed, LexisNexis, 2018) p 63 [s 7-22]
Texts Cited: NIL
DIVISION: General Division
Parties: BETWEEN:
ORIENT OVERSEAS CONTAINER LINE LTDPlaintiffAND:
ANL SINGAPORE PTE LTD

First Defendant

 

APL CO PTE LTD

Second Defendant

 

CMB OCEAN 13 LEASING CO PTE

Third Defendant

 

AND BETWEEN:
APL CO PTE LTD (and another named in the Schedule)

First Cross-Claimant

 

AND:
ORIENT OVERSEAS CONTAINER LINE LTD

Cross-Respondent

Representation: Counsel for the Plaintiff and Cross-Respondent: J K Kennedy

Solicitor for the Plaintiff and Cross-Respondent: HWL Ebsworth

Counsel for the Defendants and Cross-Claimants: C O Gleeson

Solicitor for the Defendants and Cross-Claimants: Thynne + Macartney

File Number(s): NSD 645 of 2020
Publication Restriction: NIL
Decision under appeal: NIL

 

JUDGMENT

STEWART J:

  1. This is another interlocutory judgment arising from an incident in which the MV APL England lost scores of containers overboard, and others were damaged, when it suffered a container stow collapse on 24 May 2020 off the coast of New South Wales.
  2. By interlocutory application, the first defendant (the time-charterer of the vessel) sought a stay of the proceeding under s 7(2) of the International Arbitration Act 1974 (Cth) (the IAA) and the referral of the dispute as between the plaintiff (a slot-charterer) and it to arbitration.  That was in reliance on an arbitration clause in the slot charterparty incorporated into a joint service agreement.
  3. Such a stay would have left the proceeding on foot as between the plaintiff and the second defendant (the bareboat charterer) and third defendant (the owner).  Sensibly, the parties have come to an agreement to refer the claim by the plaintiff against all the defendants to arbitration together.  They have also agreed a number of conditions upon which the stay should be ordered.  There remains a dispute about two of the conditions that I am required to resolve.
  4. The conditions with respect to which there is a dispute concern the relationship between the claims in the present proceeding, and hence in the arbitration, and the claims in proceeding NSD 66 of 2021.  In that proceeding, a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth), a number of cargo interests (shippers and/or consignees and their insurers) assert claims against the defendants to the present proceeding (the vessel interests) and a number of other parties including the plaintiff to the present proceeding (NVOCCs, freight forwarders and slot-charterers). The plaintiff’s claims in the present proceeding are for indemnities in respect of any liability that it might have to cargo interests, whether those interests are represented in the other proceeding or not.
  5. From that brief description of the two proceedings it is readily apparent that there are likely to be considerable areas of overlap between them and, hence, between the arbitration and the other proceeding once the present proceeding is stayed.  For example, the seaworthiness of the vessel and the cause of the stow collapse are likely to be at the centre of both proceedings.  Recognising that overlap, and the inefficiencies and discreditable spectre of conflicting outcomes that may arise from a multiplicity of proceedings on the same issues, the parties are agreed that the stay of the present proceeding should be on the condition that the arbitration is not to proceed until the determination of the other proceeding.  They differ, however, on what the appropriate stage of that determination should be.
  6. The defendants contend for the wording that the arbitration is not to proceed until the earlier of the determination, dismissal, discontinuance or withdrawal “of all claims made in proceeding NSD 66 of 2021 by or against the parties to this proceeding”, whereas the plaintiff contends that the wording in inverted commas be replaced with “at first instance of the claims made by the applicants in proceeding NSD 66 of 2021 against either of the plaintiff or the first defendant in this proceeding.”  It was explained that the defendants regard their proposed wording as having the effect of the arbitration being stayed pending the final determination, including on any appeal or appeals, of the claims in the other proceeding.  The plaintiff, on the other hand, says that the stay of the arbitration should end when any claim against either the plaintiff or the first defendant in this proceeding is concluded at first instance in the other proceeding.  That is the first dispute to be resolved.
  7. The other dispute is that the defendants say there should be a further condition that the plaintiff is not to make any claims against the defendants, by way of cross-claim or otherwise, in proceeding NSD 66 of 2021 seeking the same or similar relief as is sought in this proceeding or the arbitration.  The plaintiff says that that is in the nature of an injunction for which there is no justification because there is no reasonable apprehension that such claims will be made.  Moreover, it is said, if they are made then any problem that that creates can be dealt with then.
  8. The defendants make submissions in support of the conditions that they contend for essentially with reference to considerations relevant to convenience, practicality and sensible case management of the proceedings. For reasons that will shortly become apparent, it is not necessary to go into the detail of those submissions.
  9. The source of the court’s power to impose conditions on a stay under s 7(2) of the IAA, which stay the parties have in this instance agreed to, is the same sub-section. It provides, relevantly, that on the application of a party to a relevant arbitration agreement “the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings … and refer the parties to arbitration.”
  10. Section 7(3) provides that where a court makes an order under sub-s (2), it may, for the purpose of preserving the rights of the parties, make such interim or supplementary orders as it thinks fit in relation to any property that is the subject of the matter to which the first-mentioned order relates.  Thus, s 7(3) explicitly confers on the court the power to make interim orders, which would naturally include orders in the form of an injunction, but restricted to being in relation to any property that is the subject of the matter to be referred to arbitration.  The power to order injunctions having been included in sub-s (3), there is thus, on the face of it, no basis to read sub-s (2) as including the power to make orders in the form of an injunction.
  11. It is important to understand s 7(2) in proper context. It is in Pt II of the IAA which concerns the enforcement of foreign arbitration agreements and awards in order to give effect to the New York Convention, i.e., the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration which is set out in Sch 1 to the IAA. Article II(1) of the Convention provides that each Contracting State shall recognise an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship. Article II(3) of the Convention provides that the court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of the article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. There is nothing in the Convention giving power to the court to impose conditions upon a stay of proceeding and referral to arbitration. That is an indication that the power to impose conditions is to be read in a restricted way.
  12. The principle underlying Art II, and hence s 7, is that arbitration agreements should be recognised and enforced by staying court proceedings in favour of arbitration where the subject of the proceedings is covered by the arbitration agreement.  There is no justification for construing the power to impose conditions on such a stay as including conditions which interfere with the jurisdiction and power of the arbitral tribunal or which alter the rights of the parties under their arbitration agreement; the purpose is, after all, to uphold and enforce that agreement, not to alter or undermine it or the parties’ rights under it.
  13. It is also to be borne in mind that in terms of ss 39(1)(b) and 39(2)(a) of the IAA, s 7(2) is to be interpreted having regard to the objects of the Act in s 2D. Section 2D includes as the objects of the Act, encouraging the use of arbitration, facilitating the use of arbitration agreements, and giving effect to Australia’s obligations under the New York Convention.
  14. In that regard, in O’Brien v Tanning Research Laboratories Inc (1988) 14 NSWLR 601 at 622, Kirby P acknowledged that s 7(2) of the IAA is expressed in apparently wide terms, but said that “it is obvious that the conditions are incidental and ancillary to the achievement of the main purpose of s 7(2) [which] is to hold the parties to international commercial agreements to an agreement to arbitrate.” His Honour thus declined to impose a condition that had been imposed by the primary judge that the arbitration take place in New South Wales rather than Florida and explained:

    I do not consider, in this context, that it would be proper to impose a condition which effectively distorted the agreement initially entered between the parties. Nor should such a condition be imposed as would manipulate the rights of the parties under that agreement, notwithstanding their agreement to arbitrate. Nor should conditions frustrate the achievement of the policy of the statute to enforce that agreement. The “conditions” which s 7(2) of the Act contemplates are machinery conditions. They relate to hearing and the like procedures and not to conditions which determine, in effect, the substantive rights of the parties. Those substantive rights were, relevantly, fixed by the agreement. The Court should neutrally hold the parties to that agreement. In my opinion it would be wrong for the Court to distort and frustrate that agreement (whilst requiring the stay necessitated by the statute) to impose conditions which were not within the agreement which it is the purpose of the Act to enforce.

  15. In Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; 298 ALR 666, Martin CJ, with whom McLure P and Buss JA relevantly agreed, cited (at [90]) that extract from O’Brien with approval and then observed (at [93]):

    This approach to the ambit of the powers conferred upon the court by s 7 of the Act is consistent with the limited role which national courts play when parties have agreed to resolve their disputes by international commercial arbitration. National courts are not properly regarded as competitors or rivals for the jurisdiction which the parties have agreed to confer upon an arbitral tribunal. As I have already noted, the exercise of judicial power to facilitate the agreement of the parties to resolve their disputes by arbitration, and the strictly limited supervisory role usually conferred upon national courts by the lex arbitri, which is generally limited to containing arbitral tribunals within the jurisdiction conferred upon them by the parties and ensuring that the jurisdiction is exercised, is fundamentally different in character to the role of the arbitral tribunal in resolving the dispute by making an award defining the substantive rights and obligations of the parties. International comity requires national courts to faithfully respect these limitations upon their role – in this case by appropriately construing the ambit of the powers conferred upon the court by s 7 of the Act having regard to such limitations.

  16. There are several cases in this Court where claims subject to an arbitration agreement and claims not so subject have been brought in the same proceeding, and the proceeding has been stayed in respect of the first-mentioned claims which have been referred to arbitration while the second-mentioned claims have continued before the court, but a condition has been imposed on the stay that the arbitration not proceed until the second-mentioned claims have been determined.  See, for example, Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1 at 28-29 per Emmett J, Beaumont and Branson JJ agreeing; Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547; 100 FCR 420 at [68]-[70] per Merkel J; Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102 at [110] per Allsop J. There is, however, a view that such a condition is beyond the power of the court under s 7(2) of the IAA: Holmes M and Brown C, The International Arbitration Act 1974 – A Commentary (3rd ed, LexisNexis, 2018) p 63 [s 7-22].
  17. It is not necessary for present purposes to engage upon that debate.  First, the present is not such a case.  All the claims in the present case are to be referred to arbitration.  The question that arises is not with regard to the relationship between stayed claims and non-stayed claims in this case, but rather the relationship between the stayed claims in this case and other, different claims between different parties in another case, albeit that the determination of those claims will in all likelihood determine issues that are common to the claims to be stayed in this case.  Secondly, I consider that since the stay in the present case and the principal terms upon which it is to be granted is by agreement of the parties, it not having been necessary for me to decide whether there should be a stay, it would be unwise and potentially intrusive into the terrain of the arbitral tribunal for me to impose terms more restrictive on the plaintiff in its pursuit of the arbitration proceeding than it has agreed to.
  18. In the latter regard, it is really a matter for the arbitral tribunal whether it should stay its proceeding pending the outcome of the other proceeding in this Court, or whether for whatever reason and on whatever basis the arbitral proceeding should continue in tandem with the other proceeding in this Court. The parties have agreed by their agreement to arbitrate that those matters are matters for the tribunal, and I would accordingly be hesitant to exercise any power under s 7(2) to impose conditions on the stay of the proceeding in this Court that would trespass upon the arbitration which the parties agreed to and which this Court is bound to support, not undermine.
  19. It is also to be observed that the defendants’ position is that they want not only for the proceeding against them in this Court to be stayed in favour of arbitration, but they also want the arbitration to be stayed (beyond when the plaintiff has agreed to it being stayed).  That strikes me as being an attempt by them to have their cake and eat it.
  20. In the circumstances, I am only prepared to impose conditions that are as onerous as has been agreed. The terms of conditions that go beyond such agreement are beyond what I am satisfied should be imposed, and it may be that they are in any event beyond power. That is not to say that as a general rule only conditions that have been agreed by the parties can be imposed under s 7(2) – far from it. What I am saying is that in this case where the stay is by agreement and the parties have agreed the principal conditions on which the stay should be ordered, I will not impose further conditions, or alter the wording of conditions, so as to burden the plaintiff beyond what it has agreed to when such burden is to intrude in the arbitration.
  21. That deals with the first issue about when the stay on the arbitration should end. Insofar as the second issue is concerned, aside from my reservations as to the power of the court to order an injunction as a “condition” under s 7(2) of the IAA, I am not persuaded that there is any need or justification at this stage for that protection which the defendants seek.
  1. I will accordingly make orders in the form agreed to by the plaintiff.  It should be noted that in those orders it is only the wording of order 2(b) that was the subject of contest.  The condition that was the subject of the other contest does not appear in the orders, and the rest of the orders are by consent which has meant that I have not had to examine them in any detail.
I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.

One Sector Pty Ltd v Panel Concepts Pty Ltd [2021] QDC 54

DISTRICT COURT OF QUEENSLAND

 

Case Name: One Sector Pty Ltd v Panel Concepts Pty Ltd [2021] QDC 54
Medium Neutral Citation: [2021] QDC 54
Hearing Date(s): 19 March 2021
Date of Orders: 8 April 2021
Decision Date: 8 April 2021
Before: Barlow QC DCJ
Decision: Application dismissed
Catchwords: ARBITRATION – ARBITRATION AGREEMENT – ARBITRATION AGREEMENT AS GROUND FOR STAY OF COURT PROCEEDINGS – POWER OF COURT TO STAY – VALID ARBITRATION AGREEMENT – Plaintiff sub-contracted defendant to complete construction work – Plaintiff suing defendant for breach of contract – Sub-contract includes dispute resolution clause – Dispute resolution clause includes potential referral to arbitration – Whether clause amounts to arbitration agreement under Commercial Arbitration Act.

 

ARBITRATION – ARBITRATION AGREEMENT – ARBITRATION AGREEMENT AS GROUND FOR STAY OF COURT PROCEEDINGS – POWER OF COURT TO STAY – TIME FOR APPLICATION –Plaintiff suing defendant for breach of contract – Plaintiff successfully sought default judgment – Defendant applied to have default judgment set aside – Defendant filed affidavit in support of application to set aside judgment – Whether statements in affidavit describing proposed defences amounted to first statement on the substance of the dispute.

Legislation Cited: Commercial Arbitration Act 2013 (Qld), s 8
Cases Cited: CPB Contractors Pty Ltd v Celsus Pty Ltd (2017) 353 ALR 84, considered

 

Gilgandra Marketing Co-operative Ltd v Australian Commodity & Marketing Pty Ltd [2010] NSWSC 1209, considered

 

Pathak v Tourism Transport Ltd [2002] 3 NZLR 681, cited

Texts Cited: NIL
DIVISION: Civil
Parties:  

ONE SECTOR PTY LTD
(Plaintiff/Respondent)

v

PANEL CONCEPTS PTY LTD

(Defendant/Applicant)

Representation: Counsel:

 

S Colditz, for the plaintiff

J Marr, for the defendant

 

Solicitors:

 

Active Law for the plaintiff

Robinson Locke Litigation Lawyers for the defendant

File Number(s): BD 2957/2020
Publication Restriction: NIL
Decision under appeal: NIL

 

JUDGMENT

Introduction
1. The defendant was a sub-contractor of the plaintiff – the head contractor – under a contract for the construction of an industrial complex. The plaintiff sues the defendant for damages for breach of that contract.

2. The defendant applies for a stay of the proceeding, pursuant to s 8(1) of the Commercial Arbitration Act 2013, so that the parties may refer their dispute to arbitration pursuant to the contract.

3. Subsection 8(1) of the Act provides:
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.

4. “Arbitration agreement” is defined in s 7, in essence, as a written agreement to submit to arbitration disputes that have arisen or may arise between the parties.

5. The contract in this case is apparently a standard form of subcontract drawn by the plaintiff. Its operative part (the general conditions) is not long. Clause 25, upon which the defendant relies, is headed “Dispute Resolution.” It is set out in the annexure to these reasons.

6. The defendant’s principal contention is that none of the steps referred to in clause 25 has been taken and therefore the parties remain obliged, by clause 25.1, to comply with the steps set out in the balance of the clause before the plaintiff may continue with this proceeding. Therefore it seeks a stay of this proceeding. The parties agree that an order staying the proceeding is an effective way of the court referring the parties to arbitration under s 8.

7. The plaintiff submits that the parties have taken the steps provided in clauses 25.2 to 25.4 (a notice of dispute, followed by a without prejudice conference), but it says that, after the conference, the defendant did not issue a further notice of dispute, under clause 25.5, setting out the details of the dispute and referring it to arbitration. Nor have the parties otherwise agreed on arbitration which, the plaintiff contends, is an alternative route for arbitration (that is, by a separate agreement).

8. The plaintiff opposes a stay on a number of grounds:
(a) first, there is no arbitration agreement, as the preconditions to the operation of the contractual requirement that the parties arbitrate their differences have not been met;
(b) secondly, the defendant made this application too late – in particular, after it had, in this proceeding, submitted its first statement on the substance of the dispute;
(c) thirdly, any arbitration agreement in the contract is inoperative as the defendant has chosen to participate in this proceeding rather than to arbitrate and it should be held to that choice.

Is there an arbitration agreement?

9. The defendant contends that clause 25 constitutes an arbitration agreement. The parties must therefore comply with the steps provided in that clause before they may litigate. But the plaintiff contends that none of the steps taken by the parties to date was a step under clause 25 or, if any action purported to be such a step, it was taken too late. Therefore there is no current or operative agreement that the disputes the subject of this proceeding be referred to arbitration.

10. The plaintiff submits that only clause 25.5 permits one party, in the circumstances described in that clause, unilaterally to refer disputes to arbitration. A party may do so only after the following steps have occurred:
(a) one party has given to the other a notice of dispute under clause 25.2;
(b) the parties have held a without prejudice conference, either within 7 days of the giving of the notice of dispute under clause 25.3 or later under clause 25.4 if either party is a member of the Queensland Master Builders Association;[1]
(c) if the parties do not settle at a conference, one party has given the other a second notice of dispute and referred the dispute to arbitration.

11. Unless those steps are taken within the time periods stated, then arbitration may only occur if the parties agree to proceed to arbitration. In the event of such an agreement, clauses 25.6 to 25.9 apply. Otherwise, either party may commence and proceed with litigation.

12. In his submission, Mr Colditz, counsel for the plaintiff, sought to distinguish between a unilateral referral to arbitration under clause 25.5 and a bilateral, separate agreement under clause 25.6. The basis of this distinction was the reference, in clauses 25.6 and 25.9 to “the parties” referring or failing to agree to refer a dispute to arbitration. Mr Colditz submitted that clauses 25.6 to 25.9 did not apply to a unilateral referral under clause 25.5. Rather, those clauses refer to the possibility that, in the absence of a unilateral referral, the parties may agree jointly to refer their dispute, to arbitration. In this case, there was no unilateral referral, nor have the parties separately agreed to refer their dispute to arbitration. Therefore, there is no arbitration agreement.

13. I respectfully disagree with that construction. The contract is not well drawn, but clearly clauses 25.6 to 25.8 apply to an arbitration to be conducted after one party requires referral under clause 25.5. The references to “the parties” should be construed as referring to either party. Otherwise clauses 25.6 to 25.8 would be redundant (being entirely dependent on there being a fresh agreement to arbitrate). Furthermore, the reference, in clause 25.9(c) to a referral to arbitration under clause 25.6 is clearly an error, as the only method of referring a matter to arbitration is under clause 25.5.

14. The effect of clauses 25.5 to 25.9 is that:
(a) if the parties have had a without prejudice conference after a notice of dispute under clause 25.2 was given, then either party may give the other another notice of dispute setting out details of the dispute then existing (which may not be all the original disputes) and, by that notice, elect to refer to arbitration the items of dispute set out in the notice;
(b) if either party makes such a referral and the parties cannot agree on an arbitrator, the method of selection of an arbitrator set out in clauses 25.6 and 25.7 will be used to have one appointed;
(c) if neither party gives the other a notice of dispute and referral to arbitration (under clause 25.5) within 7 days of a conference under clause 25.3,[2] or if a conference did not take place due to the refusal of the party given the original notice of dispute, either party may commence litigation about the disputes set out in the original notice of dispute.

15. Clause 25 as a whole is clearly an arbitration agreement.
Was the defendant’s application for a stay made too late?

16. The plaintiff contends that the defendant sought to refer the dispute to arbitration too late, as the first occasion on which the defendant, by its solicitor, mentioned referral to arbitration was on 9 March 2021, after it had successfully applied to have a default judgment against it set aside. In support of that application, the defendant’s solicitor swore an affidavit in which he said,[3]I am informed by John Hennessy and believe that the Defendant has a Defence and a Counterclaim, being:
(a) At all times, the Defendant was ready and willing to complete the work pursuant to the subcontract, including rectifying any alleged defects. However, the Plaintiff prevented the Defendant from performing work because the Defendant was denied access to site. As the Plaintiff prevented the Defendant from performance, by the doctrine of prevention, it cannot take advantage of its own default and allege breach of contract by the Defendant.
(b) The Plaintiff’s claim for alleged liquidated damages includes claim for a period caused by the Plaintiff itself which prevented earlier performance. The Plaintiff only gave access to site after 4 December 2018. As such the liquidated damages claim seek to take advantage of delay caused by the Plaintiff. Further, the period of time includes time when the Defendant was prevented from performance due to exclusion from site.

17. Counsel for the plaintiff submitted that those paragraphs comprise the defendant’s “first statement on the substance of the dispute,”[4] in which case the defendant became disentitled to file its application seeking a stay after it filed that affidavit.

18. Mr Colditz referred me to several authorities that have considered what amounts to a “first statement on the substance of the dispute.” I have also reviewed the discussion of the section and its equivalents in other jurisdictions in Commercial Arbitration Act 2010 (NSW) (Annotated) published by Westlaw AU.

19. I preface my consideration of this issue by noting that a court should attempt to construe the Act in a manner consistent with the UNCITRAL model law on international commercial arbitration, on which the Act is based.[5]

20. In CPB Contractors, at [91]-[92] Lee J referred to two decisions of other Courts. Of particular assistance is that of Slattery J in Gilgandra Marketing Co-operative Ltd v Australian Commodity & Marketing Pty Ltd [2010] NSWSC 1209. His Honour commenced his decision by remarking, at [1], that the case illustrated that a party operating under the Act may need to decide early to pursue a stay application.

21. In Gilgandra, the plaintiff commenced an action for a debt allegedly owed and obtained an interlocutory injunction restraining the defendant from dealing with the goods sold to it by the plaintiff. Directions were made for pleadings and a prompt trial. The defendant filed an unconditional notice of appearance and then took other steps, including applying to set aside the injunction. Some months later, it filed its defence and, on the same day, a motion seeking a stay of the proceeding to enable arbitration under the sale agreement. Slattery J held that it was not entitled to a stay.

22. At [49] to [53], his Honour considered a number of New Zealand decisions on when a party’s first statement on the substance of the dispute is made. His Honour extracted the following passage from a learned article[6] summarising those decisions:
It has been variously held that the following constitute a “party’s first statement on the substance of the dispute”:
(a) a notice of opposition and affidavit in opposition to an application for an interim injunction;
(b) an originating application for an order setting aside a statutory demand and supporting affidavit;
(c) an affidavit in reply in a summary judgment application in which the plaintiff raises matters which are the subject of an arbitration agreement in reliance on which the plaintiff subsequently seeks to stay proceedings brought by the defendant;
(d) proceeding with a claim after making an application for interim relief with reference to an arbitration agreement but failing then or immediately after the resolution of the interim relief application to apply for a stay, so adopting the statement in the interim relief application as a statement on the substance of the dispute.

23. Slattery J went on to say:
“the principles stated in a decision in Pathak v Tourism Transport Ltd[7] show that a defendant who opposes interim relief in Court and fails to seek a stay or protest jurisdiction in respect of the substantive dispute at an early time under Article 8(1) will be prevented from seeking a stay. … Heath J found that had a stay been sought by the plaintiff immediately after the resolution of the interim relief application it would have been granted … [but] because the plaintiff had proceeded with the Court action and therefore adopted the earlier statement made in the interim relief the plaintiffs had therefore submitted their first statement on the substance of the dispute and that it was too late then to seek a stay.

