Amazon.com NV Investment Holdings LLC v. Future Retail Ltd. & Ors. ICL 2021 (8) SC 778

LLC BryanskAgrostroy v Mackies Asia Pacific Pty Limited [2021] FCA 1180

 

 

FEDERAL COURT OF AUSTRALIA

 

LLC BryanskAgrostroy v Mackies Asia Pacific Pty Limited [2021] FCA 1180

 

Case Name: LLC BryanskAgrostroy v Mackies Asia Pacific Pty Limited [2021] FCA 1180
Court: FEDERAL COURT OF AUSTRALIA
Division: General Division
Registry: Western Australia
National Practice Area: Commercial and Corporations
Sub-area: International Commercial Arbitration
Medium Neutral Citation: WAD 153 of 2021
Hearing Date(s): 29 September 2021
Judgment Date: 29 September 2021
Before: COLVIN J
Catch-words: ARBITRATION – application to enforce foreign arbitral award made in Russian Federation as judgment of Court – where dispute between parties referred to arbitration pursuant to arbitration agreement in contract – where arbitrators made award in favour of applicant – where no payment made by respondent in respect of award – whether requirements of s 9 of International Arbitration Act 1974 (Cth) met – application allowed
Decision: THE COURT DECLARES:

 

1.           Pursuant to s 8(3) of the International Arbitration Act 1974 (Cth), the applicant is entitled to enforce against the respondent a foreign arbitral award made in Bryansk, Russian Federation on 30 March 2021 as if the award were a judgment of the Court.

 

THE COURT ORDERS THAT:

 

2.           There be judgment in favour of the applicant against the respondent in the amount of AU$422,573.15.

3.           Pursuant to s 52 of the Federal Court of Australia Act 1976 (Cth) the respondent pay interest at the rate prescribed by r 39.06 of the Federal Court Rules 2011 (Cth) from 28 September 2021.

4.           The respondent pay the applicant’s costs of and incidental to the application to be assessed on a lump sum basis.

Cases Referenced: Beijing Jishi Venture Capital Fund (Limited Partnership) v Liu [2021] FCA 477

Tianjin Jishengtai Investment Consulting Partnership Enterprise v Huang [2020] FCA 767

Legislation: Federal Court of Australia Act 1976 (Cth) s 52

International Arbitration Act 1974 (Cth) ss 8, 9

Federal Court Rules 2011 (Cth)

Parties: BETWEEN:           LLC ‘BRYANSKAGROSTROY’

Applicant

 

AND:     MACKIES ASIA PACIFIC PTY LIMITED (ACN 132 762 091)

Respondent

Representation: Counsel for the Applicant:

Mr V Lemaic with Ms L Welmans

 

Solicitor for the Applicant:

Clifford Chance

 

&

 

Counsel for the Respondent:

Mr K Kelly

Solicitor for the Respondent:

 

Hilton Bradley Lawyers

 

REASONS FOR JUDGMENT

COLVIN J:

  1. Australia has assumed obligations under the Convention for the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration (Convention).  It has taken steps to give effect to those obligations by enacting the International Arbitration Act 1974(Cth). By s 8 of the International Arbitration Act, an arbitral award made in pursuance of an arbitral agreement in a country other than Australia which is an arbitral award to which the Convention applies is binding for all purposes and may be enforced in this Court as if the award were a judgment or order of the Court.
  2. The applicant has obtained an arbitral award in the Russian Federation against Mackies Asia Pacific Pty Limited (ACN 131 762 091) (MAP).  The award has been issued by the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (ICAC).  The applicant seeks to enforce the award as if it were a judgment of this Court.  It seeks a declaration that it is entitled to do so and a judgment in Australian dollars in this Court that includes interest and costs as determined in the arbitration.  It also seeks orders for payment of interest until the amount of the judgment is paid and orders for the costs of the present application to be fixed on a lump sum basis in accordance with the practice of the Court.
  3. MAP is incorporated in Australia.  Its registered office is an address in Bankstown, New South Wales.
  4. The following affidavits were filed and read on the application:

(1)          Affidavit of Dr Samuel Luttrell dated 29 June 2021.

(2)          Affidavit of Mr Vlada Lemaic dated 29 June, 16 August and 28 September 2021.

(3)          Affidavit of Ms Irina Suspitcyna dated 3 September 2021.

  1. The applicant also tendered an expert report from Ms Olga Boltenko, dealing with certain matters of Russian law.
  2. In addition to the matters already described, the affidavits establish that:

(1)          On or around 21 May 2019, the applicant as buyer and MAP as seller entered into a contract for the supply and installation of certain goods by MAP (Contract).

(2)          The Contract was expressed in counterparts, one in English and the other in Russian.

(3)          The Contract provided for payment by instalments in US dollars of a total amount of $584,420.00.

(4)          The Contract provided for the payment of a penalty amount of 0.2% of the Contract value for every day of delay by MAP as seller.

(5)          The Contract included an arbitration agreement by which the parties agreed to submit to arbitration any disputes not resolved through negotiations within one month.  The agreement to arbitrate applied to ‘any dispute, controversy or claim which may arise out of or in connection with the present Contract, or the execution, breach or termination or invalidity thereof’.

(6)          The arbitration was to be settled by the ICAC in accordance with its applicable rules and regulations.

(7)          The place of arbitration was specified to be Moscow, Russian Federation.

(8)          The applicable substantive law was expressed to be ‘German law excluding conflict rules’ and the language of the arbitral proceedings was specified as English.

(9)          The Contract specified the legal address of MAP which was the same address as the registered address of MAP.

(10)         MAP did not supply the goods and a dispute arose between the parties.

(11)         The applicant referred the dispute to arbitration before the ICAC.

(12)         A Tribunal of three arbitrators was duly appointed.

(13)         The applicant filed a statement of claim in the arbitration on or around 2 September 2020.

(14)         MAP was notified of the commencement of the arbitration, the need to file a defence and the time and place of the oral hearing.

(15)         MAP did not participate in the arbitration.

(16)         An oral hearing took place before the arbitral tribunal on 27 January 2021 in the absence of MAP.

(17)         The arbitral tribunal issued its award on 30 March 2021.

(18)         The arbitral award is expressed in English.  It deals with the applicant’s claim on the merits.  It includes findings as to the jurisdiction of the arbitral tribunal, due notification of MAP of the arbitral proceedings, that the goods have not been supplied as agreed and the advance payment made by the applicant to MAP has not been returned to the applicant contrary to the terms of the Vienna Convention on International Sale of Goods 1980 to which both Germany and the Russian Federation are parties and the calculation of the penalty in accordance with the terms of the Contract.

(19)         The arbitral award was for a total amount of $307,802.28 USD and was expressed in the following terms.

  1. MACKIES ASIA PACIFIC PTY LTD, Bankstown, Australia, is ordered to return to LLC ‘BryanskAgrostroy’, Bryansk, Russian Federation, the advance payment under the Contract No. D0505-14131 dated 21 May 2019 in the amount of 233 768,00 USD and penalty in amount of 53 766,64 USD.
  2. MACKIES ASIA PACIFIC PTY LTD, Bankstown, Australia, is ordered to reimburse to LLC ‘BryanskAgrostroy’, Bryansk, Russian Federation for its expenses caused by payment of the arbitration fee in the amount of 20,267,64 USD.

(20)         MAP has been served with a copy of the award at its registered office.

(21)         No payment has been made by MAP in respect of the award.

  1. A duly certified copy of the award has been produced to the Court.
  2. The Russian Federation is a party to the Convention.
  3. On the evidence led by the applicant, the requirements of s 9 of the International Arbitration Actare met and I am satisfied that the award is a foreign award for the purposes of the International Arbitration Act.
  4. MAP has filed a notice of opposition (Notice).  It is expressed in the following terms:
  5. The Respondent was not given proper notice of the appointment of the arbitrators or of the arbitration proceedings before the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation, which made the award dated 30 March 2021 which is the subject of the Applicant’s claim, and as a result the Respondent was unable to present its case in the arbitration proceedings.
  6. The Respondent intends to make an application for the setting aside or suspension of the award dated 30 March 2021, and intends to make an application for the adjournment of these proceedings pursuant to s 8(8) of the International Arbitration Act 1974(Cth) to allow the application to be determined.
  7. As was recently stated by Middleton J in Beijing Jishi Venture Capital Fund (Limited Partnership) v Liu[2021] FCA 477 at [16]‑[18], the party against whom a foreign award has been made must satisfy the Court that it should not enforce the award. As the Court may only refuse to enforce a foreign award in the circumstances mentioned in s 8(5) or s 8(7) of the International Arbitration Act, the relevant party, in this case MAP, must demonstrate by evidence the applicability of either of those provisions.  MAP has not put on any evidence and therefore has not done so.
  8. In addition, under s 8(8) of the International Arbitration Actthe Court has power to adjourn the application in the circumstances there provided which require the Court to be ‘satisfied that an application for the setting aside or suspension of the award has been made to a competent authority of the country in which, or under the law of which, the award was made’.
  9. On the evidence, MAP has known about the award for a number of months.  Yet, it has made no application to set aside the award and provides no explanation for its failure to do so.  Counsel appearing for MAP did not seek to adduce any evidence or to advance any case in support of an adjournment.
  10. In the circumstances, I am satisfied that the applicant is entitled to have the award recognised and enforced in Australia.  Further, it may be enforced in this Court as if it were a judgment of this Court.  The appropriate course is for a declaration to be made and in order to enable the award to be enforced as a judgment of this Court in accordance with the rights conferred by the International Arbitration Act, for judgment in the amount of the award to be ordered in favour of the applicant.
  11. As the award is to be enforced in Australia, it is appropriate that the judgment be expressed in Australian currency:  Tianjin Jishengtai Investment Consulting Partnership Enterprise v Huang[2020] FCA 767 at [22]‑[23]. That is the course pressed for by the applicant. On the evidence, using the foreign exchange rate published by the Reserve Bank of Australia on 27 September 2021 the total amount of the award expressed in Australian dollars is $422,573.15.
  12. The applicant also seeks an order that there be interest payable on the amount for which judgment is entered from the date judgment is entered. It seeks an order that interest be paid at the rate of 6.10% pa based upon s 52 of the Federal Court of Australia Act 1976 (Cth). In accordance with that provision, a rate has been prescribed by the Federal Court Rules 2011 (Cth). The prescribed rate moves every six months and it is currently 6.10%.
  13. There should also be an order for the applicant’s costs of and incidental to the application to be paid by MAP.  The applicant seeks to have those costs fixed.  The materials relied upon to support a lump sum costs order were only made available to the solicitors acting for MAP the evening before the hearing.  It is appropriate for MAP to have an opportunity to consider and respond to those materials.  In the circumstances, the appropriate order is for costs to be assessed on a lump sum basis.  MAP will be given an opportunity to respond to those materials and I will determine the quantum of the costs on the papers.
  14. For the above reasons, I made orders declaring that the applicant is entitled to enforce the award and for judgment against MAP in favour of the applicant in the amount sought, together with interest and an order for the costs to be paid by MAP such costs to be assessed on a lump sum basis.
I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.

 

 

Associate:

 

Dated:       29 September 2021

 

Chevron Australia Pty Ltd v Cbi Constructors Pty Ltd [2021] WASC 323

 

CHEVRON AUSTRALIA PTY LTD v CBI CONSTRUCTORS PTY LTD [2021] WASC 323
Court: SUPREME COURT OF WESTERN AUSTRALIA
Case No: ARB 8 of 2020; and,

ARB 9 of 2020

 

Appeal from:
Parties BETWEEN :   CHEVRON AUSTRALIA PTY LTD

Plaintiff

 

AND

 

CBI CONSTRUCTORS PTY LTD

First Defendant

 

KENTZ PTY LTD

Second Defendant

JUDGE: KENNETH MARTIN J
DATE OF HEARING: 15 & 16 JUNE 2021
DATE OF JUDGMENT: 28 SEPTEMBER 2021
CASE MAY BE CITED AS: Chevron Australia Pty Ltd v Cbi Constructors Pty Ltd [2021] WASC 323
MEDIUM NEUTRAL CITATION: [2021] WASC 323
Catchwords: Arbitration – Private arbitration – Three arbitrators – Contract dispute – Interim award addressing all issues of liability upon claim and counterclaim – Contract dispute – Attempt to raise new liability entitlement issue subsequent to first interim award – Jurisdictional objections on basis of res judicata, issue estoppel, Anshun estoppel and functus officio – Arbitrators divided on jurisdictional objection – Majority allowed new argument – Dissent by one arbitrator as to functus officio – Second interim award issued – Application by respondent to set aside second interim award
Judgment: ARB 8 of 2020 is dismissed

Application to set aside second interim award upheld in ARB 9 of 2020

 

Cases cited: Alvaro v Temple [2009] WASC 205

AQZ v ARA [2015] SGHC 49

BTN v BTP [2020] SGCA 105

CRW Joint Operation v Pt Perusahaan Gas [2011] SGCA 33

CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33

CRW Joint Operation v PT Perusahaan Gas Negara [2011] SGCA 33

Dallah Real Estate v Ministry of Religious Affairs, Government of Pakistan [2011] 1 AC 763

Discovery Beach Project Pty Ltd v Northbuild Construction Pty Ltd [2011] QSC 306

Emirates Trading Agency Llc v Sociedade De Formento Industrial Private Ltd [2016] 1 All ER 517

Hebei Jikai Industrial Group Co Ltd v Martin & Ors [2015] FCA 228; (2015) 324 ALR 268

Hui v Esposito Holdings Pty Ltd [2017] FCA 648; (2017) 345 ALR 287

IMC Aviation Solutions Pty Ltd v Altain Khuder LLC (2011) 38 VR 303

Ivankovic v Western Australian Planning Commission [2020] WASC 40

Lin Tiger Plastering Pty Ltd v Platinum Construction (Vic) Pty Ltd [2018] VSC 221; (2018) 56 VR 576

LW Infrastructure Pte Ltd v Lin Chin San Contractors Pte Ltd [2013] SGHC 264

Maersk Crewing Australia Pty Ltd v Construction, Forestry, Maritime, Mining and Energy Union [2020] FCA 595

Michael Wilson v Emmott [2008] EWHC 2684

Price & Anor v Carter (t/a Ian Carter Building Contractors [2010] EWHC 1451

Sino Dragon Trading Pty Ltd v Nobel Resources International Pte Ltd [2016] FCA 1131

Spaseski v Mladenovski (2019) WASC 65

TCL Airconditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (2013) 251 CLR 533

The State of Western Australia v Mineralogy Pty Ltd [2020] WASC 58

Thoday v Thoday [1964] P181

Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28; (2015) 256 CLR 507

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

Texts and articles: N/A
Representation: Counsel:

Plaintiff           :           Mr S Doyle QC & Mr S J Davis

First Defendant :           Mr J Gleeson QC & Mr T N Owen

Second Defendant        :           Mr J Gleeson QC & Mr T N Owen

 

Solicitors:

Plaintiff           :           Norton Rose Fulbright Australia

First Defendant :           Clayton Utz

Second Defendant        :           Clayton Utz

 

REASONS FOR JUDGMENT

 

KENNETH MARTIN J:

Introduction

  1. I am dealing with two applications made to this court pursuant to the Commercial Arbitration Act 2012 (WA) (CAA). Both applications were commenced by the same plaintiff, Chevron Australia Pty Ltd (Chevron) under its originating summonses, each of 2 October 2020 – against the first and second defendant, CBI Constructors Pty Ltd and Kentz Pty Ltd, respectively.  For ease of reference, the two defendants are referred to in aggregate, as CKJV.
  2. The defendants are joint venturer contractors who entered a contractual relationship with Chevron by a written contract of 14 July 2011 (as subsequently amended by two further written agreements – namely DSP 2 and DSP 4 of 12 and 13 December 2013 respectively) (the Contract).
  3. The Contract (see the plaintiff’s Amended Hearing Bundle (AHB), tab 1) concerned CKJV’s provision of construction and other related services in furtherance of Chevron’s Gorgon offshore oil and gas project being undertaken off the north-west coast of Western Australia.  Under the Contract, CKJV were required to provide Craft Labour and Staff to carry out work at the Gorgon Project site on Barrow Island, Henderson, Perth and at various yards in South Korea, China and Indonesia.

Background

  1. Broadly speaking, the current proceedings stem from a contractual dispute between the parties over the true meaning of provisions of the Contract requiring Chevron to reimburse CKJV for their employment of labour.
  2. Chevron’s two applications to this court as ARB 8 and ARB 9 of 2020 seek relief pursuant to different provisions of the CAA. Under ARB 9 of 2020, Chevron seeks relief pursuant to CAA s 34(2)(a)(iii) to have an arbitral award dated 4 September 2020 set aside.  Alternatively, under ARB 8 of 2020, Chevron seeks to have the question of the arbitral tribunal’s jurisdiction determined by this court, pursuant to CAA s 16(9).
  3. I propose to structure these reasons by first setting out the parties’ underlying contractual dispute and then explaining aspects of the arbitral hearings held and subsequent orders made, focussing especially on the first and second interim awards as came to be issued by a three-person arbitral tribunal.  I then analyse and determine Chevron’s ARB 8 of 2020 set-aside application, followed by its ARB 9 of 2020 jurisdictional application.  Within these analyses, I refer extensively to the reasons of the learned arbitrators as expressed in their first and second interim awards published on 14 December 2018 and on 4 September 2020 respectively.

Underlying contractual dispute

  1. The underlying arbitration was commenced by CKJV (as claimant) against Chevron (as respondent) during February 2017, pursuant to dispute resolution provisions in the parties’ Contract (see general contract condition (GTC) 21.2).  Essentially, the parties were in dispute over Chevron’s contention that CKJV had overcharged Chevron, and Chevron had subsequently overpaid CKJV, for amounts beyond what was contractually agreed as regards CKJV’s reimbursement entitlement costs.  CKJV disputed this and argued instead that Chevron owed it more money than it had paid.  Thus, there arose a contractual dispute between Chevron and CKJV concerning CKJV’s contractual reimbursement entitlements for its engagement and employment of labour working in or around Chevron’s Gorgon project.
  2. After the dispute arose, Chevron proceeded to withhold from CKJV some reimbursement monies ultimately in excess of AUD$130 million – on the basis of unresolved audit findings and essentially as direct redress by Chevron to recover its contended overpayments to CKJV.

Arbitration proceedings

  1. The ensuing arbitration in respect of Chevron’s overpayment claims remains uncompleted.  The arbitration was commenced in February 2017.  A three-person arbitral tribunal was constituted in April 2017, comprising of Mr Phillip Greenham, the Honourable Christopher Pullin QC and Sir Robert Akenhead as chair (the Tribunal).  To date, the Tribunal has published two significant interim awards and, in the process, issued over 29 procedural orders to facilitate two major arbitral hearings conducted in Perth so far – first in November 2018 and second during August 2020.

Bifurcation

  1. On 16 March 2018, CKJV applied to the Tribunal for orders to ‘bifurcate’ the arbitration into two separate stages.  The advocated bifurcation (which was rejected upon the first application of CKJV, but later granted on CKJV’s second application of 16 July 2018), sought to split the arbitral hearing – so that issues of liability arising in the parties’ contractual dispute would be dealt with at a first hearing by a first interim award.  Thereafter, quantum and quantification issues would be dealt with at a subsequent hearing.
  2. CKJV’s second application seeking bifurcation orders was supported by an accompanying written submission (see AHB, tab 13).  The submission said:
  3. This is the Claimant’s (second) application to bifurcate the arbitration so that the November 2018 hearing is limited to issues of liability underlying the Claimant’s Claim as more particularly identified in the proposed List of Issues included at Appendix 1 to these submissions.

  1. Whilst the Claimant never accepted that the proper quantification of the Counterclaim would be a simple issue and/or that the parties would be able to agree quantum if the Claimant lost on liability, it is, following the service of the FPCCL [an acronym referring to the respondent’s full particulars of counterclaim] now clear beyond doubt that there are ‘dramatic‘ and/or ‘real‘ issues about the quantum of the Counterclaim.  There is a ‘dramatic‘ and/or ‘real‘ issue because the FPCCL comprises a fundamental change to the basis and methodology of the Respondent’s Counterclaim, meaning that it is no longer a case based on the actual costs that were incurred by the Claimant but is a case advanced by reference to a ‘model’ (or more accurately, a series of models) by which the Respondent has created a complex data set which it uses to ‘model’, i.e. arrive at, its Counterclaim figures.  All of this gives rise to a large number of complex accounting issues

(further explanation added in square brackets).

  1. The second bifurcation application of CKJV was opposed by Chevron.  The further application was heard on 26 July 2018.  On 29 July 2018, the Tribunal issued procedural order (PO) No 14 that was supported by reasons – essentially granting CKJV’s second application to bifurcate at that time (see AHB, tab 17). Due to the importance of PO 14 in the present set aside application, I set out below the terms of orders 1 and 3 as it came to be issued.
  2. By PO 14, the Tribunal ordered on 29 July 2018:
  3. The claimant’s application for bifurcation is granted in the following terms:

(a)          There shall be heard first all issues of liability in respect of the Claimant’s claim and the Respondent’s Counterclaim (the First Hearing).  Such issues, for the avoidance of doubt, shall exclude all quantum and quantification issues arising out of the Respondent’s Counterclaim and the Set-Off issues raised in the Claimant’s Defence to Counterclaim (as set out in Appendices 1 and 2 thereto).

(b)          The First Hearing shall take place between 5 – 23 November 2018 in Perth at the venue already arranged by the Parties.  The 15 working days allowed shall be reviewed at a procedural meeting to take place by way of telephone conference on 2 October 2018.

(c)          A further hearing (the Second Hearing) shall take place on a date to be fixed and shall address all matters outstanding in issue between the Parties including all quantum quantification issues not dealt with in the First Hearing.

  1. The Parties shall confer with a view to agreeing the terms of a formal order to reflect the decisions set out in Paragraph 1 above and to produce to the Tribunal, by close of business (WA time) 2 August 2018, a jointly agreed proposed order for the Tribunal to consider.  If agreement cannot be reached then each party should submit by close of business (WA time) 3 August 2018 the order that it proposes and the Tribunal shall thereafter issue further directions.
  2. By the Tribunal’s reasons accompanying PO 14, they observed at par 4(e):

In essence, and reducing matters to their simplest form, the Respondent and its accounting expert appear to the Tribunal to have taken the rates upon which the Claimant was paid for much if not the whole of the contract period and adjusted those rates, usually downward, to reflect elements of those rates which are said to overestimate actual cost (which, it is argued, would otherwise have been payable under the contract between the parties).  They have therefore not done an assessment working from the bottom up as to what the actual overall costs of and occasioned by employment were but a ‘top down’ analysis.  It seemed to be common ground at least at the telephone hearing that this was not necessarily an inappropriate methodology and it was certainly accepted by Ms Ansell QC for the Claimant that what was disclosed within Mr Meredith’s 20 July 2018 report was significantly ‘better’ than anything which had come before.

  1. Paragraph 4(i) in those PO 14 reasons, added:

That leaves the detailed consideration as to whether or not the November 2018 hearing can be used sensibly.  The Tribunal is, on balance, persuaded that there is and should be some real advantages in hearing and resolving what might be termed all liability and factual issues short of the quantification of the Counterclaim and the Set-Offs.  For instance, if the Claimant succeeds in establishing that there were binding agreements by which it become entitled to payment at the rates at which it was actually apparently paid throughout much of the period of this Contract, there may be little left in the Counterclaim, which is predicated largely, if not entirely, on the basis that there were no such binding agreements and the contractual basis (as argued by the Respondent) of actual cost related recovery justifies (subject to proof) all or part of the Counterclaim.  Accordingly, on that scenario (the rights or wrongs of which necessarily have not been considered yet by the Tribunal), substantial costs, resources and time would be saved.  Similar considerations apply to the estoppel case.  Clarification will be provided also by resolution of the rectification case advanced by the Respondent.  (my emphasis in bold)

Procedural order 17

  1. Following the orders for the bifurcation of the parties’ liability and quantum issues, Chevron foreshadowed that it sought to adduce evidence from the Report of its quantum expert, Mr Meredith.  This report of 20 July 2018 (Meredith Report) contained detailed analysis, modelling and expert opinions in respect of the quantum of CKJV’s entitlement to reimbursement costs for Staff.
  2. On 3 October 2018, the Tribunal issued PO 17, by which it ordered then that the Meredith Report would not be adduced by Chevron ‘at the liability hearing between 5 and 23 November 2018’ (see AHB, tab 29).
  3. In accompanying reasons to PO 17, the Tribunal said (at par 8):

… As the Tribunal has already ordered that all issues of quantum and quantification arising out of the Counterclaim are deferred to the Second Hearing in September 2019, the only way in which this damages for breach of contract claim could be established is by adducing quantum and quantification evidence, set out in detail in Mr Meredith’s 20 July 2018 Report … It is in any event unlikely to be other than of theoretical interest because it is accepted by the Claimant that, if it fails on its case that there were binding agreements arising out of or in relation to DSP 2 and DSP 4 and on its estoppel case, by one legal means or another any overpayment established by reference to the Cost entitlement under the Contract between the Parties will be recoverable.  (my emphasis in bold)

First arbitral hearing

  1. The first arbitral hearing took place before the Tribunal over 12 hearing days during November 2018 in Perth, Western Australia.  The hearing culminated in a first interim award that was issued by the Tribunal on 14 December 2018.