24. Notably, in Pathak, Heath J referred to a number of other New Zealand decisions on the equivalent provision to s8(1) of the Queensland Act. In one,[8] it was held that, in filing a response to an interim injunction application, the defendant had submitted to the court’s jurisdiction. Its notice of opposition to the interim injunction application and its affidavits in support constituted a statement on the substance of the dispute.

25. In another,[9] the Master held that an affidavit filed on behalf of the applicant to set aside a statutory demand was a “first statement on the substance of the dispute”.

26. Heath J concluded, most relevantly, that “a defendant who opposes interim relief and fails to seek a stay (or protest jurisdiction) in respect of the substantive dispute will also be prevented from seeking a stay.”[10]

27. Slattery J, after referring to those decisions, concluded at [54] that the defendant’s opposition to the plaintiff’s application for interim relief was its first statement on the substance of the dispute. But even if that were not the case, its failure to seek a stay immediately afterwards and its conduct in cooperating over some two months in bringing the proceeding on for hearing, even before a formal defence was filed, was a continuing adoption by it of its first statement at the interlocutory hearing.

28. Returning now to CPB Contractors, having briefly referred to the New Zealand cases, Lee J concluded at [92] that they –
supported the principle that a respondent which opposes interim relief and fails to seek a stay or protest jurisdiction in respect of a substantive dispute at an early time would be prevented from seeking a stay.

29. Lee J went on to refer to decisions of courts of Singapore and Hong Kong. In particular, his Honour quoted this observation from the Court of Appeal of Singapore:[11]

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

30. Lee J concluded that the State in the case before him had not made its application for a stay prior to filing its first response on the substance of the dispute and therefore was not entitled to a stay of the proceeding.
31. Counsel for the plaintiff in this proceeding submitted that the sworn statements as to the defences available to the defendant in this proceeding were in common with the common feature in all the cases, namely that they constituted statements that “contained what the party in question said about how the substantive dispute in the primary proceedings should be determined.”[12]

32. In its application to set aside the default judgment,[13] the defendant in this case also sought an order that it have 28 days from setting aside the judgement within which to file a notice of intention to defend and defence. It did not seek an order staying the proceeding for the purpose of an arbitration. I have set out above what Mr Robinson deposed to about the defences available to the defendant. On 1 March 2021, the day before the proposed hearing of its application, the defendant consented to an order that it file and serve its notice of intention to defend and defence by 23 March 2021.

33. It was not until its solicitors wrote to the plaintiff’s solicitors on 9 March 2021[14] that the defendant first raised the arbitration agreement, purported to refer the dispute to arbitration and foreshadowed making this application for a stay of the proceeding to enable arbitration to take place.

34. One might ordinarily think that the phrase “first statement on the substance of the dispute” would be referring to a formal document that makes a claim in court proceedings or responds in detail to the claim. The phrase is used in the Model Law because it applies to many countries with different procedural requirements. In the Australian context, one might consider that it refers to such documents as a statement of claim and a defence, or perhaps an affidavit supporting an originating application. In contrast, one might think, a short description of the bases of defences available in an affidavit to set aside a default judgment might not constitute such a statement. This is particularly so when courts have decided that a plaintiff’s application for, or opposing, an interim injunction, which must include evidence setting out the factual basis for the application, does not comprise such a statement.

35. However, the almost unanimous weight of authorities in which equivalent provisions have been considered is to the effect that a party who submits to a court’s jurisdiction in a proceeding concerning the subject matter of an arbitration agreement and, in that proceeding, makes some statement of the nature of its claim or defence, except where a proposed claimant invokes a court’s jurisdiction and power to grant interim relief, is thereafter prevented from seeking a stay under s 8 or its equivalents. While I am not bound by those authorities, I am not persuaded that they are clearly wrong. In the circumstances, I should follow them.

36. In its application to set aside the judgment, it was not necessary for the defendant to demonstrate to the court that it has a good arguable defence, because the application was based on the basis that the judgment was irregularly entered.[15] It could have sought to set aside the judgement on that basis and, at the same time, sought a stay. It did not do so. Instead, it sought to set aside the judgment and to seek an order that it file its unconditional notice of intention defend and a defence. In support, Mr Robinson described, although in short compass, the defences on which the defendant apparently intended to rely.

37. Having regard to the weight of authority, I conclude that Mr Robinson’s description of those defences do constitute the defendant’s first statement on the substance of the dispute. It is therefore now too late for it to seek a stay under s 8.

38. That conclusion makes it unnecessary for me to consider and determine the plaintiff’s third ground of opposition to the application. However, I will record that the defendant’s application, by which it not only sought to set aside the default judgment but also sought an order that it file a notice of intention to defend and a defence, as well as its consent to that latter form of order, seem clearly to constitute an election to defend the litigation in this proceeding rather than by arbitration. This third ground therefore does seem to have merit.

39. The defendant’s application must be dismissed. I shall hear from the parties on costs and directions for the next step in the proceeding.

Subcontract clause 25

25. Dispute Resolution

25.1 Except to the extent that any litigation that may be commenced for injunctive relief in relation to any matter arising out of or in connection with the Subcontract Agreement, the requirements of this clause are a condition precedent to either party commencing (or, if wrongly commenced, continuing) litigation.

25.2 If a dispute or difference arises out of, or in connection with, the Subcontract, either party may give the other party a written notice of dispute setting out the details of the dispute including any amount in dispute.
‘Without Prejudice’ Conference

25.3 The parties shall arrange, and participate in, a ‘without prejudice’ conference between them, or their authorised representatives, in an attempt to resolve the dispute or difference set out in the notice of dispute within 7 Days after the giving of the notice of dispute.

25.4 Subject to one of the parties being a member of the Queensland Master Builders Association:
(a) if either party gives a written notice to the Queensland Master Builders Association and the other party requesting that the Queensland Master Builders Association appoint a person to facilitate discussion in a ‘without prejudice’ conference, the Queensland Master Builders Association may appoint such a person; and
(b) On any appointment of a person by the Queensland Master Builders Association under Clause 25.4(a), the parties shall permit that person to make suitable arrangements for, and to facilitate discussion in, the ‘without prejudice’ conference.

Mediation or Arbitration

25.5 If the parties fail to resolve all of the dispute or difference set out in the notice of dispute during the ‘without prejudice’ conference, or if the party given the notice of dispute fails to participate in a ‘without prejudice’ conference within 7 Days after the giving of the notice of dispute, then either party may give the other party a written notice of dispute setting out the details of the dispute including any amount in dispute and may refer all or any part of the dispute or difference to mediation or arbitration.

25.6 If the parties refer all or any part of the dispute or difference set out in the notice of dispute to mediation or arbitration but fail to agree on the person to be appointed as the mediator or the arbitrator, then either party may give a written notice to the President of the Queensland Master Builders Association and the other party requesting that the President appoint (as the case may be):
(a) a mediator to facilitate the mediation; or
(b) An arbitrator to decide all or that part of dispute or difference referred to arbitration.

25.7 If either party gives a notice under Clause 25.6, the President shall give to the parties a written notice setting out the name and contact details of (as the case may be):
(a) the mediator appointed by the President to facilitate the mediation; or
(b) The arbitrator appointed by the President to decide all or that part of the dispute or difference referred to arbitration.

25.8 On the giving of a notice under Clause 25.7, the parties shall:
(a) request the mediator or the arbitrator named in the notice to make suitable arrangements for (as the case may be) the mediation or the arbitration; and
(b) Participate in (as the case may be) the mediation or the arbitration and pay the costs of the mediation (including the costs of the mediator) or the costs of the arbitration (including the costs of the arbitrator) in equal shares unless otherwise agreed by the parties or decided by the arbitrator.

25.9 If the parties fail to:
(a) agree to refer any part of the dispute or difference set out in the notice of dispute to mediation or arbitration within:
(i) 7 Days after the ‘without prejudice’ conference; or
(ii) If the party given the notice of dispute fails to participate in a ‘without prejudice’ conference 14 Days after the giving of the notice of dispute, or
(b) resolve all of the dispute or difference set out in the notice of dispute during any mediation,
Then either party may commence litigation in relation to any part of the dispute that is not:
(c) agreed to be referred to mediation or arbitration under Clause 25.6; or
(d) Resolved during any mediation.

25.10 Notwithstanding the giving of a notice of a dispute, the parties shall, subject to the Subcontract, continue to perform the Subcontract.

________________________________________

[1] Neither party is a member of the QMBA.

[2] That period of 7 days derives from clause 25.9, which I consider applies to a referral by either party under clause 25.5 (or indeed by both parties). If there is no referral within 7 days of a conference, either party may commence litigation.

[3] Affidavit of Malcolm Robinson filed on 24 February 2021, paragraph 8 (errors in original).

[4] Commercial Arbitration Act, s8

[5] CPB Contractors Pty Ltd v Celsus Pty Ltd (2017) 353 ALR 84, [43]. The model law was produced under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the “New York Convention”.

[6] Tómas Kennedy-Grant QC, “The New Zealand Experience of the UNCITRAL Model Law: A Review of the Position as at 21 December 2007” (2008) 4 AIAJ 1.

[7] Pathak v Tourism Transport Ltd [2002] 3 NZLR 681.

[8] The Property People Ltd v Housing New Zealand Ltd (1999) 14 PRNZ 66.

[9] Anderson Switchboards & Electronic Ltd v Schneider Electrical (NZ) Ltd (High Court, Auckland, M 1215-IM00, 16 January 2001), a decision of Master Kennedy-Grant.

[10] Pathak, 692.

[11] Carona Holdings Pte Ltd v Go Go Delicacy Pte Ltd [2008] 4 SLR 460; [2008] SGCA 34, [55]. Emphasis in the original.

[12] Quoting from Mitchell J in Australian Maritime Systems Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52, [93].

[13] Court document no 9, filed on 24 February 2021.

[14] Affidavit of Paul Jason Hick filed by leave on 19 March 2021, “PH-6”, pp 339-341.

[15] A defendant may almost always have an irregularly entered judgment set aside as of right: Cusack v De Angelis [2008] 1 Qd R 344, [36].

Venetian Nominees Pty Ltd V Weatherford Australia Pty Ltd [2021] WASC 137

SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

 

Case Name: VENETIAN NOMINEES PTY LTD v WEATHERFORD AUSTRALIA PTY LTD [2021] WASC 137
Medium Neutral Citation: [2021] WASC 137
Hearing Date(s): 15 FEBRUARY 2021
Date of Orders: 5 MAY 2021
Decision Date: 5 MAY 2021
Before: 5 MAY 2021
Decision: Application dismissed
Catchwords: Arbitration – Private arbitration award made concerning disputed apportionment of outgoings under a lease – Interim award determination made pursuant to issues in Arbitration Agreement – Challenge to set aside award under s 34(2)(a)(ii) and (iv) of the Commercial Arbitration Act 2012 (WA) – Application to Supreme Court to set award aside on alleged basis of plaintiff being unable to present its case or on the basis of alleged unfairness grievances as to arbitral procedure – Contention as to an ‘unpleaded’ argument being accepted and relied on by arbitrator – Contention of a failure to ensure a fair hearing by providing insufficient opportunity to respond by evidence – Whether present application permissible or whether a de facto appeal ‘dressed up’ under the guise of fitting within s 34(2)(a) of the Commercial Arbitration Act
Legislation Cited: Commercial Arbitration Act 2012 (WA), s 34(2)(a)
Cases Cited: AKN v ALC [2015] SGCA 18
Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd [2016] VSC 326
Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219
Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253
Ivankovic v West Australian Planning Commission [2020] WASC 40
Ray Mullins & Sons Pty Ltd v Skycorp Investments Pty Ltd [2011] WASCA 49
Spaseski v Mladenovski [2019] WASC 65
The State of Western Australia v Mineralogy Pty Ltd [2020] WASC 58
Texts Cited: NIL
Category: (In Chambers)
Parties:  

VENETIAN NOMINEES PTY LTD

Plaintiff

 

AND

 

WEATHERFORD AUSTRALIA PTY LTD

Defendant

Representation: Counsel:

 

Plaintiff : Mr M Hotchkin
Defendant : Mr M Howard SC & Ms S B Nadilo

 

Solicitors:

 

Plaintiff : Hotchkin Hanly
Defendant : Jackson McDonald

File Number(s): ARB 6 of 2020
Publication Restriction: NIL
Decision under appeal: NIL

 

JUDGMENT

KENNETH MARTIN J:

Linguistic camouflage aside, this is an attempted appeal by the plaintiff against a decision of an arbitrator delivered in a wholly private arbitration. There presents the problem. There is, by the clear words of the local arbitration statute, no appeal available against the adverse arbitral decision. No doubt by reason of that inconvenient obstacle, the present challenges directed against the arbitrator’s award decision have been grammatically cast as an alleged failure by the arbitrator to hear some of the plaintiff’s arguments and, alternatively the too frequently seen allegation of a denial of procedural fairness within the arbitration process. Curial challenges attempted against non-appealable award decisions continue to bedevil and undermine legislative policy endeavours to entrench arbitration as a quick, relatively inexpensive and final medium for private dispute resolutions. Unfortunately, too many unsuccessful arbitration participants still see it as worth their while to ‘roll the dice’ by manufacturing a pathway to a court, where strained procedural unfairness arguments rise to the fore as something of a last refuge of the desperate. Here, such challenges have been productive of delay to the successful party enjoying the fruits of the award and have necessitated an allocation of resources – equivalent to what would otherwise have been devoted to the hearing of a full blown appeal by way of a rehearing. This farcical position should no longer be entertained. Where the backdoor strategy is unsuccessfully deployed in future it should be met with a punitive costs sanction.

Background

The arbitration:

A wholly private arbitration was conducted in 2020 between the plaintiff, Venetian Nominees Pty Ltd (Venetian), and the defendant, Weatherford Australia Pty Ltd (Weatherford). The arbitration was conducted under the Commercial Arbitration Act 2012 (WA) (the CA Act) before Mr Marcus Solomon SC as the parties’ appointed arbitrator.
In the arbitration, Weatherford was the claimant. Venetian, a member of the Caratti Group of companies, was the respondent. The arbitration concerned a money dispute arising out of the parties’ written lease agreement of 13 November 2012 entered between Venetian as Lessor and Weatherford as Lessee (the Lease). The Lease is in evidence before the court on the current application, found attached to the affidavit of Michael Charles Hotchkin sworn 25 August 2020 at MCH1.
Procedural orders concerning a provision of pleadings and written submissions had issued in the arbitration prior the arbitral hearing across two days of March 2020.
Due to COVID-19 constraints which had prevailed at the time, the arbitral hearing was conducted remotely, utilising an audio-link between the arbitrator and the respective counsel for each of the parties.
At the heart of the arbitral dispute was a controversy over the true meaning of a phrase used within the text of cl 4.6 of the Lease.

Clause 4.6

The fiscal dispute between the lease parties ultimately concerned the correct level of the Lessor’s (ie, Venetian’s) apportionment of the outgoings for its land, known as lot 9009, and as were assessed and allocated by it to its Lessee.
The dispute had manifested under factual circumstances whereby the land area to be leased by Weatherford (known as the ‘Premises’) at the time the Lease was entered, was only a smallish component (roughly 11%) of the Lessor’s overall land at the relevant location. In that respect, cl 4.6 of the Lease read:

If any such Outgoings shall not be separately and wholly assessed or charged against the Premises then the Lessee shall pay to the Lessor within seven (7) days of written demand thereof that proportion thereof that the area of the Premises (as certified by the Lessor) bears to the total lettable area of the premises covered by the relevant assessment or charge (as certified by the Lessor). (emphasis in bold and noting the distinction between capital ‘P’ Premises (the leased area) and the lower case ‘premises’, in reference to the Lessor’s land).
The dispute arose because Weatherford, as Lessee, was complaining it had been overcharged by its landlord, Venetian, in respect of the proper proportion of outgoings payable by it to Venetian over time. Weatherford claimed that it had overpaid moneys by reason of Venetian’s erroneous prior apportionments of claimed outgoings. Weatherford contended Venetian had attributed too great a proportion of Venetian’s own outgoings to it (ie, to Weatherford) and Weatherford was claiming back its contended outgoings overpayments in the arbitration.
Venetian’s primary outgoings exposure arose because it, as a landowner, had received from various rating authorities such as the City of Swan, or the State entity responsible for issuing land tax, what were global rating or tax assessments issued levied by reference to the total area of Venetian’s landholding (lot 9009). As mentioned by cl 4.6 of the Lease, Weatherford, as Lessee, was only required to bear contractually to Venetian an appropriate proportion (by land area) of its Lessor’s outgoings. Ultimately, this contractual outgoings proportionate reimbursement liability to Venetian under the Lease distilled to a ratio calculation – over which the parties descended into disagreement. At the heart of the dispute was the true meaning of the phrase seen in cl 4.6 of the Lease, namely, ‘total lettable area of the premises covered’ vis-à-vis the outgoing assessment or charge to the Lessor.
As will be seen, the ratio or fractional calculation required by cl 4.6 can be mathematically described as: . The correctly ascertained fraction or ratio is then applied to Venetian’s total levied outgoings against its aggregate landholding area to derive the correct proportion of outgoings which may be properly levied under cl 4.6 to Weatherford under the Lease.
There had been no debate before the arbitrator, and there remained no debate before this court, that the numerator, or top line of the fraction reference to be used in the calculation (N), was the ‘area of the Premises’ of the Lessee (ie, the area of Weatherford’s leased land).
Next, the denominator (D) component is the ‘total lettable area of the premises covered by the relevant assessment or charge’ rendered to the Lessor (as in cl 4.6). It was the denominator input figure (D) which had generated the controversy in the arbitration.

It follows that even if I am wrong in my construction of clause 4.6 such that any common area over the larger lot is to be omitted from the calculation of the denominator, no such common areas were designated and certified in accordance with the requirements of the Lease.  (emphasis in bold)

The Premises, being the fractional input (N), is the square meterage of Weatherford’s tenancy area as identified in the Lease, namely some 31,600m2. That figure was wholly uncontroversial.
Item 1 in a Schedule to the Lease (see page 32 of the Lease) by reference to a term ‘Premises’ refers to ‘Corner Milly Court and Metal Circuit, Malaga, Western Australia having an area of approximately 31,600m2 as hachured on the plan attached hereto and erected on the Land together with the Lessor’s chattels[.]’
Item 2 of the same Schedule refers to ‘Land’. It refers to ‘Part Lot 9010 on Deposited Plan 66057 being Lot [blank] on Deposited Plan [blank] and being all of the land in Certificate of Title Volume [blank] Folio [blank][.]’
At this point it may be helpful for overall orientation purposes to pause to direct some attention to a useful diagram of Venetian’s land, and which shows Weatherford’s leased Premises. To that end, I refer to the affidavit of Mr Basil Georgiou sworn 19 October 2020, tendered on behalf of Weatherford. I refer in particular to attachment BG-27, page 405. I incorporate as Schedule 1 to these reasons a copy of the diagram as it is found at page 405 (the aerial plan).
As can be seen, the aerial plan identifies various features, including an overhead powerline pylon base, the leased area of Weatherford’s Premises, a hatched area in orange indicating so-called common areas (including a car park, access and driveway), a lot boundary line in green and a broken green horizontal line indicating what is a Western Power easement over Venetian’s land. To that end, see the key in the bottom left.
Weatherford’s Premises are found depicted at the bottom right‑hand corner of the aerial plan, marked as ‘Weatherford’.
The dispute

Because the parties could not resolve a dispute over the correct level of the proportion of outgoings payable by Weatherford to Venetian, they agreed to the appointment of a private arbitrator and hence, to Mr Solomon SC’s appointment in May 2019. That was effected by an arbitration agreement of 15 May 2019. By that agreement, the ‘dispute’ was defined in an attached document called ‘Agreed Issues for Determination’.
In simple terms, the ‘battle ground’ of the arbitral dispute, relevant to the present application, was over the correct total lettable area denominator input figure (D) to be used in the ratio exercise required to determine the correct apportionment of a component of the Lessor’s overall outgoings exposures, over to its Lessee.
Of course, as a matter of simple mathematics, given that the numerator area (N) input figure for the area of Weatherford’s Premises as Lessee is fixed (agreed at 31,600m2), then the higher the (area) figure used as the denominator input (D) in the fraction, then necessarily, the lower must be the ultimately calculated Lessee’s proportion of outgoings payable to its Lessor. The reverse also follows, so that the lower the number used as the denominator input (D), then the higher the end amount of outgoings payable by Weatherford to Venetian.
Hence, for a time and, indeed, right up until the start of the arbitral hearing before the learned arbitrator, it had been the contention of Weatherford as Lessee that the denominator input figure (D) – as a matter of the proper construction and interpretation of the phrase ‘total lettable area’ of the premises – was the entirety of the square meterage area of Venetian’s land.
Venetian had never apportioned outgoings to Weatherford on that basis in the past. Instead, Venetian had followed an outgoings apportionment methodology of reducing the area of the square meterage figure to be used in the denominator input figure (D) by deducting certain areas from out of its total land holding area. The Venetian deduction of areas approach achieved the end result of reducing the potential quantum level of the denominator figure (D) – and thereby increased mathematically the allocated proportion of outgoings ultimately claimed as payable by Weatherford to Venetian. But if the denominator figure (D) was to be numerically higher, then correspondingly, Weatherford’s as calculated outgoings exposure to Venetian would be lower.
In particular, two areas of Venetian’s land look to have been the subject of deduction against the aggregate cl 4.6 denominator input figure (D) calculated under the apportionment methodology of Venetian. First, in this category appears to be the area of land the subject of an easement over Venetian’s land held by Western Power – see the top right and across of the aerial plan (the easement area) scheduled to these reasons.
Under the parties’ starting pleadings at the arbitration, the argument to sustain a deduction of the Western Power easement area to reduce the level of (D) looks to have been advanced by Venetian – along the lines that an existence of such a registered easement area favouring Western Power had rendered that land area as being inappropriate or unsuitable for development by Venetian. It appears Venetian’s stance was that in consequence, all the easement area was not a ‘lettable area’, or even a potentially lettable area, within Venetian’s land for the purpose of cl 4.6. As a result, the easement area was not included in the denominator input figure (D) used to apportion the lease outgoings. As seen from the aerial plan in Schedule 1, the Western Power easement area within Venetian’s overall land holding (marked by broken green lines) is located some distance to the north and to the west of the Weatherford (leased) Premises.
A second broad area of land also deducted from out of the (D) figure by Venetian was attributable to the land areas as shown on the aerial plan as cross‑hatched in orange, referred to as the ‘common areas’. Some of the common areas are found some distance to the west of Weatherford’s Premises (save for an orange cross‑hatched area abutting and adjacent to the as identified Nick Scali (leased) premises, directly to the north of the Weatherford Premises).
Again the underlying issue was whether or not, by regard ultimately to the true meaning of the cl 4.6 phrase ‘total lettable area of the premises covered’, all these common areas of land within Venetian’s aggregate land could legitimately be deducted from the ultimately used denominator input figure (D). That, of course, would thereby contribute in the end to a higher eventual outgoings apportionment liability exposure for Weatherford than would otherwise be the case, had all those areas of land not been carved away from the level of the denominator input figure (D).
Ultimately, of course, the contention of Venetian as Lessor was and remained that such common areas over its land as were used for car parking, access and for driveways, were not, by reason of such common usage deployment, then to be assessed as a part of its lettable area, or as potentially lettable areas by Venetian.