CKJV’s position

  1. CKJV’s contention at the November 2018 liability hearing was that the parties had entered into two additionalbinding (variation) agreements (represented by DSP 2 or DSP 4 or by the letter of agreement (LOA) dated August 2016) which had, in effect, amended and changed the earlier terms of the Contract relating to its reimbursement entitlements for labour costs.  CKJV argued that the terms (as varied) allowed CKJV to recoup from Chevron its labour costs on a ‘Rates’ basis – not on an ‘actual costs incurred’ basis, as the Contract had previously stipulated.
  2. CKJV also advanced a further alternative argument in relation to a contended conventional estoppel – which would prevent Chevron from asserting otherwise as regards a ‘Rates’ regime of reimbursement for Craft Labour and for Staff costs (see PO 17’s accompanying reasons at par 4).

Chevron’s position

  1. On the other hand, Chevron’s opposing position was that there had been no perfected variation agreements amending the original reimbursement terms, as found in the Contract.  Nor was there any estoppel.  Chevron argued that it only had to reimburse CKJV for its incurred expenditures for Staff employees – referred to as CKJV’s ‘actual costs’.
  2. It argued that if CKJV’s position (based on agreed variations or an estoppel) as to a ‘Rates’ regime of reimbursement failed, then there could be no real resistance to Chevron’s argument that CKJV had overcharged Chevron.  The only remaining issue was by how much.

First interim award determination

  1. Following the conclusion of the first hearing, the Tribunal came to deliver its first interim award on 14 December 2018 (AHB, tab 37).  The award essentially resolved the issues around ‘Rates’ and CKJV’s Craft Labour costs – in favour of CKJV.  However, the Tribunal proceeded then to reject all of CKJV’s variation arguments concerning CKJV’s claimed basis for a Rates reimbursement entitlement for Staff (see the first interim award’s ‘summary of findings’ – specifically the findings upon issues 1 and 3).  By a majority, the Tribunal also rejected CKJV’s conventional estoppel arguments raised against Chevron for Staff costs.
  2. Relevantly, the identified issue 5 as it was stated in the first interim award (at page 80) had been:

… whether the Claimant may bring [into] to account, by way of Set-Off or defence, in these proceedings the amounts particularised in Appendix 1 to its defence to counterclaim if there was no agreement to convert the Price of Staff from Cost items to Rate items.

  1. The eventual finding by the Tribunal upon issue 5, was:

By majority, the Claimant may bring [into] to account by way of defence, in these proceedings, the amounts particularised in Appendix 1 to its Defence to Counterclaim … and any other amounts of cost which it seeks to prove have not yet been accounted for in what it has been paid.

  1. Hence, the Tribunal as seen, eventually allowed (by majority) CKJV to hold a fall-back position if it lost (as it did) on its primary conversion to Rates remuneration arguments for Staff costs reimbursement.  That fall‑back would allow CKJV to change track away from Rates, and to invoice Chevron for Staff costs it incurred, but had not yet invoiced Chevron.

Further procedural orders

  1. After the first interim award, further procedural orders came to be issued by the Tribunal addressing the arrangements for the next hearing upon quantum issues.  It is unnecessary to discuss these in detail, except to note that by PO 22 of 24 May 2019, the Tribunal ordered that CKJV was to replead its case (of 7 May 2019) on quantum issues – in a fashion that would (better) respond to Chevron’s further amended statement of defence and pleading counterclaim, and then to Chevron’s further amended full particulars of its counterclaim, both as filed by Chevron on 7 May 2019 (see AHB, tab 39).

CKJV’s amended case on quantum issues

  1. Following PO 22, CKJV submitted a further pleading.  This was its amended case on quantum issues dated 28 May 2019 (AHB, tab 40). Of particular significance is par 3.10.3 therein – at which CKJV provides tabulated information (via contract term references) explaining the basis on which it seeks a reimbursement of its Staff costs from Chevron – in the aftermath of the first interim award.
  2. This CKJV plea became controversial.  Upon its receipt, Chevron did two things.  First, it objected to CKJV’s New Case on a basis that the Tribunal had already determined all conversion to ‘Rates’ arguments for Staff costs – adversely to CKJV.  Secondly, Chevron applied to the Tribunal to have the plea struck out.
  3. Chevron’s formal objection to CKJV’s amended case is found in its written ‘first response to the Claimant’s amended case on quantum issues’ dated 18 June 2019 (AHB, tab 41).
  4. By par 2 of Chevron’s written objection, it then complained:
  5. By this pleading, the Respondent sets out its case as to why:

(a)          the Claimants are prevented from pleading or contending for the case identified as the ‘CKJV Case’ in the expert report of Mr David van Homrigh, dated 7 May 2019:

(i)          by reason of estoppel per rem judicatam and/or issue estoppel arising out of the interim award dated 14 December 2018 (Liability Award); and/or

(ii)         because the Tribunal, having made determinations inconsistent with the ‘CKJV Case’ in the Liability Award, is functus officio with respect to the ‘CKJV Case’ and does not have jurisdiction or authority to determine the ‘CKJV Case’;

(my emphasis in bold)

  1. Other objections were also raised by Chevron, including by reference to so-called Anshun estoppel (see par 2(b) therein).  The Chevron objections factually intersected to a large extent.
  2. Chevron’s core objection was that CKJV, by the new pleading, was seeking to run (at the second arbitral hearing that was only to address quantum issues) what was in substance, a fresh case upon liability concerning CKJV’s reimbursement entitlement for Staff costs.  Chevron argued that such a course was no longer open to CKJV.  The bar arose either on a basis of res judicata (cause of action estoppel), issue estoppel, or by Anshun Furthermore, the Tribunal was, as Chevron put it, then functus officio upon all issues of liability (by PO 14 and at the issuance of the first interim award).

Jurisdictional issue emerging

  1. Chevron’s formal objection to CKJV’s amended case on quantum issues forms the basis underlying its present applications.  Chevron’s key contention is that the Tribunal, having determined by its first interim award allissues of liability on CKJV’s claim as well as upon Chevron’s counterclaim, had then exhausted its authority and its jurisdiction to render any further determinations upon liability issues

 

– even if those issues had not been previously raised at the earlier arbitral hearing.

  1. Put another way, Chevron contends that there was no longer any valid submission by the parties to the arbitral Tribunal for it to hear, consider or determine any further liability issues.  That functus officio contention forms the significant focus of Chevron’s present applications to this Court.

Procedural Order 30 (July 2020)

  1. Faced with Chevron’s objections, the Tribunal fixed a directions hearing in July 2020 (on the papers) to deal with various matters

 

– including Chevron’s objection raised against the Tribunal determining what was proposed by CKJV for Staff costs.  [This issue was referred to as CKJV’s ‘Contract Criteria Case’, or by Chevron’s nomenclature, CKJV’s ‘New Case on liability for Staff costs reimbursement’.  For ease of reference, I will refer to this hereon in as CKJV’s Contract Criteria Case.]  I note that by PO 30, Chevron’s strike out application was, in effect, referred to the second arbitral hearing to be held in August 2020.

Invocation of CAA s 16(8)

  1. Under s 16(8) of the CAA, an arbitral tribunal may make a discrete ruling (on a plea referred to it in s 16(4) and s 16(6)) that it does not have jurisdiction, or is exceeding the scope of its authority

 

– either as a preliminary question or in an award rendered on the merits.  Where an arbitral tribunal does rule upon such an objection as a preliminary question (ie, not by issuing an award) then by CAA s 16(9):

… any party may request, within 30 days after having received notice of that ruling, the Court to decide the matter.

  1. By PO 30, the Tribunal did not rule upon Chevron’s jurisdiction and lack of authority objections as a preliminary question.  Instead, it took the distinct course of resolving to deal with that objection issue in conjunction with its proposed determination of the merits of CKJV’s Contract Criteria Case (if the Chevron objection were to be dismissed

 

– as it eventually was by a majority ruling of the Tribunal) at the second arbitral hearing in August 2020.  In other words, the Tribunal resolved to rule on Chevron’s objection, as s 16(8) permits, within its eventual award on the merits.  The Tribunal’s end determination is found under their second interim award of 4 September 2020, published with 117 pages of accompanying reasons (see AHB, tab 49).

Second interim award determination (August 2020)

  1. I will set out aspects of the reasons provided underlying the second interim award later in these reasons.  At this stage, I merely note that the second interim award accompanying reasons reveal a divided view as between the three arbitrators regarding the evaluation of Chevron’s functus officio objections raised against the authority or jurisdiction of the Tribunal.
  2. The majority arbitrators (Sir Robert Akenhead and Mr Phillip Greenham) came to reject Chevron’s authority and jurisdictional objections – concluding in effect that CKJV was not closed out by the earlier first interim award from running its Contract Criteria Case at the second arbitral hearing
  3. CKJV’s Contract Criteria Case, they reasoned, was a necessary part of working out what was meant by ‘actual costs’ for Staff costs within the parties’ Contract (ie, it was a part of the quantum and quantification exercise):  see par 12.75 of the second interim award reasons.  In the majority’s view, this did not constitute any re-run by CKJV of a fresh conversion to Rates argument upon liability – and hence could be validly pursued and argued.
  4. On the other hand, Arbitrator Pullin in dissenting reasons, concluded in effect, that Chevron was correct – and that all issues of liability under CKJV’s claim and under Chevron’s counterclaim had been the subject of the first interim award.  Arbitrator Pullin assessed that CKJV’s Contract Criteria Case was not just the raising of a quantum issue, but rather, that there was an anterior liability aspect to it – which was, by then, impermissible to run (see second interim award reasons par 16.48).
  5. Arbitrator Pullin would have accepted Chevron’s res judicata, issue estoppel and functus officio arguments (which effectively all dovetailed), thereby closing off any further consideration by the Tribunal at the second hearing of further issues of liability on all sides.
  6. However, this was the minority view.  In light of the majority position effectively finding against functus officio, the Tribunal then proceeded to determine the merits of CKJV’s Contract Criteria Case for Staff costs under the second interim award.  In the end, the Tribunal decided in favour of CKJV.
  7. Having now provided this introductory overview of the parties’ underlying contractual dispute and previous arbitral proceedings, I can turn back to evaluate Chevron’s two applications made to this court.

Chevron’s ARB 8 of 2020 application

  1. Chevron’s ARB 8 of 2020 application is founded on an underlying premise that recourse to this court is open, via CAA s 16(9).
  2. Under s 16(9) of the CAA, a party, after receiving notice of a ruling by an arbitral tribunal as a preliminary question, may request that the Court decide the matter.  However, the Tribunal in these arbitral proceedings did not ever render a ruling against Chevron’s functus officio objection as a preliminary question(as it otherwise might have via CAA s 16(8)).  Instead, the Tribunal took a different path.  It proceeded to resolve the objection along with further issues on the merits under the second interim award.  Consequently, the opportunity for a limited avenue of recourse to a court via CAA s 16(9), was never engaged.
  3. That state of affairs effectively rings an early death knell to the fate of Chevron’s ARB 8 of 2020 application.  Recourse to this court via CAA s 16(9) is not open – absent an affirmative determination by the Tribunal as to jurisdiction as a preliminary question(my emphasis in bold).

Chevron’s position

  1. A CAA s 16(9) gateway was only faintly advanced by Chevron in its first tranche of written submissions dated 1 April 2021, as amended on 9 June 2021 (see folio 30 at pars 210 – 221).  Its written submissions (as amended) render it explicitly clear that Chevron’s primary arguments concerning CAA s 16(9) are advanced in the alternative upon Chevron’s parallel application under ARB 9 of 2020.  I refer especially to par 221 of Chevron’s written submissions, which is jointly agreed between the parties.

CKJV’s position

  1. Accepting that a preliminary question ascertainment exercise should be viewed as a matter of substance and not form (see Michael Wilson v Emmott[2008] EWHC 2684 at [18]), CKJV’s written submissions of 17 May 2021 (as amended on 9 June 2021) support the rejection of any recourse to CAA s 16(9).
  2. At par 114 of CKJV’s written submissions as amended (folio 29), reference is made to an UNCITRAL explanatory note that accompanied some 2006 amendments to the Model Law (by reference to the analogue Article 16 of the Model Law which, in turn, is akin to the text of CAA s 16(9)).  For clarity sake, the explanatory note is authored by the UNCITRAL Secretariat on the 1985 Model Law on International Commercial Arbitration, as amended in 2006.  No objection was raised at the hearing as to this court being referred to such extrinsic material for the purpose of considering the possible ramifications of CAA s 16(9).
  3. The UNCITRAL explanatory note, as found extracted in CKJV’s written submissions (at par 95) provides:

Where the arbitral tribunal rules as a preliminary question that it has jurisdiction, Article [16(9)] allows for immediate court control in order to avoid waste of time and money … In those cases where the arbitral tribunal decides to combine its decision on jurisdiction with an award on the merits, judicial review on the question of jurisdiction is available in setting aside proceedings under Article 34 or in enforcement proceedings under Article 36. (footnotes omitted)

Evaluation

  1. I agree with the view as it is seen expressed in the UNCITRAL explanatory note ‑ that where a jurisdictional ruling by a tribunal has been combined with a merits award, a curial recourse is only available via Article 34 or Article 36 of the Model Law (and analogues CAA s 34 and s 36).
  2. That view, as CKJV’s written submissions explain, is well supported both internationally and locally by observations such as in the Singapore High Court in AQZ v ARA[2015] SGHC 49, and as well by Wigney J in Hebei Jikai Industrial Group Co Ltd v Martin & Ors [2015] FCA 228; (2015) 324 ALR 268 at [106] – [107]. I contrast that position with the facts of Lin Tiger Plastering Pty Ltd v Platinum Construction (Vic) Pty Ltd [2018] VSC 221; (2018) 56 VR 576, where Croft J found there that the particular arbitrator had indeed rendered an affirmative preliminary decision concerning his jurisdiction – which was then capable of being, and was, duly reviewed by his Honour.
  3. Nevertheless, I must conclude that there was, in substance, never a preliminary question resolved by the Tribunal – so as to possibly engage affirmatively with CAA s 16(9) and to open the gateway to this Court.  Consequently, Chevron’s ARB 8 of 2020 must be dismissed as itself jurisdictionally misdirected within this court.

Chevron’s ARB 9 of 2020 application

  1. I move then to deal with Chevron’s ‘primary application’ advanced as ARB 9 of 2020.  This application seeks that the Tribunal’s second interim award of 4 September 2020 be ‘set aside’, on the basis of Chevron’s explicit invocation and reliance on s 34(2)(a)(iii) of the CAA.

Terms of CAA s 34(2)(a)(iii)

  1. It is helpful to see the terms of s 34 of the CAA (the local analogue to Article 34 of the Model Law), which provides in the following terms:

(1)          Recourse to the Court against an arbitral award may be made only by an application for setting aside in accordance with subsections (2) and (3) or by an appeal under s 34A.

  1. CAA s 34 then continues, relevantly:

(2)          An arbitral award may be set aside by the Court only if –

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

(i)          …; or

(ii)         …; or

(iii)        the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration …; or

(iv)         …

(my emphasis in bold)

  1. Chevron directs a particular emphasis to the words within s 34(2)(a)(iii), namely ‘not falling within the terms of the submission to arbitration’, and then, to the following phrase ‘decisions on matters beyond the scope of the submission to arbitration’.
  2. Upon the present application by ARB 9 of 2020, Chevron fully accepts there is no available appeal or a ‘merits review’ (of any kind) to this court to be taken against the Tribunal’s second interim award of 4 September 2020.
  3. Instead, Chevron’s s 34(2)(a)(iii) application to set aside the second interim award is fundamentally grounded on the functus officio arguments – that would have been accepted under the dissenting reasons of Arbitrator Pullin – but were ultimately rejected by the majority Arbitrators (Sir Robert Akenhead and Mr Greenham) under the majority reasons accompanying the second interim award.
  4. For Chevron’s set aside application, it is noteworthy that par 196 of its written submissions (of 1 April 2021, as amended on 9 June 2021) render what is a significant concession.  There Chevron acknowledges that where an arbitral tribunal has (erroneously) concluded a party is not precluded from advancing certain claims by reason of a cause of action (ie, res judicata) estoppel, an issue estoppel or an Anshunestoppel) that such an error will be an error of law.  But significantly, Chevron accepts that any such error of law ultimately will notbear against the jurisdictional authority of the arbitral tribunal.  To that end, see the authoritative observations of Diplock LJ in Thoday v Thoday [1964] P 181 at 197 and later to the same effect by French CJ, Bell, Gageler and Keane JJ in Tomlinson v Ramsey Food Processing Pty Ltd [2015] HCA 28; (2015) 256 CLR 507 at [22]. See also BTN v BTP [2020] SGCA 105 at [71].
  5. Consequently, it is accepted that such errors of law, even if established, will not assist Chevron upon a set aside application under CAA s 34(2).  That leaves only one potential argument.  Hence, the overwhelming focus of both its first written submissions (as amended) and of its responsive submissions and then, under the verbal submissions of senior counsel for Chevron, was directed at its argument that the Tribunal (by reason of PO 14 and then by the issue of the first interim award) became functus officio – upon all issues of liability in the arbitration, both under CKJV’s claim and as well, under Chevron’s counterclaim.
  6. Unlike for mere errors of law, the functus officio condition, if established, is contended to fully engage with the very limited ‘set aside’ parameters of s 34(2)(a)(iii) of the CAA.  More specifically, Chevron argues that a functus officio condition is an arbitral condition that would go against the ‘terms of the parties’ submission to the arbitration’, or would be a dealing that is ‘beyond the scope of the parties’ submission’ to the arbitration itself (see again the terms of CAA s 34(2)(a)(iii)).
  7. As articulated by Mr Doyle QC, senior counsel for Chevron at the commencement of the hearing in this court (ts 38), the functus officio condition engages with the set aside criteria of s 34(2)(a)(iii), as follows:

… that language accommodates a contention the tribunal is functus officio, because there is no relevant submission to this tribunal a second time of issues of liability.  The authority to decide the questions of liability came to an end, if we’re right about the contention of it being functus, when it delivered the first award, and there was no submission to it of a second bite of the cherry.  There remains, of course, issues of quantum or quantification, but that is the scope of the surviving submission to arbitration.

  1. For the purposes of the present set aside application, I hold the significant benefit of having the detailed, considered and very comprehensive reasons of the Tribunal members underlying the second interim award – supporting their respective rival positions upon what I will refer to as the ‘functus officio issue’.  At the time of the second interim award, the legal challenges had then, of course been wider before the Tribunal by Chevron – embracing its res judicata, issue estoppel and Anshunestoppel arguments.  But in this court the focus has been necessarily narrowed to only functus officio arguments.  I do however, note that aspects of the underlying basis for those other legal challenges to some extent conceptually intersect and display an overlapping foundation with the functus arguments.
  2. If Chevron’s functus officio grievance is open for this court to evaluate under s 34(2)(a)(iii) then, as respectful as this court is towards all of the expressed views of the learned arbitrators, this court must reach its own conclusion de novo (ie, afresh) regarding the exhaustion of jurisdiction challenge which is directed against the Tribunal by Chevron.  I turn now to examine and evaluate this functus officio issue in greater depth.

Three key issues for determination

  1. The court’s essential task in conducting a s 34(2)(a)(iii) set aside evaluation exercise, ultimately distils to the three key issues raised against the second interim award (as conveniently synthesized by Mr Doyle QC in his opening for Chevron at the hearing in this court (see ts 38)).
  2. The three core issues are:

(a)          Whether Chevron’s functus officio arguments can, as a matter of principle, properly fit within the criteria of CAA s 34(2)(a)(iii).  For CKJV, Mr Gleeson QC’s verbal submissions at the hearing in this court seemed to be to the contrary, drawing my attention to a suggested lack of any direct case authority upon the present point.

(b)          Secondly, if Chevron’s functus officio set aside arguments can fit under the parameters of s 34(2)(a)(iii), there then arises the substantive question of whether Chevron’s functus officio challenge can be made good on its merits, or not.  Chevron’s position, of course, is that Arbitrator Pullin’s dissenting reasons underlying the second interim award (essentially accepting Chevron’s functus officio arguments) are (largely) the preferred analysis and conclusion – subject to some relatively minor corrections or inconsequential qualifications.  Conversely, CKJV submits that the majority approach, reasoning and conclusion of Arbitrators Akenhead and Greenham was both open and correct upon the substance of the functus officio issue.  CKJV focusses especially on the majority’s conclusion that if CKJV’s Contract Criteria Case did fall under the umbrella of an argument upon quantum or quantification, then there could be no exhaustion of the Tribunal’s jurisdiction – and Chevron’s functus officio arguments and present set aside application must fail.

(c)          Even if issues (a) and (b) above were ultimately determined in Chevron’s favour, there still presents a residual issue of discretion for this court as to relief, grounded in the words of CAA s 34(2) – by its use of the word ‘may’.  That text indicates a residual discretion in this court concerning any grant of setting aside relief (in alignment with the Article 34 of the underlying analogue Model Law).  Therefore, a last question concerns if and how that discretion of the court should be exercised as regards setting aside the second interim award – in the event that Chevron is successful upon its functus officio arguments in this court.

  1. In summary, those are the three main issues for determination.  More generally, CKJV also points to s 5 of the CAA, and to the often noticed admonition emanating from the Model Law towards minimum curial intervention.  That, of course, is a concept aligned to another recognised principle, for courts to confer, a level of deference towards arbitral determinations.
  2. On the other hand, Chevron contends that where some underlying issue presents, convincingly indicating a lack of jurisdiction or authority in an arbitral tribunal to determine what are already decided issues – then by CAA s 34, a court is obliged to intervene and to set aside an award that is curially assessed as so blighted.  That curial intervention, Chevron contends, is the required result of a deliberately constructed legislative regime which specifically envisages some residual scope for a curial intervention under extraordinary circumstances – limited as they will necessarily be.
  3. I turn next to afford some greater levels of consideration towards each of the three as identified key issues upon the present set aside application of Chevron.

First issue:  can Chevron pursue a set aside recourse against the second interim award to this Court via s 34(2)(a)(iii)?

  1. As seen, the first question concerns whether Chevron’s contention as to the Tribunal being functus officio upon all issues of liability (after its first interim award) concerning CKJV’s claim and on Chevron’s counterclaim, is capable of engaging with the statutory criteria under CAA s 34(2)(a)(iii).  As I will seek to explain below, that question must in the end be answered in the affirmative.
  2. There is little need to discuss at any length the condition of functus officio as the condition may be encountered by a court or a tribunal.  It is a condition that arises as a matter of law, not by reason of the parties’ agreement: see generally my recent observations in The State of Western Australia v Mineralogy Pty Ltd [2020] WASC 58 at [76].
  3. There is no doubt that the condition of functus officio is capable of being engaged (as regards an arbitral tribunal) not only by reason of the legal effect of a final arbitral award, but also as the consequences of an interim award.  To that point, see for instance Murphy J’s (as his Honour then was) observations in Alvaro v Temple [2009] WASC 205 at [67] – [68] where his Honour observed:

Once an arbitrator has published the award he or she is functus officio, subject to the operation of the ‘slip rule’ … and the extent to which the arbitrator’s jurisdiction is revived by court order: … If the award is an interim award, the arbitrator still, however, has authority to deal with the matters left over, although he or she is functus officio as regards matters dealt with in the interim award … (my emphasis in bold)

  1. To the same end, see observations by Applegarth J in Discovery Beach Project Pty Ltd v Northbuild Construction Pty Ltd [2011] QSC 306 at [68]. There his Honour had observed:

An arbitral award finally resolves the dispute referred to the arbitrator by the parties.  This applies both for an interim award and a final award.

  1. Internationally, the impacts of an ascertained condition of functus officio (engaged under Model Law analogues) have been equivalently recognised, albeit under divergent terminologies employed by judges in different jurisdictions.  For instance, in the Singapore High Court in LW Infrastructure Pte Ltd v Lin Chin San Contractors Pte Ltd [2013] SGHC 264, Justice Belinda Ang Saw Ean used the expressions ‘complete its mandate’ and ‘capacity to act’, to describe that arbitral tribunal’s lack of authority – once it had rendered a final award. Her Honour also observed (at [29]) that where a tribunal:

… became ‘functus officio‘ – it had completed its mandate by making an award with res judicata effect.  The functus officio doctrine is a time‑honoured one, and is one of the methods by which the law gives practical effect to the principle of finality.

  1. Similarly, in Emirates Trading Agency Llc v Sociedade De Formento Industrial Private Ltd[2016] 1 All ER 517, Popplewell J (at [26]) observed there, by reference to the concepts of ‘power’ and ‘authority’, that:

… There is a longstanding rule of common law that when an arbitrator makes a valid award, his authority as an arbitrator comes to an end and, with it, his powers and duties in the reference:  he is then said to be functus officio … Otherwise the tribunal has no authority or power …

  1. I refer also to a leading text now edited by Sutton D, Gill J and Gearing M, Russell On Arbitration(24th ed, 2015) at par 6‑166.  There the authors observe on the position of an arbitral tribunal’s jurisdiction and its authority to act after a final award is made.  They note that such authority:

… ceases and the reference terminates.  At this point therefore the tribunal has exhausted or concluded all that it had jurisdiction to deal with so far as the matters covered by the award are concerned.  (footnotes omitted).

  1. Likewise, the editors Mustill and Boyd address a situation of functus officio for an arbitral tribunal by describing the arbitrator’s authority as coming to an end:  see Mustill M J and Boyd SC, The Law and Practice of Commercial Arbitration in England(2nd ed, 1989) at pages 404 – 405, which says:

When an arbitrator makes a valid award, his authority as an arbitrator comes to an end and, with it his powers and duties in the reference:  he is then said to be functus officio.  This at least, is the general rule, although it needs qualification in two respects:

First, if the award is merely an interim award, the arbitrator still has authority to deal with matters left over, although he is functus officio as regards matters dealt with in the award.

Second, if the award is remitted to the arbitrator by the Court for reconsideration he has authority to deal with the matters on which the award has been remitted and to make a fresh award.  (footnotes omitted).

  1. I refer also to Blackaby et al, Redfern and Hunter on International Arbitration(6th ed, 2015) at par [9.18], where the editors invoke the terminology of a cessation, as regards ‘any furtherjurisdiction’.
  2. As now may be seen from multiple sources, local and international, there is no real doubt, both for final and for interim arbitral awards, that the condition of functus officio will deliver a significant halting impact to a tribunal’s authority.  That termination impact is variously discussed by reference to a termination of the arbitral tribunal’s ‘authority’, ‘mandate’, ‘capacity to act’, ‘authority or power’, ‘further jurisdiction’ or ‘no jurisdiction’:  see also Price & Anor v Carter (t/a Ian Carter Building Contractors [2010] EWHC 1451 at [61].
  3. The present question is whether this court (in a role tasked to it to set aside arbitral awards under CAA s 34(2)(a)(iii)) may intervene where it identifies the condition of functus officio – in circumstances where that arbitral tribunal has notwithstanding, proceeded on – to enter, resolve or determine further issues on their merits.
  4. Addressing that question, two sub-issues emerge.  The first is whether the condition of functus officio engages with the text of s 34(2)(a)(iii) – specifically, with the phrases ‘not falling within the terms of the submission to arbitration’, or ‘decisions on matters beyond the scope of the submission to arbitration’.  Assuming sub-issue one is answered in the affirmative, then a second sub-issue arising is whether the court itself renders the functus officio assessment, or whether it ought to ‘defer’ to the views of the Tribunal.  I turn to address each of these sub‑issues in turn.

Sub‑issue 1: does the functus officio condition engage s 34 (2)(a)(ii)?

  1. As to the first sub‑issue, the parties’ comprehensively framed written submissions had looked at first blush to be almost aligned in a mutual acceptance of the potential engagement of the functus officio condition with s 34(2)(a)(iii).  I draw particular attention to what had looked on this topic to be CKJV’s acceptance of Chevron’s written submission (of 17 May 2021) at pars 88 – 93 and 97, which I will set out below.
  2. CKJV’s written submissions (of 9 June 2021, as amended) upon this issue said:
  3. Whether an award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration turns on the terms and scope of the submission.  There is a difference between an excess of jurisdiction and a challenge really going to the merits of legal and factual question, but superficially characterised and cloaked as an excess of jurisdiction question [referring by footnote 89 to Mango Boulevard Pty Ltd v Mio Art Pty Ltd [2018] 1 Qd R 245; [2017] QSC 87 at [52] per Jackson J and citing Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [2016] FCA 1131 per Jonathon Beach J at [6].
  4. The Singapore Court of Appeal set out the principles underlying the application of s 34(2)(a)(iii) in CRW Joint Operations v PT Perusahaan Gas [2011] SGCA 33 at [30] – [33]. There, the Court observed (inter alia) that the section ‘is not concerned with the situation where an arbitral tribunal did not have jurisdiction to deal with the dispute which it purported to determine. Rather, it applies where the arbitral tribunal improperly decided matters that had not been submitted to it … ‘ and that it ‘addresses the situation where the arbitral tribunal exceeded … the authority the parties granted to it … ‘ (at [31]).
  5. CRW Joint Operation v Pt Perusahaan Gas [2011] SGCA 33 at [30] to [33] concerning an arbitral tribunal exceeding its ‘authority’ is, in my view, a significant and influential authority towards supporting the potential for a s 34(2)(a)(iii) engagement under functus officio encountered circumstances.
  6. Returning to CKJV’s written submissions on this issue, they advanced to contend:
  7. Born [referring to Born G, International Commercial Arbitration) (3rd ed, 2021) vol 3, ch 25 at 3575 – 3582] discusses the operation of article 34(2)(a)(iii) Model Law, including some international authorities where tribunals have purported to publish awards which (relevantly) contain ‘decisions on matters beyond the scope of the arbitration’.  The common examples cited by Born from the international authorities include:

(a)          where a tribunal grants relief which neither party has sought; or

(b)          where an award is purportedly made against a non‑party to the arbitration; or

(c)          where awards deal with issues or disputes which the parties have not submitted to the arbitral tribunal, or have not sought to press therein.  (footnotes omitted).

  1. CKJV’s (as amended) written submissions, by reference again to the Born text, then contend towards what looks to be the very point at issue (at par 97):

Born also suggests that a tribunal may relevantly exceed its authority where it makes an award [after] becoming functus officio.  [Footnote 93 referring to Born, vol 3, ch 25 at 3582.]

  1. It is helpful to see that complete citation from the Born text which reads (at par 3582):

An arbitral tribunal may also exceed its authority if it makes an award after becoming functus officio.  Thus, a few courts have held that the arbitral tribunal exceeded its mandate where, after issuing a final award, it reopened the case and issued another award (recalling or revising its earlier award).  As discussed above, however, many national arbitration statutes and institutional arbitration rules authorise corrections, interpretations, or supplementations of arbitral awards (thereby removing most questions regarding the arbitrators’ authority to take particular post award actions).  Where such a mechanism does not exist, or is not applicable, however, a tribunal’s actions (and awards) after it has become functus officio will constitute an excess of authority.  (my emphasis in bold) (footnotes omitted)

  1. CKJV’s written submissions then continued (at par 98):

Moreover, in the section concerning set aside applications under s. 34(2)(a)(iii), UNCITRAL Digest (2012), states the following proposition: ‘if the arbitral tribunal, after issuing another award, reopened the case by issuing another award, the effect of which was to recall or revise the earlier award, the latter award should be set aside since the mandate of the arbitral tribunal was terminated on the issuance of the final award.’ [citing at footnote 94, Introduction to the UNICITRAL 2012 Digest of Case Law on The Model Law on International Commercial Arbitration (1985, with amendments as adopted in 2006), at [91] p.153.]

  1. By my reading, the position as articulated under CKJV’s written submissions accepted at least conceptually, that s 34(2)(a)(iii) could be engaged for the purpose of a court addressing a lack of authority issue vis-à-vis a functus officio condition – arising from a final or interim award of an arbitral tribunal.
  2. Chevron’s reply written submissions of 8 June 2021 (folio 26) it seems took the same view – as to at least a conceptual concession upon this issue.  See especially par 6 in which Chevron said relevantly:

Chevron’s application challenges an award for being made when the tribunal was functus officio, and it is not controversial that this is a matter of the tribunal’s authority, i.e. jurisdiction (see the CKJV submissions at [88] – [93] and [97).

  1. Nevertheless, under the verbal submissions of senior counsel for CKJV at the hearing on 15 and 16 June 2020, it appeared to me that CKJV was attempting to resile somewhat from the conceptual concession position under its written submissions.  This was particularly so, by an emphasised verbal contention of Mr Gleeson QC that a court ought to ‘defer’ to the Tribunal’s stance where it had been expressed upon its alleged functus officio contention (see ts 160 – 162).
  2. Nevertheless, upon my ultimate view, a set aside application seeking to have a court address an authority or jurisdictional obstacle arising out of an asserted condition of functus officio, does engage the CAA s 34(2)(a)(iii) statutory parameters.  Essentially, I agree with the view as is seen expressed by the Born text cited in the defendant’s written submissions, as well as the view expressed in CRW Joint Operation v PT Perusahaan Gas Negara [2011] SGCA 33 at [30] – [33] as to the legal consequences of a tribunal’s authority being exceeded.
  3. I would independently conclude as well, that a decision taken by an arbitral tribunal may be viewed as beyond the terms of the parties’ submission to arbitration – under circumstances where the authority of the tribunal to resolve the parties’ dispute, or an aspect of the dispute, had come to an earlier end.  That situation would engage with the words of s 34(2)(a)(iii), namely ‘beyond the scope of the submission to arbitration’.  I accept that objectively viewed, reasonable commercial parties to an arbitral agreement may hardly be taken to have agreed to their chosen arbitral tribunal acting beyond the scope of its authority by varying or revisiting a final determination that was already the subject of an earlier published award.  Such a ‘multiple bites at the cherry’ approach cannot be accepted.  That would violate a cardinal policy of finality, recognised as essential to a coherent process of arbitral and, indeed, to curial decision making.

Sub‑issue 2: who decides upon functus officio?

  1. With the condition of functus officio accepted as falling within the textual scope of CAA s 34(2)(a)(iii), the second sub‑issue is whether it is the court who renders the determination upon a functus officio evaluation as against a tribunal – or whether such a decision ought be the subject of deference by the court to the views of the tribunal?
  2. Ultimately, my assessment is that this question must always be for the court itself to render its own objective determination on the issue.
  3. Supporting that conclusion, I mention first the observations of French CJ and Gageler J as rendered in TCL Airconditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia(2013) 251 CLR 533 (TLC Airconditioner) at [12]. I do note that those observations were made in the slightly different context of whether a court should refuse to enforce (pursuant to CAA s 36) an award under the International Arbitration Act 1974 (Cth). However, there is very close observable and acknowledged textual symmetry as between Model Law Article 34 and 36, reflected in the text of CAA s 34(2) and s 36(2) when compared. Accordingly, the observations in TLC Airconditioner by analogy, remain of force and as authority upon this issue.
  4. In TLC Airconditioner, French CJ and Gageler J had observed:

Whether one or more of those grounds is established is an objective question to be determined by the competent court on the evidence and submissions before it, unaffected by the competence of an arbitral tribunal to rule on its own jurisdiction under Art 16 of the Model Law.  Arbitration in this way remains ‘the manifestation of parties’ choice to submit present or future issues between them to arbitration’, in that, without ‘specific authority’ to do so, arbitrators ‘cannot by their own decision … create or extend the authority conferred upon them’.  (my emphasis in bold) (footnotes omitted),

  1. Reaching that view, French CJ and Gageler J were guided by the earlier observations of the Supreme Court of England and Wales in Dallah Real Estate v Ministry of Religious Affairs, Government of Pakistan[2011] 1 AC 763 (Dallah) at [24], [25], [26] and [30].
  2. In Dallah,Lord Mance JSC (with whom Lords Hope, Saville and Clarke, agreed) had observed at [30]:

The tribunal’s own view of its jurisdiction has no legal or evidential value, when the issue is whether the tribunal had any legitimate authority in relation to the Government at all.  This is so however full was the evidence before it and how carefully deliberated was its conclusion.  (my emphasis in bold)

  1. And towards the same end view for the State of Victoria, see IMC Aviation Solutions Pty Ltd v Altain Khuder LLC(2011) 38 VR 303. There, Hansen JA and Kyrou AJA essentially applied the same observations by Lord Mance and Lord Saville in Dallah:  see [270], [288] and [301].
  2. Likewise for the Federal Court of Australia, I note to a kindred approach, the observations by Colvin J in Maersk Crewing Australia Pty Ltd v Construction, Forestry, Maritime, Mining and Energy Union[2020] FCA 595. Applying TLC Airconditioner and Dallah, his Honour observed (at [28]):

Where an issue is raised about the extent of the arbitral authority conferred upon an arbitrator then it is appropriate for the arbitrator to form a view as to the extent of such authority.  However, that view is not final and binding because arbitrators cannot by their own decisions create and extend their own authority. … It is an approach that reflects the fact that it is unlikely that parties submitting matters for arbitration will clothe an arbitrator with an unqualified mandate to determine whatever the arbitrator considers should be determined.  (my emphasis in bold)

  1. See also to the same end, views expressed by Beach J in Hui v Esposito Holdings Pty Ltd [2017] FCA 648; (2017) 345 ALR 287 [87] and more generally, in the text Blackaby et al, Redfern and Hunter on International Arbitration(6th ed, 2015) at pars 5.104 and 10.42.
  2. Evaluating all those authorities, I conclude that it is open to Chevron on its present s 34(2)(a)(iii) ‘set aside application’ to seek to have this court examine afresh its arguments made as to functus officio concerning the Tribunal – arising out of the suggested force and effect of PO 14 and the first interim award of December 2018, as regards all issues of liability being closed off thereafter.  If that is correct, then subsequent to the December 2018 first interim award, all further liability issues were outside the authority of the Tribunal – including at the time of the Tribunal’s second interim award at September 2020.
  3. With those issues concerning the engagement of CAA s 34(2)(a)(iii) now answered in the affirmative, I can turn to the second substantive and perhaps the most complex question – namely, this court’s required evaluation as to whether Chevron’s functus officio submission can be accepted.  Of course, this same issue was fully argued before the Tribunal, but ultimately was rejected by majority Arbitrators Akenhead and Greenham.  It was nevertheless accepted by Arbitrator Pullin under his dissenting reasons provided accompanying the second interim award.

Second issue:  can Chevron’s functus officio challenge be upheld?

  1. As discussed, the context for this private arbitration was, at root, a contractual dispute as between the parties over money claimed on both sides.  Chevron (the respondent and counterclaimant at the arbitration) had contended that it had been overcharged by CKJV and so, had overpaid to CKJV in respect of two categories of labour that had been engaged by CKJV to provide their services around Chevron’s Gorgon project.  The first was the so‑called Craft Labour.  The second was ‘Staff’ (as defined).  Subsequently, Chevron had withheld funds otherwise payable to CKJV – so as to recover its alleged overpayments, effectively as a self help measure.
  2. CKJV’s position was that Chevron had been correctly charged for all such amounts and therefore had held no legal justification at all for withholding any funds from it – which were otherwise reimbursable to CKJV for Craft Labour or for Staff costs.
  3. Broadly speaking, that was the disputed position leading to the commencement of the arbitration and then to a number of the procedural orders issued by the Tribunal prior to the commencement of the first hearing and subsequently, to publication of the first and second interim awards of 14 December 2018 and 4 September 2020.
  4. I shall proceed from this point to evaluate the merits of Chevron’s functus officio arguments concerning the lack of jurisdiction in the Tribunal on  further liability issues post 14 December 2018 – by first discussing the functus officio condition itself, and then, moving to summarise the position reached by the majority arbitrators.  I will as well offer my own preliminary observations.  As part of a de novo determination by this court as to Chevron’s functus officio contention, I will need to set out and examine some lengthy extracts from the Tribunal’s first and second interim award reasons.  For ease of reference, the extracts from the first interim award will be incorporated as a schedule to these reasons.
  5. At an early stage, I noted that the Tribunal was split (2:1) on Chevron’s functus officio objections – and I will set out aspects of the divergent reasons to highlight the different perspectives that emerged at the second arbitral hearing.  In the end, however, this issue of functus officio is for the court itself to determine.
  6. As now discussed, if substantively engaged, the condition of functus officio carries with it a deficiency in the scope of authority or jurisdiction of an arbitral tribunal.  I would observe in this phase of my reasons that, as emerges from some of my previous reasons rendered within this court’s Arbitration List – namely Spaseski v Mladenovski (2019) WASC 65, Ivankovic v Western Australian Planning Commission [2020] WASC 40, The State of Western Australia v Mineralogy Pty Ltd [2020] WASC 58 and Venetian Nominees Pty Ltd v Weatherford Australia Pty Ltd [2021] WASC 137 – that this court is fully alive to, and thoroughly supportive of, the principle of minimum curial intervention, as regards the force of arbitral awards delivered in both international and domestic arbitrations.
  7. Furthermore, by reference to CAA s 34 and its Model Law analogues in other jurisdictions, the court is fully cognisant that the recourse permitted to this court is not at all in the character of any appeal against the arbitral award:  To that end see my reasons in Venetian Nominees Pty Ltd v Weatherford Australia Pty Ltd[2021] WASC 137 at [39] – [40].
  8. Accordingly, as demonstrated in the decisions just mentioned, arguments ‘manufactured’ so as to be presented as suggested infringements against natural justice or procedural fairness principles need to be scrutinised with a high level of cautionary oversight.  That is required to prevent what is a legislatively mandated ‘hands off’ policy objective underlying arbitrations being too easily undermined by a disgruntled arbitration participant resorting to confected efforts to manoeuvre around the finality of an adverse award, or to halt or slow down progress towards enforcement so as to thwart the legislative objects for a speedy and effective arbitral regime of dispute resolution.
  9. To that cautionary end for courts, I respectfully embrace the observations of Jonathan Beach J in the Federal Court of Australia in Sino Dragon Trading Pty Ltd v Nobel Resources International Pte Ltd [2016] FCA 1131 (Sino Dragon) at [117]. There his Honour said:

Moreover, Sino Dragon’s arguments before me are little more than a confected attempt to run a merits challenge of the arbitral tribunal’s legal and factual analysis concerning the Pang email under the guise of an article 34(2)(a)(iii) challenge.  Sino Dragon also, surprisingly, sought to invoke article 34(2)(b)(i), but its invocation fails for similar reasons …

  1. But by contrast to the factual circumstances presented in Sino Dragon, the present arguments of Chevron under its s 34(2)(a)(iii) set aside application are not grounded on procedural fairness or natural justice blemish grievances.  Instead, they are of a jurisdictional or quasi jurisdictional character. They raise essentially legal arguments concerning the suggested affirmative engagement of this arbitral tribunal with the condition of functus officio – by reason of PO 14, coupled to the issuance of the first interim award and its accompanying reasons.
  2. In short, I assess that there is presently a legitimate potential engagement of s 34(2)(a)(iii) by Chevron over its functus officio contentions.  Uniquely, this court holds the benefit of the considered reasons and rival views provided by each of the members of the Tribunal underlying the second interim award.  As mentioned, this issue arose to be resolved by the Tribunal within the allied and intersecting context of wider legal arguments concerning as well res judicata, issue estoppel and Anshun estoppel considerations that are no longer live before this court.
  3. In summary the exchanged written submissions of the parties to this court upon the set aside application can be seen as Chevron seeking to vindicate what were dissenting views by Arbitrator Pullin found under the second interim award reasons.  But the position of CKJV seeks, in effect, to vindicate the majority status quo position against any functus officio condition, as determined under the reasons of Arbitrators Akenhead and Greenham.

Summary of the Tribunal’s majority’s views rejecting functus officio

  1. Emphasising that my ensuing observations are only by way of an attempted synthesis (and are no substitute for what is found in the reasons as a whole), the essence of the majorities’ differing view upon functus officio and so, to the consequential preparedness of the Tribunal at the second arbitral hearing to allow CKJV to run its so‑called Contract Criteria Case, looks to have been reached because:

(a)          Chevron’s attempted ‘characterisation’ of what had been determined under the first interim award as regards all issues of liability arising under the claim and under the counterclaim, was viewed as unduly ‘narrow’;

(b)          the first interim award had essentially been focused upon resolving an in principle clash as between CKJV’s arguments seeking to establish an agreed Rates basis for its labour costs reimbursement ‑ put against Chevron’s resistance contention that CKJV was only entitled to be reimbursed under the Contract for CKJV’s actual costs.  Accordingly, a late emerged CKJV issue over its argued true meaning of the term ‘actual cost’ in the Contract had never actually been considered or decided upon under the first interim award.  Instead, the parties had simply picked up and repeated the contractual language of the Contract itself – without then giving further consideration to wider arguments over a conversion to a Rates basis of remuneration for CKJV.

(c)          there was no bright line of clear demarcation point, as between liability and quantum issues in this dispute.  The differentiation as between these issues was not as clear cut on liability issues as Chevron was contending;

(d)          a residual quantum and quantification exercise as was always envisaged under the Tribunal’s bifurcation orders (commencing with PO 14) – was not inconsistent with the quantum phase determining CKJV’s freshly raised arguments upon the true meaning of ‘actual costs’ in the Contract, as advanced on CKJV’s Contract Criteria Case;

(e)          even though CKJV’s Contract Criteria Case had not been earlier articulated, it was ‘commercially unrealistic’ for the arbitral parties to raise ‘every point that might conceivably be made by them, whether they were in practice or in fact germane to the outcome’ (see second interim award reasons at par 6.8) at the first hearing and before the first interim award;

(f)          it was not ‘unreasonable’ for CKJV not to have raised what later had emerged as its Contract Criteria Case, before the first interim award was issued (see the majority’s reasons in par 6.10 concerning its rejection of any engagement with principles of Anshun estoppel); and

(g)          there was a level of complexity in the parties’ underlying Contract as to the true meaning of the term ‘actual cost’, as used at attachment C to the Contract.  This complexity carried ‘pointers’ to an adoption of various loadings concerning CKJV’s reimbursement of its staff costs for weekly hours and hourly uplifts, relevant to the exercise of ascertaining ‘actual cost’ as regards Staff (second interim reasons par 6.10).  It had not been necessary to resolve such issues earlier.

  1. For essentially those reasons as provided by the majority arbitrators, an exercise in interpreting the true meaning of ‘actual costs’ as a basis of CKJV’s Staff cost reimbursement remained legitimately ‘on the table’ in the subsequent quantum and quantification phase of this arbitration (ie, at the second arbitral hearing).  This majority view prevailed as the basis for rejecting Chevron’s functus officio arguments.
  2. For the reasons that follow, I respectfully disagree with that conclusion.

The First Interim Award

  1. The first interim award of 14 December 2018 is found at AHB, tab 38 (at page 81 therein).
  2. The first interim award issued and was published in the following terms:

Award

We, Phillip Greenham, the Hon Chris Pullin and Sir Robert Akenhead, the duly appointed Arbitrators in this arbitration, do hereby declare, decide and award as follows:

  1. There was no binding agreement made between the parties whereby any Rates were agreed in relation to Staff and Supervision costs.
  2. By a majority of the arbitrators, there was no estoppel, in fact or in law, whereby the parties are to be treated as if any Rates were agreed in relation to Staff and Supervision Costs.
  3. By a majority of the arbitrators, the LOA did not evidence or contain any agreement between the parties to convert the Price for Staff and Supervision from Cost items to Rate items.
  4. In relation to Craft Labour there was a common mistake, as pleaded by the Respondent (DCC [88-91] and EPCCL [24-28]) but there was no common mistake in relation to how any rates relating to such mistake should be or should have been calculated.
  5. Rectification shall not be ordered in relation to the common mistake found to have occurred and as pleaded by the Respondent (DCC [88 – 91] and FPCCL [24 – 28]).
  6. In relation to Craft Labour and to the RDO-EBA issue running from September 2015 onwards arising out of Audit Inquiry 7, there was no breach of contract on the part of the Claimant, as pleaded by the Respondent (DCC [95] and FPCCL [27]).
  7. In relation to Craft Labour in relation to jury service, compassionate leave and stand down arising out of Audit Inquiry 9,  there was no breach of contract on the part of the Claimant, as pleaded by the Respondent (DCC [120] and FPCCL [39]).
  8. In relation to Craft Labour, by a majority of the arbitrators, Rates were agreed between the parties for Craft Labour as from July 2021 onwards, which are not now impeachable or challengeable in these proceedings.
  9. In relation to Craft Labour, the Parties agreed Rates in relation to jury service, compassionate leave and stand down which are not now impeachable or challengeable in these proceedings.
  10. By a majority of the arbitrators, the Claimant may bring into to account by way of defence, in these proceedings, the amounts particularized in Appendix 1 to its Defence to Counterclaim (MSC.010.007.0001) and any other amounts of costs which it seeks to prove have not yet been accounted for in what it has been paid to it.