Issues for determination

Before the arbitration hearing commenced, arguments between the parties over the correct apportionment of outgoings to Weatherford had essentially distilled to two major areas of conflict, as reflected in the parties’ Agreed Issues for Determination. The first battle ground to be resolved by the arbitrator was over the true meaning of the denominator phrase used within cl 4.6, namely, ‘the total lettable area of the premises’. Then, once a true meaning was ascertained, a second battle concerned the application of that true meaning to the underlying facts. A key question to be answered in this exercise was whether the areas of Venetian’s land as had been deducted away from the denominator input figure (D) used by Venetian, and so removing from (D) the Western Power easement area as well as the so-called common areas within Venetian’s land, were so legitimately deducted. Collectively, these two battles were known as ‘issue 1’ in both the arbitration and upon the present application.
As mentioned, Weatherford had first contended by its pleadings at the arbitration that the denominator input figure (D) should be the entirety of the square meterage of Venetian’s land – and for which a relevant outgoings assessment or charge had been levied against it by the relevant rating or taxation body. But a difficulty with that ambit submission, as the arbitrator eventually construed the phrase, was that if that had been the true meaning, then it was more likely that the chosen cl 4.6 terminology would have been more simple. Clause 4.6 could merely then have referred to the total area of the Lessor’s ‘land’. Instead, a distinct phrase and the word ‘premises’ in lower case was used. The as chosen words of cl 4.6, reasoned the arbitrator, suggested a somewhat different concept was (objectively) envisioned, and so not just the entirety of the area of the Lessor’s land (see Award pars 92 -93).
Conduct of the arbitration

As mentioned, the arbitration hearing was conducted on 31 March and 1 April 2020. Prior to the hearing, various procedural orders had been issued by the arbitrator to facilitate the hearing – see the attachments to Mr Hotchkin’s affidavit and attachments to the affidavit of Michael Andrew Daniels sworn 19 October 2020.
Given a prevalent COVID-19 pandemic afflicting Western Australia at the time and restrictions upon gatherings as then imposed, the arbitration was conducted remotely by telephone links over two days of hearing. There does not appear to be any issue taken by Venetian over the fact of the hearing taking place by audio-link.
The parties did not ever arrange for a transcript of the two days of arbitral hearing to be produced. As such, there was and is no independent verbatim record of what transpired across the hearing days. This is not at all satisfactory or acceptable in this court. In the context of a presently attempted challenge put against the award based on alleged unfairness in the overall process, or a failure to afford procedural fairness to Venetian – an absence of a verbatim transcript is simply hopeless towards reliably evaluating, after an event, what happened at the hearing from an overall fairness perspective. Affidavits relied on in this current application each contain accounts and recollections of the hearing – see Mr Hotchkin’s affidavit at pars 7, 11 – 14, Mr Georgiou’s affidavit at pars 5, 46 – 52, 54 – 56, 58 – 59, 61 -65, 70 – 76, and Mr Daniels’ affidavit at pars 31 -36. Mr Daniels’ affidavit also attaches various handwritten notes he made during the course of the arbitration hearing (see MAD-10 to MAD-12). There was no cross-examination upon any of this material at the hearing in this court. But this is all still a second best approach which, albeit not objected to by the respondent, is unsatisfactory and should not be repeated save in the most exceptional of circumstances.
Nevertheless, it is notable that Mr Hotchkin (par 13), Mr Georgiou (par 64) and Mr Daniels (par 66), all identify that at the conclusion of oral submissions, Venetian filed a Summary of Respondent’s Oral Submissions of 3 April 2020 (see Mr Hotchkin’s affidavit at MCH14). Those written submissions (and Weatherford’s responsive written submissions of 6 April 2020), were referred to by the arbitrator in the Award (reasons) (pars 60 – 61).
Legal principles bearing upon the present application by Venetian

I pause at this point to re-emphasise that upon the present application I am not concerned over any question about whether or not the arbitrator was right or wrong on his ultimate contractual interpretation of cl 4.6 of the Lease. As I began, I repeat that the present application of Venetian cannot and will not be determined in the manner of any kind of appeal against the Award. It is nothing of the sort. Rather, all I am concerned with is, for the purposes of Venetian’s present invocation of s 34(2)(a)(ii) and (iv) of the CA Act, whether (and without a verbatim transcript) Venetian can make good a serious contention that in the two-day hearing before the learned arbitrator it was, overall, either ‘unable to present its case’, or that the Award of the arbitrator upon issue 1 was made ‘on the basis of an arbitral procedure not in accordance with the Arbitration Agreement’ (see Venetian’s originating summons filed 26 August 2020).
In the end, Venetian’s s 34(2)(a)(ii) and (iv) contentions commonly distil to a similar basket of assembled grievances as articulated in Venetian’s originating summons under the ensuing pars 1, 2 and 3(a) – (j).
Notwithstanding the textual magnitude of what is found there, the essential nature of the underlying grievance looks to be that the learned arbitrator denied Venetian a fair hearing or, in other words, that the arbitral hearing was procedurally unfair to Venetian in some allegedly significant respects.
In Spaseski v Mladenovski [2019] WASC 65 commencing at [49], I have earlier discussed arbitral challenges by reference to observations of Menon CJ in the Singapore Court of Appeal decision AKN v ALC [2015] SGCA 18. In particular, I drew attention there to his Honour’s identification of the central notion of party autonomy and to the consequences of the parties’ choices made towards choosing to proceed by an arbitration. His Honour had observed at [37]:

… The courts do not and must not interfere in the merits of an arbitral award and, in the process, bail out parties who have made choices that they might come to regret, or offer them a second chance to canvass the merits of their respective cases …
Menon CJ had referred to a policy of minimal curial intervention towards arbitral proceedings as being a mainstay of the Model Law – the adoption of which locally in this State is, of course, the basis for the significant structural changes that were made to West Australian law by the enactment of the CA Act in 2012, all of which I explained at some length in Spaseski at [49] and following.
In Spaseski at [56], I also cited Menon CJ’s observations concerning the ingenuity of lawyers towards circumventing the constraints against the challenging of an arbitrator’s award by appeal. Here, I need to repeat again from his Honour’s reasons in AKN v ALC at [38] this salient observation:

… That is not to say that the courts can never intervene. However, the grounds for curial intervention are narrowly circumscribed, and generally concern process failures that are unfair and prejudice the parties or instances where the arbitral tribunal has made a decision that is beyond the scope of the arbitration agreement. It follows that, from the court’s perspective, the parties to an arbitration do not have a right to a ‘correct’ decision from the arbitral tribunal that can be vindicated by the courts. Instead, they only have a right to a decision that is within the ambit of their consent to have their dispute arbitrated, and that is arrived at following a fair process.
At [57] in Spaseski, I also identified article 18 of the Model Law, stipulating a need for equal treatment of parties in arbitration proceedings, expressed in terms that:

The parties must be treated with equality and each party must be given a reasonable opportunity of presenting the party’s case.
At [58] in Spaseski, I emphasised the adjective ‘reasonable’ preceded the noun ‘opportunity’. See also my further observations in The State of Western Australia v Mineralogy Pty Ltd [2020] WASC 58 at [2] and [78] and then in Ivankovic v West Australian Planning Commission [2020] WASC 401 at [212] – [213], [220] and [222] concerning the limited scope for challenges against an arbitral award in the wake of the new regime of the CA Act in this State.
For present circumstances concerning Venetian’s expressed grievance to the effect that it was denied a reasonable opportunity to present its case concerning the true meaning of the critical phrase at issue between the parties within cl 4.6 of the Lease, I would reiterate the further observations of Menon CJ from AKN v ALC. They were made, of course, in relation to attempted appeals ‘dressed up’, essentially, to look like process grievances in order to circumvent a closed gate against appeals otherwise by the Model Law.
I re-emphasise the learned Chief Justice’s observations from [39] of AKN v ALC. His Honour had said:

In the light of their limited role in arbitral proceedings, courts must resist the temptation to engage with what is substantially an appeal on the legal merits of an arbitral award, but which, through the ingenuity of counsel, may be disguised and presented as a challenge to process failures during the arbitration. A prime example of this would be a challenge based on an alleged breach of natural justice. When examining such a challenge, it is important that the court assess the real nature of the complaint. Among the arguments commonly raised in support of breach of natural justice challenges are these:

(a) that the arbitral tribunal misunderstood the case presented and so did not apply its mind to the actual case of the aggrieved party;

(b) that the arbitral tribunal did not mention the arguments raised by the aggrieved party and so must have failed to consider the latter’s actual case; and

(c) that the arbitral tribunal must have overlooked a part of the aggrieved party’s case because it did not engage with the merits of that part of the latter’s case.

Although such arguments may be commonly raised, more often than not, they do not, in fact, amount to breaches of natural justice.
At [61] of Spaseski, by reference to s 34(2)(b)(ii) of the CA Act, I also cited Croft J’s observations in the Supreme Court of Victoria in Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd [2016] VSC 326. His Honour had said at [42] – [43]:

As is clear from this passage, Art 18 of the Model Law – and, by implication, s 18 of the Act – does not invoke the principles of natural justice or procedural fairness developed in, for example, administrative law, or other common law principles not developed in the context of the Model Law. Such common law principles undoubtedly flow from the same jurisprudential source as Art 18 of the Model Law in that they are, fundamentally, concerned with fairness, equality and due process. Indeed, there are many circumstances where these principles may overlap with the requirements of [Art 18] and may produce similar outcomes. However, ultimately, the requirement of fairness and equality of treatment of the parties in arbitration is distinct from, and often more straightforward in its application than the position developed by the common law in various contexts.

The relevant test is to be drawn from the words of s 18 of the Act itself and may be stated as follows: ‘Were the parties treated with equality and was each party given a reasonable opportunity of presenting the party’s case?’ As is apparent from the reasons that follow, a failure to recognise and apply this test may result in the adoption of an impermissible judicial approach to the question of whether an objecting party was denied procedural fairness or natural justice in breach of the Act. Like any other provision of the Act which mirrors the Model Law, s 18 must not be viewed ‘through the prism of principles and doctrines not found in the Model Law or the New York Convention, and which may be peculiar to a particular domestic jurisdiction’. The temptation to approach the application of the Act in this way – the temptation of ‘domesticity’ – the temptation of ‘domesticity’ must be resisted in order to promote uniformity between the application of the Act and the application of the Model Law as required by s 2A of the Act and as emphasised by the Court of Appeal in Subway Systems Australia Pty Ltd v Ireland. (footnotes omitted)
Bearing all these considerations in mind, the essential question here is whether Venetian, in a context of a two-day arbitral hearing in circumstances where the participating parties had been offered the opportunity by the learned arbitrator at the end of that hearing to file further written submissions and any extra materials – were treated with equality and whether Venetian overall was afforded a ‘reasonable opportunity’ to present its case. Contextually, it should be kept in mind as well that to the extent that Venetian acted in the past to reduce the square meterage of the input (D) to a level below the full area of its rated or taxed land, Venetian must be expected at the time of so acting to have held a basis for it excising those chosen areas from the denominator input figure (D) in producing its apportionment of outgoings to Weatherford. For Venetian to suggest unfair surprise in it being asked later to explain its land area excision rationale in conducting its derivation to arrive at the level of (D) that was used is, of itself, somewhat curious.
The ultimate issue of contractual interpretation concerning the phase ‘total lettable area’ used in the parties’ lease is a question of law (not fact) and about which there could be only one true meaning. Venetian faces a difficult hurdle in contending that a contended rival interpretation was not accepted by the arbitrator when it has no right to appeal against that determination.
Indeed, despite the many layers of lipstick, the essential nature of Venetian’s grievance is ultimately exposed to being that its advocated rival interpretation of the clause’s true meaning was rejected by the arbitrator. Such a grievance is not a true process grievance. It is a poorly disguised attempted appeal raised against a decision reached against it. Save to say, losing is not a violation of procedural fairness principles.
The arbitrator’s Award and determination

The arbitrator delivered reserved reasons for decision constituting his determination and forming a part of the Award, on 29 June 2020. By that determination over some 34 pages of reasons, the learned arbitrator comprehensively traversed the parties’ rival submissions and positions, over what ultimately was the parties’ basal dispute over the contested true meaning of the cl 4.6 phrase (being issue 1 for the arbitrator) at issue, namely ‘total lettable area’.

Meaning of ‘total lettable area’

The arbitrator’s consideration of this issue of law commences at par 67 of his reasons, referring to a leading local appellate authority discussing the orthodox principles of contractual interpretation, namely, Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219 at [42]. The parties were not in any level of dispute over these principles. Hence, that starting platform was perfectly orthodox and appropriate.
It is necessary then to look even more closely at the arbitrator’s reasons underlying his eventual issue 1 determination.
Having considered the parties’ rival positions, the learned arbitrator eventually decided for himself the true meaning of the clause at issue. That was his obligation – irrespective of the parties’ rival stances.
The true meaning question, of course, was not a determination of fact, it was a determination of law. Having cited Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 at [98] the learned arbitrator then proceeded to observe at Award pars 69 – 72:

… Thus, the meaning of clause 4.6 is to be determined by reference to what a reasonable business person would have understood by the phrase “total lettable area of the premises covered by the relevant assessment or charge”, having regard to the background knowledge of the surrounding circumstances….

It is necessary to begin with a consideration of the text of clause 4.6. As noted above, there is no dispute about what is meant by the area of the Premises or the area of the premises covered by the charge. The dispute centres on the meaning of the word lettable in the context of the clause.

In my respectful view, neither of the parties’ constructions sits entirely simply and easily with the word lettable.

The words plainly mean able to be let.
Referring to Weatherford’s submission as to the meaning of those words, the learned arbitrator then said at par 73:

As noted above, Weatherford’s construction requires the word lettable to include undeveloped land. In the usual context of commercial leasing it would be somewhat unusual to refer to undeveloped land as lettable, although it is not necessarily inapt to refer to cleared but undeveloped land as able to be let. In that regard, it may also be observed that the clause does not state immediately lettable or other words to that effect. The word lettable of itself, as a matter of plain language, is capable of encompassing land that is able to be let in due course even if it is not immediately available to be let.

Referring to Venetian’s rival proposal meaning of ‘lettable’, the learned arbitrator observed at par 74:

“… Venetian’s construction requires some embellishment of the text to clarify that it means land that is both developed and available for letting. I appreciate that Venetian contends that lettable of itself necessarily connotes land that is developed and is to be distinguished from ‘usable’, but as a matter of plain English there remains some strain in the proposition that developed land that a lessor resolved not to let (for example because it is to the lessor’s commercial advantage for some reason such as making it available as common area) is not area that is able to be let or capable being let. In addition, as I have observed, there is an element of immediacy in Venetian’s construction that is not mandated by the word lettable of itself. Venetian submitted that lettability is not a concept that speaks of ‘possibility’. But neither does it necessarily require immediacy or inevitability. As a matter of plain language, land may be able to be let even if it is not available to be let now, and even if it is ultimately never let.”

Next, commencing at par 75, the learned arbitrator observed that it was not possible simply from the bare text of cl 4.6 alone to determine its true meaning. In perfectly orthodox fashion, he determined it was necessary to look beyond the bare text to the surrounding circumstances and so to the background and genesis of the Lease, including to a progenitor Heads of Agreement of 10 January 2011 – identifying such matters under par 76(a) through (e) of his reasons.

Part of the facts as identified at the time of the parties’ earlier Heads of Agreement in reference then to Venetian’s lot 9009, were that the proposed leased premises to Weatherford had then constituted only approximately 11% of a much larger area of Venetian’s lot 9009.

On 29 August 2011, the parties entered their Agreement for Lease. The deed provided that Venetian would construct a facility and the parties would enter into a lease.

At par 80, the learned arbitrator identified some mutually known surrounding circumstances contextually prevailing at the time of the Agreement for Lease, noting the proposed leased premises were to be only a small part (approximately 10.3%) of the much larger lot in Venetian’s single ownership (lot 9009). At that time, the balance of lot 9009 had been cleared for potential development, but it ‘remained largely undeveloped’. An (objective) intention towards an eventual creation of an independent (ie, smaller) lot just for the premises leased to Weatherford out of a portion of lot 9009 was also identified (see par 80(f)).

With those surrounding facts then identified, the learned arbitrator returned to the differences as between the parties over their rival meanings as advocated for cl 4.6.
At this point, he observed upon, in effect, the pragmatics of their dispute in monetary terms over a correct apportionment of some of the Lessor’s outgoings exposure to its lessee, Weatherford. He duly observed at par 82:

“The real practical difference between the competing constructions relates to whether clause 4.6 requires Weatherford to contribute to the cost of outgoings for land that remained undeveloped or was common area – even if the common area was some distance from and did not provide any shared facility for the Premises. Having regard to the surrounding circumstances referred to at paragraph 80 above, in my view, it is most unlikely that a reasonable business person would have objectively understood clause 4.6 to require the lessee to bear a significant proportion of the cost of outgoings in respect of the very considerable areas of the lot 9009 that remained undeveloped or for common area that provided no utility to the Premises. This is especially so as the lessee would have no control, or even visibility, of the lot’s future development beyond a vague expectation that it was in the lessor’s interest to develop the balance of the lot in due course. (emphasis in bold)”

At par 83 of his reasons the learned arbitrator acknowledged Venetian’s submission concerning the true meaning of the phrase ‘lettable area’ and that its contention may not sit comfortably with including land that was cleared, but not yet developed. Nevertheless, in evaluating that submission, the learned arbitrator reasoned that Venetian’s preferred construction would expose it to other difficulties which, in the end, were more persuasive considerations (see pars 84 – 86, 89 – 90). The learned arbitrator now reasoned as follows:

[91] For those reasons, I do not accept that objectively construed, the Lease requires Weatherford to bear a proportion (in the circumstances that prevailed upon entry to the Lease, quite a significant proportion) of the outgoings that relate to the whole of the larger lot 9009 or 9010. I also consider that unwarranted ambiguities and potential difficulties arise with Venetian’s proposed construction of the clause.

[92] At the same time, I accept the submission of Venetian that:

(a) the clear choice in clause 4.6 of wording other than simply ‘Land’ as defined; and

(b) the references to ‘common area’ and (in my view, to a lesser extent) ‘complex’ in the Lease;

are strong indicators that clause 4.6 contemplates, as the denominator in the applicable ratio, an area different from, and less than, the ‘Land’.

I pause here to observe that notwithstanding Venetian’s multiple as expressed process grievances, in terms of an alleged unfair denial of a fair opportunity to present key arguments bearing upon its rival construction of cl 4.6, the learned arbitrator had in fact, accepted some important aspects of Venetian’s arguments as a matter of overall contractual construction (as now exposed under par 92). This was to reduce the scope and therefore the numerical area of the denominator input figure (D) to below the total square meterage area of Venetian’s land. This was against the starting rival contention of Weatherford.

That arbitrator’s constructional view as expressed at par 92 could, in the end, consequentially increase the ratio of outgoings to be apportioned to and payable by Weatherford. Success for Venetian in that degree can hardly be complained about.
But the learned arbitrator then proceeded to observe at par 94:

Weatherford responds to that challenge by accepting that the denominator can indeed be less than the Land where there is some regulatory impediment to the leasing of a portion of the larger lot. Venetian counters that no such prospect is evident in the Heads of Agreement, Agreement for Lease, or the Lease and nor was it ever in the contemplation of the parties. (emphasis in bold)

Reference to some ‘regulatory impediment’ so seen in par 94 grounds a key part of the unfair process grievances raised at this hearing by Venetian, in terms of a contended unfair inability to put arguments, or as a denial of fairness to it, by reason of the arbitral procedure followed. But having found that the denominator input figure (D) generated by the term ‘lettable area’ was not the whole area of the Lessor’s land, what the arbitrator was then doing at par 94, quite correctly on my view, was then seeking to identify any genres of areas of Venetian’s land which might be outside that meaning of ‘lettable area’. Any such excluded areas so found would only favour Venetian, not disadvantage it, in the apportionment of outgoings calculation to be conducted. That was not unfair to Venetian.

Areas to be excluded from ‘total lettable area’

Upon the rejection of the ambit denominator area meaning submission (‘lettable area’ being all of Venetian’s land), Weatherford also put a further and alternative submission to the arbitrator, concerning what could be (limited) excludable areas from the denominator input figure (D). Weatherford had, by senior counsel, postulated excising any area in the larger lot of Venetian that was shown to be constrained by some regulatory impediment against that area being lettable. This fall back alternative construction of Weatherford looks (without having a transcript) to have emerged, in effect, during oral arguments of counsel put during the arbitral hearing, as an aspect of the ultimate legal debates over the true meaning of the phrase ‘lettable area’ within cl 4.6.

Contrary again to the procedural unfairness submission of Venetian as was put to this court, I assess there to be nothing unfair or untoward to Venetian in the arbitration over a dispute over the true cl 4.6 interpretation of ‘lettable area’ in the arbitrator determining what areas of land fell within or outside of that criterion. The true meaning of ‘lettable area’ under cl 4.6 was at the very heart of the dispute between the parties.

Even if the submitted fall back construction of Weatherford only emerged during the arbitral hearing, the learned arbitrator at the end of a two day hearing had then afforded the parties an equal and very fair opportunity to make further submissions in writing and as well to tender any further materials that each side thought relevant. The opportunity afforded was generous and more than fair.

Nor on what I have before me (ie, with no transcript) can I ascertain that Venetian, through counsel, had ever sought to object at the hearing when Weatherford’s fall back interpretation had been raised by senior counsel to the arbitral exploration of this aspect of determining the true meaning of ‘lettable area’ within cl 4.6 of the Lease.
Venetian’s grievance as put to this court as to it being taken by surprise, or by not having an opportunity to tender evidence upon or over this aspect of the question of true meaning, is also misplaced. On my assessment, no factual evidence from Venetian could ostensibly bear upon the objective question of interpretation (law) concerning the true meaning of ‘lettable area’ within cl 4.6 of the Lease.

In any event, the learned arbitrator then continued at pars 95 – 96 of his reasons:

In addition, there is force in Venetian’s contention that in principle, if an area is indeed common area, then it is not lettable. Thus, as a matter of textual construction, the expression lettable area in the context of clause 4.6 needs to be understood in light of the fact that if an area is indeed ‘Common Area’ under the Lease, then it cannot be part of the lettable area.

In my view, the references to ‘common area’ and ‘complex’ are readily explicable in a manner that does not mandate the constructional conclusion urged by Venetian.
Evaluating the implications of finding many such common areas across the breadth of a large lot 9009, the learned arbitrator rendered this observation, at par 100:

In addition, the Lease does not refer to any common area that may exist in the whole of lot 9009 to serve any tenancy no matter how remote, or independent from the Premises, it might be. The references to common areas are largely qualified by reference to areas that serve the Premises or are used by the Lessee: clauses: 5.1.8, 5.5.1, 5.6.6. I agree with the submission made orally by counsel for Venetian that whether the common areas serve the Premises as a matter of fact, does not impact upon the proper construction of the Lease. Nevertheless, the references to ‘serve’ and ‘use’ in respect of common areas under the Lease are significant as a matter of proper construction, quite independently of the factual matters emphasised by Weatherford. (emphasis in bold)

[I note in passing that in the context of what is Venetian’s process grievance, as to the fairness of the arbitral hearing by way of an alleged unfair inability to engage with the arbitrator against the meaning ultimately arrived at by the learned arbitrator, that in fact, counsel for Venetian through his submission (as noted under par 100) had very directly engaged then with the arbitrator upon the concept of common areas served by the premises. The Venetian submission seen above in par 100 which was accepted by the learned arbitrator concerning the issue of construction of the Lease did just that].
The learned arbitrator then continued upon the topic of ‘common areas’ as a concept in terms of an area that may or may not present as appropriate to excise from the denominator by its meterage in the ‘Premises’ as ‘lettable’ or not:

[101] Clause 5.5.4 and clause 24 (definition of ‘Outgoings’) refer to common area without reference to service of the premises or use by the Lessee. However, both those clauses refer to the common areas of the complex ‘of which the Premises form part’. That serves to illustrate that a common area in the Lease contemplates a joint facility enjoyed within a ‘complex’ in common with other tenancies.

[102] Perhaps, most importantly, ‘Common Areas’ the subject of a substantive grant of tenure in clause 1, is a defined term in clause 24 set out at paragraph 27 above. The definition refers to areas intended by the lessor ‘to be for the use of lessees of the Land … and are so designated from time to time by the Lessor …’.

[103] In my view, it would be a curious construction of the words ‘for the use of lessees of the Land’ to include reference to a common area for the use of lessees on the lot that were some distance, and entirely separate, from and independent of the Premises and where that area was of no utility to the lessee the subject of the Lease.