Observations upon the first interim award

  1. All issues as determined by the Tribunal concerning Craft Labour, are no longer controversial.
  2. The residual controversy prior to the second interim award had concerned only CKJV’s reimbursement for its actual costs incurred in engaging Staff.  Consequently, the Craft Labour determinations as they are seen under award items 4 through 9, are only incorporated as matters of context.
  3. In relation to the success of Chevron in rebutting CKJV’s arguments concerning a conversion to a Rates basis of reimbursement for Staff costs and further, a non‑existence of any binding or perfected (variation) agreements and a failure by CKJV to make out a (conventional) estoppel, I refer to pars 1 – 3 of the first interim award (above).  See especially the concluding reference ‘from Cost Items to Rate items’ at par 3.
  4. A capitalised reference to ‘Cost Items’ is of significance to the expressed view by the majority arbitrators – that terms were used in the award on a basis that they simply carried across from the parties’ (2011) Contract.
  5. For convenience, I have extracted parts of the reasons as were provided by the Tribunal underlying the first interim award at a schedule to these reasons.  Along with these extracts, I have also provided at places some passing observations.  Presently, it is only necessary to set out what was the ‘Summary of findings’ provided by the Tribunal at the conclusion of its reasons (see page 79) underlying the first interim award.  They read:

Summary of findings

We, Phillip Greenham, the Hon Chris Pullin and Sir Robert Akenhead, the duly appointed Arbitrators in this arbitration, make the following findings (in relation to the issues set out at paragraph 38 above);

(i)          Issue 1:    Whether or not there was any binding agreement entered into between the parties by 2 September 2014 to convert the Price for Staff and Supervision from Cost items to Rate items.

Finding:   There was no agreement entered into between the parties by 2 September 2014 to convert the Price for Staff from Cost items to Rate items.

(ii)         Issue 2     Whether or not the Respondent is estopped from denying that there was such an agreement.

Finding    The Respondent is not estopped from denying that there was such an agreement (by way of majority finding).

(iii)        Issue 3     Whether or not the LOA evidenced, or itself contained, any agreement between the parties to convert the Price for Staff from Cost items to Rate items.

Finding:   The LOA did not evidence or contain any agreement between the parties to convert the Price for Staff from Cost items to Rate items (by way of majority finding).

(iv)         

(v)          …

(vi)         …

(vii)        …

(viii)       Further Findings:
Within the findings relating to Issues 4(i) – (iv), the Tribunal have also made findings that [sic] in respect of the agreement of Rates as follows:

(a)          By way of majority finding, Rates were agreed between the parties for Craft Labour as from July 2012 onwards, which are not now impeachable or challengeable in these proceedings.

(b)          The parties agreed Rates in relation to jury service/compassionate leave/stand down, which are not now impeachable or challengeable in these proceedings.

(ix)         Issue 5     Whether the Claimant may bring into to account by way of Set-Off or defence, in these proceedings the amounts particularised in Appendix 1 (MSC.010.007.0001) to its Defence to Counterclaim if there was no agreement to convert the Price of Staff from Cost items to Rate items.

Finding:   By majority, the Claimant may bring into to account by way of defence, in these proceedings, the amounts particularized in Appendix 1 to its Defence to Counterclaim (MSC.010.007.0001) and any other amounts of cost which it seeks to prove have not yet been accounted for in what it has been paid.

Two earlier procedural matters

  1. Having now laid out the terms of the first interim award, I can revert briefly to two aspects of the parties’ arbitral pleadings and to some earlier procedural orders – which provide context and are of relevance to the present functus officio and set-aside arguments of Chevron.

PO 17

  1. On 21 September 2018, CKJV had filed submissions objecting to Chevron’s proposed expert evidence from Mr Meredith for the first arbitral hearing (see AHB, tab 27).
  2. At the time, CKJV’s written objection submission was expressed in terms (with some additional clarification provided in square brackets):
  3. Paragraphs 6 to 17 of the Respondent’s Statement all go to the same point:  that most of the Meredith Report will be adduced by the Respondent to prove that the Claimant invoiced sums in excess of the ‘actual cost’ it incurred in relation to certain components of Staff payroll costs.
  4. Each of these paragraphs 6 to 17:

23.1         proceeds on the assumption that [Chevron] makes out its case that [CKJV] was only entitled to be paid the actual costs it incurred, as opposed to [CKJV’s] case that it was entitled to be paid on the basis of agreed Rates;

23.2         ignores that these underlying issues of liability must be determined (in [Chevron’s] favour) before the calculations in the Meredith Report become relevant.  The calculations leading to the conclusion that [CKJV] charged in excess of its actual costs are not matters of liability or entitlement;

23.3         are outside the scope of PO15A, paragraph 9 because they relate to the quantum or quantification or calculation of the Respondent’s Counterclaim;

(c)          this is the case in relation to each and every issue identified in paragraphs 6 to 17 of [Chevron’s] statement.  They all concern Mr Meredith’s opinion on how certain Staff costs were calculated and how he considers they should be calculated if (and only if) [Chevron] makes out its case on entitlement/liability.  In other words, they are all matters of quantum and excluded from the scope of the First Hearing;

(my emphasis in bold)

  1. Subsequently on 3 October 2018, the Tribunal issued its PO 17 (AHB, tab 29).  By order 1, the Tribunal ruled:

The evidence of Mr Meredith shall not and need not be adduced at the liability hearing between 5 and 23 November 2018.

  1. The Tribunal provided brief reasons accompanying PO 17.  That was just prior to the first arbitral hearing in November 2018.
  2. Importantly, par 4 of the accompanying reasons of the Tribunal had said this:

Essentially, there are three prime areas of liability issues between the parties which might be properly summarised as follows: (i)whether or not there were binding agreements between the parties as represented by or in DSP2 and DSP4; (ii)if not, was there effective estoppel acting to prevent the Respondent from asserting otherwise, and (iii)whether there was any material mistake as pleaded in Paragraph 88 of the Respondent’s Defence.

Segment #4

Segment #5

Segment #6

Segment #7

My observations

  1. The preceding reasons of the Tribunal, and those which follow concerning the LOA, illustrate that the focus of the first arbitral hearing was directed to the parties’ then fundamental disagreement.  Specifically, the focus was directed at CKJV’s contention that either variation agreements or a conventional estoppel had emerged after the parties’ Contract – so as to allow CKJV (as regards its engagement of both Staff and Craft labour) to be reimbursed by Chevron on the basis of ‘Rates’, rather than by its ‘actual costs’.
  2. The resolution of this issue would, by that distillation, resolve all issues of liability, both under CKJV’s claim and on Chevron’s counterclaim (whether explicitly raised to be dealt with, or not).
  3. Essentially, the divide then was between CKJV’s attempt to move away from the stipulated Contract basis of its reimbursement for actual costs

 

– to an agreed variation basis (or get the same results on an estoppel basis), namely, that CKJV be reimbursed upon a basis of Rates charging to Chevron.  ‘Rates’ reimbursement for CKJV may not equate to or be in alignment with the actual costs as incurred by CKJV towards the Staff it engaged and paid.

Paragraphs 78 to 89

  1. Next, I proceed to expose observations by the Tribunal towards a letter of agreement (the LOA) of 2016:

78          This part of this Award is concerned with whether the LOA itself constitutes an agreement to convert Cost items to Rate items.

79          The context of the LOA was that the parties were seeking to settle numerous issues which had arisen between themselves, primarily in relation to the period up to 31 December 2015 and with certain exceptions to settle all claims up to that date, even if ‘unknown’, that each may have against the other arising out of events or circumstances occurring before that date.

80          That can be seen in Paragraph B of the LOA in  which CKJV’s  Claims up to that date are settled (Paragraphs B.1) and B.3)) as are most of Chevron’s Claims (Paragraph B.2)a) and B.2)b)).

81          By its Amended SOC CKJV pleads as follows (ASOC [70B]):

70B        Further and/or alternatively, by the LOA the Parties expressly agreed that:

(a)          CKJV was and is entitled to be reimbursed for Staff for the period prior to 2 January 2016 at the Rates calculated by the “current DSP-0002/4 Master Billing Sheet[s] “;

(b)          CKJV was and is entitled to be reimbursed for Staff for the period from 2 January 2016 at the Rates calculated by the “current DSP‑0002/4 Master Billing Sheet[s]” as adjusted by the actual salaries applicable from that date; and

(c)          the Pricing Schedule 2 and 3 annual reconciliations for the periods (i) from 1 January 2014 to 31 December 2015; and (ii) from 2 January 2016 onwards, would be conducted in a manner consistent with the annual reconciliations for previous years, i.e. on the basis of the adjusted DSP-0002/4 Master Billing Sheet Rates.

82          Although Paragraph 70B does not expressly plead that the LOA itself contained a mutual agreement (as contemplated by Article 1.2.8 of the Pricing  Schedule)  to  convert Cost items to Rate items in relation to Staff, it was asserted on behalf of the Claimant in Closing Submission that it was to be understood in that way. The Respondent understood it to be such a plea.

83          The Claimant’s closing written and oral submission made it clear that the mutual agreement was to be found in paragraph B.1)a) of the LOA. That paragraph read as follows:

“B.          SETTLEMENTS AND AMENDMENTS TO THE AGREEMENT

This LOA shall apply with effect from the date this LOA is executed by Company and Owner and Contractor, and shall be applied as set out below:

1)           Settlement of Claims. In full and final settlement of the issues listed in Attachment 1, Owner will pay Contractor the Settlement Amounts in accordance with the payment schedule in Attachment 1.

  1. a)Item 3 – Salaries:

The Settlement Amount for Salaries is full and final settlement of any Claim for effects to 31 December 2015 of unapproved salary increases and related salary issues.

(i)          No additional salary or salary related increases are to be granted without prior Owner consent, provided that Contractor shall be entitled to be reimbursed from 2 January 2016 onwards at the current DSP 2/4 Master Billing Sheet Rates as adjusted by the actual salaries applicable as at 2 January 2016. An annual reconciliation will be conducted in a manner consistent with the annual reconciliations for previous years for the period from 02 January 2016.

84          The Members of the Tribunal differ on this issue. The majority view is set out first, followed by the dissenting view.

Majority View – Arbitrators Pullin and Greenham

85          The view of the majority of the Tribunal is that the LOA cannot be read as meaning   that the parties agreed to mutually agree to convert the Price for Staff from Cost items to Rate items.

86          The reasons for the decision of the majority of the Tribunal on this issue are as follows:

(a)          The LOA read as a whole is a document replete with expressions which require a knowledge of the background circumstance to give meaning to it.  Thus Paragraph B.1)a) of the LOA contains two important words and an important phrase which when understood informs the clause and allows it to be properly construed.  The words and phrase are as follows:

(i)          the word ‘reimbursement‘.

In the context of Staff that word carried its ordinary meaning namely “to make repayment to for expense … incurred” (Macquarie Dictionary 2018);

 

(ii)         ‘DSP 2/4 Master Billing Sheet Rates’

This was a phrase referring to what had been agreed in the process established to overcome the difficulties with the PAF process and mobilisation of Staff and without in any way restricting Chevron’s  right to inspect CKJV’s salary records and to audit them (a process reduced to writing in DSP-0002 and DSP-0004 and a process the Tribunal has found to exist when deciding issue 1)  (See paragraph 71(n) and paragraph 74 above);

(iii)        ‘reconciliation’

This word when used in the phrase ‘annual reconciliation’ referred to the process, in relation to Staff, of reconciling cash call payments to actual cost incurred.

 

87          Therefore with those words and phrases so understood Paragraph B.1)a) of the LOA should be construed as a written confirmation of the process which the parties had put in place and which was in place at the moment the LOA was signed.  That process was a process which involved Chevron paying CKJV in cash call invoices and monthly and annual reconciliation invoices at the DSP-0002/4 Billing Sheet Rates without any change to Chevron’s right to inspect CKJV’s salary records and to audit them.

88          In closing submissions counsel for CKJV placed great reliance on the presence of the word ‘Rates’ in the compound phrase ‘DSP-0002/4 Master Billing Sheet Rates’. Counsel acknowledged that if the capital ‘R’ had been a lower case ‘r’ the whole argument that there had been a conversion of Cost items to Rate items would go (TRA.500.012.0089 [20]. To concentrate on the word ‘Rates’ in the compound phrase ‘DSP-0002/4 Master Billing Sheet Rates’ and not bear in mind the other important words and the meaning of the whole phrase in which the word appears offends the rule that a contract should be read as a whole and the rule that a contract should be read in  the way in which commercial persons in  the position of the parties would understand it.

89           The conclusion of the majority of the Tribunal is that the LOA cannot be read as meaning that the parties agreed to mutually agree to convert the Price for Staff from Cost items to Rate items. CKJV’s claim in para 70B of the ASOC is therefore dismissed.

My observations

  1. Clearly, there was a divide as between the three arbitrators at the first arbitral hearing, over the effect of what the parties had agreed upon by the 2016 LOA.
  2. The majority view expressed by Arbitrators Pullin and Greenham prevailed over a dissenting view of the presiding arbitrator (Arbitrator Akenhead).

Paragraphs 106 to 128

  1. The arbitrators then grappled with what they had identified as issue two, concerning conventional estoppel and Staff costs reimbursement to CKJV.

Staff:  Estoppel

106         This section of the award deals with the issue of whether the Claimant’s claim in relation to estoppel has been made out.

107         In Chevron’s defence (DCC [61 – 64]) it is pleaded that DSP‑0002 and DSP-0004 did not create any rate or convert any cost-item into a rate item.  In the SR CKJV pleaded that Chevron was “estopped” from making “those assertions” (SR [45 – 49]).  This plea of estoppel was fleshed out in the Claimant’s Substituted Reply (SR [35 – 39]  and [73 – 77]).

108         In SR [73], CKJV pleaded:

“in the alternative, even if the Claimant is wrong on the above points  of interpretation (which is expressly denied), the Respondent is estopped from resiling from the agreed and common understanding between the parties regarding the assumed meaning and effect of DSPs 2 and 4.”

109         In SR [74(a)], CKJV pleaded:

“… the Parties mutually accepted and assumed that the DSPs converted Cost based items to Rate based items and the agreed DSP-0002/4 Billing Rates would be invoiced and paid without reconciliation to the actual costs incurred by the claimant “

110         In SR [76], CKJV pleaded:

“… the Claimant has relied to its detriment on the common understanding and approach that the Billing Rates do not have to be reconciled against actual costs incurred in implementing the Contract.  If the Respondent were permitted to resile from this common understanding and approach then the claimant would suffer a detriment in the form of significant financial loss and damage.”

111         Chevron sought particulars of detriment suffered by CKJV and CKJV provided particulars which stated that:

“(CKJV) entered into the LOA in reliance on … the common assumption, promise and/or representation …”.

112         The Substituted Reply related the history of the difficulties with the PAF process, the exchanges between the parties about those difficulties, the 2012 audit and the entry into DSP-0002 and DSP-0004 (SR [35 – 39].  CKJV pleaded the letters and emails from Chevron to CKJV dated 25 March 2014, 8 July 2014 and 19 May 2014 referred to above (SR [73 – 77]).

113         In CKJV’s opening written submissions the principles applying to estoppel by convention and promissory estoppel were set out.  However, there was no plea by CKJV of any material fact amounting to a representation by Chevron which would support the case of promissory estoppel.  The pleading by CKJV that the parties ” …  mutually accepted and assumed … ” that the ” … DSP’s converted Cost based items to Rate based items …” (SR [74(a)(i)]), had a ” … common understanding … ” (SR [75]) and a “common understanding and approach …” (SR [76]) is supportive only of reliance on the case of estoppel by convention[.]

114         The critical issue in the estoppel case is CKJV’s contention that there was a ” … common understanding … ” or a ‘… mutual acceptance” that DSP-0002 and DSP-0004 ” … converted Cost based items to Rate based items … “(SR [74(a)]).

115         The Members of the Tribunal differ on this issue.  The majority view is set out first, followed by the dissenting view.

Majority View – Arbitrators Pullin and Greenham

116         Based on the testimony given by CKJV witnesses, there is no doubt that before the LOA was executed a view had formed within CKJV that there had been a conversion of Cost items to Rate items in relation to staff.  The senior people who negotiated the LOA and instructed lawyers to document it (Mr Wigney and Mr Lichon) testified that they thought so.  Mr. Wigney testified that he thought this was so not because anyone from Chevron told him but because CKJV told him that this was the situation (TRA.500.004.00170 [19] [Wigney] and following).

117         On the other hand, the relevant Chevron witnesses testified that they did not hold any view that there had been a conversion of Cost to Rates in relation to staff.

118         What both parties thought does not establish the existence of an assumed state of facts to ground an estoppel.  What is necessary is that each party has, to the knowledge of the other, expressly or by implication accepted an assumption as being true for the purposes of their dealings and that the proponent has acted upon the assumption to its detriment (Con-Stan Industries of Australia Pty Ltd v Norwich (1986) 160 CLR 226 at 224).  In other words, the acceptance by both parties of a common assumption must manifest itself in some way.

119         It is important to keep in mind that the Contract was well understood by the Contract teams within Chevron and within CKJV.  It was well understood by them that, if a Rate was established as the basis for payment for CKJV’s employees, then the actual salary paid to such employees would not be examinable by Chevron, in the reconciliation process, or in any inspection or audit process.

120         For any Price that was Rate based the parties both understood that all that Chevron would be entitled to do in the reconciliation process, inspection process or audit process would be to check time sheets and check that the correct Rate was charged in relation to the person whose time sheet was being examined.  Payroll information would be of no relevance and could not be examined by Chevron.

121         The undisputed testimony is that, in all of the audits carried out, before the LOA was signed, payroll data was called for by Chevron and provided without protest by CKJV.  In addition, in the first audit after the LOA was signed Chevron called for and, without protest, CKJV gave access to staff payroll information.  Although the audit after the LOA was signed was an event occurring after the LOA, it shows continuing conduct inconsistent with any earlier assumption that staff were to be reimbursed on a Rates basis.

122         This conduct, that is the call for payroll data by Chevrons [sic] audit team and the provision of such information by CKJV, is entirely inconsistent with any mutually accepted assumption by the parties that there had been a conversion of Cost items to Rate items in relation to Staff.

123         This is because at the risk of repetition both parties knew that under the contract if a price was Rate based then Chevron had to right to call for that information.

124         In addition, Mr Wigney, the most senior CBI & I person involved in the negotiations leading to the LOA, well knew that although staff of CKJV told him that the Staff were compensated on a Rates basis, Chevron did not accept that.

125         The transcript of his cross examination reads as follows (TRAS.500.004.0170 [5 – 17] [Wigney]):

  1. But, in fact, from the materials available to hand there was every suggestion from Chevron, wasn’t there, that your understanding of the Rates base scheme was incorrect?
  2. Not in my view.
  3. Q.        They had asserted it on two occasions prior to you signing the LOA?
  4. and we rejected that, so–
  5. Yes.
  6. and that was the view of the – – that I was getting from the project team was that this was rates based.
  7. So you relied on the project team, is that what you are saying?
  8. to a large extent.  My view was that the Rates based nature of the contract was intact.

126         Finally, when the LOA was in its final stages the lawyer for Chevron proposed that there should be added to the draft LOA a provision stating that for the avoidance of doubt DSP-0002 and DSP-0004 billing rates were not Rates.

127         Mr Willoughby, the lawyer for CKJV, opposed the inclusion of this provision and it was withdrawn.  CKJV’s counsel submitted that this was evidence supporting the estoppel claim.  On the contrary it reveals the difference that each party had about the price for staff.  The resolution of the dispute about the inclusion of this clause by withdrawing it cannot be viewed as an acceptance by Chevron that staff were to be compensated on a Rate basis.  The withdrawal of the proposed clause in the LOA merely meant that CKJV would not concede what Chevron considered the position to be namely that CKJV was paid for staff on a Cost basis.

128         As a result, the majority of the Tribunal conclude that the estoppel claim by CKJV must be dismissed.

My observations

  1. Paragraphs 117 and 124 as regards the ‘Cost to Rates’ divide indicate the position was an ‘either/or’ outcome concerning CKJV’s alternate plea of conventional estoppel.
  2. I note that Chevron by the carrying out of audits, had obtained resort to the payroll information of CKJV.  This was significant to the Tribunal’s rejection of the conventional estoppel argument.  Ultimately, it was assessed by the majority as being inconsistent with Staff being reimbursed on a Rates basis (see first interim award reasons at par 121).
  3. That data as pressed for by Chevron highlighted the conceptual clash as between the moneys outlaid by CKJV towards Staff, as opposed to a different basis of reimbursement for CKJV, based on an agreed rate (which was not dependent upon whether the Staff person had actually been remunerated according to the level of the rate by CKJV).
  4. Commencing at par 133, the Tribunal addressed Craft Labour issues as they had identified previously at par 38 – in respect of the as identified issue 4.  The position in respect of Craft Labour in contrast to Staff is no longer relevant.  Accordingly, I omit further reference to them in this extract, with no disrespect intended.

Paragraphs 192 to 250

  1. Within this section, I set out the Tribunal’s conclusions concerning the parties divide over ‘Rates’ by reference to various aspects of Attachment C to the Contract.
  2. I refer to article 1.2.8 of the parties’ Contract, which defined ‘Rate’ on the basis of an ‘agreed unit price payable for a good or service which may not be the actual cost’ (see first interim award reasons at par 193).
  3. The following section provides a useful discussion of the Attachment C provisions of the Contract, as well as GTC provisions concerning Direct Costs in the context of Audit Inquiries 7 and 9:

Rates – Could the amounts the subject of Audit Inquiry 7 and Audit Inquiry 9 be ‘Rates’?

192         The Claimant asserts that the payments made in relation to the matters the subject of Audit Inquiry 7 and Audit Inquiry 9 were ‘Rates’.  This assertion is made in SOC [100] in relation to Audit Inquiry 7 and in SOC [116] in relation to Audit Inquiry 9.

193         The expression ‘Rate’ is defined in the Contract at Article 1.2.8 of Attachment C.  The expression is defined as follows:

“Rate means an agreed unit price payable for a good or service and may not be the actual cost.”

194         Given the definition of the expression ‘Rate’, it is possible for a ‘Rate’ to be agreed throughout the currency of the Contract.

195         The agreement of a ‘Rate’ is not an amendment of the Contract but rather the outcome of the utilisation of an administrative process provided for in the Contract.  Given this, Article 2.1.1 of the GTC of Contract does not apply to such an agreement.  It is not necessary for the relevant agreement to satisfy any formal requirements.  All that is required is for it to be established that the parties have agreed to a ‘Rate’.

196         The Tribunal finds that an agreement as to the establishment of a ‘Rate’ could arise from the exchange of spreadsheets and other documents between the parties or through the administration of the Contract.  It could even be agreed orally or by email, although reliable evidence would be required.  Agreement can be inferred where the parties have acted on a basis which objectively demonstrates that they have agreed upon a ‘Rate’.

Rates – Does an ‘error’ prevent the crystallisation of a ‘Rate’?

197         The Respondent submits that an amount cannot be a ‘Rate’ if it has been incorrectly calculated (SR [29] and ROS [124] in respect of the EBA issue and ROS [111] in respect of the Pre September 2015 Issue).

198         The Respondent does not assert that there has been any fraud or  misrepresentation as to the development or presentation of any of the amounts which the Claimant asserts have become ‘Rates’.

199         the Contract makes particular provision in relation to how ‘Rates’ are to be treated by the Contract.  The Contract provides as follows:

GTC Article 3.9.4

… provided that the obligation to maintain and share cost information shall not extend to cost associated with … agreed Rates …

Attachment C Article 1.2.2

… Where a price is described as a Rate in this Attachment C – Pricing Schedule it shall be and is deemed to be, fully inclusive of all costs applicable to the item, matter, thing or activity it represents and fully inclusive of all costs and expenses to be incurred by Contractor in complying with its obligations under the Contract and shall constitute full and complete compensation due to the Contractor for that item, matter, thing or activity.

Attachment C Article 1.2.3

Unless otherwise stated in this Agreement Rates shall be applicable regardless of the extent, quantity, nature, difficulty, complexity or duration of the Work for which they are employed.

Attachment C Article 1.2.8

In this Attachment C – Pricing Schedules, unless otherwise stated:

Rule means an agreed with price payable for a good or service and may not be the actual cost.  Where Contractor seeks to change an agreed Rate, until such change is agreed, the Rate shall cease to be an agreed Rate for the purposes of Article 3.9.4 of the General Terms and Conditions.

200         The Tribunal finds that, in the absence of fraud or misrepresentation, an amount may be a ‘Rate’ notwithstanding an error in the calculation of the ‘Rate’.  Accordingly, the Respondent’s submission in this respect is not accepted.  This finding is the finding of the Tribunal but subject to Arbitrator Pullin’s conclusion that the common mistake about hours meant that there was no agreed Rate for the period specified in paragraph 216 below.

Breach of Contract

201         The Respondent submits that the Claimant is in breach of the Contract by reason of or reference to the errors said to be embodied in each of the relevant rates the subject of Audit Inquiry 7 and Audit Inquiry 9. In relation to Audit Inquiry 7 this is pleaded at FPCCL [30]. In relation to Audit Inquiry 9 this is pleaded at FPCCL [39].

202         The provisions of the Contract which it is submitted have been breached by the Claimant are GTC 4.2.3, Attachment C Article 1.1.7, Attachment C Article 1.2.4 and Attachment C Article 2.3.4.  The provisions are as follows:

GTC 4.2.3

The Direct Costs to be paid by Owner to Contractor shall be only those necessary to perform the work in accordance with this Agreement including Article 10.1.1.  Except to the extent provided in Attachment C – Pricing Schedule relating to Contractor’s variable overhead costs payable as Direct Costs, Contractor warrants that the rates, costs and amounts set out in Attachment C – Pricing Schedule applicable to the Direct Costs do not contain any element of, or component for, corporate overhead profit, risk or contingency for the Contractor, or any members of the Contractor Group (including any Affiliate engaged to perform any Work) and the Fixed Fee for Overhead, Profit and Risk contain any and all such amounts.  The Direct Costs will be reduced by the amount of any credits, refunds or other reductions or savings Contractor receives in relation to VAT, goods and services tax, fuel tax credits, duties or other taxes or levies.  For the avoidance of doubt, if Contractor recovers contrary to this Article.

Attachment C Article 1.1.7

Contractor represents and warrants that the rates and costs set out in this Attachment C – Pricing Schedules applicable to Direct Costs do not contain any element of, or component for, overhead risk or profit and that the mark-up for Variable Overhead and the Fixed Fees for Overhead, Risk and Profit contain any and all such amounts.

Attachment c Article 1.2.4

Contractor shall at all times use reasonable endeavours to minimise any amounts which Company shall be liable to pay Contractor for Work.

Attachment C Article 2.3.4

These Prices exclude any profit and overhead components, which are covered under Pricing Schedule 13 – inclusive as outlined in section 2.4 of this Attachment C – Pricing Schedule.

203         It is necessary to consider these provisions in the context of the entire Contract.  Other provisions of the Contract which are relevant to the consideration of the provisions relied upon by the Respondent are as follows:

Attachment C Article 1.2.3

Unless otherwise stated in this Agreement Rates shall be applicable regardless of the extent, quantity, nature, difficulty, complexity or duration of the Work for which they are employed.

Attachment C Article 1.2.8

In this Attachment C – Pricing Schedules, unless otherwise stated:

Rate means an agreed unit price payable for a good or service and may not be the actual cost.  Where Contractor seeks to change an agreed Rate, until such change is agreed, the Rate shall cease to be an agreed Rate for the purposes of Article 3.9.4 of the General Terms and Conditions.

204         The Respondent submits that the warranty contained in Article 1.1.7 of Attachment C was a continuing warranty which applied to Rates which might have been agreed after the Contract as well as the Rates set out  in Attachment c at the time of execution (RCS [166(b)]).

205         The warranty has the potential to create tension with other provisions of the Contract in relation to ‘Rates’ (for example, the definition of ‘Rates’ in Article 1.2.8 of Attachment C).  This tension does not arise if the warranty is confined to the Rates which appear in Attachment C as at the time of execution of the Contract.

206         The Respondent accepts that a ‘Rate’ should not be ” … re-opened … “ (RCS [239]) and that the Claimant is not limited to being ” … paid their actual costs for the provision of Craft Labour in circumstances where the parties have agreed a Rate for that labour … ” (RCS [240]).

207         Further, the Respondent rightly makes the following concession (RCS [241]):

” … if the Claimants’ [sic] actual costs are less than what it is compensated for by the Respondent because the actual cost hour is less than the Rate per hour, then, absent any actionable mistake in the build-up of that Rate, the Respondent accepts that it is not entitled to revisit or re-examine the Rate and claw back the difference between what it paid the Claimants’ (sic) and what their actual costs are … “

208         The Tribunal finds, that, on the plain wording of Article 1.1.7, the warranty only extended to the Rates in Attachment C at the time of the execution of the Contract.  This finding is supported by the context in which Article 1.1.7 is found.  It does not apply to changes to Craft labour rates agreed by the parties after the Contract was entered into.

209         In relation to the other provisions relied upon by the Respondent the Tribunal finds as follows:

(a)          Article 1.2.3 of Attachment C does not entitle the Respondent to look behind a ‘Rate’ and the Claimant remains entitled to be paid on the basis of a ‘Rate’ notwithstanding that there may have been the opportunity for the relevant work to be undertaken at a lower cost; furthermore, no evidence of breach of this has been provided to show that CKJV failed to use reasonable endeavours to minimise amounts otherwise payable for Work; if, as the arbitrators have found, the relevant Rates were agreed, the Claimant was entitled to be paid at those Rates.  In those circumstances the minimisation would primarily go to avoiding time being wasted or personnel being unnecessarily deployed, none of which has formed the basis of complaint.

(b)          The warranties provided for in GTC 4.2.3 and Article 1.1.7 of Attachment C apply to the rates and costs set out in Attachment C and do not apply to any ‘Rates’ which may be agreed after the entering into of the Contract;

(c)          the statement in Article 2.3.4 of Attachment C:

(i)          only applies to Prices in respect of Staff and Supervisory Personnel (the reference to ‘Prices’ in Article 2.3.4 which is a reference back to ‘Prices’ in Article 2.3.3 and Article 2.3.3 deals with payment for Staff; and

(ii)         does not entitle the Respondent or arbitrators to look behind a ‘Rate’;

(d)          the Claimant is not, in relation to the relevant rates, in breach of the Contract as alleged by the Respondent.

210         Accordingly, the claims by the Respondent in relation to breach of Contract in respect of Audit Inquiry 7 and Audit Inquiry 9 are dismissed.

Rates – Were the payments the subject of AI7 and A19 the subject of a ‘Rate’ or an agreement relating thereto?

211         The circumstances giving rise to the disputes in connection with Audit Inquiry 7 and Audit Inquiry 9 are discussed in this award as follows:

(a)          regarding the treatment of RDOs prior to September 2015, at Paragraphs 143 to 154 above, SOC [55 – 59] and FPPCL [20 – 25];

(b)          regarding the treatment of RDOs after September 2015 is discussed at Paragraph 172 to 185 above; and

(c)          regarding the treatment of stand down time, compassionate leave and jury duty is discussed at Paragraphs 186 to 191 above.

212         Given the matters identified in Paragraph 211 above, the utilisation of the relevant spreadsheets and the RFI procedure described in Paragraph 144(a) above by the Respondent for the purposes of the financial administration of the Contract, the Tribunal finds that:

(a)          there was a binding agreement in relation to ‘Rates’ as alleged in Paragraph 58 of the SOC and that binding agreement continued after September 2015 (on the basis of relevant amended ‘Rates’), such agreement being evidenced within the Craft Labour Billing Matrices submitted and approved in October 2015 as referred to above; and

(b)          there was a binding agreement in relation to ‘Rates’ as alleged in Paragraph 115 of the SOC, relating to standby hours, compassionate leave and jury duty.

Majority View – Presiding Arbitrator Akenhead and Arbitrator Greenham

213         There is disagreement between the arbitrators as to whether or not there were agreed Rates in relation to the Labour Matrices which are the subject matter of the Respondent’s mistake claim.

214         Given the matters identified at Paragraph 211 above and the other factual findings, the utilisation of the relevant spreadsheets and the RFI procedure described in Paragraph 144(a) above by the Respondent for the purposes of the financial administration of the Contract a majority of the Tribunal finds that there was an agreement in relation to ‘Rates’ as alleged in Paragraph 58 of the SOC.

Dissenting View – Arbitrator Pullin

215         I have previously noted as follows:

(a)          following the publication of a new EBA in March 2012 and CKJV seeking to change the Craft Rates, there were no Craft Rates until an agreement was reached about the new Rates (Paragraph 164 above); and

(b)          no new Rate has been agreed (Paragraph 169 above).

216         I agree with the reasoning in paragraphs 217 and 229 below and the finding in paragraph 230 subject to my view that the waiver and release in Paragraph B.2)a) of the LOA does not bar Chevron from auditing and recovering overpayment (if any) until there is an ‘agreed Rate’ for the period commencing with the date when CKJV sought to change Rates in 2012 up until new Rates were agreed as a result of the publication of the September 2015 EBA.  That Rate can be and should be agreed.  If there were any dispute about the data to be input then that could be resolved using the dispute resolution clause.  That is no different from a dispute which may have arisen any time there was a new EBA and the need to agree new input data.  No such dispute has been referred to this arbitral panel.

Claimant’s Set-Offs – Liability

231         This part of this Award is concerned with the ‘Set-Off’ pleaded by CKJV in its Defence to Counterclaim against the sums counterclaimed by Chevron.

232         The Set-Offs are expressly predicated upon the basis that, if and to the extent that the Counterclaim succeeds, then CKJV is entitled to set off certain ‘unbilled amounts’ in respect of Staff and Supervision Costs (estimated at AU$49.828 million)  and  in  relation to Craft Labour Costs (estimated at AU$96.187 million).

233         The Set-Offs are pleaded as follows:

“3.2          Without prejudice to its primary case as set out therein, in the alternative, the Claimant is entitled to set-off the following amounts against any sums counterclaimed by the Respondent:

Staff and Supervision Costs

3.2.1        In the alternative, and in the event that the Staff costs are to be ascertained in accordance with the Respondent’s case as to the meaning and effect of DSP-0002/4 and the subsequent Staff Billing Sheet Rates and the LOA, then the Claimant has not invoiced sufficiently (or at all) for a number of items that it would otherwise be entitled to invoice and seek payment of in accordance with, on the Respondent’s case, the un-varied Contract.

3.2.2        These items were omitted on the basis that the Billing Sheet Rates comprised the Claimant’s all inclusive entitlement to final compensation (regardless of any errors and omissions in their constituent formulae), as indicated in the Respondent’s letter KJV- 1524 and evidenced by the parties’ conduct prior to the 2016 audit.  The unbilled amounts were omitted from the build-up of the Rates invoiced during the Project on the basis identified above;

3.2.3        The Claimant is entitled to set-off these unbilled  amount  against the sums claimed by the Respondent in its counterclaim, in the estimated sum of $49,828,000 for such unbilled Staff costs; and

3.2.4        Further details of the unbilled Staff Costs are set out in Appendix 1 hereto.

Craft Labour Costs

3.2.5        In the alternative, and in  the event that the Respondent’s is correct in its case that the Craft Labour Rates invoiced and paid during the Project were not agreed Rates as defined by the Contract as alleged at paragraphs 90 to 98 of the Respondent’s Defence and Counterclaim, then the Claimant says:

(a)          an agreed Rate as defined by the Contract should entitle the Claimant to invoice and be paid for elements / items that were not included in the build-up of the allegedly  incorrect Rates.  These items were omitted on the basis that the latter comprised the Claimant’s all-inclusive entitlement to compensation (regardless of any errors and omissions in their constituent formulae); and

(b)          any agreed Rate as defined by the Contract should correct all of the omissions and errors in the constituent formulae of the allegedly incorrect rates.  This would include not only the alleged errors identified by the Respondent (which would operate to adjust a  Rate  in the Respondent’s favour), but also the matters / items which would operate in the Claimant’s favour, but were omitted  from  the  build- up of the Rates invoiced during the Project on the basis identified above.

3.2.6        The Claimant is entitled to set-off such sums against the amounts claimed by the Respondent in its counterclaim, in the estimated sum of $96,187,000; and

3.2.7        Further details of the Craft labour omissions are set out in Appendix 2 hereto.”

234         Appendices 1 and 2 contained respectively 5 specific items of ‘Unbilled Cost’, each quantified and 16 items of ‘Unbilled Cost’ and ‘Rate Adjustments’.  At Paragraph 4 of the Defence to Counterclaim the Claimant says the following:

“4 … the Claimant claims

4.2           The Claimant seeks a declaration that in accordance with the Claimant’s alternative case set out above, the Claimant is entitled to set-off the sum of $146,015,000 or such other sum as the Tribunal considers appropriate, against any amount owed by the Claimant to the Respondent’.

235         The Amended Reply to Defence to Counterclaim served on 7 September 2018 pleaded by way of amendment the following at Paragraph 5:

‘As to paragraphs 3 and 4.2 and Appendices 1 and 2 to the Defence  to  Counterclaim, the Respondent (without admitting that there is any merit in the Claimants’ set off claims pleaded in paragraph 3 thereof and Appendices 1 and 2 thereto (the Claimants’ Set Off Claim), or that the Claimants have incurred  any of the “unbilled costs” referred to therein} says that:

(a)          pursuant to Article B.3) of the Letter of Agreement dated 10 August 2016 (LOA), the Claimants have fully and finally waived and released the Respondent from any and all Claims, of every nature or kind, whether known or unknown, claimed or unclaimed arising from or in connection with any events or circumstances occurring on or before  31 December 2015 related  to, inter alia, Direct Costs (except those referred to in Article B.3)(c)(i) and (ii) and (d)(i), (ii) and (iii));

(b)          the Claimants’ Set Off Claims relate to Direct Costs allegedly incurred by the Claimants;

(c)          in the premises pleaded in paragraph 5(a) above, the Claimants have  fully and finally waived and released the Respondent from and are barred from claiming in the arbitration or at all, the Claimants’ Set Off Claims to the  extent that they relate to Direct Costs:

(i)          allegedly incurred on or before 31 December 2015; and

(ii)         not falling within the exceptions referred to in Article B.3)(c)(i) and(ii) and (d)(i), (ii) and (iii) of the LOA.”

236         Although there is a general traversal of the Set-Offs, there has been no pleading as to detail and no investigation or evidence about them in the First Hearing.

237         Accordingly, the only issue for this Award is whether or not, and if so, to what extent Article B.3(c) and (d) of the LOA excludes or limits in principle any entitlements to the Set-offs as pleaded.

238         Article B.3) of the LOA states as follows:

‘3)          Release by Contractor.  Contractor hereby fully and finally waives and releases Company and Owner from any and all Claims, of ever nature or kind, whether known or unknown, claimed or unclaimed arising from or in connection with any events or circumstances occurring on or before 31 December 2015 related to any of:

  1. c)Direct Costs which have not been claimed as of the date of the LOA, except:

(i)           Direct Costs of Subcontractors for Work performed on or before December 31, 2015 but which is claimed or invoiced by Subcontractor to Contractor after December 31, 2015; and

(ii)         Direct Costs of Subcontractors associated with the disputed claims or invoices of Subcontractors set forth in Attachment 5;

  1. d)Direct Costs except those:

(i)          identified as push back items and uncertified billing items as specified in Attachment 3 or 4, both of which will be resolved in the ordinary course; and trustees; and

(ii)          specified in paragraph 3(c) above; or

(iii)        identified as findings in the Pricing Schedule 2 and 3 annual reconciliation for the period from 1 January 2014 to 31 December 2015, which will be conducted in a manner consistent with the annual reconciliations for previous years; or … ‘

239         The relevant Contract definitions referred to in Article B.3) of the LOA are:

Contract Conditions

‘1.11        “Claim” shall mean any claim, liability, loss, demand, damages, Lien, cause of action of any kind, obligation, costs, royalty, fees, assessments, penalties, fines, judgement, interest and award … whether arising by law, contract, tort, voluntary settlement or otherwise.

‘1,25A      ‘Direct Costs’ as defined in Attachment C – Pricing Schedule’

Attachment C

1.2.1        Direct Costs of the costs incurred by Contractor on resources used in performing the Work as detailed in this Attachment C – Pricing Schedule, Schedules 2 to 12′

1.2.2        Unless otherwise stated in this Agreement where a price is described as a Cost the Contractor shall be reimbursed for the cost of the item.  Where a price is described as a Rate in this Attachment C – Pricing Schedule it shall be and is deemed to be, fully inclusive of all costs applicable to the item, matter, thing or activity it represents an [sic] fully inclusive of all costs and expenses to be incurred by Contractor in complying with its obligations under the Contract and shall constitute full and complete compensation due to the Contractor for that item, matter, thing or activity.’

240         Pricing Schedules 2 and 3 related to Staff and Supervisory Personnel was Pricing Schedule 4 related to Craft Labour.

241         The Claimant’s Senior Counsel argued in her final oral submissions (TRA.500.012.0125 and following) that essentially Chevron’s claims and counterclaims, particularly in relation to Staff, could be identified as a claim by Chevron that it had paid more than the true cost, as defined in the Contract, albeit that it had sought to particularise its Counterclaim by reference to selected elements of the overall sums claimed.  She argued, in effect, that, properly analysed, CKJV was not claiming anything itself but simply defending itself against a claim by Chevron and the words of the LOA were insufficient to deny CKJV or excluded from putting forward any properly defence, including any defence which sought to assert that there was, overall, no or less overpayment against cost as a whole.  The Claimant’s Senior Counsel conceded in her oral closing submissions (TRA.500.012.0132 to TRA.500.012.0133) that, if the Claimant was to succeed on the substantive Craft Labour issues, the Set‑Off  in relation to Craft Labour would not arise.

242         The Respondent’s Senior Counsel argued that the wording of Article B.3) of the LOA was sufficiently wide to exclude, first of all, the Set-Offs as claimed and, secondly, to prevent CKJV from putting forward as a defence any assertion that the cost was greater than anything which it had claimed as the project proceeded.  He pointed to the width of the definition of the word “Claim” and the breadth of the wording of Article B3.

243         Given the concession made by the Claimant’s Senior Counsel in relation to the Craft Labour Set-Off, and given that the Tribunal is deciding in favour of the Claimant in relation to Craft Labour issues, it is unnecessary to make any theoretical ruling on the Craft Labour Set-Off.

244         There are essentially two issues arising.  They are:

(a)          whether the Staff and Supervision Costs Set Off (Paragraph 3.2.1-3.2.4 and Appendix 1 to the Defence to Counterclaim) as pleaded can be pursued in principle; and

(b)          whether and to what extent it is open to the Claimant as a defence to the Respondent’s Counterclaim matters going to show what the overall cost of the provision of Staff and Supervision actually was.

245         In relation to the first issue, the Tribunal considers that, on the basis pleaded in those paragraphs of the Defence to Counterclaim, the Claimant’s claim to Set-Off as pleaded cannot succeed.  In simple terms the reason is that Clause B(3) and in particular sub-sub-clauses (c) and (d) thereto.  The Set-Off, as pleaded, in particular at Paragraph 4.2 of the Defence to Counterclaim is pleaded and put forward expressly as a ‘claim’.  The term “Claim” is defined very broadly (see above) and the Claimant is in this context purporting to make a Claim in respect of certain unbilled cost.

246         However, the second issue is a broader issue because, on any sensible analysis of the Respondent’s Defence and Counterclaim, as finally particularised in its Amended Full Particulars of Counterclaim dated 25 July 2018, what the Respondent is itself claiming and asserting is that, on the assumption that no Rates were agreed in relation to Staff and Supervision costs, it has paid out to the Claimant (substantially) more than cost as defined in the Contract.  Put another way, the Respondent is saying that, because the Claimant’s actual cost is (substantially) less than it has been paid for Staff and Supervision, it is entitled to be paid back by the Claimant the overpayment.  The second issue therefore involves determining, whether as a matter of construction of the LOA, the Claimant is prevented or constrained from running any defence to this claim by the Respondent to the effect that the total cost for Staff and Supervision is not as low as the Respondent is asserting.

247         The matter is confused by the fact that, latterly in the pleading process, in particular by way of the Amended Full Particulars of Counterclaim, the Respondent has put its case by reference to a report prepared by its accounting expert, Mr Meredith, which has identified only a limited number of elements of the total cost which, by way of his auditing process, suggest, the Respondent asserts, that demonstrably the Claimant’s cost has been less than has been paid to it.  This approach is one which proceeds on the assumption that all the other elements which go to make up the total overall Staff and Supervision cost were accurate.

248         Although the Claimant has not yet submitted a detailed response to this latest particularisation of the Counterclaim and has not finalised any accounting expert’s evidence on this, it would seek to assert that, in reality, its total cost, particularly looking at other elements of the Cost other than those examined by Mr Meredith and put forward by way of Counterclaim by the Respondent, is more than the Respondent is now suggesting.

249         In substance, this second issue revolves around whether or not such a defence to the Respondent’s Counterclaim is available or has been excluded or limited by the LOA.

250         Members of the Tribunal differ on this issue.  The majority view is set first, followed by the dissenting view.

My observations

  1. Particular attention should be directed to par 246, which contains a helpful synthesis of the position at the time of the reasons underlying the first interim award.  I reiterate the relevant portion as follows:

Put another way, the Respondent [Chevron] is saying that, because [CKJV’s] actual cost is (substantially) less than it had been paid for Staff and Supervision, it is entitled to be paid back by the Claimant the overpayment.

  1. I also highlight that a phrase used vis-à-vis CKJV (at par 248) that ‘it would seek to assert that, in reality, its total cost, particularly looking at other elements of the Cost … is more than [Chevron] is now suggesting’.

Paragraphs 251 to 260

Majority View – Presiding Arbitrator Akenhead and Arbitrator Greenham

251         The majority of the Tribunal is of the view that what has not been excluded by the LOA is any proper defence which can be mounted by the Claimant to what the overall cost of the Staff and Supervision has been.  It is not limited simply to defending what the Respondent says are relevant elements of the total cost.  The reasons are as follows:

(a)          The ‘Settlements and Amendments to the Agreement’ section of the LOA specifically addresses, first, settlement of Claims by CKJV (paragraph B.1), secondly, waiver and release of Claims by Chevron (paragraph B.2) and waiver and release of CKJV Claims (Paragraph B.3)).

(b)          Primarily, the Respondent relies on Paragraph B.3 to argue that the Claimant cannot raise any arguments about the total cost of Staff and Supervision other than those which specifically go to the elements of cost relied upon by the Respondent to prove that the total cost was less than has been paid.

(c)          However, although the definition of ‘Claims’ is broad (see above), what Paragraph B.3) is concerned with is Claims by the Contractor.  There is nothing in Paragraph B.3) which involves any waiver or release of any proper or substantive defence (as opposed to Claim) which the Claimant may have against any Claim which the Respondent is permitted by the LOA to pursue.

(d)          As a matter of commercial common sense as well as the matter of ordinary construction, clear wording would be required in the circumstances to exclude rights of defence to the Respondent’s Claims (to the extent that they can be pursued by the Respondent).  There is no such clear wording or indeed any wording which suggests that any defences as to the Respondent’s Claims for overpayment of cost of Staff and Supervision are excluded or limited.

(e)          A good example is the expressly reserved entitlement on the part of Chevron to recover amounts ” … arising out of or in connection with … “ the findings of Audit Inquiries 6 and 10 (amongst others), at paragraph B.2)c)(ii) of the LOA.  The material background to the LOA in this context is that these Inquiries had not been resolved at the date of the LOA and it would be an extraordinary state of affairs if in the next contractual breath all rights on the part of CKJV to defend itself against any Claims to be made by Chevron again [sic] it were being excluded.

(f)          It cannot have been within the contemplation of the parties at the time of the LOA that, in effect, Chevron could secure, simply by the way that it decided ultimately in later proceedings to limit its area of challenge to a relatively few elements of the overall cost, that the only defence available to CKJV to a Claim by it for overpayment in relation to cost could be by way of mounting challenges only to the few elements selected by Chevron.  This would also, counter-intuitively, mean that CKJV could not challenge the underlying presumption in Chevron’s Counterclaim that, apart from those elements of cost which it had selected for review and challenge, the substantial remainder of the total cost paid was accurate and binding.

252         The majority of the Tribunal therefore finds that the Claimant may in principle bring into account by way of defence, in these proceedings, the amounts particularised in Appendix 1 to its Defence to Counterclaim (MSC.010.007.0001) and indeed any other amounts of cost which it seeks to prove have not yet been accounted for in what it has been paid.

  1. That view may be contrasted with a dissenting view of Arbitrator Pullin  upon what was, in effect, issue 5 as stated by the Tribunal under the first interim award.

Dissenting view – Arbitrator Pullin

253         Unquestionably, absent Paragraph B.3) of the LOA, the exercise to be carried out in a reconciliation or in an audit would be for Chevron to determine what had been paid by Chevron and to compare that with what had been spent by CKJV on salaries.

254         In that process, if it were revealed that CKJV had overlooked claiming some Staff salary expense actually incurred it could claim for what had been overlooked.