[104] Further, a Common Area is an area which the lessor has ‘so designated’. The Shorter Oxford dictionary defines the word designate to mean point out or indicate. Pointing out and indicating, and thus designating, is not a unilateral act that can be done in the absence of some manifestation or communication to another. It is necessary to indicate or point out to someone else. In context, that designation in my view is required to be to the lessee. If Common Areas are the subject of the grant of tenure it seems to me most unlikely that on a proper construction, the lessor’s designation can be to some third party without notice to the lessee of the Lease.

[105] There was no evidence of a designation communicated to Weatherford of any common area that Venetian intended for Weatherford’s use in common with any other tenancy or that would serve the Premises. That is not surprising as lot 9009, at least in respect of a section leased to Weatherford, did not develop in a manner that lent itself to shared facilities, less still a ‘complex’.

The learned arbitrator continued as to a certification process for a common area at par 106:

Moreover, that outcome is reinforced by the terms of clause 4.6 itself which provides for a certification process in respect of both the area numerator and the denominator. It stands to reason that if the lessor has “designated” areas as common area for use by lessees, in order to provide a level of transparency and clarity, the lessor is required to ‘certify’ that area. There was no evidence of any relevant certification. Once again that is unsurprising in the circumstances.

At par 107 the learned arbitrator referred to the aerial plan (which was PL‑15 before him and which I have included as Schedule 1 to these reasons), showing various depicted areas on lot 9009 as common areas. The arbitrator said at par 107:

There was no evidence that Weatherford had been given notice or was even aware of those depictions. Perhaps more significantly, it became apparent that the depictions did not in any event reflect the manner in which the proportion under clause 4.6 had been calculated. Although this was in Weatherford’s favour, that is beside the point. The document rather reinforced the conclusion that there had been no ‘designation’ less still any certification, of common area under the Lease.

Another process grievance of Venetian is that it did not get the opportunity to engage by evidence. There is no substance in this grievance. What the learned arbitrator was doing was interpreting in surrounding context, the text of cl 4.6, which after the phrase ‘total lettable area of the premises’ had manifested the further words ‘as certified by the Lessor’.

It was entirely orthodox and proper for the learned arbitrator to identify and give some function to those surrounding words, in a context of Venetian’s challenged approach to the apportionment of outgoings to its Lessee.
As seen, Venetian’s cl 4.6 challenged approach had been to excise from the denominator figure (D) all areas that it unilaterally attributed as being common areas within its land and which were thereby, it considered, not lettable by it. Those area excisions from (D), mathematically, increased the proportion of Venetian’s outgoings that could be apportioned to and recovered from Weatherford.

At the arbitration hearing Venetian was always, in effect, defending the legitimacy of its outgoings apportionment approach taken by it as regards deducting all common areas from out of the lettable area figure in the ratio’s denominator. Venetian could hardly have been taken by surprise that in that overall context, the true meaning of the term ‘certification’ as it is used by cl 4.6 came under scrutiny as well within that overall context.

At par 108, the arbitrator recorded, dealt with and ultimately rejected a submission by Venetian (made orally by counsel) as to a notion of designation of common areas by reference to planning approval documents that duly identified car parks and public toilets. Likewise, a submission was put by Venetian to the effect that outgoings claim invoices as were issued to Weatherford by Venetian could in themselves constitute a sufficient lessor’s certification for the purposes of meeting cl 4.6. Such certification by invoice arguments were made, considered, but ultimately rejected by the learned arbitrator as matters of true construction of the term ‘certification’ in cl 4.6. There was a direct engagement upon this aspect of the dispute for Venetian through its counsel at the arbitral hearing at the time. There was no element of surprise or forensic prejudice. The issue was fought upon and lost fairly and squarely at the hearing.

Again, the question on the present application is not whether the learned arbitrator was right or wrong over that end determination. That issue is not up for any level of review in this court. There is no appeal.

The only issue is whether there was some ascertainable process deficiency by an absence of a fair hearing afforded to Venetian by it being denied a reasonable opportunity to engage with the overall process of interpretive evaluation concerning the true meaning of cl 4.6 of the Lease.

Clearly, as is recorded in par 108, Venetian did at the hearing actively engage with the ‘certification’ aspect of the controversy under cl 4.6 and the true meaning issues concerning the designation of common areas. Venetian, through counsel, made submissions to that end. Ultimately, some of Venetian’s submissions were not accepted. Losing does not equate to procedural unfairness.

Overall, I can discern (again with no transcript) no process or procedural failure adverse to Venetian. Venetian was not denied the reasonable opportunity to engage over these aspects of the controversy.
Paragraph 109 towards common areas under the learned arbitrator’s reasons displays that Venetian lost at two levels – as a matter of construction and then further, as a determination of fact. Paragraph 109 reads:

It follows that even if I am wrong in my construction of clause 4.6 such that any common area over the larger lot is to be omitted from the calculation of the denominator, no such common areas were designated and certified in accordance with the requirements of the Lease. (emphasis in bold)

At par 111 the learned arbitrator addressed a further submission by the parties, particularly Venetian, at the arbitration hearing concerning the force of a decision of the West Australian Court of Appeal. This was the decision in Ray Mullins & Sons Pty Ltd v Skycorp Investments Pty Ltd [2011] WASCA 49. That was an appeal concerning the determination of the proportion of outgoings payable by lessees rendered in the particular circumstances of a different lease with different textual provisions. The learned arbitrator plainly evaluated the implications of this case authority. There was no process deficiency or unfairness in that approach.

Conclusion on construction of cl 4.6

Commencing at par 112, the learned arbitrator expressed his final constructional conclusions by reference to what he gave then as a ‘simple example’.
At this point he explained, by reference to the parties’ rival contentions, how as a matter of the true meaning of cl 4.6, the applicable ratio for a proper determination of the payment of outgoings ( ) was to be arrived at: see pars 113 – 117. Having explained the example and the results that would arise under Venetian’s and Weatherford’s rival constructions, the learned arbitrator concluded at par 118:

Under Venetian’s construction, the lessee would be making a significant contribution to the undeveloped area and common area that service other tenancies but not its tenancy. Assuming, common terms in the other leases the balance would be paid by the other lessees and the lessor would pay nothing for the outgoings associated with the undeveloped and unleased land.

The learned arbitrator, in terms of the as required task towards construing a commercial lease instrument and affording it a commercially sensible interpretation, was perfectly entitled to render that observation. As I will explain, that observation and the process under which it was arrived at do not manifest any process deficiency or unfairness capable of being legitimately challenged under the CA Act in this court where, again, there is no appeal.

Arbitrator’s ultimate conclusion on issue 1

Ultimately, on issue one 1, the arbitrator found:

[119] By reason of the matters set out above, in my view, the proper apportionment of Outgoings for which Weatherford is liable is determined under clause 4.6 on the following basis:

(a) the numerator is 31,600;

(b) the denominator is the whole area of the larger lot (lot 9009, 9010 or 9011 as the case may be), less:

(i) any area in respect of which there is a regulatory prohibition preventing it from being lettable. There was not evidence of any such area, and so I determine that this is not relevant to the calculation;

(ii) any Common Area designated by Venetian by overt manifest conduct communication to Weatherford of an area that served or was for the use of the Premises, and certified by Venetian for the purposes of clause 4.6. There was no evidence of any such area, and so I determine this is not relevant to the calculation.

[120] It is common cause that Weatherford has paid the Outgoings on the basis of Venetian’s construction. It has therefore overpaid.

[121] I therefore determine in accordance with the Agreed Issues for Determination document, that to the extent of the overpayment, Weatherford is entitled to deduct that amount from future payment to be made by Weatherford to Venetian under the Lease.

That concluded the learned arbitrator’s reasoning upon issue 1.
Venetian’s specific grievance with the concept of ‘regulatory prohibition’

Venetian’s primary challenge, by which it alleges it was unfairly unable to present its arbitral case, is that the concept of a ‘regulatory prohibition’ (that phrase as seen used in Award par 119(b)(i)) only emerged, at earliest, at the arbitral hearing.
Given the arbitration hearing was not transcribed, Venetian accepts it cannot be known with certainty how the concept of a ‘regulatory prohibition’ was first raised. It is said that the concept was either first raised by senior counsel for Weatherford during the arbitral hearing, or alternatively appeared for the first time in the Award. The uncertainty over this is unsatisfactory in this court.

A significant emphasis was placed on the fact that none of the pleadings exchanged prior to the hearing contained reference to any such concept. Venetian says that Weatherford’s statement of claim in the arbitration does not mention a ‘regulatory prohibition’ in its pleaded construction of cl 4.6. Nor, it is put, is there any basis to give rise to such an idea from the pleaded construction. Venetian argues then that ‘pleadings … are critical for fairly governing the conduct of a matter’ (Venetian’s written submissions dated 30 November 2020, par 25). Venetian heavily emphasises a fundamental rule of pleadings that the party who pleads a proposition is the party that is required to make good that proposition to the legal burden, including carrying any evidential burden.

An allied strand of Venetian’s expressed process grievance is that there was no basis for it to have anticipated from the text of the Lease (in cl 4.6 or otherwise) that a concept of ‘regulatory prohibition’ would arise, nor to consider and argue what it means. The implication of this was said by Venetian to have had the following impact (written submissions, par 26):

The significance of the belated idea of a ‘regulatory prohibition’ in the fair determination of the matter, when it was not a pleaded construction for clause 4.6 in the Defendant’s case, arises because there is no basis in the text of clause 4.6, or otherwise by reference to any other provisions in the Lease, that such a concept should properly have been anticipated by the Plaintiff, and if so, what it actually meant.

The significance of that concern is made evident by the Arbitrator’s finding that there was ‘no evidence’ of a regulatory prohibition, when:

(a) the only relevant evidence could have been of a ‘regulatory prohibition’ prior to the date of the Lease, and the Plaintiff’s point in an attempt to engage with the idea was that the absence of such evidence was a point in favour of the Plaintiff, not against it; and

(b) if the finding of there being ‘no evidence’ could only have been in respect of a ‘regulatory prohibition’ after the date of the Lease, then it is not capable in point of law of assisting in the proper construction of clause 4.6 of the Lease, and could not reasonably be anticipated as a possible finding by the Arbitrator.

Venetian says that if the arbitrator was impressed by the lack of evidence post-Lease execution, then that, and the fact that there was a lack of evidence would be used against it in a cl 4.6 construction, should have been put to Venetian.

Venetian argues that the onus that should have been on Weatherford to prove what the concept of a ‘regulatory prohibition’ meant, came to be shifted towards Venetian – in effect, to disprove the regulatory prohibition. Much is made of this, particularly from an evidentiary standpoint. Venetian says that as this point was not pleaded, it was not able to anticipate it would need to call evidence as to whether the phrase ‘regulatory prohibition’ was known at the time of the Lease, which would then go to the construction of cl 4.6.

Further, Venetian says that the reference to an ‘Easement’ in Weatherford’s arbitral pleading is relevant to the unfairness of the conduct of the arbitration, in that there was evidence of a ‘regulatory prohibition’ because of the terms of the Western Power easement, and the pleaded alternative of the easement was not engaged with by the arbitrator.

Venetian contends (written submissions, par 32):

The reason that the pleaded reference by the Defendant to the ‘Easement’ in paragraph 16 of the Defendant’s Statement of Claim is relevant to the unfairness of the conduct of the Arbitration is that, if the idea of a ‘regulatory prohibition’ relates to any form of prohibition asserted by any public authority (which is not addressed at all by the Arbitrator), then:

(a) there was evidence of such a ‘regulatory prohibition’ before the Arbitrator, because the terms of the Easement to Western Power pleaded at paragraph 16 of its Statement of Claim prohibited any development in the Easement area without its consent; and

(b) the existence of the Easement was the pleaded alternative to the Defendant’s case, yet the Arbitrator did not engage at all with that aspect of the Defendant’s alternative pleaded case, relying instead on an undeveloped idea which had not been pleaded or could otherwise have reasonably been anticipated in a way which differed from the express prohibition contained in the Western Power Easement Deed. (footnotes omitted)

Venetian says further that the shift of the legal and evidential burden to it, from Weatherford, particularly a departure from Weatherford’s pleading, constitutes failure to accord procedural fairness on the part of the arbitrator.
Weatherford by its submissions rejects all these contentions. It says, and emphasises, that at no point did Venetian ever object to the issue of regulatory prohibitions being raised – either the time the submission was made prior to, during or after the arbitration hearing.

Weatherford says that even if the arbitrator made findings of fact without probative evidence, which it denies, that would only trigger a review if such a finding results in real unfairness or practical injustice. Given Venetian did not raise issues as to evidentiary burden at the time of the arbitration hearing, nor in its subsequent written submissions, Weatherford says that no unfairness or injustice was suffered by Venetian.

As to the allegation that the burden of proof was shifted, Weatherford says that such an inquiry in truth, goes to challenge the merits of the arbitrator’s findings, and thus, in substance, is really an appeal against a finding of the award. It says Venetian’s ground is ‘dressed up’ as a breach of the arbitration procedure – an exercise the court must avoid engaging in (Weatherford’s written submissions dated 22 December 2020, par 52). Weatherford says that court should also avoid ‘bailing out’ Venetian for its strategic choice not to object to, nor to call evidence at the time the issue of a regulatory prohibition was raised. This, Weatherford says, was an intentional forensic decision by Venetian which it now obviously regrets, but that none of this is to the immediate point.

Finally, as to the argument that the Western Power easement constituted a ‘regulatory prohibition’ and was not a part of Weatherford’s alternate construction which it abandoned, Weatherford says the evidence shows that its alternate construction of cl 4.6 fell away, when Venetian amended its defence prior to the arbitration hearing. Again, this is said to be a strategic choice on the part of Venetian. Further, it is said that even if the arbitrator did not deal with or determine an alternate construction of Weatherford, it is difficult to see how that could lead to an unfairness suffered by Venetian (Weatherford’s written submissions dated 22 December 2020, par 57).
Venetian’s grievance with the concept of common areas

Whilst there is overlap between Venetian’s complaints about ‘regulatory prohibition’ and what it says regarding common areas, the ‘common areas’ issue was always squarely in play at the time of the arbitration hearing.

Venetian says that it presented and fought a case by reference to the terms of the Lease, and the context in which ‘common areas’ might arise from other terms of the Lease. However, it complains the arbitrator dealt with a point of the application of cl 4.6, rather than engaging in this construction of the clause. The application of cl 4.6 is said to not arise in any of the pleadings or submissions.

A particular grievance emphasis by Venetian is against the arbitrator making findings of fact as to the ‘certification’ or designation of common areas, or the factual lack thereof. Venetian says that the arbitrator conflated the task of construing cl 4.6 with a factual undertaking, as to whether the common areas had been designated or certified. If Venetian was to have been treated fairly and have reasonably anticipated that finding, it is said that Weatherford should have pleaded this in its arbitral reply pleading. This, according to Venetian, was not done. According to Venetian, the primary grievance over this not occurring is that the arbitrator should have told it (Venetian) that he would, as Venetian submits, depart from orthodox principles of construction by referring to evidence or apply the construction of ‘common areas’ as a figure to be excluded from the ‘lettable area’ calculation.

Venetian says that it suffered unfairness in presenting its case by the arbitrator departing from the pleaded case of the parties. This, according to Venetian, was because the arbitrator’s finding that Venetian, as Lessor, was ‘required’ to certify the common areas (Award par 106) had not arisen or emerged from the pleadings or oral submissions, and was inconsistent with the text of the Lease which only ’empowers’ Venetian, rather than ‘compels’ it.

A final point Venetian makes as to the alleged unfairness it suffered in process was that without warning from the arbitrator, it was unable to put in evidence about how ‘common areas’ are created within the property industry. I return to this argument later.

Weatherford, in reply submits that Venetian has misapprehended what was ‘in the ring’ before the arbitrator, whether by the pleadings, or otherwise. By this, Weatherford is saying that the issue of common areas was in play before the arbitration hearing – in particular, in Venetian’s opening submissions. Weatherford also says that over the time before the hearing the issue of common areas was a relevant issue. Not only that, but Weatherford says that from the Award it is clear that common areas were, in fact, in the arbitral arena (identifying Award pars 62 and 108).

Weatherford submits that arguments of unfairness in process as to the issue of common areas are without merit. First, it says that the submission that Venetian should have been put on notice about the application of common areas as a disputed issue, is wrong. Weatherford says that the requirement for the designation of common areas in the text of the Lease itself (cl 24) was central to Venetian’s case and was addressed by Venetian at the hearing – both orally and in writing.

Second, Weatherford says that Venetian had an opportunity to present evidence as to how the common areas are or were designated to tenants under any Lease in the relevant lot 9009, however, it made an election to not adduce any such evidence.

Finally, as to the argument that Venetian was denied an opportunity to dissuade the arbitrator of a view he ultimately reached, Weatherford says this is not to the point. Relying on Amasya at [55], it is said that the fact that the arbitrator might have arrived a different conclusion if the arbitration played out differently, is an irrelevant consideration.

Process unfairness: common areas

I turn to the aspect of the procedural grievance contention by Venetian that it was denied an opportunity by the arbitrator to lead evidence in support of its rival construction of the clause.

Venetian contends that it could have led expert evidence if it had been given proper notice of the ultimate construction conclusion reached by the learned arbitrator about how common areas in a lease are designated. To that end, an affidavit of Paul Edward Testar sworn 25 August 2020 was sought to be relied upon by Venetian at the present application. Mr Testar says in his affidavit that he is employed as the commercial property manager of the Caratti Group of companies (of which Venetian is a member) and has 30 years’ experience in the development, sale, leasing and management of commercial real estate.

Mr Testar commenced working for the Caratti Group in September 2013. His work involves management of its property portfolio, including about 50 real property assets across Western Australia at various metropolitan and country locations.
The expert evidence that Venetian complains it was denied the opportunity to lead, looks to be found as expressed under pars 11 through 16 of Mr Testar’s affidavit. This evidence is directed towards common areas – the concept that Mr Testar at par 10 says that he is very familiar with in the context of his commercial leasing experience.

At par 11 Mr Testar explains what he believes the notion of common areas normally include. He relates that they are typically shared by tenants in a complex and their customers, visitors and service contractors. But none of that looks to be particularly controversial or helpful. In my assessment, this evidence does not in any sense carry a potential impact concerning the present controversy over a process grievance.

At par 12, Mr Testar seeks to contend that in his experience that ‘Common area is rarely identified on a plan in a lease …’. However, I do not accept that Mr Testar is qualified to express such sweeping views about the contents of written leases generally, or their plans generally. This is obviously a diverse subject matter which must be almost infinite in its potential dimensions.

Likewise Mr Testar’s further observations under par 13 as to the size or measurement of common areas in a complex as being set out in a lease document. This proposed evidence from Mr Testar about what ‘lease documents’ generally provide towards common areas and their designations is equally, in my view, too broad. It is sweeping, generalised, unhelpful, of no weight and ultimately inadmissible.

Even more sweeping generalised observations by Mr Testar at his par 14 concerning tenancy complexes being subject to ‘ongoing development’ are so trite in terms of such complexes changing from time to time, as to be facile. They are unhelpful.

At par 15, Mr Testar purports to speak of a so-called practice of all landlords as being not to designate common areas ‘by specifically notifying each and every tenant during the term of each and every lease of any change to a common area’. Again in my view, such generalised attempted evidence was never admissible. And even if it were admitted, it could not possibly relevantly bear towards the key issue of construction confronting the learned arbitrator during the present hearing.
Likewise unhelpful is par 16, by Mr Testar’s reference to a designation of common areas by painted lines depicting car parking bays and the demarcation directing traffic in common driveways, etc. That purported expression of an expert opinion is again, simply too broad and ultimately, yet again, is wholly irrelevant to the construction exercise required to be undertaken by the learned arbitrator in reference to the phrase ‘lettable area’, used within cl 4.6 of the Lease.

Determination on present application under s 34(2) of the CA Act

The present application, as expressed, seeks to set aside the arbitral determination by a resort to s 34(2)(a)(ii) and (iv) of the CA Act, on a basis that Venetian was not able to ‘present its case’ to the arbitrator, or that the arbitral procedure was somehow unfair, by denying Venetian a reasonable opportunity to present its case. In the end, the contentions are untenable.

Venetian received an entirely fair two-day arbitral hearing. The process followed by the learned arbitrator, on my assessment, was perfectly fair. I repeat that an opportunity for the arbitrating parties to file even further materials given at the conclusion of two days of arbitral hearing, was afforded. The indulgence provided a more than fair opportunity to address any issues as regards further legal submissions or extra documentary expert evidence that Venetian may have wished to have further submitted, arising in the wake of the two days of hearing. But no extra evidence was sought to be added to Venetian’s case. Yet there is a process grievance raised to this court. That is truly breathtaking in its audacity.
Nor did Venetian ever complain to the arbitrator about being denied a fair or reasonable opportunity to present any part of its case at the hearing or afterwards.

An impression I hold, reading only the limited materials put before me (there being no transcript of the two days of arbitral hearing) is that the true underlying grievance Venetian complains over does not really concern the end meaning conclusion reached by the learned arbitrator. Rather, Venetian’s gripe is more against the arbitrator’s conclusion as to ‘regulatory prohibition’ – namely that ‘there was not evidence of any such area, and so I determine this is not relevant to the calculation’ (Award par 119(b)(i) and (ii)).

The construction conclusion of the learned arbitrator allowing Venetian the theoretical scope to reduce the denominator’s fractional number down to below the actual whole area of the larger lot of land owned by Venetian was actually a constructional conclusion reached in Venetian’s favour. A consequence would thereby, as a matter of mathematics theoretically, ultimately increase the proportion of the outgoings to be payable by Weatherford to its Lessor.

Within this overall framework it looks that the numerical areas of its land that Venetian in fact decided to excise against the denominator input figure (D) had included the subject Western Power easement area. The problem for Venetian at the hearing was that merely proving a bare existence of that easement alone was not enough for it to prove that this same easement area was thereby ‘not lettable’ by Venetian. That was a forensic failure on its part – no-one else’s.

Depending on how Venetian had run its arbitral case, it may have been open then for it to have led evidence upon that pragmatic factual utilisation question – in terms of the uses of the Western Power easement area of its land as not being lettable and so, for that area to be excisable from the denominator input figure (D) used in the fraction. But that was a question of fact over which the parties might then have been at odds at the hearing.

Venetian did not run a non-utilisation of the easement area case before the arbitrator at the hearing that way, as best I can ascertain from what is before me. It only tendered the easement document, thinking (presumably) that was enough. It was not.

At the time Venetian’s contention looked to be that a mere existence of a registered easement favouring Western Power had thereby prevented this part of its land from being developed and so, therefore, that the easement area affected was not lettable and so, further, that its area was excisable from the D figure.

That argument was ultimately not accepted at the hearing. But that is not a process grievance. That is just a badly run case.
Nor do I assess in the submissions of Venetian upon the present application complaining of a process failure any suggestion that Venetian might have tendered some tangible negative evidence – in terms of a (non) use and negative letting potential of the area of the Western Power registered easement.

Indeed, the terms of the easement itself, found within Mr Hotchkin’s affidavit at MCH13, explicitly envisage the easement area as retaining some utility for farming purposes (see page 256).

The point is that the true construction of cl 4.6 of the Lease was not really the problem for Venetian with the easement area. The true forensic problem was a lack of any evidence led by Venetian to engage with the interpretation as was reached by the learned arbitrator – which, as seen, actually favoured Venetian had it led the required factual evidence to a non‑utilisation end (if such evidence was ever available, of course).

Likewise, in respect of the arbitrator’s common areas conclusion and observation at par 119(b)(ii) to the effect that there was no evidence of a common area communicated to Weatherford ‘of an area that served or was for the use of the Premises … ‘. There was again a more than sufficient opportunity to engage over that issue at the hearing afforded to Venetian had it chosen to take it up. It did not.

Conclusion

In the end, on what is put before this court, it simply cannot be reliably shown that Venetian suffered a disadvantage by reason of being denied a reasonable opportunity to present its case, or that the arbitral hearing process overall was unfair to it. Venetian must accept that there is no appeal against the arbitrator’s Award and come to terms with that adverse result.
Consequently, the application advanced under Venetian’s originating summons of 26 August 2020 fails to demonstrate any basis for the court to intervene against the Award by under s 34(2)(a)(ii) or (iv) of the CA Act and is dismissed upon publication of these reasons.

I reserve other questions, including as to costs orders.

I will hear the parties as to the precise terms of an appropriate costs order in due course, if that is required.

Lepcanfin Pty Ltd v Lepfin Pty Ltd [2020] NSWCA 155 (23 July 2020)

Court of Appeal
Supreme CourtNew South Wales

 

 

Case Name: Lepcanfin Pty Ltd v Lepfin Pty Ltd
Medium Neutral Citation: [2020] NSWCA 155
Hearing Date(s): 14 May 2020
Date of Orders: 23 July 2020
Decision Date: 23 July 2020
Before: Bell P at [1]; Payne JA at [116]; McCallum JA at [117]
Decision: 1.   Grant leave to appeal but dismiss the appeal with costs on the Mandate Issue, as identified in the reasons for judgment.
2.   Refuse leave to appeal with costs in respect of the Guarantee Issue, as identified in the reasons for judgment.
Catchwords: CONTRACT – dispute resolution clauses – expert determination clause – separate Expert Determination Agreement entered into – whether expert exceeded her mandate in determining that clause in a Development Deed was a penalty – construction of ambit of separate Expert Determination Agreement – when one party to dispute initially accepted that penalty issue fell within scope of Expert Determination Agreement and then resiled from that fact – whether party estopped from resiling from initial position – whether other issues sought to be raised in Commercial List proceedings but which had not been the subject of expert determination could be litigated – whether primary judge erred in staying litigation of those issues.
Legislation Cited: Supreme Court Act 1970 (NSW) s 101(2)(e)
Cases Cited: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36
Australian Health & Nutrition Association Ltd v Hive Marketing Group Pty Ltd (2019) 99 NSWLR 419; [2019] NSWCA 61
Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; [2006] FCAFC 192
Dance With Mr D Ltd v Dirty Dancing Investments Pty Ltd [2009] NSWSC 332
Electricity Generation Corporation v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corporation (2014) 251 CLR 640; [2014] HCA 7
FAI General Insurance Co Ltd v Ocean Marine Mutual Protection & Indemnity Association (1997) 41 NSWLR 117
Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40; [2007] 4 All ER 951
Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160; (1996) 131 FLR 422
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69
Global Partners Fund Limited v Babcock & Brown Limited (in liq) (2010) 79 ACSR 383; [2010] NSWCA 196
Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170
Harrington v Browne (1917) 23 CLR 297; [1917] HCA 36
Inghams Enterprises Pty Limited v Hannigan [2020] NSWCA 82
Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 3 SLR 936
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110
Mastrobuono v Shearson Lehman Hutton Inc. 514 US 52 (1995)
Mitsubishi Motors Corp v Soler-Chrysler Plymouth Inc 473 US 614 (1985)
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37
Paper Products Pty Ltd v Tomlinsons (Rochdale) Limited (1993) 43 FCR 439; [1993] FCA 346
PPK Willoughby Pty Ltd v Baird [2019] NSWCA 48
Rinehart v Hancock Prospecting Pty Ltd (2019) 366 ALR 635; [2019] HCA 13
Rinehart v Welker (2012) 95 NSWLR 221; [2012] NSWCA 95
TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (2013) 251 CLR 533; [2013] HCA 5
The Illawarra Community Housing Trust Ltd v MP Park Lane Pty Ltd [2020] NSWSC 751
The Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60; [1925] HCA 18
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52
Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17
Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; [2004] HCA 56
Texts Cited: A Briggs, Agreements on Jurisdiction and Choice of Law (2007, Oxford University Press)
G B Born, International Commercial Arbitration (2nd ed, 2014, Wolters Kluwer)
Category: Principal judgment
Parties: Lepcanfin Pty Ltd (Applicant)
Lepfin Pty Ltd (First Respondent)
Lepcon Pty Ltd (Second Respondent)
Antegra Pty Ltd (Third Respondent)
Domenico Capitani (Fourth Respondent)
Josephine Grace Carmel Capitani (Fifth Respondent)
Antegra Management Leppington Pty Ltd
(Sixth Respondent)
Lepdev Pty Ltd (Seventh Respondent)
Berlyn Holdings Pty Ltd (Eighth Respondent)
Representation: Counsel:

V Whittaker SC, K Petch (Applicant)
W Muddle SC, R Davies (First-Third and Sixth-Eighth Respondents)

Solicitors:

Colin Biggers & Paisley (Applicant)
Dentons Australia Pty Ltd (First-Third and
Sixth- Eighth Respondents)
Submitting appearance (Fourth and Fifth Respondents)

File Number(s): 2019/307949
Publication Restriction: N/A
Decision under appeal:
 Court or Tribunal: Supreme Court of New South Wales
  Jurisdiction: Equity – Commercial List
  Citation: [2019] NSWSC 1328
  Date of Decision: 10 September 2019
  Before: Rein J
  File Number(s): 2019/184969

 

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court’s computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

 

HEADNOTE

[This headnote is not to be read as part of the judgment]

Under cl 3.3 of a Development Deed relating to the development of a home estate on land situated in Leppington, NSW, Lepcon Pty Ltd (Lepcon) was required to make payments to Lepfin Pty Ltd (Lepfin) in the sum of $3.9million, yet only $1,143,332.56 was paid. Clause 12.4 of the Development Deed provided, inter alia, that a Facilitation Fee payable to Lepcanfin Pty Ltd (Lepcanfin) was to be increased by the amount of the shortfall in payments under cl 3.3. Accordingly, Lepcanfin claimed that it was entitled to an increased Facilitation Fee, described as the “Facilitation Fee Top-Up” (the Top-Up), on account of the $2,756,667.44 still to be advanced.

The Development Deed also made provision for various parties to it to enter into guarantees (the Guarantees) with the form of the guarantees contained in a proforma guarantee which was a schedule to the Development Deed. Clause 3.1(b) of the Development Deed made execution of the guarantees a pre-condition to the Development Deed coming into effect.

A dispute arose between the parties as to whether or not Lepcanfin had waived the obligation of Lepcon to pay the balance of $2,756,667.44 and its entitlement to the increase in the Facilitation Fee, pursuant to the terms of a Second Amendment and Restatement Deed, cl 2(c) of which acknowledged that Lepcanfin “waives the Existing Defaults on and from the Effective Date”, being 8 July 2015 (the date of the Second Amendment and Restatement Deed).

The Development Deed contained a dispute resolution clause providing for expert determination of various types of dispute. Pursuant to that clause, the parties appointed an independent expert, Professor Elisabeth Peden, to make a final and binding decision in relation to the dispute. A tri-partite expert determination agreement (the EDA) was drawn up, with Lepcanfin signing the EDA on 9 April 2018, and the counterparties executing it on 10 April 2018. A “brief description of subject matter of dispute” contained in a Schedule to the EDA outlined the following:

“…The dispute is, in essence, as to whether or not Lepcanfin waived the obligation of Antegra to pay the balance of $2,756,667.44 and Lepcanfin’s entitlement to the increase in the Facilitation Fee, pursuant to the terms of the Second Amendment and Restatement Deed. Antegra claims that the obligation and increase in Facilitation Fee was waived, while Lepcanfin claims that it was not”.

Prior to execution of the EDA, on 12 March 2018, Antegra and associated companies served Points of Claim, para 13 of which claimed that clause 12.4(a)(i) of the Development Deed “was void and unenforceable as a penalty”. On 9 April 2018, Lepcanfin served a Points of Defence, denying the allegation that cl 12.4(a)(i) was a penalty.

A Joint Bundle, including the Points of Claim and Points of Defence, was delivered to Professor Peden on 11 April 2018.

In the course of the expert determination process, Antegra made detailed submissions in relation to the issue of penalty. In response, notwithstanding its denial in its Points of Defence that cl 12.4(a)(i) was a penalty, Lepcanfin contended that only the “dispute as defined’ in the EDA should be considered by Professor Peden, and that this did not include the penalty issue. Professor Peden did not agree and Lepcanfin subsequently made submissions on the penalty issue.

Professor Peden provided her determination (the Determination) on 30 June 2014, noting that the scope of the dispute included whether the “entitlement” to the increased fee had been waived by Lepcanfin by way of the Second Amendment and Restatement Deed, and whether such an entitlement was a penalty and could be enforced. She held that there had been no waiver but that the increased Facilitation Fee was a “penalty”, and therefore either void or wholly unenforceable.

Lepcanfin commenced proceedings alleging that Professor Peden had exceeded her mandate in determining the penalty issue, and also sought substantive relief in relation to the Guarantees.

The primary judge held that the expert had not exceeded her mandate and dismissed, on a summary basis, this aspect of the Commercial List Summons. His Honour also held that the balance of the proceedings in relation to the Guarantees should be stayed on the basis that the dispute to which the relevant prayers for relief related fell within the scope of the expert determination clause in the Development Deed, and that the parties should be held to their contractual bargain.

The principal issues on appeal were:

  1. whether the primary judge erred in holding that the expert had not exceeded her mandate; and
  2. whether the primary judge erred in staying the proceedings in relation to the Guarantees.

The Court held (Bell P, Payne JA and McCallum JA agreeing):

  1. With respect to the question of mandate, leave to appeal was granted, but the appeal was dismissed. Commercial common sense dictated that there should be attributed to the parties an intention to give a broad interpretation to the word “entitlement” as used in the Schedule to the EDA, and that a party’s “entitlement” to rely on a particular contractual provision included whether or not there was a reason why may preclude that party from asserting or enjoying a contractual benefit otherwise conferred by it. The fact that the contractual benefit was a “penalty” amounted to such a reason: [99], [103], [108] (Bell P); [116] (Payne JA); [117] (McCallum JA).
  2. It was, in the circumstances, appropriate to decide this question on a    summary basis: [100] (Bell P); [116] (Payne JA); [117] (McCallum JA).
  3. Observations by Bell P in relation to the construction and interpretation of dispute resolution and expert determination clauses: [80]-[96].
  4. With respect to the Guarantee Issue, leave to appeal was refused. The primary judge’s decision that these claims for relief “arose out of” the Development Deed was correct and the parties should be held to their bargain. The primary judge was correct to stay the proceedings and this was a discretionary decision on a matter of practice and procedure, and was not shown to be infected with error of principle or involve any injustice: [11], [114] (Bell P); [116] (Payne JA); [117] (McCallum JA).

Judgment

  • BELL P: For the third time in a little over 12 months, this Court has been called upon to consider the terms of a dispute resolution clause in a commercial contract.
  • In Australian Health & Nutrition Association Ltd v Hive Marketing Group Pty Ltd (2019) 99 NSWLR 419; [2019] NSWCA 61, this Court was engaged in the consideration of a foreign exclusive jurisdiction clause in a dispute where not all parties to the controversy were parties to the same dispute resolution clause.
  • In Inghams Enterprises Pty Limited v Hannigan [2020] NSWCA 82 (Inghams), this Court had to consider whether a particular dispute fell within the terms of an arbitration clause. In that case, I considered at some length the wide variety of dispute resolution clauses that may be included in parties’ commercial contractual arrangements and the principles applicable to the construction and interpretation of such clauses.
  • The matter currently before the Court concerns what is known as an expert determination clause contained in a multi-party deed (the Development Deed), and which led to the execution by counterparty of a separate expert determination agreement (the EDA) to which some (but not all) of the parties to the Development Deed and who were relevantly in dispute became a party, together with the expert as mutually agreed by the parties to the dispute.
  • There are two essential issues. First, whether the expert determination which was delivered in 2018 exceeded the expert’s mandate (the Mandate Issue). This issue is an example of the fact that “[a]n expert determination clause does not oust the jurisdiction of the court, which always keeps ultimate supervision of the ambit of the expert’s authority under a contractual provision”: The Illawarra Community Housing Trust Limited v MP Park Lane Pty Ltd [2020] NSWSC 751 at [56] (Illawarra Community Housing). The second issue is whether an as yet unresolved dispute with regard to guarantees was required to be subjected to the expert determination process provided for in the Development Deed (the Guarantee Issue).
  • In the proceedings at first instance, Lepcanfin Pty Ltd v Lepfin Pty Ltd [2019] NSWSC 1328, Rein J (the primary judge), sitting in the Commercial List of the Equity Division of this Court, held that the expert had not exceeded her mandate and dismissed, on a summary basis, this aspect of the Commercial List Summons. His Honour also held that the balance of the proceedings which sought various declarations in relation to the operation of certain guarantees should be stayed on the basis that the dispute to which the relevant prayers for relief related fell within the scope of the expert determination clause in the Development Deed, and that the parties should be held to their contractual bargain.
  • Lepcanfin Pty Ltd (the Applicant) sought leave to appeal from this decision. The leave application was heard concurrently and was argued with considerable skill both by Ms Whittaker SC (with whom Ms Petch appeared) for the Applicant and by Mr Muddle SC (with whom Mr Davies appeared) for the First to Third and Sixth to Eighth Respondents. The Fourth and Fifth Respondents entered submitting appearances. They were parties to the Development Deed, but not parties to, nor associated with, parties to the EDA.
  • I would grant leave to appeal in respect of the primary judge’s decision on the Mandate Issue, but dismiss the appeal insofar as it related to that issue.
  • I would refuse to grant leave to appeal on the Guarantee Issue, on the basis that it involved a discretionary decision on a matter of practice and procedure and has not been shown to be infected with error of principle or involve any injustice: see, generally, PPK Willoughby Pty Ltd v Baird [2019] NSWCA 48. The Applicant remains able to agitate its claim with regard to the Guarantee Issue before a mutually agreed or appointed expert in accordance with the expert determination clause contained in the parties’ contractual arrangements.

Background to dispute

  • The proceedings arise out of a project for the development of land into a home estate in Leppington, NSW. The Applicant was a financier of that project and agreed to lend $10 million for the venture.

The Development Deed

  • On 21 August 2014, the Applicant entered into the Development Deed with each of the eight Respondents, namely, Lepfin Pty Ltd (Lepfin), Lepcon Pty Ltd (Lepcon), Antegra Pty Ltd (Antegra), Mr Domenico Capitani and Ms Josephine Grace Carmel Capitani (the Capitanis), Antegra Management Leppington Pty Ltd (AML), Lepdev Pty Ltd (Lepdev) and Berlyn Holdings Pty Ltd (Berlyn). The Capitanis entered a submitting appearance, other than as to costs, both at first instance and on appeal. They were also not party to the EDA. For convenience, I shall collectively refer in the balance of these reasons to the other parties to the Development Deed, other than the Applicant and the Capitanis, as the Respondents.
  • Clause 3.2 of the Development Deed outlined that the Applicant would provide funding of $10 million to pay out an existing NAB debt, and use reasonable endeavours to procure senior debt funding to enable the completion of the residential estate.
  • Clause 3.3 of the Development Deed provided that Lepcon (described as the Builder/Vendor) would advance to Lepfin (described as the Financier) an interest-free loan of $3.9 million, as follows:

“The Builder/Vendor must make an interest free loan to the Financier for working capital in the amount of $3,900,000, such loan to be made:

(a)   as to $1m within 30 days of Newco providing the funding in clause 3.2(a) above;

(b)   as to $2m within a further 30 days thereafter; and

(c)   as to the balance within a further 30 days thereafter”.

  • Clauses 8.1 and 8.3(b) of the Development Deed provided that, after the repayment of all monies provided by the Applicant and Lepcon, and to the extent of available funds thereafter and payment not preventing continuation of the residential estate, Lepfin would pay a “Facilitation Fee” to the Applicant. Schedule Two of the Development Deed provided a method of calculating that fee.
  • Clause 12.4 of the Development Deed provided that if Lepcon failed for a period of 30 days to advance the Lepcon Loan, then the Facilitation Fee payable to the Applicant was increased to the extent of the failure and, should the failure continue for 90 days, the Applicant could terminate the Development Deed. Clause 12.4 is relevantly extracted below:

12.4 Default (Clause 3.3)

If the Builder/Vendor fails to make any of the payments set out in clause 3.3 within the time periods allowed in clause 3.3 Newco may not immediately terminate this Deed, however if the failure to pay is not remedied within 30 days of the breach of clause 3.3, the parties agree:

(a)        (i)   the Facilitation Fee will be increased by the amount of the shortfall in payment/s; and

(ii)   Newco may, in its sole discretion, contribute the amount of the shortfall itself such contribution being deemed an Additional Contribution pursuant to clause 3.5;

(b)        If the failure to make such payments is not remedied within 90 days Newco may elect to terminate this Agreement.”

(By the first amendment deed (referred to at [19] below), the references to “Newco” in this clause were replaced by “Lepcanfin”, and the clause was slightly supplemented in a manner not material to the present dispute).

  • Lepcon did not advance the full amount of the loan required to be made by cl 3.3 of the Development Deed, with $2,756,667.44 still to be advanced. Accordingly, the Applicant claimed that it was entitled to the increased facilitation fee, described as the “Facilitation Fee Top-Up” (the Top-Up).
  • Clause 9 of the Development Deed dealt with dispute resolution and included a mechanism for negotiated resolution and, failing that, the appointment of an expert. Clause 9 has been extracted in its entirety below:

9.1    Parties to avoid disputes

Each party agrees to use its best endeavours to resolve any conflicts in good faith in accordance with the terms and intent of this agreement without such conflicts becoming disputes.

9.2    Disputes

If any dispute arises out of this agreement neither party may commence any court or arbitration proceedings unless they have complied with the following paragraphs of this clause (except where the party seeks urgent interlocutory relief).

9.3    Negotiated resolution and selection of expert

(a)   On service of a notice by any party (Dispute Notice), the parties to this agreement must meet at least once and use reasonable endeavours to resolve the Dispute by negotiation within 14 days of service of the Dispute Notice. Any resolution must be recorded in writing and signed by each party.

(b)   If the Dispute is not resolved, the parties must within the 14 day period use reasonable endeavours to appoint an expert (Expert) by agreement. That appointment must be recorded in writing and signed by each party. The parties agree that an Expert must only be appointed if that Expert agrees to provide its decision within a period no longer than 42 days from the date of his or her appointment.

(c)   If the parties do not reach agreement on the appointment of an Expert the Expert must be appointed, at the request of any party, by the President for the time being (or if none, the senior elected member) of the professional body of the following organisations according to the type of dispute:

an accounting dispute: by the President of the Institute of Chartered Accountants;

a legal dispute: by the President of the Law Society of NSW;

a construction or design dispute:  by the President of the Royal Australian Institute of Architects (NSW Chapter);

an engineering dispute: by the President of the Institute of Engineers;

a valuation dispute: by the President of the Australian Property Institute;

a property dispute: by the President of the Real Estate Institute of NSW.

If the parties cannot agree on the nature of the dispute, it shall be referred to The Institute of Arbitrators and Mediators Australia to determine the Expert.

9.4    Referral to Expert

If the Dispute is not resolved under clause 9.3, a party may at any time thereafter refer the Dispute for determination by the Expert.

9.5    Assistance to the Expert

(a)   Once the Expert has been instructed the parties must:

(i)   each use their best endeavours to make available to the Expert all information the Expert requires to settle or determine the Dispute; and

(ii)   ensure that their employees, agents or consultants are available to appear at any hearing or enquiry called by the Expert.

(b)   The parties may give written submissions to the Expert but must provide copies to the other parties at the same time.

9.6   Expert’s decision

(a)   The decision of the Expert must:

(i)   be in writing and give reasons; and

(ii)   be made and delivered to the parties within 42 days from the date of appointment of the Expert.

(b)   The Expert may conduct the determination of the Dispute in any way it considers appropriate but the Expert may, at its discretion, have regard to the Australian Commercial Dispute Centre’s guidelines for expert determination of disputes or such other guidelines as it considers appropriate.

(c)   The Expert’s decision is final and binding on the parties.

(d)   The Expert must act as an expert and not as an arbitrator.

9.7   Expert’s Costs

(a)   The Expert must also determine how the expenses relating to the referral of the Dispute (including the Expert’s remuneration) should be apportioned between the parties and in default of a decision by the Expert those expenses must be borne by the parties equally.

(b)   In determining the apportionment of costs the Expert may have regard to what the Expert, in its reasonable opinion considers to be a lack of good faith or a failure to use reasonable endeavours by any party in assisting the Expert or resolving the dispute between the parties nominated officers as required by this clause”.

  • The Development Deed also made provision for various parties to it to enter into guarantees with the form of the guarantees contained in a proforma guarantee which was a schedule to the Development Deed. Clause 3.1(b) of the Development Deed made execution of the guarantees a pre-condition to the Development Deed coming into effect.

Amendment deeds

  • The Applicant and the Respondents entered into two amendment deeds, styled “Amendment and Restatement Deed” dated 18 May 2015 (the first amendment deed) and “Second Amendment and Restatement Deed” dated 8 July 2015 (the second amendment deed).
  • The recitals to the first amendment deed explained the purpose of the amendment as follows:

“A   The parties entered into the Development Deed on or about September 2014 (Development Deed).

B   On 27 November 2014, a notice of default under the Development Deed was issued by Lepcanfin Pty Ltd to Lepcon Pty Ltd as trustee of the Leppington MHE Development Trust (Default Notice) as a result of a default in payment by the Builder/Vendor pursuant to clauses 3.3 and 12.4 of the Development Deed.

C   A second default occurred under clauses 3.3 and 12.4 as the balance of the payment due to be made to Lepcanfin Pty Ltd was not received by 3 December 2014. The aggregate amount of $2,900,000 is still owing to Lepcanfin Pty Ltd under the terms of the Development Deed (Second Default Notice).

D   Lepcanfin has agreed that they may consider injecting additional funds into the Project on certain conditions up to a maximum amount of $2,900,000 (or any lesser amount as it determines in its sole discretion).

E   The parties acknowledge that as a result of the defaults above and the Project now being underway it has become apparent that there are amendments required to the Development Deed in order for the Project to efficiently proceed.

F   Amendments are permitted to the Development Deed pursuant to clause 16.5 and this deed now set out the amendments agreed between the parties to the Development Deed effective from the Effective Date”.

  • The first amendment deed included the following acknowledgements, in cll 2(c) and 2(d), namely that:

2   Acknowledgment

(c)   Lepcanfin, in its sole discretion, may decide to waive the Existing Defaults if it considers appropriate in order to obtain alternate funding pursuant to the Development Deed.

(d)   The parties acknowledge and confirm that in calculating the Facilitation Fee there is an additional sum payable under clause 12.4 of the Development Deed. The Facilitation Fee has increased by an amount equal to the shortfall under clause 3.3 of the Development Deed in the amount of $2,900,000 less an amount of the contribution made by the Builder/Vendor between the period of 3 September 2014 until 2 January 2015. This Facilitation Fee is payable in accordance with the Development Deed”.

  • The second amendment deed included an acknowledgement in cl 2(c) that “Lepcanfin waives the Existing Defaults on and from the Effective Date”, the effective date being the date of the second amendment deed, namely 8 July 2015. Under cl 1.1 of the second amendment deed, “Existing Defaults” was defined to include the following events:

“(a)   On 27 November 2014, a notice of default under the Development Deed was issued by Lepcanfin Pty Ltd to Lepcon Pty Ltd as trustee of the Leppington MHE Development Trust (Default Notice) as a result of a default in payment by the Builder/Vendor pursuant to clauses 3.3 and 12.4 of the Development Deed;

(b)   A second default occurred under clauses 3.3 and 12.4 as the balance of the payment due to be made to Lepcanfin Pty Ltd was not received by 3 December 2014. The aggregate amount of $2,900,000 is still owing to Lepcanfin Pty Ltd under the terms of the Development Deed (Second Default Notice); and

(c)   A further default occurred in respect of the Facility Agreement between Lepcanfin Pty Ltd and Lepfin Pty Ltd as a result of a third default occurring under the Development Deed. A default notice was issued on 5 June 2015 (Third Default Notice).”