255         There was an example of this given in the evidence to the tribunal.  This occurred when an audit revealed that CKJV had overlooked $1.6 million of expenses.  Chevron invited CKJV to make such a claim by raising an invoice, which it did.

256         However, Paragraph B.3) of the LOA now prevents that from happening.  If at the date of the LOA CKJV could have, but had not claimed or invoiced for some item of expense (Direct Cost) than it had lost the right to do so.  It ‘waived and released’ Chevron from any such claim.  If the claims in Appendix 1 to the SOC (MSC.010.007.0001) arose out of circumstances before the LOA was signed then they have been waived and cannot be now raised in any audit conducted after the date of LoA [sic].

257         That result can be tested in this way.  If CKJV had, on the day after the LOA was signed, produced an invoice claiming the $49 million it claims as a set off in Appendix 1 to the DCC (MSC.010.007.0001) CKJV’s waiver in the LOA could have been successfully set up as a defence to such claim.  That is surely unarguable.  It is therefore impossible to sustain CKJV’s assertion which is, in effect, that just because Chevron has decided to carry out an audit that the waived claim springs back to life and can be raised as a claim to defeat a part of the amount Chevron claims as an overpayment.

Counterclaims – Liability

258         In the Respondent’s Amended Defence and Counterclaim it alleges a number of errors or overpayments in relation to Staff.  These are said to be described in a series of reconciliations (ADCC [149]).

259         Given the findings and dismissal of the Tribunal in relation to the absence of an agreement to convert Cost items to Rate items and in relation to the absence of an estoppel (refer to Paragraphs 61. 76, 77 and 89 above) in the context of Staff and Supervision, there is no impediment, by reason of such an agreement or estoppel, to the Respondent pursuing the claims set out in the ADCC.

260         The claims the subject of the ADCC, the quantification of those claims (and the ability of the Claimant to challenge the quantification of those claims, having regard to the finding in Paragraph 252) will be the subject of the second hearing.

 

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

 

RC

Associate to the Honourable Justice Martin

 

28 SEPTEMBER 2021

 

Manchester City Football Club Ltd v Football Association Premier League Ltd and others [2021] EWCA Civ 1110

 

 

Manchester City Football Club Ltd v Football Association Premier League Ltd and others [2021] EWCA Civ 1110

 

Judge(s): SIR GEOFFREY VOS

THE MASTER OF THE ROLLS

– and –

SIR JULIAN FLAUX

THE CHANCELLOR OF THE HIGH COURT

– and –

LORD JUSTICE MALES

Case Number: A4/2021/0615 & A4/2021/0617
Case Name: Manchester City Football Club Ltd v Football Association Premier League Ltd and others [2021] EWCA Civ 1110
Medium Neutral Citation: [2021] EWCA Civ 1110
Date of Order: 20 July 2021
Date of Hearing: 30 June 2021
Court: Court Of Appeal (Civil Division) [ENGLAND]
Division: Civil
Registry: Royal Courts of Justice

Strand, London, WC2A 2LL

Parties: MANCHESTER CITY FOOTBALL CLUB LTD

Appellant

 

– and –

 

THE FOOTBALL ASSOCIATION PREMIER LEAGUE LTD & OTHERS

Respondent

Representation: Lord Pannick QC, Paul Harris QC and David Gregory (instructed by Clifford Chance LLP) for the Appellant

&

Adam Lewis QC and Andrew Hunter QC (instructed by Bird & Bird LLP) for the Respondents (by written submissions only)

Appealed From: [2021] EWHC 711 (Comm)

 

JUDGMENT

Sir Julian Flaux C:

Introduction

  1. Manchester City Football Club Limited (“the Club”) appeals, with the permission of Males LJ granted on 14 April 2021, against the Order of Moulder J dated 23 March 2021 that her Merits Judgment and Publication Judgment (as defined hereafter) should be published other than to the parties. The appeal concerns the circumstances in which judgments of the Court on applications under sections 67 and 68 of the Arbitration Act 1996 (“the Arbitration Act”) should be published or should remain private, applying the principles set out by this Court in City of Moscow v Bankers Trust[2004] EWCA Civ 314; [2005] QB 207 (hereafter “City of Moscow”). There is also a preliminary question as to whether, given the terms of the relevant provisions of the Arbitration Act, this Court has jurisdiction to hear the present appeal, permission to appeal against the Order of 23 March 2021 having been refused by the judge.

Factual background

  1. The Football Association Premier League Limited (“the PL”) is a company in which the shareholders are the clubs playing in the Premier League in a particular season (“the member clubs”). The relationship between the PL and the member clubs is governed by the articles of association and the Rules of the PL (“the Rules”).
  2. In December 2018, the PL commenced a disciplinary investigation into the Club after allegations about the Club appeared in various European media reports which disclosed details of confidential documents obtained from a hack of the Club’s email servers. The PL contends that the media reports contain information suggesting breaches of the Rules by the Club. During the course of its investigation, the PL requested information and documents from the Club (including copies of various documents identified in those media reports) under Rule W.1. The Club objected to disclosure of that material.
  3. The allegations in the media reports led to The Union of European Football Associations (“UEFA”) commencing on 7 March 2019 a formal investigation into the Club over alleged breaches of UEFA’s financial fair play (“FFP”) regulations.
  4. The following day, 8 March 2019, the PL announced that it had also commenced an investigation into the same allegations, releasing the following statement:

“The Premier League has previously contacted Manchester City to request information regarding recent allegations and is in ongoing dialogue with the club. The league has detailed financial regulations and strong rules in the areas of academy player recruitment and third-party ownership. We are investigating and will allow Manchester City every opportunity to explain the context and detail surrounding them.”

  1. Subsequent developments in the UEFA investigation have been widely reported in the media and have been publicly commented on by both the Club and the PL. That investigation initially led to the Club being banned from UEFA’s European club competitions for two years as well as being fined €30 million, but the ban was overturned and the fine reduced to €10 million by a tribunal in the Court of Arbitration for Sport (“CAS”) in July 2020. It has been reported that, whilst the CAS tribunal held that the most serious allegations against the Club could either not be proved or were time barred, the reduced fine was upheld on the basis that the Club had breached UEFA’s regulations by failing to co-operate with the investigation.
  2. Apart from the PL’s statement on 8 March 2019, neither the PL nor the Club has publicly commented on the PL’s investigation. By a letter dated 18 July 2019 to the Club’s then solicitors, the PL’s solicitors confirmed that the investigation process was confidential and both parties had made strenuous efforts to ensure that this was so, for example by the use of secure file transfer technology.
  3. On 21 August 2019, the PL issued a disciplinary complaint against the Club under Section W seeking disclosure of certain documents and information. A Commission was appointed pursuant to Rule W.21, but its composition and the disciplinary system were challenged by the Club as not sufficiently independent or impartial. Although the PL proposed an ad hoc procedure for the appointment of a new Commission, the Club objected.
  4. By a request dated 22 October 2019, the PL then commenced an arbitration against the Club under Section X of the Rules seeking a declaration and/or determination that the Club was obliged to provide the PL with requested documents and information and an order for specific performance of the Club’s contractual obligation to deliver up documents and information which were being withheld. Under Rule X.8 then in force, the PL provided a list of people who were on a panel from which arbitrators were to be appointed (“the Panel”). The Club appointed John Machell QC from the Panel and the PL Daniel Alexander QC, and, in accordance with the Rules, the two arbitrators then appointed a chairman, Philip Havers QC.
  5. The Club challenged the jurisdiction of the arbitrators, submitting to the tribunal that, on a proper construction of the Rules, the PL had no power to institute a Section X arbitration in respect of its information claim. Accordingly it was submitted that the tribunal lacked substantive jurisdiction and the arbitration could not proceed. It was also submitted that the tribunal did not have the appearance of impartiality.
  6. On 6 February 2020, the Rules relating to the disciplinary and dispute resolution procedures were amended at a meeting of the shareholders.
  7. By its Award dated 2 June 2020, the arbitration tribunal rejected the Club’s challenge to its jurisdiction and impartiality and held that it had substantive jurisdiction to hear the PL’s claim and that it did not lack the appearance of impartiality.
  8. On 26 June 2020, the Club then issued an application by an Arbitration Claim in the Commercial Court contending that:

(1) the tribunal lacked jurisdiction because, on the true construction of the Rules, the PL did not have the power to institute the arbitration under Section X (“the Section 67 Challenge”);

(2) the tribunal was tainted with apparent bias due to the process for appointment and reappointment to the Panel from which arbitrators could be appointed to tribunals for arbitrations instituted under Section X (“the Section 68 Challenge”); and

(3) the arbitrators should accordingly be removed under section 24 of the Arbitration Act.

  1. Before that application was heard, the arbitration continued. On 24 July 2020, the tribunal rejected the Club’s arguments resisting the PL’s case that it was under an obligation to provide certain documents and information to the PL. Accordingly, on 2 November 2020, the tribunal ordered the Club to provide certain documents and information to the PL and to make enquiries of third parties. That order was stayed pending the hearing of the Club’s application to the Commercial Court.
  2. The hearing of the Club’s application before the judge on 1 and 2 March 2021 was in private pursuant to CPR 62.10. In her judgment dated 17 March 2021 (“the Merits Judgment”) the judge dismissed the application. In relation to the Section 67 Challenge, she concluded that the language of Rule X.2 which permitted “all disputes” to be referred to arbitration is not limited by Section W of the Rules (which concern the powers of the PL to deal with suspected or alleged breaches of the Rules). In relation to the Section 68 Challenge she concluded that applying the decision of the Supreme Court in Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48 (hereafter “Halliburton”), the matters relied on by the Club (the remuneration of the arbitrators from being on the Panel, the process by which they were appointed to the Panel under the Rules and the control by the PL over reappointment, so the arbitrators lacked security of tenure) did not satisfy the test that a fair minded and informed observer would conclude that there was a real possibility that the arbitrators were biased. Accordingly the section 24 application was also dismissed.
  3. By her Order dated 17 March 2021, the judge dismissed the Arbitration Claim and refused permission to appeal to the Court of Appeal, giving as her reasons: (i) that the construction issue was decided on the basis of the application of the principles in Wood v Capita Insurance Services Ltd [2017] UKSC 24; (ii) that there was no other compelling reason for an appeal as the implications for other clubs was limited since as members of the PL they collectively had power to change the Rules and (iii) that the issue of apparent bias had been decided applying the test of general application approved and having regard to the features of arbitration identified by the Supreme Court in Halliburton.

The judgment under appeal

  1. When the judge sent out the draft of the Merits Judgment to the parties to provide typographical corrections, the covering email indicated that she was minded to publish that judgment. Both parties provided written submissions on the issue of publication and indicated that they were content for the judge to deal with the issue on the papers without the need for a further hearing. Both parties opposed publication, albeit the PL did so subject to an important caveat or condition to which I will return.
  2. By the Publication Judgment dated 24 March 2021, the judge rejected those submissions opposing publication and determined that the Merits Judgment should be published. Having set out the parties’ submissions, at [11] she summarised the key principles relevant to the case before her derived from the judgment of Mance LJ (as he then was) in City of Moscow. It was not suggested by Lord Pannick QC on behalf of the Club that this summary of the principles by the judge was inaccurate:
  3. i) “Whatever the starting point or actual position during a hearing [in other words even if the hearing is in private under CPR 62.10], it is, although clearly relevant, not determinative of the correct approach to publication of the resulting judgment” (at [37]).
  4. ii) “Further, even though the hearing may have been in private, the court should, when preparing and giving judgment, bear in mind that any judgment should be given in public, where this can be done without disclosing significant confidential information. The public interest in ensuring appropriate standards of fairness in the conduct of arbitrations militates in favour of a public judgment in respect of judgments given on applications under s.68. The desirability of public scrutiny as a means by which confidence in the courts can be maintained and the administration of justice made transparent applies here as in other areas of court activity under the principles of Scott v. Scottand article 6. Arbitration is an important feature of international, commercial and financial life, and there is legitimate interest in its operation and practice…” (at [39] emphasis added [by the judge]).

iii) “The factors militating in favour of publicity have to be weighed together with the desirability of preserving the confidentiality of the original arbitration and its subject-matter” (at [40]).

  1. iv) A party inviting the court to protect evidently confidential information about a dispute must not necessarily prove positive detriment, beyond the undermining of its expectation that the subject-matter would be confidential (at [46]).
  2. In the Discussion section of her judgment the judge then considered whether publication would lead to disclosure of “significant confidential information”. She noted that the first such piece of confidential information identified by the Club was the existence of a dispute concerning the PL’s request for documents and information. The judge considered this could not be considered “significant” confidential information for two reasons. First, as a result of the PL’s public statement in March 2019 (as quoted in [5] above), the existence of the investigation had been in the public domain for some time. Whilst it was not in the public domain that the PL had requested documents and information and that the Club had resisted the request, the judge considered that any reasonable reader of the public statement would be likely to infer that the investigation might involve the production of documents and information so that she considered that it was difficult to see how it could be viewed as “significant” confidential information.
  3. Second, she considered that the Merits Judgment did not contain any significant details relating to the disclosure dispute: the judgment does not state the nature of the documents and information requested or the significance of those documents and information to the wider investigation and it does not state the outcome of the arbitration other than on procedural matters.
  4. The judge said at [14] that the only confidential information that would be disclosed is the existence of the dispute and the arbitration. Where it was already public knowledge that the underlying investigation was taking place, she did not regard that confidential information as significant. At [15] she noted: “the desirability of preserving the confidentiality of the original arbitration and its subject-matter” referred to at [40] of City of Moscow, but said that there was nothing about the details of the underlying dispute in the Merits Judgment. At [16], she said that, whilst the expectation of the parties of confidentiality in arbitration was a factor to be taken into account, it was not determinative, even where both parties are opposed to publication.
  5. The judge went on to consider whether publication would result in real prejudice or significant detriment to the Club, whilst accepting that it was not necessary for the Club to prove detriment. She considered that, given that the investigation into the alleged breach of the Rules was already public knowledge, although publication of the Merits Judgment might attract media interest it was difficult to see any detriment. She took into account the Club’s legitimate interest in ensuring that a fair procedure was followed and noted that, whilst the Merits Judgment made reference to the PL’s submission that the Club’s challenge was tactical, it also set out the Club’s submissions in response and that neither the tribunal nor the Merits Judgment made such a finding. Whilst the Club may wish to avoid further media attention regarding the investigation, it was difficult to see any real prejudice from disclosure of the existence of the dispute as to production of documents and information.
  6. The Club had also submitted that public comment and press speculation would prejudice the future investigation. The judge said it was difficult to see how that could arise when the investigation was carried out by the PL, which was already privy to the information said to be confidential and should a Commission or Appeal Board be appointed under the Rules as now amended those appointments were made by a senior judicial figure. If the matter went to arbitration, the arbitrators had each to be a “Suitably Qualified Person”, that is a barrister or solicitor of 10 years standing and “independent of the party appointing him and able to render an impartial decision” (Rule X.10). The judge could not see how public comment or press speculation would undermine the independence of these individuals and prejudice the future investigation.
  7. In conclusion at [19], the judge said it was desirable for any judgment to be made public in order to ensure public scrutiny and the transparent administration of justice providing “this can be done without disclosing significant confidential information”. The confidential nature of arbitration had to be weighed against the public interest in ensuring appropriate standards of fairness in the conduct of arbitrations. She concluded at [20]-[21] that the desirability of public scrutiny and the transparent administration of justice outweighed the competing considerations against publication so that the Merits Judgment ought to be published.
  8. On 26 March 2021, the judge refused permission to appeal against the Publication Judgment. She held that she had applied the principles in City of Moscowand neither taken account of irrelevant matters nor failed to take account of relevant matters. She said at [14] that in her view the Club had a right to make an application for permission to appeal against the Publication Judgment to the Court of Appeal, because it was neither an appeal under section 67 nor section 68 of the Arbitration Act which would be precluded by the terms of respectively section 67(4) and section 68(4). The policy considerations of finality of arbitration did not appear relevant to the separate issue of publication of a judgment and the appeal would not be concerned with the substantive issue dealt with in the Merits Judgment. There was some support for this conclusion from the authorities relied upon by the Club.
  9. The judge granted a stay for seven days so that the Club could make an application for permission to appeal to the Court of Appeal.

The grounds of appeal

  1. The Club puts forward two grounds of appeal:
  2. i) First, the Judge erred by ordering the publication of the Judgments.
  3. ii) Second, in the alternative, the Judge erred by failing to stay publication of the Judgments pending the conclusion of the PL’s investigation.
  4. On 20 April 2021, Males LJ granted permission to appeal on both grounds on the assumption that the Court of Appeal had jurisdiction to do so, saying that whether the Court of Appeal had such jurisdiction was a point of general importance which it was appropriate for this Court to consider. He also ordered that the appeal should be heard in private, that the papers in the appeal should be confidential and not made available to anyone other than the parties and he continued the stay on publication granted by the judge until the conclusion of the appeal.
  5. In the circumstances, I will consider first the issue of jurisdiction. Before doing so, I should refer to the fact that, on the eve of the hearing of the appeal, Associated Newspapers Limited (publishers of the Mail on Sunday) made an application for one of their journalists, Mr Dan Matthews, to be present at the hearing and to be provided with copies of the judgments of Moulder J and the parties’ skeleton arguments, to enable them to understand and to scrutinise the process of the Court. Lord Pannick QC resisted this application on the basis that the hearing was in private and the subject-matter was confidential. However, we acceded to the application, upon Associated Newspapers Limited and Mr Mathews giving undertakings (which they were willing to give) not to publish or disclose the judgments or the skeleton arguments without further Order of the Court and on the basis that the hearing of the appeal remained private.

Jurisdiction

  1. The consequence of the judge’s refusal of permission to appeal against the Merits Judgment in her Order of 17 March 2021 was that this Court has no jurisdiction to entertain an appeal against the Merits Judgment. This is the effect of sections 67(4), 68(4) and 24(6) of the Arbitration Act, each of which provides: “The leave of the court is required for any appeal from a decision of the court under this section.” Lord Phillips MR, giving the leading judgment of the Court of Appeal in Athletic Union of Constantinople v National Basketball Association (No 2)[2002] EWCA Civ 830; [2002] 1 WLR 2863, held at [12] that “the court” in the sections means the Commercial Court (which was the court that made the decision in that case) saying:

“(4) Sections 67, 68 and 69 demonstrate a consistent legislative policy that no appeal shall be made against the decision of a court without the permission of that court. In this respect, there is no logical reason for distinguishing between the effects of sections 67(4) and 68(4) on the one hand, and the effect of section 69(8) on the other hand.

(5) In reserved judgments, this court has recently unanimously held that, on the true construction of section 69(8), a party who wishes to appeal from the decision of the High Court or the county court on appeal from an arbitration award requires the permission of the High Court or the county court, as the case may be, and that the Court of Appeal has no jurisdiction either to grant permission itself or to review a refusal of the High Court or county court to grant permission: (see Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd [2001] 1 QB 308). Much of the reasoning of Waller LJ, who gave the leading judgment in that case, can be applied to section 67(4).”

  1. Lord Pannick QC accepted that the jurisdiction of the Court of Appeal to hear an appeal from a decision under one of those sections was restricted to cases where the Court at first instance had granted permission to appeal, but submitted that the separate issue of an appeal against an Order for publication of the Merits Judgment was not within that restriction for three reasons.
  2. First, as a matter of language of the statutory provisions, taking section 67(4) as the example, what was being referred to was an appeal from a decision as to the substantive jurisdiction of the arbitration tribunal under section 67. An appeal against a decision to publish a decision under section 67 was not itself a decision under section 67. Second, this conclusion was supported by the policy reason for the restrictions in each of these sections, which was to limit further appeals because they would lead to delay in the resolution of a dispute decided by arbitration. This policy reason was explained cogently by May LJ in Amec Civil Engineering Ltd v Secretary of State for Transport[2005] EWCA Civ 291; [2005] 1 WLR 2339 at [9]:

“Mr Robert Akenhead QC was appointed arbitrator. He is a specialist leading counsel with wide experience of construction contract matters. He rejected Amec’s contentions that he had no jurisdiction because the notice of arbitration was ineffective. He also rejected their contention as to the limited scope of the arbitration. Amec appealed against this decision under section 67 of the 1996 Act. On 11th October 2004, Jackson J, sitting in the Technology and Construction Court, dismissed Amec’s appeal in a persuasive judgment. He gave Amec leave to appeal to this court, his leave being a necessary precondition of such an appeal under section 67(4) of the 1996 Act. I am not convinced that he was right to do so. The policy of the 1996 Act does not encourage such further appeals which in general delay the resolution of disputes by the contractual machinery of arbitration. The judge and Mr Akenhead had reached the same conclusion for substantially the same reasons. Their combined experience and authority was, I think, sufficient to conclude the matter without an expensive second appeal.”

  1. Lord Pannick QC submitted that to recognise that this Court has jurisdiction in respect of the appeal against the Publication Judgment would not impede that policy objective. The appeal would not delay the ongoing arbitration process which would continue to take place in private. It was not suggested by the PL that the appeal against the Publication Judgment would impede the investigation.
  2. Third, Lord Pannick QC submitted that the conclusion that the Court did have jurisdiction to hear this appeal was supported by previous judicial decisions. He relied primarily on the analysis of section 18(1)(g) of the Senior Courts Act 1981 by the House of Lords in Inco Europe Ltd v First Choice Distribution[2000] 1 WLR 586. Section 18(1)(g) provides: “No appeal shall lie to the Court of Appeal: …(g) except as provided by Part I of the Arbitration Act 1996 [Part I includes sections 24 and 67 to 69], from any decision of the High Court under that Part.”
  3. In that case, the defendants applied to stay an action under section 9 of the Arbitration Act on the basis that the parties had agreed to refer the relevant dispute to arbitration. The judge at first instance held that the arbitration agreement was null and void and refused a stay. He also refused leave to appeal on the ground that, under section 18(1)(g) of the Senior Courts Act 1981, the Court of Appeal did not have jurisdiction to entertain an appeal against the grant or refusal of a stay in favour of arbitration. The Court of Appeal granted permission to appeal and allowed the appeal on the basis that the judge should have granted a stay. The House of Lords refused a further appeal, holding that the Court of Appeal had jurisdiction to hear the appeal. Lord Pannick QC referred in particular to what Lord Nicholls of Birkenhead said at 592A-C:

“I am left in no doubt that, for once, the draftsman slipped up. The sole object of paragraph 37(2) in Schedule 3 was to amend section 18(1)(g) by substituting a new paragraph (g) that would serve the same purpose regarding the Act of 1996 as the original paragraph (g) had served regarding the Act of 1979. The language used was not apt to achieve this result. Given that the intended object of paragraph 37(2) is so plain, the paragraph should be read in a manner which gives effect to the parliamentary intention. Thus the new section 18(1)(g), substituted by paragraph 37(2), should be read as confined to decisions of the High Court under sections of Part I which make provision regarding an appeal from such decisions. In other words, ‘from any decision of the High Court under that Part’ is to be read as meaning ‘from any decision of the High Court under a section in that Part which provides for an appeal from such decision’.”

  1. Lord Pannick QC also relied on the decision of the Court of Appeal in Virdee v Virdi[2003] EWCA Civ 41. In that case, this Court held that it had no jurisdiction in relation to the appointment of arbitrators by the Court under section 18 of the Arbitration Act (subsection (5) of which contains the same limitation on the right of appeal as the sections relied upon here) where the judge had refused permission to appeal. However, it held that it did have jurisdiction in respect of other orders the judge had made as to whether legal representation was allowed and as to costs between the parties, since the relief sought did not fall within any of the sections of the Arbitration Act.
  2. Lord Pannick QC recognised that Virdeewas of little if any precedential value, since only one party was present at the hearing and he was not legally represented. Brooke LJ said at [4]:

“Given that we have not had the benefit of counsel’s arguments on both sides, although we have had access to the material to which I have referred, this case should not be regarded as binding precedent in the sense that, if the matter comes before the court again, the court should not have the opportunity of considering it and hearing full argument on it free from the shackles of precedent. In all the circumstances, however, we must, of course, deal with the point now on the material which is in front of us.”

  1. Lord Pannick QC also relied upon the decision of the Court of Appeal in Peel v Coln Park LLP[2010] EWCA Civ 1602, which was an application for permission to appeal against a refusal by the judge at first instance to extend the 28-day period for challenging an award under section 70(3) of the Arbitration Act. Again that case is of little precedential value since counsel for the respondents conceded that there was jurisdiction to grant permission to appeal, although Longmore LJ thought this must be right saying at [13]:

“that must be right since section 80(5) of the 1996 Arbitration Act requires that rules of court relating to extending periods of time apply in relation to any time requirement, and so we have the slightly paradoxical situation that, whereas the refusal of the judge at first instance on a matter of substance under section 68 or section 69 cannot be reconsidered by this court, an application of a preliminary nature for extension of time is apparently a matter which can be reconsidered by this court.”