Emergence of a dispute

  • A dispute emerged between the Applicant and the Respondents as to whether, by agreeing to waive the existing defaults under the second amendment deed, the Applicant had also waived its entitlement to receive the Top-Up.
  • On 10 August 2017, Dentons (acting for the Respondents) issued a dispute notice to Colin Biggers & Paisley (CBP), acting for the Applicant, as follows:

“…We understand the position you have stated however, disagree with your interpretation of the Agreement.

We are instructed by our client that it was always his understanding that the existing defaults were to be waived on the basis that effective control of the project was to be passed to your client.

The definition of ‘existing defaults’ at paragraph (b) does no more than state that, as at the date of the Second Amendment and Restatement Deed the money was owing. Clause 2(c) then makes it clear that ‘Lepcanfin waives the Existing Defaults on and from the Effective Date’.

Given the Existing Defaults were waived expressly, the point you make in clause 5.5 has no application as the obligation you refer to which had not been observed and constituted an Existing Default was ‘expressly waived in this document’.

We are instructed to advise that our client does not agree that distributions should include the full facilitation fee of $2.9m being paid to your client and invokes Clause 9 of the Agreement which requires the issue to be the subject of dispute resolution.

We are instructed to propose that the $2.9m be taken out of the proposed distributions, paid into a trust account and invested in a controlled moneys account pending resolution of the issue…”

  • On 19 February 2018, Dentons sent an email to CBP which contained a draft email of instruction to the proposed expert, including a suggested description of the dispute in respect of which the expert was to be appointed. Professor Elisabeth Peden, a practising barrister and expert in, inter alia, contract law, was agreed by the parties to be a suitable expert. The draft email to be sent was outlined by Dentons as follows (other than the matters either struck through or added in bold, which were amendments subsequently proposed by CBP and accepted by Dentons):

“DRAFT EMAIL TO PROFESSOR PEDEN

Dear Professor Peden

We act for Antegra Pty Ltd (ACN 080 385 011) (Antegra). We have copied the solicitors for Lepcanfin Pty Ltd (ACN 600 769 720) (Lepcanfin) to this email.

We refer to your previous correspondence with our offices regarding the dispute between our respective clients.

As you may be aware, the dispute pertains to a Development Deed entered into by the parties (and others) on 21 August 2014 (as amended by an Amendment and Restatement Deed dated 18 May 2015 and a Second Amendment and Restatement Deed dated 8 July 2015) (Development Deed). The Development Deed relates to the development of a Manufactured Home Estate on land situated in Leppington, NSW. Under clause 3.3 of the Development Deed, Antegra was (or is, as the case may be) required to make payments to Lepfin Pty Ltd (ACN 134 397 265) (Financier) in the sum of $3,900,000. Antegra paid $1,143,332.56. Clause 12.4 of the Development Deed provides, inter alia, that a Facilitation Fee payable to Lepcanfin is to be increased by the amount of the shortfall in payments under clause 3.3. The dispute is, in essence, as to whether or not Lepcanfin waived the obligation of Antegra to pay the balance of $2,756,667.44 and Lepcanfin’s entitlement to the increase in the Facilitation Fee, pursuant to the terms of the Second Amendment and Restatement Deed. Antegra claims that the obligation and increase in Facilitation Fee was waived, while Lepcanfin claims that it was not.

Clause 9 of the Development Deed provides for a dispute resolution process, culminating in the appointment of an independent expert, who is to make a final and binding decision in relation to a dispute. The parties have agreed on your appointment as the independent expert for this dispute.

Can you please let us know if you remain available to act as the independent expert in this matter? If so, please provide us with your engagement letter for our review.

If you remain available, we propose to appoint you as an expert effective on 23 March 2018 – following which you will have until 4 May 2018 (42 days) to provide your decision. We also propose the following timetable: The parties intend to provide you with a brief of agreed documents by 23 March 2018. At the time of appointment, the parties expect to have reached agreement on how the matter should proceed and we will then correspond with you as to our suggested timetable.

The parties also agree to provide you with any further information, as requested. While there is provision in the Development Deed for the independent expert to conduct a hearing or enquiry, the parties presently anticipate that it will be sufficient for you to determine the dispute on the parties.

Please let us know if you have any questions or would otherwise like to discuss”.

  • On 21 February 2018, CBP responded with amendments to the proposed instruction email, as indicated at [25] above, with the relevant additions included in bold font, and the deletions being struck through. CBP further requested a Points of Claim to provide sufficient detail as to the nature of the dispute, as follows:

“…Thank you for the draft email. We have amended the proposed email to Professor Peden, as indicated in red. We do not agree with the timetable for progressing this matter.

When we first spoke with Ben Allen we had indicated that our preliminary view was that the matter could proceed on the papers. We have now had the opportunity of reviewing the files in more detail and in particular your letter of 10 August 2017, which invokes clause 9 of the Agreement. Your letter does not give sufficient detail as to the nature of the dispute which has arisen, nor does it give a description of the circumstances of the dispute. In our view, these details (preferably by way of a properly pleaded points of claim) would assist to narrow the issues and also the scope of evidence. It would also assist us to form a view on how the matter should then proceed, that is on the papers or by way of hearing.

Your proposed timetable provides over a month for an agreed bundle to be provided to Professor Peden. We suggest that this time be utilised as follows:

  1. Your client serve its points of claim by 2 March 2017. We require this document in order to form our view on the agreed bundle.
  2. Your client provide an index to the proposed bundle by 9 March.
  3. Our client provide its response with respect to the proposed bundle by 16 March.

If you agree to the proposal we do not believe it is necessary to require Professor Peden to make any formal orders. These steps can be taken immediately and prior to her appointment.

Please let us have your views as a matter of urgency”. (emphasis added).

  • On 23 February 2018, Dentons agreed to provide a Points of Claim in accordance with CBP’s proposal on condition that CBP provide a Points of Defence in response, as outlined in an email to CBP as follows:

“…Whilst our client believes that its position is sufficiently clear, as set out in our previous correspondence with your firm, it is agreeable to your proposal that our client serves a points of claim by 2 March 2018. That agreement is subject to your client serving a points of defence by 9 March 2018, in the interests of reciprocity.

We are otherwise agreeable to the balance of the ‘informal’ timetable proposed by you, leading to the provision of the agreed bundle to Professor Peden on 23 March 2018”.

  • On 28 February 2018, CBP responded to this email, outlining that “[o]ur client will serve a points of defence by 9 March 2018. We look forward to receiving your client’s points of claim by 2 March 2018.”
  • Professor Peden’s appointment as the expert was ultimately formalised in the EDA but, for reasons that will emerge, it is necessary to set out the background to its ultimate execution by counterparty.

Expert Determination Agreement and its background

  • On 23 February 2018, Dentons sent the email of instruction to Professor Peden in the form agreed between the parties, as outlined at [25] above.
  • On 28 February 2018, Professor Peden provided to the parties’ solicitors a draft expert determination agreement for their consideration and their clients’ execution. The draft agreement paraphrased in a Schedule what was described as a “brief description of subject matter of dispute”. This description was essentially taken from the third paragraph of the email of instruction to Professor Peden, referred to at [25] above. The Schedule was in these terms:

“A dispute concerning a Development Deed entered into by the parties (and others) on 21 August 2014 (as amended by an Amendment and Restatement Deed dated 18 May 2015 and a Second Amendment and Restatement Deed dated 8 July 2015) (Development Deed). The Development Deed relates to the development of a Manufactured Home Estate on land situated in Leppington, NSW. Under clause 3.3 of the Development Deed, Antegra was (or is, as the case may be) required to make payments to Lepfin Pty Ltd (ACN 134 397 265) (Financier) in the sum of $3,900,000. Antegra paid $1,143,332.56. Clause 12.4 of the Development Deed provides, inter alia, that a Facilitation Fee payable to Lepcanfin is to be increased by the amount of the shortfall in payments under clause 3.3. The dispute is, in essence, as to whether or not Lepcanfin waived the obligation of Antegra to pay the balance of $2,756,667.44 and Lepcanfin’s entitlement to the increase in the Facilitation Fee, pursuant to the terms of the Second Amendment and Restatement Deed. Antegra claims that the obligation and increase in Facilitation Fee was waived, while Lepcanfin claims that it was not”.

  • On 12 March 2018, the Respondents served a Points of Claim, styled as “Points of Claim and Document Index for Antegra, Lepcon and Lepfin”. Relevantly, para 13 claimed that “[c]lause 12.4(a)(i) was void and unenforceable as a penalty”, this being a reference to cl 12.4 of the Development Deed, set out at [15] above.
  • On 9 April 2018, the Applicant served a Points of Defence. At para 13, the Applicant denied the allegation that cl 12.4(a)(i) of the Development Deed was a penalty, as follows:

“Lepcanfin denies the allegation made; and further says that (apart from a right of termination under clause 12.4(b), which right was waived) the consequence of a breach of clause 3.3 was merely an agreed increase in the Facilitation Fee to which Lepcanfin was entitled to the extent that available funds permitted the payment of such an increase and that that consequence is incapable of being regarded in equity or otherwise as a penalty”.

  • In the email of 9 April 2018 under cover of which the Points of Defence were served, CBP said:

Joint bundle

In addition to the documents set out in your client’s points of claim, the joint bundle should include the following documents:

  1. Your client’s points of claim.
  2. Our client’s points of defence.
  3. Title searches for the property. An example is attached.
  4. Mortgage granted in favour of Lepcanfin, a copy of which is attached.
  5. Facility Agreement, a copy of which is attached).
  6. Deed of Acknowledgement and Repayment, dated 23 June 2015, a copy of which is attached).
  7. Mortgage granted in favour of Bawden Custodians Pty Ltd and Shareholding Pty Ltd, a copy of which is attached).

Please arrange for the joint bundle to be provided to Professor Peden as a matter of urgency, with a copy provided to us. Our client reserves its rights to rely on documents not included in the joint bundle.”

  • The Joint Bundle, including the Points of Claim and Points of Defence, was delivered to Professor Peden on 11 April 2018. She acknowledged this in a timetabling email to the parties on 13 April 2018.
  • Further, in an email of 12 April 2018 from Dentons, confirmation was given of delivery of the Joint Bundle to Professor Peden the previous day. That email was sent with the consent of the Applicant’s solicitors. The Applicant’s position was stated in it as follows:

“… given that the parties have completed the service of their points of claim and defence, there is no reason to delay the preparation of submissions and the finalisation of this matter.”

  • The Applicant signed the EDA on 9 April 2018 and it was executed on 10 April 2018 by Antegra. The evidence did not disclose when Professor Peden signed the EDA.
  • Whilst the EDA noted that the dispute was “between Antegra Pty Ltd and Lepcanfin Pty Ltd”, it is clear that Antegra was seen as the protagonist for the group of Respondents of which Antegra was a member, and no point was made at the time or at the hearing before Professor Peden about the fact that the EDA was signed by Antegra alone. All of the companies described in these reasons as the Respondents (see [11] above) were referred to in the expert determination process as “McCool” or “McCool entities”, by reason of the fact that Mr Bernie McCool was the sole director and secretary of each of these companies.
  • The following clauses from the EDA should be noted:

Dispute

  1. The dispute that the parties have appointed the Expert to determine is set out in the Schedule (Dispute).

Role of Expert

  1. The Expert will

(a)   determine the Dispute in accordance with the terms of this Agreement; and

(b)   act as an expert and not as an arbitrator.

Submissions by the Parties

  1. Subject to the terms of this agreement, the Expert is free to adopt any appropriate procedure for the Expert Determination, which will assist the Expert in the efficient conduct and resolution of the Expert Determination.

Expert Determination

  1. The Expert will:

(a)   consider any or all of the material (oral or written) put before her in the course of the expert determination;

(b)   not be expected or required to obtain or refer to any other documents, information or material but may do so if the Expert so desires;

(c)   proceed in such manner she thinks fit without being bound to observe the rules of natural justice or the rules of evidence;

(d)   make the Determination on the basis of information received from the parties and the Expert’s own expertise and in accordance with the law;

(e)   make the Determination as expeditiously as possible after receiving the parties’ submissions; and

(f)   record the Determination in writing.

Effect of Determination

  1. The Expert’s determination is final and binding on the parties.
  2. The parties agree to implement the Expert’s determination within 14 days of receiving the written determination or otherwise as agreed between the parties.
  3. The parties will not challenge the determination in any legal proceedings or otherwise.

Confidentiality

  1. The expert determination is private and confidential.
  2. The Expert and the parties will keep the expert determination confidential except to the extent necessary to implement or enforce the determination or to the extent required by law.

…”

Submissions to expert

  • In the course of the expert determination process, the Respondents made detailed submissions in relation to the issue of penalty. In response, notwithstanding its denial in its Points of Defence of 9 April that cl 12.4(a)(i) of the Development Deed was a penalty and its positive contention that, “in equity or otherwise”, it was incapable of being a penalty (see [33] above), the Applicant contended that only the “dispute as defined” in the EDA should be considered by Professor Peden, and that this did not include the penalty issue.
  • CBP sent an email to Professor Peden on 5 June 2018 on behalf of the Applicant, noting that:

“…For the reasons set out in Lepcanfin’s submissions, Lepcanfin disagrees that anything but the Dispute as defined in the Expert Determination Agreement (Agreement) should be considered.

Antegra served their points of claim on 12 March 2018. Lepcanfin served a points of defence on 9 April 2018. It was only at this stage, once Lepcanfin had become comfortable about the content of the dispute with Antegra, that Lepcanfin returned the Agreement. The content of the dispute did not, in Lepcanfin’s view, include the additional issues now raised by Antegra.

Lepcanfin maintains that only the Dispute as defined in the Agreement should be considered [by] yourself and that it is beyond the scope of your mandate to determine the additional issues.

In the event that you take a different view and will be considering all issues raised by Antegra, Lepcanfin seeks leave as a matter of procedural fairness to address the additional matters raised by Antegra prior to you making a determination…” (emphasis added).

  • Interpolating here, the passage in this email that has been emphasised contains a complete non-sequitur and Ms Whittaker candidly accepted that she was unable to offer any rational explanation for it. On the one hand, it clearly identifies and accepts that the ambit of the parties’ dispute was reflected in the Points of Claim and Defence. This plainly involved the penalty issue. The email then, however, goes on to assert that that issue did not form part of the dispute.
  • Returning to the chronology of events, on 6 June 2018, Professor Peden received an email on behalf of the Respondents, contending that the Applicant should not be permitted an opportunity to deal with the penalty issue, since that had been on the table from the time of the Points of Claim served on 12 March 2018.
  • On 12 June 2018, Professor Peden wrote to the parties by email as follows:

“Dear All,

I have considered:

(a)   the terms of the expert determination agreement; and

(b)   the provision of the agreed timetable and bundle and its contents; and

(c)   the emails and submissions concerning the scope of the dispute.

In my opinion, the dispute I must determine encompasses not only waiver, but also the nature and existence of the obligation to pay the increased fee.

I refer to clauses 5-9 of the expert determination agreement and ask that:

  1. Lepcanfin provide any further submissions or documents on the issues within 7 days or notify me and Antegra that it does not propose to do so; and
  2. If Lepcanfin provides further submissions or documents, Antegra respond to those further submissions within 7 days or notify me and Lepcanfin that it does not propose to do so.

I will provide my determination within 7 days of receipt of either the last submissions or notification that no further submissions will be provided”.

  • The Applicant duly filed detailed submissions on, inter alia, the penalty issue on 19 June 2018. In those submissions, Mr Leopold SC, then appearing for the Applicant, contended that the penalty argument was “baseless” and “simply unsustainable”. His submissions were developed over a number of pages.
  • Short written submissions in reply on the issue of penalty were filed on behalf of the Respondents on 22 June 2018.

Expert determination

  • Professor Peden provided her expert determination (the Determination) on 30 June 2018.
  • At para 4 of the Determination, Professor Peden noted that the scope of the Determination included whether:

“a.   There is an ‘entitlement’ to the increased fee, which incorporates an issue of whether it is a penalty and could be enforced; and

  1. If there is an entitlement, it has been waived by Lepcanfin by reason of agreed further terms”.
  • It may be noted that the word “entitlement” was placed in inverted commas by Professor Peden in para 4(a) of the Determination, no doubt because the word was used in the description of the Dispute contained in the Schedule to the EDA:

“The dispute is, in essence, as to whether or not Lepcanfin waived the obligation of Antegra to pay the balance of $2,756,667.44 and Lepcanfin’s entitlement to the increase in the Facilitation Fee pursuant to the terms of the Second Amendment and Reinstatement Deed.” (emphasis added).

  • On the waiver issue, Professor Peden determined at paras 28-29:

“…that the proper construction of the clause based on the objective intention of the parties was to waive the legal entitlement to terminate that arose by reason of the defaults in advancing the full Lepcon Loan amount. However, the obligation to advance the Lepcon Loan remained, and the obligation to pay the Facilitation Fee and any triggered increase remained.

If the intention of the parties had been to waive the entitlement to the Facilitation Fee and any available increase, then it would have been expected that the parties would have used clear words to do so”.

  • As to whether the increased Facilitation Fee was a “penalty”, Professor Peden determined at paras 53 and 58 that:

“…there is no legitimate interest sought to be protected by the increase in the Facilitation Fee, where the ‘risk’ Lepcanfin had undertaken was already contemplated by the parties through, for example, clauses concerning its advance of $10million and the mortgage given to Lepcanfin. If there is no legitimate interest sought to be protected by the provision then it must be a penalty.

The increase in the Facilitation Fee is a penalty and therefore either void or wholly unenforceable”.

  • Professor Peden noted that the Applicant was entitled to the base Facilitation Fee in accordance with the Development Deed, but held that whether it was payable had not yet arisen for determination: at paras 59-61.

Proceedings at first instance

  • By its Commercial List Summons filed 14 June 2019, the Applicant sought the following relief, in addition to costs:

“1   A declaration that the Expert’s purported determination of the Penalty Issue was beyond the [E]xpert’s mandate such that there has been no binding determination of the Penalty Issue.

2   A declaration that the Facilitation Fee Top-up does not constitute a penalty for the purposes of any Relevant Document and is capable of constituting and being recovered as:

  1. Money Owing under the Facility Agreement;
  2. Guaranteed Money under each Guarantee; and
  3. Secured Money under the Mortgage.

3   A declaration that even if the Facilitation Fee Top-up were a penalty, it is still capable of constituting and being recovered from each Guarantor as Guaranteed Money by virtue of clause 4.2(e) of each Guarantee.

4   A declaration that even if the Facilitation Fee Top-up were a penalty, it is still capable of being an amount for which the Guarantor is liable to indemnify Lepcanfin by virtue of clause 3.1(b)(i) and (ii) of each Guarantee.

5    A declaration that the Project Control Group is required to include the Facilitation Fee Top-up in:

  1. the amount calculated in accordance with the formula set out in Schedule Two to the Development Deed; and
  2. any reconciliation performed pursuant to clause 8.3(b) of the Development Deed,

6    An order that the Project Control Group’s obligations set out in prayer 5 above be specifically performed.”

  • By Notice of Motion filed 24 July 2019, the Respondents sought the following orders:

“1   That the proceedings, or alternatively the claims in paragraphs 1 to 56 of the Commercial List Statement, be dismissed pursuant to UCPR 13.4.

2   In the alternative to 1 above, that the Commercial List Statement, or alternatively paragraphs 1 to 56 thereof, be struck out pursuant to UCPR 14.28.

3   In the alternative to 1 and 2 above, that the proceedings be permanently stayed.

4   Further and in the alternative to 1, 2 and 3 above, the questions in paragraph 3 of the Commercial List Response filed by the First, Second, Third, Sixth, Seventh and Eighth Defendants on 18 July 2019 be referred to Dr Elisabeth Peden for Expert Determination pursuant to the terms of the Development Deed.

5   Costs”.

  • Paragraph 1-55 of the Commercial List Statement culminated in the plea that “the Expert’s decision on the Penalty Issue is not a binding determination pursuant to the Development Deed”: at para 55. Paragraph 56 was a plea that:

“By virtue of the proper construction of clauses 3.2(a), 3.3, 8.1, 8.2, 8.3(a), 8.3(b) and 12.4(a)(i) and Schedule 2 of the Development Deed (as referred to in paragraph 28 above), the Facilitation Fee Top-up does not constitute a penalty.”

  • The balance of the claim contained in paras 57-59 of the Commercial List Statement was as follows:

“As such, the Facilitation Fee Top-up is capable of constituting and being recovered as each of:

  1. Secured Money under the Mortgage (as defined in clause 1.1 of the Mortgage and set out in para 31(a) above).
  2. Guaranteed Money under the Guarantee (as defined in clause 1.1 of the Guarantee and set out in paragraph 30(a) above).
  3. Money Owing under the Facility Agreement (as defined in clause 1.1 of the Facility Agreement and set out in paragraph 29(a) above.

Further, even if the Facilitation Fee Top-up is unenforceable as a penalty it is capable of constituting Guaranteed Money by virtue of clause 4.2(e) of each Guarantee (as set out in paragraph 30(g)(iv)) above).

Further, in respect of each Guarantor, even if the Facilitation Fee Top-up is unenforceable as a penalty, it is capable of being an amount for which the Guarantor is liable to indemnify Lepcanfin, by virtue clause 3.1 (i) and/or (ii) of each Guarantee (as set out in paragraph 30(d) above).

In the circumstances the Plaintiff seeks the relief set out in the Summons.”

The primary judgment

  • The primary judge noted that there were two aspects to the Applicant’s claims:
  • whether Professor Peden exceeded her mandate;
  • whether, in respect of the Guarantees, the Applicant was free to litigate the question whether the guarantors were liable for the Top-Up, even assuming it was a penalty.
  • In relation to the Mandate Issue, the primary judge dismissed prayer 1 of the Applicant’s Summons, on the basis that the case that the Expert’s mandate had been exceeded in relation to the penalty issue was “untenable”: at [33]. At [32]-[33], the primary judge concluded that:

“…by the time that the EDA was entered into, LPL and the Applicants were aware that the penalty issue was a matter that would form part of the dispute to be referred. This was the matrix of facts known to both parties which assists in interpreting what was meant as at 10 April 2018 by the words set alongside the description of ‘brief description of subject matter of dispute’: see CB 100. The words in the EDA (the tripartite agreement between the Applicants, LPL and Dr Peden) – ‘and Lepcanfin’s entitlement to the increase in the facilitation fee’ – are broad enough to cover the penalty issue that the parties had delineated by the exchange of POC and POD.

No relevant or potentially relevant material has been identified by LPL as undermining the conclusion that LPL and the Applicants agreed that the penalty issue would be one of the matters to be determined by the expert and that they intended Dr Peden to determine the penalty issue as at the date that they signed the EDA. LPL’s case is, in my view, obviously untenable and to permit LPL’s case on this issue to proceed, it seems to me, would manifestly involve ‘useless expense’.”

  • In relation to the Guarantee Issue, the primary judge concluded (at [52]) that:

“In my view, the dispute does not have to arise wholly or solely out of the Development Deed. It is an issue arising out of or connected with the Development Deed whether an obligation imposed on Lepcon by the Development Deed (i.e. the Top-up) can be enforced against the guarantors (who are also parties to the Development Deed) even if the obligation is found to be a penalty, and I think, objectively, it is clear that the parties intended that disputes of this kind (like the dispute over penalty) would be referred to an expert with a legal background”.

  • The primary judge dismissed prayer 1 of the Applicant’s Commercial List Summons and otherwise permanently stayed the proceedings: at [58]. This had the consequence that the issues sought to be raised in paras 57-59 of the Commercial List Statement (see [56] above) would need to be resolved by the dispute resolution process contemplated by cl 9 of the Development Deed, extracted at [17] above.

Grounds of appeal

  • The Applicant sought leave to appeal on 9 December 2019, pursuant to the Supreme Court Act 1970 (NSW) s 101(2)(e). By its draft notice of appeal, the following grounds of appeal were raised:

“1   The primary judge erred in finding that the applicant’s argument that the expert’s determination as to the penalty issue was beyond the expert’s mandate was obviously untenable and would manifestly involve useless expense (J[33]).

2   The primary judge ought to have found it to be reasonably arguable that the expert’s determination as to penalty was beyond the expert’s mandate.

3   The primary judge erred in determining that the declarations sought by the applicant in relation to the construction of the Guarantees constituted a dispute within the dispute resolution provisions of the Development Deed (J[35], [49] – [52]).

4   The primary judge ought to have found that the declarations sought by the applicant in relation to the construction of the Guarantees did not constitute a dispute within the dispute resolution provisions of the Development Deed.

5   The primary judge erred in permanently staying the proceedings below”.

Notice of Contention

  • The Respondents filed a Notice of Contention on 20 December 2019 in these terms:

“Order 1 of the decision below is supported by an estoppel, operating at law or in equity, preventing the Appellant from alleging that the ambit of the dispute referred to the Expert, did not include the questions of whether there was an enforceable entitlement to an increase in a facilitation fee and whether the provision therefor[e] was void or unenforceable as a penalty”.

Submissions on appeal

The Mandate Issue

  • In written submissions, the Applicant summarised the question arising on appeal in relation to the Mandate Issue as:

“…is the applicant’s case that the Expert’s mandate was exceeded so weak as to be amenable to summary dismissal?”

  • In oral submissions on the appeal, Ms Whittaker candidly accepted that this was essentially a question of construction, with the only evidence that was potentially relevant but not before the Court being evidence as to when Professor Peden received the Points of Claim and Defence, and when she signed the EDA. (As to the former topic, there was in fact evidence before the Court to the effect that Professor Peden was sent the Points of Claim and Defence on 11 April 2018: see [35] – [36] above).
  • The Applicant submitted that the primary judge erred in exercising the Court’s power of summary dismissal for the following reasons:
  • First, the text of the EDA strongly supported the Applicant’s position that Professor Peden was empowered to determine only the waiver issue. The Applicant submitted that the definition of the “dispute” made no reference whatsoever to any issue as to whether or not the Facilitation Fee Top-Up was a penalty. Although the primary judge found that the words used to define the dispute were wide enough to encompass the penalty issue, the Applicant contended that the “primary judge ought to have found either that the Penalty Issue was outside of the terms of the agreed dispute or that there was an extant controversy about the proper construction which was sufficient to render the dispute inappropriate for summary dismissal”.
  • Secondly, the primary judge’s conclusion that the Applicant’s claim ought to be dismissed was largely based upon the findings that the Points of Claim and Points of Defence constituted a legally binding agreement which brought the Penalty Issue within the Expert’s remit, and that this conclusion was “erroneous”, as the primary judge’s reasoning did not explain how the parties could be said to have evinced any intention to enter into legal relations, and any purported “offer” would have been only to “narrow the issues and also the scope of evidence”, as opposed to an offer to expand the scope of the dispute (the Pleading Argument).
  • The Applicant also submitted that the fact that the Points of Claim and Points of Defence joined issue as to whether or not cl 12.4(a)(i) of the Development Deed was a penalty could not be taken into account as background matrix evidence in construing the definition of dispute in the EDA, because that agreement was tripartite and it was not established that the joinder of issue in the Points of Claim and Points of Defence on the penalty issue was a matter known to Professor Peden at the time she executed the EDA. (Ms Whittaker fairly conceded that this argument was not advanced at first instance, which no doubt explains why there was no direct evidence as to when Professor Peden in fact executed the EDA).
  • In response, the Respondents submitted that the primary judge’s conclusion that the Applicant’s argument was “obviously untenable” was correct, both as a matter of construction of the EDA and because the Applicant had, by its email of 28 February 2018 (see [28] above), agreed to delineate the dispute before the Expert by reference to Points of Claim and Points of Defence, and exchanged such documents expressly addressing the penalty issue. The Respondents submitted that, by the time the EDA came into force, the parties had expressly agreed that the penalty issue was within the scope of the dispute for determination. The Respondents submitted that this outcome followed either by way of construction of the EDA, or because the exchanged Points of Claim and Points of Defence formed part of the context in which the terms of the EDA were to be understood, by way of a collateral pleadings agreement or as a result of an estoppel. (The estoppel argument was that raised by the Notice of Contention, see at [62] above).
  • In relation to the “Pleading Argument”, the Respondents submitted that:

“First, the question of the parties’ intention is to be determined by what was objectively conveyed by what was said or done, having regard to the circumstances. In commercial dealings, there is a strong presumption in favour of an intention to create legal relations, which will only be rebutted with difficulty. That must especially be the case when negotiations proceed through the parties’ legal representatives.

Secondly, the Applicant contends that the offer to proceed by way of points of claim was to ‘narrow the issues’… That contention mistakes the relevant ‘offer’ that was the basis for the Primary Judge’s conclusion. The Primary Judge clearly identifies in his reasoning at J[30] and [31], that the relevant ‘offer’ for his analysis was the counter-offer made by the Respondents on 23 February 2018, accepted by the Applicant by email on 28 February 2018 (J[13]).

The contention that the Primary Judge confused an agreement to exchange pleading documents with an agreement to define the dispute by reference to what was said in those documents… is an artificial distinction which defies ‘what a reasonable business person would have understood those terms to mean’…” (emphasis in original, footnotes omitted).

Notice of Contention

  • With respect to the Notice of Contention (see [62] above), the Respondents submitted that the Applicant was estopped from denying that the penalty issue was within the Expert’s mandate. The Respondents contended that the estoppel was one by representation, which was relied on by the Respondents in incurring the costs of contesting the penalty issue through multiple rounds of submissions before the Expert, and refraining from issuing a further dispute notice, and that there was an injustice to the Respondents in the Applicant being permitted to depart from that representation. Alternatively, the Respondents claimed that there was an estoppel in pais, due to the assumed position that the penalty issue was to be determined by the Expert, and the resulting injustice to the Respondents if the Applicant were permitted to depart from that assumption and convention.
  • The Applicant submitted that it did not accept that it made any such representation as contended by the Respondents, namely, that by the exchange of Points of Claim and Points of Defence with the Respondents, the Applicant had represented or created an assumption that it agreed to the issues before the Expert being defined by that exchange. Rather, the Applicant submitted that it was clear that the dispute to be determined by the Expert was that which was defined in the EDA.
  • In relation to reliance and detriment, the Applicant submitted that, by raising the penalty issue in its Points of Claim, it was the Respondents that created confusion that led to rounds of correspondence as to whether the Applicant agreed to the inclusion of that issue in the dispute before the Expert, and that, accordingly, the “cost of anything done by the Respondents in that regard lies at their own feet”. Alternatively, the Applicant submitted that any detriment was nominal and capable of being remedied by an order for monetary compensation.
  • In response, it was submitted that the Applicant clearly represented to the Respondents, both in writing and by its conduct, that the dispute to be determined by Professor Peden was to be delineated by reference to the Points of Claim and Points of Defence, and that these included the penalty issue.
  • With respect to reliance and detriment, the Respondents submitted that:

“The App[l]icant’s contentions with respect to detrimental reliance ignore the most obvious detriment suffered by the Respondents. By leading the Respondents to assume that the Dispute to be determined would be as delineated by the points of claim and defence, the Respondents executed the EDA in the form initially proposed between the parties and did not spend any time seeking to clarify the nature of the Dispute in that agreement, or issue an additional Dispute Notice in respect of the Penalty Issue.

The contention that the detriment suffered by the Respondents can be remedied in costs only applies to the identified detriment of increased costs incurred by the Respondents in preparing submissions and running the Penalty Issue case before the expert. It has no application to the detriment of losing the opportunity to issue a further Dispute Notice or to amend the EDA prior to its conclusion. That detriment cannot be remedied except by estopping the Applicant from asserting that the Dispute did not extend to the Penalty Issue”.

The Guarantee Issue

  • The Applicant summarised the question relating to the construction of the guarantees as follows:

“…do the Dispute Resolution provisions of the Development Deed preclude the applicant from seeking declarations from the Court about the proper construction of the Guarantees?”

  • The Applicant submitted that the primary judge erred in his construction of the Guarantees as falling within the dispute resolution provisions contained in cl 9 of the Development Deed. The Applicant submitted that the Guarantees were entirely separate agreements to the Development Deed, and that the construction of cll 3.1(b)(i), (ii) and 4.2(e) of each Guarantee was not sufficiently connected to the Development Deed such that a dispute about those terms could not properly be conceptualised as “arising out of” the Development Deed, and thus be required to be resolved by expert determination pursuant to cl 9 of that Deed.
  • In response, it was submitted that the relief sought, by its very terms, was dependent upon construction of the Development Deed to have meaning. The Respondents submitted that a dispute about whether the Top-Up was payable, whether under the Development Deed or under any other Project Document, was inherently a dispute that arose out of the Development Deed, because that was the agreement that specified the criteria for, and terms of, the Top-Up. Moreover, the Guarantees were schedules, in unexecuted form, to the Development Deed, and their execution was a precondition to the Development Deed coming into effect, as noted at [18] above.

Exercise of discretion

  • The Applicant submitted that, even if the question of construction of the Guarantees fell within the dispute resolution provisions of the Development Deed, the primary judge should have exercised his discretion to allow at least paras 57-59 of the Commercial List Statement to proceed in any event. The Applicant submitted that:

“… only the Court can enforce the applicant’s rights under the Guarantee and Mortgages in the event that the relevant clauses are construed in the applicant’s favour – as such the justice of the case lies with the issue of the construction of the Guarantees being determined by the Court”.

  • In response, it was submitted that the Applicant’s assertion that only the Court could enforce the Applicant’s rights under the Guarantees and Mortgage was incorrect as a statement of law, that many of the remedies under the Mortgage do not require the Court’s assistance, and that, fatally, the Applicant’s Summons below did not seek any of the relief which could be obtained from the Court, including an order for possession or sale.

Legal principles

  • In Inghams, although in dissent as to the construction of the arbitration clause in issue in that case, I stated the principles applicable to the construction of dispute resolution clauses in terms which did not attract any demur from the members of the majority. Aspects of that statement of principles were recently applied in the context of consideration of an expert determination clause by Hammerschlag J in Illawarra Community Housing at [42], [45] and [49]. It is convenient to repeat the summary of applicable principles from Inghams for the purposes of consideration of the present case.
  • It has been rightly observed that “the starting point is that the clause should be construed, just as any other contract term should be construed, to seek to discover what the parties actually wanted and intended to agree to”: A Briggs, Agreements on Jurisdiction and Choice of Law (2007, Oxford University Press) at 4.58; Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 3 SLR 936 at [30]-[33]. In Australia, of course, the search is for the parties’ intention, objectively ascertained: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52.
  • In short, the orthodox process of construction is to be followed: Hancock Prospecting Pty Ltd v Rinehart (2017) 257 FCR 442; [2017] FCAFC 170 at [167] (Hancock Prospecting); Rinehart v Hancock Prospecting Pty Ltd (2019) 366 ALR 635; [2019] HCA 13 at [18] (Rinehart). Thus, a dispute resolution clause, like any other clause of a commercial contract, must be construed by reference to the language used by the parties, the circumstances known to them and the commercial purpose or objects to be secured by the contract: see Electricity Generation Corporation v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corporation (2014) 251 CLR 640; [2014] HCA 7 at [35] (Woodside); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [47].
  • Further, as the plurality observed in Woodside at [35], citing Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; [2004] HCA 56 at [82], a commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience.
  • Contextual considerations are also important, as the High Court’s decision in Rinehart (at [26]ff) illustrates. The context in which the dispute resolution clauses had been entered into in the two deeds under consideration in Rinehart bore heavily upon the interpretation in that case of the expression “dispute under this deed”. The plurality (at [26]) cited with approval the observations of the Full Court of the Federal Court of Australia in Hancock Prospecting (the decision under appeal in the High Court), that “[c]ontext will almost always tell one more about the objectively intended reach of such phrases than textual comparison of words of a general relational character”: see Hancock Prospecting at [193]. In his separate judgment in Rinehart, in agreement with that of the plurality on the question of construction, Edelman J observed at [83] that:

“Every clause in a contract, no less arbitration clauses, must be construed in context. No meaningful words, whether in a contract, a statute, a will, a trust, or a conversation, are ever acontextual.”

  • It is also axiomatic that, in the construction of a contract including an arbitration agreement or an arbitration clause in a commercial agreement, as with the interpretation of a statute, a particular contractual clause or sub-clause must not be construed in isolation but as part of the contract as a whole: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; [1973] HCA 36; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [16]; Mastrobuono v Shearson Lehman Hutton Inc. 514 US 52 (1995). In the former case, Gibbs J (as his Honour then was) famously said (at 109):

“It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another.”

  • One consequence of this is that the same clause, or the same phrase in a particular clause, may not bear an identical meaning from case to case: see FAI General Insurance Co Ltd v Ocean Marine Mutual Protection & Indemnity Association (1997) 41 NSWLR 117 at 120-124 for a discussion of cases where identically worded jurisdiction agreements have been given different constructions.
  • In the context of dispute resolution clauses, whether they be arbitration or exclusive jurisdiction clauses, much authority can be found in support of affording such clauses a broad and liberal construction. A particularly well known statement in this area of discourse is that of Gleeson CJ in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 at 165; (1996) 131 FLR 422 (Francis Travel):

“When the parties to a commercial contract agree, at the time of making the contract, and before any disputes have yet arisen, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly. They are unlikely to have intended that different disputes should be resolved before different tribunals, or that the appropriate tribunal should be determined by fine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument.”

  • In Francis Travel, Gleeson CJ referred to the decision of the United States Supreme Court in Mitsubishi Motors Corp v Soler-Chrysler Plymouth Inc 473 US 614 (1985). In that case, at 626, the Supreme Court said that “as with any other contract, the parties’ intentions control, but those intentions are generously construed as to issues of arbitrability.” (The Court’s reference to “arbitrability” was, in context, a reference to the scope of the arbitration agreement.)
  • In Rinehart v Welker (2012) 95 NSWLR 221; [2012] NSWCA 95 at [118] (Welker), Bathurst CJ made reference not only to Francis Travel but also to the similarly well known observations of Allsop J (as his Honour then was and with whom Finn and Finkelstein JJ agreed) in Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; [2006] FCAFC 192 at [164] (Comandate), namely that:

“The authorities … are clear that a liberal approach should be taken. That is not to say that all clauses are the same or that the language used is not determinative. The court should, however, construe the contract giving meaning to the words chosen by the parties and giving liberal width and flexibility to elastic and general words of the contractual submission to arbitration.”

  • See also Global Partners Fund Limited v Babcock & Brown Limited (in liq) (2010) 79 ACSR 383; [2010] NSWCA 196 at [60], per Spigelman CJ who identified the rationale for the broad construction of arbitration and exclusive jurisdiction clauses in the following passage (at [67]):

“A significant purpose of an exclusive jurisdiction clause is to ensure that all disputes are determined in a coherent manner by a single jurisdiction. There is a clear commercial interest in minimising the possibility of a dispute being determined by multiple tribunals, with the consequent prospect of divergent findings. Furthermore, the parties, in advance, have determined that a particular jurisdiction is acceptable to them, both in terms of the speed and efficacy of its civil dispute resolution procedures and for the competence and skill of its judges and lawyers.”

  • A similar rationale had been identified by French J (as his Honour then was) in Paper Products Pty Ltd v Tomlinsons (Rochdale) Limited (1993) 43 FCR 439 at 448; [1993] FCA 346, where his Honour noted that:

“When the language of the arbitration clause in question is sufficiently elastic, then the more liberal approach of the courts to which Kirby P and others have referred can have some purchase. A wide construction of such clauses can be supported on the basis advanced by Clarke JA that it is unlikely to have been the intention of the parties to artificially divide their disputes into contractual matters which could be dealt with by an arbitrator and non-contractual matters which would fall to be dealt with in the courts. When, as here, the parties have agreed upon a restricted form of words which in their terms, and as construed in the courts, limit the reference to matters arising ex contractu, there is little room for movement.”

  • In TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (2013) 251 CLR 533; [2013] HCA 5 at [16], French CJ and Gageler J observed that “…parties who enter into an arbitration agreement for commercial reasons ordinarily intend all aspects of the defined relationship in respect of which they have agreed to submit disputes to arbitration to be determined by the same arbitral tribunal”.
  • In Australia, unlike other jurisdictions, the process of contractual construction of dispute resolution clauses has not been overlaid by presumptions of the jurisdictions surveyed in G B Born, International Commercial Arbitration (2nd ed, 2014, Wolters Kluwer) at 1325-1338. Thus, in Welker at [122], Bathurst CJ, although not eschewing the liberal approach that had been adumbrated in both Francis Travel and Comandate to the construction of arbitration clauses, rejected the adoption of a presumption that had arguably commended itself to the House of Lords in Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40; [2007] 4 All ER 951 (Fiona Trust). To quote from Lord Hoffmann’s speech, the presumption was that the court should, in the construction of arbitration clauses, “start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal”, and that the clause should be construed in accordance with that presumption, “unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction”: at [13]. The Full Court of the Federal Court in Hancock Prospecting (at [193]) treated Fiona Trust as not saying anything different in substance from Francis Travel and Comandate (the latter case being itself referred to in Fiona Trust at [31]).
  • In Rinehart, the plurality indicated that the appeals could be resolved with the application of orthodox principles of construction, which required consideration of the context and purpose of the Deeds there under consideration, without reference to Fiona Trust: at [18]. In his separate judgment, Edelman J described as a “usual consideration of context” the fact that “reasonable persons in the position of the parties would wish to minimise the fragmentation across different tribunals of their future disputes by establishing ‘one-stop adjudication’ as far as possible”: at [83]. This may have been to treat the considerations underpinning cases such as Francis Travel, Comandate and Fiona Trust as not necessarily giving rise to a presumption, but rather as stating a commercially commonsensical assumption. It may be observed that Lord Hoffmann’s speech in Fiona Trust (at [13]) slides from the language of “assumption” to that of “presumption”.
  • The proper contemporary approach was eloquently articulated in the following passage in Hancock Prospecting (at [167]) which I would endorse:

“The existence of a ‘correct general approach to problems of this kind’ does not imply some legal rule outside the orthodox process of construction; nor does it deny the necessity to construe the words of any particular agreement. But part of the assumed legal context is this correct general approach which is to give expression to the rational assumption of reasonable people by giving liberal width and flexibility where possible to elastic and general words of the contractual submission to arbitration, unless the words in their context should be read more narrowly. One aspect of this is not to approach relational prepositions with fine shades of difference in the legal character of issues, or by ingenuity in legal argument (Gleeson CJ in Francis Travel at 165); another is not to choose or be constrained by narrow metaphor when giving meaning to words of relationship, such as ‘under’ or ‘arising out of’ or ‘arising from’. None of that, however, is to say that the process is rule-based rather than concerned with the construction of the words in question. Further, there is no particular reason to limit such a sensible assumption to international commerce. There is no reason why parties in domestic arrangements (subject to contextual circumstances) would not be taken to make the very same common-sense assumption. Thus, where one has relational phrases capable of liberal width, it is a mistake to ascribe to such words a narrow meaning, unless some aspect of the constructional process, such as context, requires it.”

  • To the principles identified in Inghams I would also add my endorsement of and adopt the recent observations of Hammerschlag J in Illawarra Community Housing in relation to expert determination agreements or clauses. His Honour there said (at [60]-[64]) that:

“Some cases have endeavoured to catalogue differences between the characteristics of arbitration and those of expert determination: see e.g. Strategic Publishing Group Pty Ltd v John Fairfax Publications Pty Ltd [2003] NSWSC 1134 at [22]-[23]; Zeke Services v Traffic Technologies [2005] QSC 135; Northbuild Constructions Pty Ltd v Discovery Beach Project Pty Ltd [2008] QCA 160 at [118]; Lighter Quay at [50]-[51]. The view has been expressed that a characteristic of expert determination is that there will ordinarily be a dispute of a kind which can be determined in an informal way by reference to the specific technical knowledge or learning of the expert. In Nylon Capital at [28], Thomas LJ expressed the view that in contradistinction to arbitration, expert determination clauses generally presuppose that the parties intended certain types of dispute to be resolved by expert determination and other types by the Court (or if there is an arbitration provision, by arbitrators). I do not consider that this approach reflects orthodox canons of construction which apply in this jurisdiction.

What the parties intend is to be determined from the words they choose read in the context in which they chose them.

It is to be borne in mind that expert determination is simply a private contractual mechanism to which parties agree. The determination does no more than create binding contractual rights and obligations. It has no statutory backing as a process. It does not resolve the dispute by the exercise of judicial, quasi-judicial, administrative, statutory, or other power or jurisdiction: Lainson Holdings Pty Ltd v Duffy Kennedy Pty Ltd [2019] NSWSC 576 at [59]. Agreement to expert determination does not bring with it an assumed expectation that procedures which are the hallmark of judicial or quasi-judicial proceedings will apply.

In my view, it is contrary to the orthodox approach to construction to make an a priori presumption or generalisation:

(1)   as to the type of disputes parties will agree should be covered by an expert determination provision;

(2)   that parties did not intend any dispute to be resolved quickly and informally without procedures reminiscent of judicial or quasi-judicial proceedings if it is complex and involves disputes of fact or questions of mixed fact and law;

(3)   that commercial parties intend certain types of disputes to be dealt with procedurally in one way and other types of disputes to be dealt with procedurally in another;

(4)   that parties intended multiple venues or occasions for their disputes even though they never said so; and

(5)   that a single person selected by them to be the expert is not considered by them to be competent to resolve the dispute, including by adopting an appropriate procedure to achieve resolution.

Regularly, significant and complex commercial transactions which come before the Commercial List and the Technology and Construction List contain provisions that all disputes in connection with the transaction are to be resolved by expert determination.”

  • As the expert determination clause in the present case and cl 9.3(c) of the Development Deed in particular illustrates, the parties to the commercial arrangements associated with the development sought to have all aspects (including legal questions) resolved by expert determination.

Consideration

  • The first point to be made is that, in an appropriate case, and recognising the need for due caution, a legal question, even one involving some complexity, may be disposed of in a summary fashion. As Barwick CJ said in a well-known passage in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130; [1964] HCA 69 (General Steel):

“…I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff’s claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed.”

  • Accordingly, to the extent that the first and second grounds of appeal complained that the matter was dealt with on a summary basis and that the construction posited by the Applicant was “not obviously untenable” and “reasonably arguable”, these arguments need to be assessed with Barwick CJ’s observations in General Steel in mind. They also need to take into account the matter candidly conceded by Ms Whittaker that I have noted at [64] above, namely that the issue was essentially a question of construction. As Isaacs J said in Harrington v Browne (1917) 23 CLR 297 at 307; [1917] HCA 36, “there can only be one construction given to a contract”. See also The Life Insurance Company of Australia Ltd v Phillips (1925) 36 CLR 60 at 78; [1925] HCA 18.
  • In the circumstances of the present case, it was both open and appropriate, in my opinion, for the primary judge to dispose of the matter on a summary basis. The primary judge’s construction was, in my opinion, correct.
  • As a matter of plain English, a party’s “entitlement” to rely on a particular contractual provision comprehends, or at least includes, whether or not there is any reason which may preclude that party from asserting or enjoying a contractual benefit otherwise conferred by it. If a clause is properly characterised as a penalty, that will be a classic instance where a party is not entitled to enjoy the benefit the contractual provision otherwise offers.
  • The fact that, as the primary judge held at [29] that, when the description of the dispute was first drafted in the email sent to Professor Peden on 23 February 2018, the contention that cl 12.4(a)(i) was a penalty had not been asserted by the Respondents in correspondence with the Applicant, is not to the point. It is a question fundamentally of construing the language used by the parties. In any event, the EDA was only executed by the Applicant after it was aware that the penalty issue was being run and had joined issue with it (see [41] above).
  • It is also important to observe that the description of the dispute set out in the Schedule to the EDA was said to be a “brief description of subject matter of dispute”, and the actual description of the dispute was qualified by the phrase “in essence”. The EDA did not contain an entire agreement clause. It provided a “brief description” of the subject matter of the dispute. The EDA also provided in cl 5 that:

“Subject to the terms of this agreement, the Expert is free to adopt any appropriate procedure for the Expert Determination, which will assist the Expert in the efficient conduct and resolution of the Expert Determination”.