  1. Citation of those cases provoked a debate between counsel and the Court as to where the line was to be drawn between decisions which would be caught by the limitation on the right of appeal in the relevant section of the Arbitration Act and decisions which would not. Lord Justice Males posited the example of a case management decision about how a section 68 application should be dealt with. As I said at the time, that would seem to be an example of something which is part of the process of reaching a decision under section 68, so would be caught by the limitation on the right of appeal. The Master of the Rolls suggested to Lord Pannick QC that a consequential decision on a section 68 application, for example as to costs, would also be caught by the limitation.
  2. Lord Pannick QC made it clear that he was not inviting this Court to lay down any general principles applicable in every case, but only to determine that this Court had jurisdiction to hear the appeal from the Publication Judgment. I agree that it is not necessary for present purposes to determine the more difficult question whether case management decisions either side of the substantive decision under, say, section 67 or 68, for example as to how a hearing is to be conducted or as to costs, would be caught by the limitation in sub-section (4) of each section. Whilst such case management decisions may be said to be part of the process of reaching the substantive decision, the question whether the substantive decision should be published is a distinct question separate from the decision itself. In the present case, the judge’s decision that the Merits Judgment and the Publication Judgment should be published was an application of common law principles as set out in the decision of this Court in City of Moscow. It was not a decision of the Court under sections 24, 67 or 68 and was, therefore, not caught by the limitation on the right of appeal. In those circumstances, I am satisfied that this Court has jurisdiction to hear this appeal under section 16 of the Senior Courts Act 1981 and that the restriction in section 18(1)(g) of that Act is not applicable.

The parties’ submissions on the appeal

  1. In addition to the passages in the judgment of Mance LJ in City of Moscowto which the judge referred, Lord Pannick QC referred the Court to [28], [30]-[32] and [34]. For present purposes it is only necessary to set out [32] and [34]:

“32. The rule makers clearly deduced from the principles of the Arbitration Act 1996 that any court hearing should take place, so far as possible, without undermining the reasons of inter alia privacy and confidentiality for which parties choose to arbitrate in England. Their conclusion in this regard has not been challenged. It may be justified on the simple basis that arbitration represents a special case, in relation to which there has been very considerable development during recent years. An alternative and overlapping consideration is that parties may be deterred from arbitrating or at any rate from invoking the court’s supervisory role in relation to arbitration if their understanding regarding arbitral confidentiality and privacy is ignored. I would personally doubt whether it can be said without any positive evidence that the publication that has in the past frequently followed applications to set aside arbitration awards, e.g. for misconduct, has itself been likely to be detrimental to parties’ keenness or otherwise to agree to arbitrate in London. But I find it easier to accept that, having arbitrated unsuccessfully here, a party could well be deterred from making an arbitration claim in court if there was a risk that by doing so really confidential matters might be disclosed.

  1. The consideration that parties have elected to arbitrate confidentially and privately cannot dictate the position in respect of arbitration claims brought to court under CPR 62.10. CPR 62.10 therefore only represents a starting point. Such proceedings are no longer consensual. The possibility of pursuing them exists in the public interest. The courts, when called upon to exercise the supervisory role assigned to them under the Arbitration Act 1996, are acting as a branch of the state, not as a mere extension of the consensual arbitral process. Nevertheless, they are acting in the public interest to facilitate the fairness and well-being of a consensual method of dispute resolution, and both the Rule Committee and the courts can still take into account the parties’ expectations regarding privacy and confidentiality when agreeing to arbitrate.”
  2. Lord Pannick QC accepted that the judgment of Mance LJ demonstrates that, in each case, in considering whether a judgment should be published, it is a question of weighing confidentiality and any detriment to the parties from publication against the public interest in publication, particularly where the judgment raises matters of some general importance.
  3. He submitted that the circumstances in which an appellate court can interfere with an evaluative judgment by a lower court are accurately set out by Lord Carnwath JSC in R (AR) v Chief Constable of Greater Manchester police[2018] UKSC 47; [2018] 1 WLR 4079 at [64]:

“In conclusion, the references cited above show clearly in my view that to limit intervention to a “significant error of principle” is too narrow an approach, at least if it is taken as implying that the appellate court has to point to a specific principle – whether of law, policy or practice – which has been infringed by the judgment of the court below. The decision may be wrong, not because of some specific error of principle in that narrow sense, but because of an identifiable flaw in the judge’s reasoning, such as a gap in logic, a lack of consistency, or a failure to take account of some material factor, which undermines the cogency of the conclusion. However, it is equally clear that, for the decision to be “wrong” under CPR 52.11(3), it is not enough that the appellate court might have arrived at a different evaluation. As Elias LJ said (R (C) v Secretary of State for Work and Pensions [2016] EWCA Civ 47; [2016] PTSR 1344, para 34):

“… the appeal court does not second guess the first instance judge. It does not carry out the balancing task afresh as though it were rehearing the case but must adopt a traditional function of review, asking whether the decision of the judge below was wrong.””

  1. Lord Pannick QC submitted that there had been errors of principle by the judge in her evaluation. As she had indicated in refusing permission to appeal the Merits Judgment, she had applied the principles in Halliburtonand there was no novelty in her decision, so there was no question of the judgment requiring publication.
  2. In [5] of his Reasons for granting permission to appeal, Males LJ had said that it was arguable that the question dealt with in the Merits Judgment whether, at least until the Rules changed in February 2020, the system for appointing arbitrators in disputes involving the Premier League was structurally biased, was itself a matter of some public interest telling in favour of publication. Lord Pannick QC sought to counter this by submitting that the judge had decided the issue by applying the principles in Halliburtonand, in any event, this would only be of historical interest because the Rules had changed and appointment of arbitrators was now made by an independent chair. The Club’s complaint had been specific to its case.
  3. In relation to her determination that publication would not involve disclosure of significant confidential information, the judge had referred to the public statement by the PL as reported in the Times on 8 March 2019. For completeness, it was pointed out that there had been a recent article in the New York Times on 4 May 2021 about the dispute. This said, inter alia:

“City [the Club] has spent millions of dollars defending itself since the allegations first emerged. Its lawyers are fighting against the [PL]’s arbitration process, arguing that the club will not get a fair hearing, according to documents. The [PL] did not reply to a request for comment.”

Essentially the same story was reported in the Mail Online the same day.

  1. Lord Pannick QC submitted that, notwithstanding the publication of these three articles, publication of the Merits Judgment would disclose that there was a decision in the arbitration at an early stage, when the parties had a reasonable expectation of confidentiality being maintained. What was not publicly known was that the Club had argued that there was no power to arbitrate the particular dispute under the Rules and that there was apparent bias. All of that was confidential and publication would tell the world what was going on and why, in circumstances where the arbitration was not concluded. Lord Pannick accepted the point made by the judge at [13(ii)] of her judgment, summarised at [20] above, that the Merits Judgment does not contain any significant details of the substance of the disclosure dispute.
  2. However he submitted that the judge had not recognised that, contrary to her conclusions at [17] and [18], publication of the Merits Judgment will inevitably lead to extensive press comment and speculation in relation to a matter which had been confidential to date and which the parties were entitled to expect to remain confidential. The press would report whatever they could arising from the judgment and this would be prejudicial to the Club. It was contended that press comment and speculation could be prejudicial to the Club, for example in its dealings with commercial partners. The Club’s skeleton argument served on 6 May 2021 referred to it being in advanced negotiations regarding a potential deal, but Lord Pannick QC informed the Court on instructions that this was no longer the case. Such publicity and press speculation could also potentially disrupt the orderly conduct of the investigation by the PL.
  3. Lord Pannick QC submitted that the judge had erred in finding that publication would not involve disclosure of significant confidential information and in concluding that the Club would suffer no real detriment from publication. She had placed undue weight on the desirability of public scrutiny and therefore had erred in the performance of the relevant balancing exercise, so that it was open to this Court to interfere.
  4. If the Court were against the Club on the first ground of appeal, Lord Pannick QC pursued the second ground, which was that any publication should be stayed until the end of the disciplinary process, which would ensure that any wider public benefit from the publication of the Merits Judgment would accrue, but only at a time when it would not cause the Club and the PL harm in the context of the ongoing proceedings. Contrary to what Males LJ had said at [4] of his Reasons for granting permission to appeal, this alternative argument had been relied upon by the Club before the judge.
  5. The Club also relied upon the fact that its appeal is supported by the PL. The PL put in written submissions from Mr Adam Lewis QC and Mr Andrew Hunter QC, but they did not attend the hearing. They contended that the privacy of Section X arbitrations under the Rules was significant and in need of protection, although they recognised that this argument had been run unsuccessfully in the Commercial Court in Newcastle United Football Club Ltd v The Football Association Premier League [2021] EWHC 450 (Comm). The PL’s argument was that the substantive judgment of HHJ Pelling QC rejecting that club’s bias application should not be published, because the arbitration was pending and was confidential and there was no countervailing public interest justifying publication of the judgment, which raised no new point of law or practice. That argument was rejected by HHJ Pelling QC who ordered publication.
  6. The PL’s support for the Club’s position was conditional, however, on the Club’s agreement that any order as to privacy should be subject to an exception, that the PL should be entitled to rely upon the Merits Judgment in other relevant proceedings between it and other member clubs and to disclose it to such other member clubs as a clear confirmation by the Commercial Court that the PL is entitled to bring specific performance proceedings against member clubs under Section X of the Rules. The Club had agreed to this condition both before the judge and before this Court.

Discussion

  1. In my judgment, the judge made the correct evaluative assessment in ordering that the Merits Judgment and the Publication Judgment should be published, for a series of inter-related reasons.
  2. First, I agree with the judge that publication will not lead to disclosure of significant confidential information. What will be disclosed is the existence of the dispute and the arbitration in circumstances where it is already public knowledge that the underlying investigation by the PL is taking place and, as the judge said, the reasonable reader of the Times article would assume that the investigation would involve the production by the Club of documents and information. Furthermore, since the judge’s judgments, the existence of a dispute and of the arbitration is now in the public domain, as a consequence of the articles in the New York Times and the Mail Online. Specifically it is known that there is an arbitration in progress and that the Club is arguing that it cannot have a fair hearing (which would seem to be a non-lawyer’s interpretation of the allegation of apparent bias). Given what is now in the public domain, it is unreal to suggest that what will be disclosed by the publication of the Merits Judgment, namely the challenge to the jurisdiction of the arbitrators and the unsuccessful allegation of apparent bias, is in any sense significant confidential information. What will not be disclosed by the publication is any details of the substance of the underlying disclosure dispute.
  3. Second, I was not impressed with Lord Pannick QC’s argument that publication was not in the public interest because the Club’s complaint was specific to the Club’s case and, in any event, the judge had simply applied the principles recently confirmed by the Supreme Court in Halliburton. I consider that there is a legitimate public interest in how disputes between the PL and member clubs are resolved and, in particular, in the allegation of structural bias made by the Club which appears to have led to a change in the Rules. As HHJ Pelling QC said at [21] of his judgment in the Newcastle United case, there is a public interest in the publication of a judgment determining an application under section 24 of the Arbitration Act (in other words a judgment dealing with an allegation of apparent bias), because there is a public interest in maintaining appropriate standards of fairness in the conduct of arbitrations. This is so even if the judges determining such applications are applying the principles confirmed by Halliburtonrather than making new law. I also consider that there is a public interest in there being some explanation for the delay in the present case, where the investigation was made public as long ago as March 2019 but has hardly advanced since.
  4. Third, the fact that the PL supports the Club’s appeal so that both parties to the arbitration are opposed to publication is of some weight, but should lead to the Court being careful not simply to accept the parties’ wishes without scrutiny. As Sir Christopher Staughton said in Ex parte P (1998) (unreported) (as cited with approval by Lord Woolf MR giving the judgment of this Court in R v Legal Aid Board ex parte Kaim Todner [1999] QB 966 at 977, in turn cited by Mance LJ at [20] of City of Moscow): “When both sides agreed that information should be kept from the public, that was when the court had to be most vigilant”.
  5. Fourth, in so far as the Merits Judgment confirms the entitlement of the PL to claim specific performance against member clubs, it is of public interest and significance. This point is confirmed by the condition which the PL has imposed on its support of the appeal, that it should be free to rely on and disclose the Merits Judgment in other arbitration proceedings against other member clubs. This demonstrates that whatever interest the parties have in confidentiality is far outweighed by the public interest in the publication of an important judgment on the scope of Section X of the Rules. This point about the importance of the judgment is put clearly in the PL’s own skeleton argument for this appeal at [2]:

“It is correct that the Merits Judgment turned on the application of the normal rules of construction [of] a contract and the application of the undisputed bias test in Halliburton to the uncontested facts. However the specific and clear confirmation in it by the Commercial Court that the PL is entitled to bring specific performance proceedings against a member club under Section X of [the PL Rules] for enforcement of its contractual right to documents (and by parity of reasoning for enforcement of other contractual rights in the PL Rules), is of great significance in the future for the PL, for all member clubs and for practitioners. The PL was concerned before Moulder J, and remains concerned, that absent publication, this important Commercial Court guidance would not be available to those whom it might affect.”

  1. Whilst the desire of the PL to have the best of both worlds is commercially understandable, it is difficult to envisage a more eloquent demonstration as to why publication of the Merits Judgment is in the public interest.
  2. Fifth, I consider that the judge was right to view the Club’s case that publication would cause it prejudice or detriment with considerable scepticism. Given what is already in the public domain, disclosure of the existence of the dispute as to production of documents and information could hardly give rise to any prejudice or detriment to the Club. The suggestion that press interest and speculation might disrupt the investigation or the arbitration, where both are being conducted by experienced professionals is entirely fanciful. Likewise the suggestion that press comment and speculation following publication might damage the Club’s relations with commercial partners was unconvincing. As Lord Justice Males said during the course of argument, any potential commercial partner with whom the Club might enter a contract would be bound to conduct due diligence, which would reveal the existence of the investigation and the dispute.
  3. In all the circumstances, I consider that the judge was entirely correct to order publication of the Merits Judgment so that the first ground of appeal fails. Likewise, given that the public interest in publication outweighed any confidentiality, there was no good reason for deferring publication until after the conclusion of the disciplinary process so that the second ground of appeal also fails. This appeal must be dismissed.

Lord Justice Males:

  1. I agree that this appeal must be dismissed for the reasons given by the Chancellor. I add a few comments in view of the interest and importance of this case in ensuring the correct balance between the confidentiality of arbitration proceedings and the principle of open justice for court proceedings.
  2. As explained in City of Moscow, when considering whether a judgment on an arbitration claim should be published, with or without anonymisation, the court must weigh the factors militating in favour of publicity against the desirability of preserving the confidentiality of the original arbitration and its subject matter. In general, the imperative of open justice, involving as it does the possibility of public scrutiny as a means by which confidence in the courts can be maintained and the administration of justice can be made transparent, will require publication where this can be done without disclosing significant confidential information.
  3. In the present case Moulder J weighed the various considerations appropriately. Her conclusion that her judgment should be published was one which she was entitled to reach. It was not, in my view, a marginal decision. On the contrary, bearing in mind the careful way in which the judge expressed herself in the Merits Judgment in order to avoid revealing information about the underlying dispute, the balance here was clearly in favour of publication.
  4. That would be so even without the condition imposed by the Premier League that it should be free to rely on and disclose the Merits Judgment in other arbitration proceedings (see [57] above), a condition which the judge did not need to mention in the Publication Judgment (and of which I was not aware when granting permission to appeal). But in my judgment the imposition of that condition is fatal to this appeal. The compromise negotiated between the Club and the Premier League whereby the judgment would not be published, but would be available to the Premier League in the event of disputes with other clubs, is unacceptable. If the judgment is to be available as a potentially important precedent, it must be available to all.
  5. More generally, it seems to me that public scrutiny of the way in which the court exercises its jurisdiction to set aside or remit awards for substantial irregularity under section 68 of the 1996 Act is itself in the public interest. In City of MoscowMance LJ addressed a concern that publication of judgments would upset the confidence of the business community in English arbitration. He was sceptical about the extent to which, if at all, this would be so. I share his scepticism, for two reasons. First, the business community will see that, just as in this case, Commercial Court judges can be trusted to ensure that genuinely confidential information is not published. Second, publication of such judgments will confirm the pro-arbitration stance consistently taken by the English courts and thus will enhance the confidence of the business community in English arbitration. It will demonstrate that the section 68 gateway is a very narrow one, not only in theory but in practice, and that it is only in cases of real injustice that arbitral awards can be successfully challenged in the English courts.
  6. Finally, the Club has been anxious to emphasise before us that “the arbitral proceedings relate to an ongoing and confidential investigatory and disciplinary process which is still in its early stages”, and that it may be that no charges will ever be brought against it. While that may be true, it seems to me that this is, if anything, a factor which tells in favour of publication. This is an investigation which commenced in December 2018. It is surprising, and a matter of legitimate public concern, that so little progress has been made after two and a half years — during which, it may be noted, the Club has twice been crowned as Premier League champions.

The Master of the Rolls:

  1. I agree with both judgments.

 

 

TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83

 

TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83
Court: FEDERAL COURT OF AUSTRALIA
Case No: VID 1042 of 2012

VID 1043 of 2012

VID 1044 of 2012

Appeal from: Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No 2) [2012] FCA 1214
Parties TCL AIR CONDITIONER (ZHONGSHAN) CO LTD

v

CASTEL ELECTRONICS PTY LTD

DIVISION: GENERAL DIVISION
List:
JUDGE: ALLSOP CJ, MIDDLETON J & FOSTER J
WHERE HELD: Melbourne
DATE OF HEARING: 26 November 2013
DATE OF JUDGMENT: 16 July 2014
CASE MAY BE CITED AS: TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83
MEDIUM NEUTRAL CITATION: [2014] FCAFC 83
Catchwords: ARBITRATION – international commercial arbitration – where appellant sought the setting-aside and non-enforcement of an arbitral award under Arts 34 and 36 of the UNCITRAL Model Law on the ground that there had been a breach of the rules of natural justice and hence that the award was contrary to the public policy of Australia under s 19 of the International Arbitration Act 1974 (Cth) – where the alleged breach of natural justice was a supposed absence of probative evidence for the arbitrators’ factual findings – consideration of whether and when such an absence would constitute a breach of natural justice in an international arbitral context – interpretation of “public policy” and “natural justice” in this context – discussion of unfairness as the basic prerequisite for the setting-aside or non-enforcement of international arbitral awards – discussion of the operation of the discretion in Arts 34 and 36.

 

STATUTORY INTERPRETATION – where UNCITRAL Model Law was the product of international negotiations under the auspices of the United Nations – whether legislation implementing the Model Law in Australia should be construed in light of reasoned foreign decisions dealing with the Model Law – discussion of the importance of uniformity of approach.

Judgment: THE COURT ORDERS THAT:

1.           The appeal be dismissed with costs.

2.           Monies paid into Court to provide security for costs, pursuant to the orders of Tracey J of 26 February 2013, be released to the respondent.

Cases cited: AJU v AJT [2011] SGCA 41; [2011] 4 SLR 739
Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd [2004] 2 NZLR 614
Applicant M164/2002 v Minister for Immigration and Multicultural and Indigenous Affairs [2006] FCAFC 16
Armah v Government of Ghana [1968] AC 192
Atkinson v Hastings Deering (Queensland) Pty Ltd (1985) 71 ALR 93
Attorney General of Canada v S D Myers Inc [2004] 3 FCR 368
Attorney-General v Ryan [1980] AC 718
Australian Broadcasting Tribunal v Bond [1990] HCA 33; 170 CLR 321
Australian Gas Light Co v Valuer-General (1940) 40 SR (NSW) 126
Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139
Biggin & Co Ltd v Permanite Ltd [1951] 1 KB 422
Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969
Boardwalk Regency Corp v Maalouf (1992) 6 OR (3d) 737
Bushell v Secretary of State for the Environment [1981] AC 75
Callaghan v Williams C Lynch Pty Ltd [1962] NSWR 871
Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd [2012] FCA 21; 287 ALR 297
Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No 2) [2012] FCA 1214
Collins v Minister for Immigration and Ethnic Affairs (1981) 58 FLR 407
Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192: 157 FCR 45
Corvetina Technology Ltd v Clough Engineering Ltd [2004] NSWSC 700; 183 FLR 317
CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33; [2011] 4 SLR 305
Cullen v Welsbach Light Co [1907] HCA 3; 4 CLR 990
Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v Shell International Petroleum Co Ltd [1990] 1 AC 295
Downer-Hill Joint Venture v Government of Fiji [2005] 1 NZLR 554
Dranichnikov v Minister for Immigration and Multicultural Affairs [2003] HCA 26; 197 ALR 389
Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations [2011] FCAFC 88; 195 FCR 318
Emerald Grain Australia Pty Ltd v Agrocorp International Pte Ltd [2014] FCA 414
Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167
F Hoffman-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295
Ferguson v Cole [2002] FCA 1411; 121 FCR 402
Fox v PG Wellfair Ltd [1981] 2 Lloyd’s Rep 514
FTZK v Minister for Immigration and Border Protection [2014] HCA 26
Gallaway Cook Allan v Carr [2013] 1 NZLR 826
Gas & Fuel Corporation of Victoria v Wood Hall Ltd & Anor [1978] VR 365
Great China Metal Industries Co Ltd v Malaysian International Shipping Corporation Berhad [1998] HCA 65; 196 CLR 161
Green v The Queen [2011] HCA 49; 244 CLR 462
Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109; 304 ALR 468
Haider v JP Morgan Holdings Australia Ltd [2007] NSWCA 158
Hampton Court Ltd v Crooks [1957] HCA 28; 97 CLR 367
Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] 2 HKC 205
Interbulk Ltd v Aiden Shipping Co Ltd (The Vimeira) [1984] 2 Lloyd’s Rep 66
Jarratt v Commissioner for Police for NSW [2005] HCA 50; 224 CLR 44
JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237
John Holland Pty Ltd (fka John Holland Construction & Engineering Pty Ltd) v Toyo Engineering Corp (Japan) [2001] 2 SLR 262
Kempinski Hotels SA v PT Prima International Development [2011] SGHC 171; [2011] 4 SLR 633
Kioa v West [1985] HCA 81; 159 CLR 55
Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; 241 CLR 390
LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2012] SGCA 57; [2013] 1 SLR 125
Mahon v Air New Zealand [1984] AC 808
McPhee v S Bennett Ltd (1934) 52 WN (NSW) 8
Mediterranean & Eastern Export Co Ltd v Fortress Fabrics (Manchester) Ltd [1948] 2 All ER 186
Methanex Motunui Ltd v Spellman [2004] 1 NZLR 95
MGM Productions Group Inc v Aeroflot Russian Airlines 91 Fed Appx 716 (2d Cir 2004)
Minister for Immigration and Citizenship v Li [2013] HCA 18; 249 CLR 332
Minister for Immigration and Ethnic Affairs v Pochi (1980) 31 ALR 666
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Representation: Counsel for the Appellant:        PB Murdoch QC with AP Trichardt

 

Solicitor for the Appellant:        Norton Rose Australia

 

Counsel for the Respondent:      JWS Peters SC with D Bailey

 

Solicitor for the Respondent:     Hunt & Hunt

 

REASONS FOR JUDGMENT

THE COURT

  1. On 26 November 2013, after the oral argument on the appeal, the Court made orders dismissing each of the appeals with costs.  These are the reasons for making those orders.
  2. The appellant (“TCL”), a company organised under the laws of the People’s Republic of China, and the respondent (“Castel”), an Australian company, were parties to an agreement for the distribution in Australia of air conditioning units manufactured by TCL in China.  Castel was the exclusive Australian distributor.  The agreement provided for arbitration in the event of any dispute that could not be resolved by mutual agreement.  The arbitration agreement was one to which the International Arbitration Act 1974 (Cth) (“the IAA”) applied.
  3. Disagreements arose between the parties.  The dispute between the parties was submitted to arbitration for resolution.  On 23 December 2010, after a ten-day hearing, the arbitral panel (Dr Gavan Griffith AO, the Hon Alan Goldberg AO and Mr Peter Riordan SC) delivered an award in Castel’s favour in the sum of $2,874,870.  On 27 January 2011, the arbitrators handed down a further award of $732,500 in costs.
  4. The foundation of the award was the selling by TCL in Australia between 2004 and 2008, in breach of its promise to Castel of exclusivity of rights of distribution of TCL products, of air conditioning units manufactured by TCL, but not bearing the TCL brand.  These units were referred to as Other Equipment Manufacture products (“OEM products”).  The quantum of the award was reached by making an assessment of the financial impact of the importations of OEM products upon Castel’s sales.
  5. TCL sought to set aside the award under Art 34 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 by the United Nations Commission on International Trade Law on 7 July 2006) (“the Model Law”), which has the force of law in Australia by s 16 of the IAA. Castel sought to enforce the award under Art 35 of the Model Law. TCL resisted enforcement under Art 36 of the Model Law.
  6. The grounds for TCL’s two claims (the setting aside of the award under Art 34 and the resistance of enforcement under Art 36) were identical: the asserted failure by the arbitrators to accord TCL procedural fairness such that there had been a breach of the rules of natural justice in connection with the making of the award, and so, it was asserted, the award was in conflict with, or contrary to, the public policy of Australia: see Arts 34(2)(b)(ii) and 36(1)(b)(ii) and ss 16 and 19 of the IAA.
  7. The asserted breaches of the rules of natural justice arose from the making by the arbitrators of three central findings of fact.  The three findings, referred to by the primary judge as the “14% Starting Point Finding”, the “Uplift Finding” and the “Lost Sales Finding” (each of which is explained later) were said to have been made in the absence of probative evidence, and were findings upon which TCL was said to have been denied an opportunity to present evidence and argument.
  8. In advancing its argument before the primary judge (and its appeal) TCL submitted that the proper approach was to examine the facts of the case afresh and revisit in full the questions which were before the arbitrators in order to evaluate whether or not probative material supported the factual conclusion.
  9. TCL had also argued that the Federal Court had no jurisdiction to entertain the applications before it.  In an earlier judgment (Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd[2012] FCA 21; 287 ALR 297) the primary judge rejected this argument. TCL then applied in the original jurisdiction of the High Court to prohibit the Federal Court from dealing with the matter on grounds involving lack of jurisdiction and constitutional invalidity of the conferral of jurisdiction on the Court. That application was dismissed: TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia [2013] HCA 5; 295 ALR 596. The resolution of this question led to the abandonment of the grounds of appeal from the primary judge’s earlier decision upon jurisdiction.
  10. In a full and careful judgment published on 2 November 2012 (Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No 2) [2012] FCA 1214), the primary judge rejected TCL’s contention as to how the application should be approached; nevertheless, he examined the structure and foundations of the award, the evidence before the arbitrators and the factual findings therein; and rejected TCL’s resistance to enforcement of the award. On 19 November 2012, the primary judge published a judgment on costs and made orders enforcing the award and dismissing TCL’s application to set it aside. His Honour was correct to make the orders he did.
  11. The appeal raised matters of some importance for the operation of the IAA in Australia, and in particular the content of the “rules of natural justice” for the purpose of s 19 of the IAA (and necessarily also for s 8(7A)), and the method of approach to applications of the kind made here by TCL.