  • One of the procedures adopted by the Expert, and urged on her by the parties, was the use of Points of Claim and Defence. As is conventional, such documents are designed to identify with particularity the full ambit of a dispute, the essence of which may have been stated elsewhere, for example in a letter of demand. The exchange of Points of Claim and Defence provided a fuller but not, in my opinion, broader statement of the parties’ dispute than the brief description of it contained in the Schedule to the EDA. Indeed, the email from CBP of 5 June 2018 to which I have referred at [41] above accepted as much, and it ill behoves the Applicant to contend that the penalty issue fell outside the scope of the description of the dispute in the EDA.
  • If the consequence of this analysis is to give the description of the dispute in the Schedule to the EDA a broad meaning, that is consistent, in my opinion, with the proper approach to the construction of a dispute resolution clause (see the cases referred to at [85]-[90] and [93] above) or, I would add, the identification of the ambit of the dispute for the purposes of a dispute resolution process. Commercial commonsense dictates that there should be attributed to the parties an intention to give a broad interpretation to the word “entitlement” as used in the Schedule to the EDA, especially when it is recalled that that term appeared in the following sentence:

“The dispute is, in essence, as to whether or not Lepcanfin waived the obligation of Antegra to pay the balance of $2,756,667.44 and Lepcanfin’s entitlement to the increase in the Facilitation Fee, pursuant to the terms of the Second Amendment and Restatement Deed”.

The use of the word “and” in this sentence is capable of being read disjunctively.

  • The parties were in heated dispute and wished an expert to resolve not a limited question of entitlement, reserving to one or the other the potential to raise some other aspect of entitlement at a later point in time, but the whole of the dispute as to entitlement to the Top-Up. The more narrow construction contended for by the Applicant would result in duplicated expense and be of limited utility. Neither of these is a consequence readily to be attributed to commercial parties.
  • This analysis does not depend upon when Professor Peden executed her counterpart of the EDA and, in particular, whether or not it was before or after she had been supplied with the Points of Claim and Defence: see [65(3)] above. That was a clever argument developed by Ms Whittaker on appeal but one which was not, as I have noted, made at first instance.
  • An objective analysis of the circumstances is that the contracting parties retained Professor Peden to resolve their dispute, and submitted the dispute to her for determination by reference to the Points of Claim and Defence which she then proceeded to address. As McHugh JA (as his Honour then was) said in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117, “a contract may be inferred from the acts and conduct of the parties as well as or in the absence of their words”. On this footing, as well as on a plain English interpretation of the brief description of the dispute in the EDA, Professor Peden clearly acted within her mandate in resolving the penalty issue in her Determination.
  • Had it been necessary to determine the estoppel argument raised by the Notice of Contention, I would also have been inclined to uphold the primary judge’s decision on that alternative footing, even on a summary basis.
  • By its Points of Defence, the Applicant unequivocally represented that it accepted that the penalty issue formed part of the dispute, albeit that it did not accept that characterisation of cl 12.4(a)(i) of the Development Deed. Had it, at that early point in time (prior to execution of the EDA), flagged that it considered that the penalty issue fell outside the ambit of the dispute, the Respondents could simply have triggered a further dispute under the provisions of cl 9 of the Development Deed. It is fanciful to suppose that that closely associated dispute would not have been joined to the waiver argument, and that both matters would not have been jointly determined by a single expert; and there is no credible basis for supposing that that expert would not have been Professor Peden who was eminently qualified to consider both the waiver argument and the penalty issue.
  • The Applicant’s subsequent resiling from the position it had unequivocally advanced in its Points of Defence in the course of the expert determination process was unconscionable. An aspect of the unconscionability resided in the lack of any ultimate utility in the point being taken insofar as, as I have already explained, there was a simple means for the Respondents to trigger a new additional dispute to bring it to the fore. The Applicant’s stance in the dispute resolution process was unmeritorious.
  • For all of the above reasons, this aspect of the appeal should be dismissed.

The Guarantee Issue

  • As indicated at [9] above, I would not grant leave to appeal in respect of the primary judge’s decision to grant a stay of the Commercial List proceedings, insofar as they sought substantive declaratory relief in respect of the matters pleaded at paras 57-59 of the Commercial List Statement (see [56] above).
  • The primary judge’s decision was, in essence, that these claims for relief “arose out of” the Development Deed. That phrase is one of great amplitude which the cases that have been referred to at [85] – [90] and [93] above illustrate. The parties should be held to their bargain (see, for example, Dance With Mr D Ltd v Dirty Dancing Investments Pty Ltd [2009] NSWSC 332 at [53]), and the primary judge was correct to stay the proceedings to the extent that the Applicant sought to circumvent cl 9 of the Development Deed by seeking to agitate the Guarantee Issue in proceedings in this Court.
  • To qualify for a grant of leave to appeal, it is generally necessary for a party to point to some error of principle or clear injustice. In my opinion, there was neither. On the latter point, the Applicant will not be shut out from having the points in relation to the Guarantees that it seeks to agitate determined, but that determination will be by an expert by reference to the elaborate process to which it agreed in cl 9 of the Development Deed.

Conclusion and orders

  • I would grant leave to appeal but dismiss the appeal with costs on the Mandate Issue.
  • I would refuse leave to appeal with costs in respect of the Guarantee Issue.
  • PAYNE JA: I agree with Bell P.
  • MCCALLUM JA: I agree with Bell P.

**********

 

 

Rinehart & Anor v Hancock Prospecting Pty Ltd & Ors; Rinehart & Anor v Georgina Hope Rinehart (in her personal capacity as Trustee of the Hope Margaret Hancock Trust and as Trustee of the HFMF Trust) & Ors [2019] HCA 13

This case highlights the High Court's to give a wider interpretation to arbitration clauses and a vital importance to context in interpretation of arbitration clauses, and to be more willing to send parties to arbitration.

The case also demonstrates the persuasive power of Mrs Gina Rinehart in all areas.

 

Rinehart & Anor v Hancock Prospecting Pty Ltd & Ors; Rinehart & Anor v Georgina Hope Rinehart

 

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John Holland Pty Ltd v Adani Abbot Point Terminal Pty Ltd (No 2) [2018] QSC 48

SUPREME COURT OF QUEENSLAND

JOHN HOLLAND PTY LTD (ABN 11 004 282 268)
(Applicant)

V

ADANI ABBOT POINT TERMINAL PTY LTD (ABN 93 149 298 206)
(Respondent)

 

FILE NO: SC No 2604 of 2016
DIVISION: Trial Division
PROCEEDING: Application for Costs
ORIGINATING COURT: Supreme Court at Brisbane
DELIVERED ON: 12 March 2018
DELIVERED AT: Brisbane
HEARING DATE: Written submissions
JUDGE: Jackson J
ORDER: The applicant pay the respondent’s costs of the proceeding, to be assessed on the indemnity basis.
CATCHWORDS: PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – INDEMNITY COSTS – PARTICULAR CASES – ABUSE OF PROCESS – where application for leave to appeal under Commercial Arbitration Act 1990 (Qld) s 38 – where length and volume of material oppressive – where framing of application is “tantamount to an abuse of process” – whether costs should be assessed on the indemnity basis

[1]          On 12 December 2016, I ordered that the application for leave to appeal on a question of law arising out of an arbitral award made as between the parties was dismissed. I will refer to the reasons for that decision as “my earlier reasons”.

[2]          The respondent applies for an order that the applicant pay the respondent’s costs of the proceeding to be assessed on the indemnity basis. The applicant submits that an order should be made that it pay the respondent’s costs but not on the indemnity basis.

[3]          The respondent submits there are three special or unusual features of the case that warrant an order that the costs be assessed on the indemnity basis:

(a)     first, the applicant conducted the application in an unacceptable manner;

(b)     second, the applicant unmeritoriously attempted to avoid the submission it made to the arbitrator that he should consider only the issues raised in the written submissions before him; and

(c)     third, the nature and number of deficiencies identified in the reasons for dismissing the application indicate that the applicant failed to critically address the application and its material to the proper issues.

[4]          The respondent submits those special or unusual features led to the undue prolongation of the case, loss of time and greater investment of both the respondent’s and the Court’s resources.

[5]          The applicant submits that an order that the costs be assessed on the indemnity basis should not be made for several reasons:

(a)     first, such an order is not made to punish an unsuccessful party;

(b)     second, the criticisms made of the applicant’s case and conduct in the reasons for judgment do not indicate the application was brought for any improper purpose;

(c)     third, it was necessary for the applicant to show that any question of law that would be the subject of an appeal could substantially affect the applicant’s rights so that it was incumbent on the applicant to show that the errors on which it relied as constituting the question or questions were manifest throughout the reasons for the award;

(d)     fourth, although the structure of its submissions containing 35 pages of submissions and 97 pages of Annexure A was lengthy, it was not prolix and the application was not brought for any ulterior, vexatious or harassing purpose that would amount to an abuse of process; and

(e)     fifth, although during closing argument, the applicant submitted to the arbitrator that he should look at the submissions and deal with the submissions in response to a question about what had to be resolved, the context of that answer was such that the applicant’s attempt to raise other submissions on the application for leave to appeal was not unmeritorious; and

(f)      sixth, the applicant’s failure to identify the specific questions of law for which it sought leave prior to furnishing the draft order which set out those questions and identified the nature and number of the deficiencies in the reasons do not indicate that the applicant failed to critically address the application to the proper issues.

[6]          The applicant further submits that, in any event, the respondent did not put the applicant on notice that it would be seeking a special costs order and failure to do so is a powerful discretionary reason not to order that the costs be assessed on the indemnity basis.

Assessed on the indemnity basis

[7]          The exclusively statutory power to order that one party pay another party’s costs is conferred by s 15 of the Civil Proceedings Act 2011 (Qld) in terms that the Court may award costs in all proceedings unless otherwise provided. In addition, the rule making power conferred by s 85 of the Supreme Court of Queensland Act 1991 (Qld) for the practices and procedures of the Supreme Court includes, by s 21 of Sch 1 to that Act, power to make rules for costs in civil proceedings, including the assessment of costs.

[8]          As rules made under the rule making power, rr 681 and 703 of the Uniform Civil Procedure Rules 1999 (Qld) provide, in part:

 

“681

(1)          Costs of a proceeding, including an application in a proceeding, are in the discretion of the court but follow the event, unless the court orders otherwise.

703

(1)     The court may order costs to be assessed on the indemnity basis.

Costs on the indemnity basis were previously solicitor and client costs—see rule 743S (Old basis for taxing costs equates to new basis for assessing costs).”

[9]          There are numerous cases that consider similar statutory powers to order that costs be assessed on the indemnity basis, which is sometimes included in the category of a “special” order for costs. Many of the cases refer to the 1993 decision in Colgate-Palmolive Co v Cussons Pty Ltd as containing a leading statement of some of the relevant considerations. In the context of the legislation applying in Queensland, the Court of Appeal has made a number of useful pronouncements that inform the exercise of the general discretionary power.

[10]         In Di Carlo v Dubois, White J said:

“… [In] Colgate-Palmolive… Sheppard J was able to derive a number of principles or guidelines. At p232-p234 his Honour recognised that the categories in which the discretion may be exercised are not closed. Woodward J at 637 in Fountain said that there needs to be some special or unusual feature in the case to justify a court departing from the ordinary practice. Sheppard J instanced the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud; misconduct that causes loss of time to the court and the other parties; the fact that the proceedings were commenced at or continued for some ulterior motive; or in wilful disregard of known facts; or clearly established law; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions; the imprudent refusal of an offer to compromise; and costs against a contemnor.”

[11]         White J reviewed other cases in which cognate statements were made and continued:

“It is important that applications for the award of costs on the indemnity basis not be seen as too readily available when a particular party against whom the order is sought is seen to carry responsibility for the state of affairs calling for a costs order without some further facts analogous to those mentioned in Colgate and other considered decisions.”

[12]         In Schache v GP No. 1 Pty Ltd, Muir JA considered the power to order costs on the indemnity basis as follows:

“The circumstances warranting the ordering of indemnity rather than standard costs were discussed at some length by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd. In that case, his Honour observed that the settled practice in Australia has been for costs to be awarded to the successful party to a proceeding on, what is in effect, the standard basis unless the circumstances warrant departure from that course. His Honour noted that some of the circumstances which had been thought to warrant the making of an indemnity costs order were: the making of allegations of fraud which were either known to be false or irrelevant; the engaging in misconduct that caused loss of time to the court and other parties; the commencement or continuation of proceedings for some ulterior motive ‘or in wilful disregard of known facts or clearly established law’; the making of allegations which ought never to have been made or the undue promulgation of a case by groundless contentions; and an imprudent refusal of an offer to compromise. Sheppard J concluded this list with the observation:

‘The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.’”. (footnotes omitted)

[13]         In LPD Holdings (Aust) Pty Ltd v Phillips, Hickey and Toigo, Boddice J said:

“The applicable principles for the awarding of indemnity costs were usefully summarised by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd. However, those principles operate as a guide to the exercise of the relevant discretion. They do not define all of the circumstances in which the discretion is to be exercised and do not limit the width of that discretion. Further, the categories in which the discretion to award indemnity costs may be exercised are not closed.

Whilst the awarding of costs on an indemnity basis will always ultimately depend on the exercise of a discretion in the particular circumstances of each individual case, the justification for an award of indemnity costs continues to require some special or unusual feature of the particular case. As was observed by Basten JA in Chaina v Alvaro Homes Pty Ltd, the general rule remains that costs should be assessed on a party and party basis, and the standard to be applied in awarding indemnity costs ought not ‘be allowed to diminish to the extent that an unsuccessful party will be at risk of an order for costs assessed on an indemnity basis, absent some blameworthy conduct on its part.’”  (footnotes omitted)

[14]         To those observations, it may be added that the Court of Appeal has treated a case of abuse of process as sufficient ground for an order that costs be assessed on the indemnity basis.

[15]         Next, a number of cases have considered whether a party who proposes to seek a special order that costs be assessed on the indemnity basis should give notice of an application for indemnity costs before the hearing of the matter. In Australia, that conception appears to have originated in the Court of Appeal of New South Wales in Huntsman Chemical Company Australia Ltd v International Pools Australia Ltd where Kirby P said:

“If such an order is to be made, it would be preferable that it should follow due and timely warning by the successful party to the unsuccessful that indemnity costs will be sought… In short, if the legal representatives of parties to an appeal (particularly perhaps in commercial litigation such as the present) consider that the appeal, or points in it, are obviously hopeless and doomed to fail, they would be well advised to warn their opponents that continued prosecution of the appeal, or of the hopeless points, will result in an application to the Court for a special costs order.”

[16]         That approach has been consistently followed since. However, as the cases show, lack of warning is a relevant consideration to take into account but a warning is not a precondition to making an order for indemnity costs.

Abuse of process by oppression

[17]         The categories of abuse of process are not closed, but there are recognised circumstances where the conduct of a party in starting or conducting litigation may amount to an abuse of process. One of them is where the litigation is oppressive to the other party.

[18]         A variety of things may make litigation oppressive in the relevant sense. But when the manner in which the litigation is conducted includes prolix documents, unnecessary or unwinnable contentions, or unreasonable factual assertions, that combine to cause excessive expense and delay for the other party, and a disproportionate burden on the public resources of the court in the disposition of the proceeding, it may reasonably be said that the proceeding and conduct of the moving party are oppressive.

[19]         The present context is one where the proceeding was an application for leave to appeal under s 38 of the Commercial Arbitration Act 1990 (Qld). There are relevant considerations which inform what is conduct amounting to oppression on an application for leave of this kind.

[20]         First, in most cases it is inappropriate to hear an application for leave of this kind and the substantive appeal, if leave is to be granted, at the same hearing. To do so would not conform with the intention of the statute in expressly limiting any right of appeal to a case where the requirements for a grant of leave are established.

[21]         Second, the circumstances under which the leave requirements in the form of s 38 were introduced and the purpose of those requirements were explained in Promenade Investments Pty Ltd v State of New South Wales. In the course of that explanation, Sheller JA said:

“There should, in my opinion, before leave is granted be powerful reasons for considering on a preliminary basis, without any prolonged adversarial argument, that there is on the face of the award an error of law.”

[22]         That the argument should not be prolonged on such a leave application was not a new idea when Promenade Investments was decided in 1992. From 1979, in England, a similar threshold requirement for leave operated under s 1 of the Arbitration Act 1979 (UK). The well-known decision of the House of Lords in The Nema in 1981 suggested that the leave application was not to involve lengthy argument. In 1982, Mustill and Boyd’s Commercial Arbitration, said:

“The argument on the application for leave must be comparatively brief; for otherwise the same element of potential delay will be introduced on the hearing of the application for leave as was an undesirable feature of the old system.”

[23]         Paragraphs [16]-[23] of my earlier reasons outline the way in which the application for leave to appeal was made in the present case. As well, the hearing of the application took two days and then many more days of reading and analysis in order to absorb and deal with the arguments as presented and to prepare my earlier reasons. It was in this context that I said that “[t]he application so framed is tantamount to an abuse of process.”

[24]         Oppressive conduct of a proceeding is not just a matter between the parties. It concerns court administration. In early times, an extreme example of a court’s displeasure with prolixity occurred in Mylward v Weldon, where a court summarily imprisoned a pleader until a substantial fine was paid. In this court, r 5 of the Uniform Civil Procedure Rules 1999 (Qld) expressly provides that a party impliedly undertakes to the court to proceeding in an expeditious way and the court may impose “appropriate sanctions” if a party does not comply with those rules. In modern times, an adverse order for costs is the appropriate sanction against prolixity, that is intended to compensate the opposite party rather than to punish the party in default.

[25]         The applicant submits that the subject matter of the award concerned communications made during the project over several years that viewed individually and collectively constituted a breach of cl 23 of the contract. The award constituted some 646 paragraphs. The applicant submits that the condition under s 38(5)(a) that determination of the question of law “could substantially affect” the applicant’s rights required it not only to demonstrate that the arbitrator made the errors it contended for but also that those errors manifested themselves throughout the reasons for the award, in explanation of the manner in which it presented the application.

[26]         I accept that, to an extent, the 35 principal pages and the 97 further pages of the annexure to the applicant’s written submissions were organised to highlight the proposed grounds of appeal, but in my view there were many items of detail that were unnecessary for the points to be decided on an application for leave that either might have been omitted or might have been much simplified. Even if I were wrong about that, the applicant does not explain the 2,000 plus pages of affidavit material it read on the application, as justified for the hearing of the leave to appeal application, or why it was justified in presenting oral argument into a second day to identify and make submissions as to the questions of law on which leave should be given.

[27]         In these findings I wish to make it clear that I do not intend personal criticism of any kind. I infer that the intention in presenting the application so fully was to increase its prospects of success and perhaps to show that much of the work that would be necessary for the proposed appeal if leave were granted had been done. Nevertheless, that is not what was required for the presentation of an application of leave to appeal that did not entail either excessive costs or delay. In particular, in my view, the problem was exacerbated by two other circumstances relevant to the disposition of the application for leave.

[28]         First, much of the material and submissions were directed to the contention that the arbitrator had made errors in law because of the failure to consider, decide or provide reasons for not deciding that individually each of the “Impugned Representations” was a material representation calculated to influence the Superintendent made in circumstances that constituted a breach of the “Disclosure Standard”.

[29]         As discussed in my earlier reasons, the sheer number of suggested Impugned Representations and alleged failures to meet the Disclosure Standard presented very significant practical issues for the proposed appeal, but the applicant faced the further difficulty that it had not submitted to the arbitrator that was the way in which he should deal with the case in its lengthy written submissions to him or when he specifically requested direction as to what issues the applicant wanted him to address in deciding the award. This point was the basis for my finding that:

“The applicant cannot avoid the criticism that it now seeks to depart from what it said to the arbitrator as to how he should deal with the applicant’s case and that it now seeks to criticise as appellable the absence of findings in the arbitrator’s reasons that the applicant did not squarely submit he should make anywhere in 192 pages of written submissions.”

[30]         Second, the applicant’s challenges to the arbitrator’s findings that were submitted to entail errors of law, because the arbitrator did not deal with the application of the Disclosure Standard to the Impugned Representations as a separate alternative basis for the applicant’s claim for relief before the arbitrator, were generally speaking challenges to the findings of fact made by the arbitrator as to the alleged breaches of cl 23.

[31]         The applicant further submits that it approached the questions of law in the present case having regard to the practice adopted in other applications under s 38. However, in my view, nothing in those cases suggests that the present application in form or content was consistent with a usual practice that has developed for the hearing of an application under s 38 in this court. The application in the present case was so extensive and wide ranging as to the proposed grounds of appeal that it was not possible on reading it to identify what were the questions of law which would have been the limited subject of the proposed appeal.

Unmeritorious submission

[32]         I do not, however, accept the respondent’s submission that a reason for awarding indemnity costs is that the applicant unmeritoriously attempted to avoid the submission it made to the arbitrator that he should “look at the submissions and deal with the submissions”.

[33]         While it is true that a reason why the application did not succeed was that the proposed questions for the appeal were based on a case that was not that which the applicant had clearly submitted for the arbitrator’s decision, and, in effect, I held that the applicant would be limited on any appeal by the case that it had conducted before the arbitrator, that finding is not a matter of unmeritorious conduct. Whether a point sought to be advanced on appeal is within the scope of the case as it was conducted below is an everyday question of law in appellate practice that does not attract disapprobation just because it is resolved against an appellant.

Nature and number of deficiencies

[34]         Likewise, I do not generally accept the respondent’s submission that the nature and number of the deficiencies identified in the reasons for dismissing the application warrant an order for indemnity costs because they indicate that the applicant failed to critically address the application and its material to the proper issues.

[35]         To support this submission, the respondent lists 30 points from my earlier reasons. But, in my view, the number of points on which an applicant fails is not a per se basis indicating an award of indemnity costs.

[36]         As to the nature of the points raised, in my view, only two warrant mention in addition to the points previously made about the potentially oppressive character of the material in support of the application and the questions sought to be addressed on the application for leave to appeal.

[37]         First, it will be remembered that the Impugned Representations constituted approximately 140 different communications and meetings. In pressing the application for leave to appeal, the applicant did not shrink from the position that the arbitrator was required, in effect, to consider each and all of the Impugned Representations in deciding whether there was a breach of cl 23, including any combination of the Impugned Representations that was available.

[38]         Second, had the arbitrator or the court on appeal reached the conclusion that any of the Impugned Representations amounted to a breach of cl 23, the applicant also submitted that it was for the arbitrator or the court to consider all available permutations and combinations as to whether the breach or breaches justified termination of each of the contracts and it was not for the applicant to have produced to the arbitrator the combination of findings that would amount to a substantial breach justifying termination.

[39]         In my view, the applicant’s position on these points contributed to the potential for the application for leave to appeal to be oppressive.

Conclusion

[40]         In my view, there was oppression in the material filed in support of and in the conduct of the application for leave to appeal. Although the respondent did not warn the applicant that it would seek an order for indemnity costs, my evaluative judgment overall is that an order should be made that the costs be assessed on the indemnity basis.

 

Stepanoski v Aslan [2018] NSWSC 1160

This case highlights the approach taken by the New South Wales Supreme Court in assessing which Construction Contract is in existence and binds the party in the situation whereby a Cost-Plus Contract is in existence, however the parties’ executed a lump sum contract some months later and backdated it to the date of the Cost-Plus Contract.


Casewatch Stepanoski v Aslan

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MANN V PATERSON CONSTRUCTIONS PTY LTD [2018] VSCA 231

This case highlights the approach taken by the Victorian Supreme Court of Appeal when assessing a claim made in quantum meruit as a result of one party accepting the repudiation of a contract made by the other party. The Court will have regard to actual costs when assessing the amount payable, however is not bound by the actual cost under contract, as the contract has ceased. In addition, the case further highlights that claims in quantum meruit for variations are not precluded under s.38 of the Domestic Building Contracts Act 1995, where the variation is one that has been agreed to orally.

 

Casewatch Mann v Paterson Constructions Pty Ltd

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