The approach of the primary judge

The discussion of the statute and legal principles by the primary judge

  1. After introducing the matter and setting out the legislative framework, the primary judge discussed at J[19]-[64] the principles relating to public policy in the IAA, dividing this discussion among the following subjects: whether “public policy” relates to procedural as well as substantive issues: J[19]; whether “public policy” has a similar meaning in the IAA in relation to setting aside an award and in relation to enforcement: J[20]-[28]; the nature of the seriousness of the breach of the rules of natural justice for an award to be in conflict with public policy: J[29]-[33]; the nature of any discretion to set aside or enforce the award, involving questions of the use of decisions of courts in Convention countries and the meaning of “public policy” in the IAA and the Model Law: J[34]-[51]; the extent of the review required of the Court when an award is challenged for breach of the rules of natural justice: J[52]-[61]; and whether there was a distinction between the requirement for natural justice in connection with the making of the award as against the reasons underpinning it: J[62]-[64].
  2. The primary judge’s essential conclusions in respect of these issues were:

(a)          “Public policy” includes procedural questions as well as substantive law: J[19].

(b) The notion of “public policy” in Arts 34 and 36 is the same: J[23]-[28].

(c)          The drafting of s 19(b) of the IAA and its plain words required a conclusion that any breach of the rules of natural justice, even minor and unimportant, was sufficient to lead to the conclusion that the award was in conflict with, or contrary to, Australian public policy. His Honour saw some tension in this conclusion with authorities of Convention states’ courts that public policy refers to fundamental notions of justice and fairness. Nevertheless, the primary judge saw the words of the IAA as requiring this conclusion. He saw the place of any offence to those fundamental notions as within the operation of the discretion to set aside or enforce: J[29]-[33].

(d)          The asserted breach of the rules of natural justice must be of a sufficiently serious character to offend fundamental notions of fairness and justice before the relevant discretion under either Art 34 or Art 36 would be exercised: J[50].

(e)          The review by the Court did not involve examining the case afresh and revisiting in full all questions before the arbitrator. Rather, the extent of the enquiry depended on the circumstances in question. In the undertaking of the review, the primary judge chose to conduct a close examination of the facts, and expressed some concern that he may have undertaken too deep and detailed an enquiry: J[58]-[61].

(f)          The primary judge rejected the submission of Castel that s 19(b) (and thus s 8(7A)(b)) was confined to a breach of the rules in connection with the (actual) making of the award, in contra-distinction to the reasons: J[63].

  1. Subject to the reasons that follow, we generally agree with his Honour’s conclusions, but we would not express the matter as the primary judge did in relation to [13(c)] and [13(d)] above.  In particular, care needs to be taken in referring to so-called minor or unimportant breaches of the rules of natural justice.  (See also Emerald Grain Australia Pty Ltd v Agrocorp International Pte Ltd[2014] FCA 414 (Pagone J).)

The dealing with the substantive applications by the primary judge

  1. It is convenient to outline the approach of the arbitrators through a discussion of how the primary judge dealt with the award.  Reference will continue to be made to the primary judge’s reasons in the manner above; reasons of the arbitrators will be prefaced by “A”, eg “A[1]”.
  2. The primary judge first described the arbitration.  Relevant to his review and to the argument of the appeal were the following considerations.
  3. Both sides were represented at all times by competent and experienced solicitors, junior counsel and senior counsel.  During the ten-day hearing, full cross-examination of witnesses, including expert witnesses, took place.
  4. There was no complaint before the primary judge about the arbitrators’ conclusion that the sales of all OEM products from 1 January 2004 to 31 December 2008 were made in breach of the relevant agreement and that Castel was entitled to damages.  The complaints related to the factual findings central to the assessment of Castel’s loss and therefore the damages to which it was entitled.
  5. There was no complaint before the primary judge about the arbitrators’ general approach to the assessment of Castel’s loss: (a) the volume of lost sales of TCL-branded products by Castel had TCL not breached the agreement by selling OEM products in Australia; multiplied by (b) the prices at which those additional sales would have been made; less (c) any additional costs that would have been associated with the higher volume of sales.  The complaints concerned the calculation of the first of those elements: TCL’s lost sales.
  6. In support of the claim of lost sales, Castel called three witnesses:

(a)       an expert, Mr Peter Acton (a financial and management consultant);

(b)       its managing director, Mr Michael Kwong; and

(c)       its Queensland manager, Mr Trevor Francis.

  1. TCL called three witnesses relevant to the issue of lost sales:

(a)       an expert economist, Mr Phillip Williams;

(b)       its General Manager, Overseas Business Division, Mr Shi Weiyi; and

(c)       its Sales Director, Mr Frank Wang.

  1. Important to the question of lost sales was the assessment of the extent to which OEM products were competitive with, or substitutable for, TCL-branded products.  Mr Williams, who was not directly familiar with the business of selling air conditioners or with the business of TCL and Castel, gave evidence about this question of substitutability, and horizontal and vertical differentiation of products: J[77].
  2. Mr Acton claimed no expertise in substitutability.  Relying upon what was said by Messrs Kwong and Francis, he concluded that every OEM product sold represented a loss of a sale to TCL: a 100% substitution ratio.  The arbitrators, having reviewed his evidence, placed no weight upon it as expert evidence, but considered that it remained of some assistance as to framework and methodology.
  3. It was uncontentious that the relevant market for air conditioners was at 5 levels, the TCL-branded and OEM products occupying space at the bottom of the market.  A central part of the controversy was how close to the bottom were the two classes of product and how close were they to each other, and thus how closely mutually substitutable they were.
  4. Mr Williams, who was cross-examined at length, accepted that there was little data to quantify the degree of substitutability, but expressed the view that the two types of products were unlikely to be competing with each other.  This view was based significantly on an assumption that TCL-branded products were in level 4 and OEM products in level 5, and, importantly, the assumed behaviour of a rational profit-making enterprise in the position of TCL not to position lower profit versions of product (OEM) to be close substitutes for higher profit versions of product (TCL-branded).  He saw after-sales service of level 4 Castel TCL-branded products (no after-sales service being offered by TCL or Castel for OEM products) as important for the differentiation between the products.
  5. Against this, the arbitrators (at A[196]-[198], recited by the primary judge at J[88]) referred to the evidence of Messrs Kwong and Francis of their inspection of OEM products, their often exact equivalence, examples of actual loss of business accounts, and advertising to the effect that OEM products were manufactured by TCL.
  6. The arbitrators addressed substitutability and product differentiation at A[205]-[214] (relevantly set out by the primary judge at J[89]).  It is to be recalled that while Mr Williams was a well-qualified, indeed eminent, market economist, one of the arbitrators was a former President of the Competition Tribunal.
  7. At A[206], the arbitrators referred to Castel’s claim and Mr Francis’ evidence.  At A[208], the arbitrators referred to TCL’s key evidence.  At A[209], the arbitrators referred to evidence of Professor Williams on this evidence.  At A[210]-[211], the arbitrators referred to further evidence of Professor Williams on substitutability and differentiation.  The arbitrators then made the following findings on this evidence at A[212]-[214]:

212      Having considered all of the evidence the Tribunal does not propose, and nor was it invited, to consider model by model whether there was direct substitutability between TCL-branded products and OEM products. It accepts the evidence of Mr Francis as to his observations and the perceptions of customers as conveyed to him. It accepts that for sections of Castel’s actual and potential customer base the OEM products were regarded as just as good and led those customers to choose the OEM products instead of the TCL-branded products.

213      At the lower end of the market where the TCL brand and the OEM brands were competing it appears that functionality rather than form was the important issue. The TCL-branded products and the OEM branded products served in the similar part of the market and offered the same types of units.

214      The Tribunal cannot find as a fact that every OEM unit sold was directly substitutable for a designated TCL-branded unit. However for the purposes of estimating the loss of sales to Castel brought about by the presence of TCL OEM products we proceed on the basis that the OEM products were sufficiently similar to be a direct competitor of, and replacement for, a line of TCL-branded products, at least insofar as they were perceived in that way by the customer base. It is important to note that Castel did not sell directly to end-users but rather to retailers who bought in bulk and who were well informed about the market and about the available brands.

  1. The arbitrators then turned to Mr Williams’ expressed view that sales of OEM products were drawn equally from sales of all other level 4 and 5 products, using the relevant market share of each: see J[90]-[91]. The arbitrators then analysed the basis for Mr Williams’ view that Castel could have expected to pick up a maximum of 7.4% of the OEM sales as extra sales of TCL-branded products: see J[92]-[99].
  2. The complaints of TCL focus upon the method and findings of the arbitrators in coming to the view that Castel’s lost sales were not 7.4% of the OEM sales, but 22.5%.

The “no evidence rule”

  1. At J[104]-[109], the primary judge set out the so-called “no evidence rule” as a part of the rules of natural justice by reference to R v Deputy Industrial Injuries Commissioner, Ex parte Moore [1965] 1 QB 456 (“Moore”) at 487-488 (where Diplock LJ expressed the rules of natural justice as encompassing first the bias rule; secondly, that the decision must be based on evidence; and thirdly, that the contentions should be fairly listened to; the question of “evidence” being expressed by his Lordship as the requirement, not for the application of the rules of evidence, but for “material which tends logically to show the existence or non-existence” of relevant facts); Mahon v Air New Zealand [1984] AC 808 at 820-821 (where Lord Diplock, writing for the Judicial Committee, applied Moore and restated the principle therefrom); Downer-Hill Joint Venture v Government of Fiji [2005] 1 NZLR 554 at 570 [83] (where Wild and Durie JJ, sitting in the High Court, applied Mahonin the context of natural justice in the part of the New Zealand legislation equivalent to ss 19(b) and 8(7A)(b) of the IAA); Collins v Minister for Immigration and Ethnic Affairs (1981) 58 FLR 407 at 411 (where Fox, Deane and Morling JJ were dealing with whether there was an error of law for the purposes of the Administrative Appeals Tribunal Act 1975 (Cth), s 44); Telstra Corporation Ltd v Australian Competition and Consumer Commission [2009] FCA 757; 179 FCR 437 at 503-504 [339] (where Lindgren J was dealing with whether there was an error of law for the purposes of the common law and the Administrative Decisions (Judicial Review) Act 1977 (Cth), s 5(1)(f)); and Haider v JP Morgan Holdings Australia Ltd [2007] NSWCA 158 at [33] (where Basten JA was dealing with a question of law as the basis for a review of a decision under workers compensation legislation).
  2. We will say something about this categorisation in due course.  It is sufficient to note at this point that Castel did not argue, either before the primary judge or on appeal, that if the arbitrators found relevant facts without the support of probative material, that was not, nor could have been, a breach of the rules of natural justice.

The application of the principle to the three impugned findings

The 14% Starting Point Finding

  1. At J[110]-[124], the primary judge considered the attack on the arbitrators’ use of 14% as a starting point for their assessment of Castel’s lost sales.  Having rejected Mr Acton’s 100% figure, they commenced with an analysis of Mr Williams’ 7.4%.
  2. The crucial paragraphs in the award concerning the finding of 22.5% (the 14% Starting Point Finding and the Uplift Finding) were A[231]-[237]. The reasoning of the arbitrators for the 14% Starting Point Finding was contained at A[231]-[234], as follows:

231      What the evidence does establish is that there would have been some lost sales and brand damage from OEM sales through competing retailers, but that while some factors would suggest a significant loss of sales, others would indicate only a minimal effect.

232      Factors which would suggest a minimal effect are:

(a)          the TCL brand and the OEM brands were sold in different retailers and in different stores;

(b)          if a competing store to one selling TCL products had not sold OEM products it would have stocked TCL products;

(c)          TCL was not such an established brand at this lower level of the market that it was at all likely that another retailer would have stocked the TCL brand had it not an OEM brand available;

(d)          there was no real brand loyalty to TCL at the end-user level, and accordingly a potential TCL customer in a retail outlet was likely to have bought a non-TCL brand if it was available in one retailer and not have instead sought out the TCL brand stocked by TCL’s retailers; and;

(e)          there was a high degree of substitutability between the TCL brand and OEM brands on one hand and competing non-TCL and OEM brands on the other, meaning that those who were potential TCL-branded products buyers had a wide selection of Level 4 and Level 5 models to choose from.

233      As against those facts, there is some evidence which would suggest the impact, though not approaching the 1:1 approach of Mr Acton, was much higher than the 7.4% approach of Mr Williams:

(a)          Castel sold not directly to end users but to retailers, and accordingly it is the impact of OEM products on retailers rather than the impact on those retailers’ customers which must be considered.

(b)          Mr Francis gave evidence of a number of occasions on which he was told by former Castel customers that they would be purchasing OEM products which were TCL made, rather than TCL-branded products or that they were observing their own customers making the switch. The Tribunal accepts this evidence to the extent that some purchasers of TCL-manufactured OEM products were making those purchases because they were TCL made, so that in their absence a higher percentage of buyers might have bought the TCL-branded products.

(c)          Mr Francis also gave evidence, which we accept, of anger from some Castel customers that they were being under cut by other sellers who had TCL-manufactured OEM units for sale at lower prices than the TCL-branded goods, and that Castel had lost some sales where it could not meet the lower prices.

(d)          Mr Kwong gave evidence that Castel’s dealership network was being directly targeted by those for whom TCL had manufactured OEM products, such that the impact of TCL-manufactured OEMs fell disproportionately on Castel and its TCL-branded products.

234      None of those factors are sufficiently reflected in Mr William’s evidence, which was that in the absence of the TCL OEM products Castel could have expected to gain 7.4% of the market share which those TCL OEM products had. He gave this as his best estimate on the basis that those who did not buy a TCL OEM would have bought another brand from Level 4 or level 5. In cross examination he agreed that if TCL manufactured OEM products were only competing with level 5 brands then Castel’s share would be doubled to around 14%. Mr Kwong’s evidence was that the TCL brand was at the bottom of the Level 4 market and that the TCL-made OEM products were in Level 5. We consider the 14% a better starting point for those reasons.

  1. The primary judge (at J[113]) said it was clear that TCL could not establish a no evidence ground on this body of evidence.  The primary judge then (at J[114]-[123]) dealt with TCL’s arguments as to the asserted misunderstanding of Mr Williams’ evidence, the asserted incorrect interpretation of facts and wrong reasoning, and the incorrect reliance on Mr Francis’ evidence.

The Uplift Finding

  1. The reasoning of the arbitrators for the Uplift Finding is to be found in A[235]-[237], as follows:

235      The Tribunal also notes that:

(a)       Mr Williams made his assessment on the basis that all other manufacturers in the relevant level would share equally in the redistributed share of the TCL OEM products. He agreed this might not be how things worked. We have noted and accepted the evidence of Mr Francis that at least in some instances large purchasers of TCL branded products decided to switch to what they knew to be a TCL-made OEM product. It is appropriate to allow an increase on Mr Williams’s calculations on the basis that the presence in the market of OEM products that were known to be TCL-made had a disproportionate effect on Castel as against sellers of other brands.

(b)       Mr Williams based his calculations on data which represented just over 50% of the air conditioner market and which for the most part did not refer to TCL as a brand by name. He made assumptions that TCL is contained in the “Tradebrands” category but could not get an assurance of that from GfK. This affects the reliability of his calculations.

(c)       Mr Williams also assumed that the 50% sample in the GfK data is representative of the overall sample as he had no means to do otherwise.

(d)       Mr Williams agreed the GfK data was inconsistent with other evidence like the BIS Shrapnel report which would have suggested different rankings for air conditioners than those contained in the GfK data.

(e)       The GfK data on which Mr Williams relied was for major retailers only and for that reason may fail to include some OEM brands which were sold through smaller channels.

(f)       Mr Williams agreed that there could be additional TCL OEMs which he had not extracted from the Tradebrands category and which were not being redistributed on his formula.

236      All of these points affect the accuracy of the material on which Williams relied and therefore the reliability of his conclusions. Each of them warrants, in the Tribunal’s view, an uplift from the figure of 14% that he agreed was the base level if OEM products were largely competing with Level 5 products.

237      On the entirety of the evidence, including the finding that the matter of no competing OEM sales was seen by Castel at of such commercial importance in its GDA and the Variation Agreement with TCL as to mandate a no-competition without consent clause, the Tribunal concludes that the least proportion of the sales assessed to be lost by Castel attributable to the OEM sales made in to the Australian marketplace is 22.5% of total TCL OEM sales.

  1. At J[127]-[132], the primary judge examined the evidence of Mr Williams and at J[129] expressed the view that the deficiencies in the information available to Mr Williams compromised the validity of his opinion in a number of respects, set out at J[129(a)-(d)].  The primary judge then (at J[130]) analysed why it was reasonable for the arbitrators to uplift the starting point, before identifying (at J[131]) further evidence of Mr Kwong and Mr Francis which supported the uplift.  The primary judge was, by that process of examining the evidence, satisfied that there was rationally probative evidence supporting the Uplift Finding.

The Lost Sales Finding

  1. The conclusion of the arbitrators as to the Lost Sales Finding is in A[237], set out above.
  2. At J[134]-[156], the primary judge dealt with this overall assessment by the arbitrators.  Critical to the argument of TCL, which was rejected by the primary judge, was the proposition that assessment of loss necessarily required expert evidence and that with the rejection of Mr Acton’s evidence, only Mr Williams’ evidence remained and the arbitrators were not at liberty to substitute their own assessment of Castel’s lost sales.  This was rejected by the primary judge who found that in circumstances where it was common ground before the arbitrators that the calculation of Castel’s lost sales was not capable of precise calculation, and where it was clear that some damage had been suffered, the approach of the arbitrators to make a best estimate in a practical way, having regard to all the evidence (A[229]), was correct and supported by authority, referring to Biggin & Co Ltd v Permanite Ltd [1951] 1 KB 422 at 438 (Devlin J); Callaghan v Williams C Lynch Pty Ltd [1962] NSWR 871 at 877 (Full Court: Evatt CJ, Herron and Sugerman JJ); Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167 at 183 (Sheppard, Morling and Wilcox JJ); JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237 at 241-246 (Brooking J); and noting Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275 at 319 (Pincus J); Atkinson v Hastings Deering (Queensland) Pty Ltd (1985) 71 ALR 93 at 103-104 (Pincus J); and Ted Brown Quarries Pty Ltd v General Quarries (Gilston) Pty Ltd (1977) 16 ALR 23 at 37 (Gibbs J) and 38 (Aickin J), but cf 26 (Barwick CJ).
  3. At J[144]-[150], informed by the authorities to which he had referred, especially the decision of Brooking J in JLW (Vic), the primary judge examined the award and the evidence to conclude that the arbitrators had not engaged in speculation or guesswork.
  4. At J[151]-[156], the primary judge rejected the legal contention that the arbitrators, having rejected Mr Acton’s evidence, were bound to apply Mr Williams’ evidence, referring to various cases, including Thurston v Todd (1966) 84 WN (Pt 1) (NSW) 231 at 246, and Ramsay v Watson [1961] HCA 65; 108 CLR 642 at 645.

The hearing rule

  1. At J[157]-[168], the primary judge made reference to a number of cases in identifying the hearing rule, in particular in the context of arbitral hearings: Mobil Oil Australia Pty Ltd v Federal Commissioner of Taxation [1963] HCA 41; 113 CLR 475 at 503; Kioa v West[1985] HCA 81; 159 CLR 550 at 584; Fox v PG Wellfair Ltd [1981] 2 Lloyd’s Rep 514 at 521-522; Interbulk Ltd v Aiden Shipping Co Ltd (The Vimeira) [1984] 2 Lloyd’s Rep 66 at 74-75; Mahon v Air New Zealand [1984] AC at 821; F Hoffman-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295 at 369; Trustees of Rotoaira Forest Trust v Attorney-General [1999] 2 NZLR 452 at 461-463; Methanex Motunui Ltd v Spellman [2004] 1 NZLR 95 at 136; and Starkey v State of South Australia [2011] SASC 34 at [74]-[75].
  2. Applying these authorities, the primary judge said at J[169] that:

TCL must establish that in the particular circumstances of this arbitration a reasonable litigant in its shoes would not have foreseen the possibility of reasoning of the type that led to the 14% Starting Point Finding, the Uplift Finding and the Lost Sales Finding or a corollary of it, and that it therefore lost the opportunity to present evidence and argument in anticipation of it.

  1. At J[170]-[176], the primary judge reviewed the conduct of the arbitration and concluded that the type of reasoning in the three findings was part of the debate at the arbitration.

Enforcement of the award

  1. In the light of these conclusions the primary judge was prepared to enforce the award, rejecting various subsidiary arguments of TCL.

The Notices of Appeal

  1. There are three notices of appeal.  Appeal VID 1042 of 2012 concerned the costs judgment delivered on 19 November 2012.  The grounds of appeal assumed the success of appeal VID 1043 of 2012, being the appeal from the dismissal of the application to set aside the award.  Appeal VID 1044 of 2012 substantially concerned the attack on the Court’s jurisdiction that was the subject of the High Court challenge and was not pressed.
  2. The appeal was therefore in substance concerned with the assessment of the grounds of appeal in VID 1043 of 2012, which are discussed below.

Grounds of legal principle and approach

  1. The first ground of appeal challenged the primary judge’s conclusion that the word “may” in Arts 34 and 36 gave the Court a discretion to set aside or not enforce the award if the award is found to be in conflict with, or contrary to, the public policy of Australia.  This ground was not pressed in the light of the recent decision of the Singapore Court of Appeal in L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2013] 1 SLR 125. It was submitted, however, that the discretion should have been exercised by his Honour to set aside and refuse enforcement of the award.
  2. Ground 2 challenged the finding referred to at [13(d)] above that the Model Law required a demonstrated offence to fundamental notions of fairness and justice before the relevant discretion in Art 34 or Art 36 could be exercised.
  3. Ground 3 challenged the primary judge’s reference to the need to balance the efficacy of enforcing international arbitral awards and the public policy of Australia, and stated that the primary judge should have held that any breach of the rules of natural justice as understood in Australian domestic law required the setting aside or refusal of enforcement of an award.
  4. Ground 8 was similar to ground 3.  It challenged the primary judge’s reliance upon the importance of uniformity of decisions with those of other jurisdictions in dealing with public policy, in circumstances where the legislature had delineated (and constrained) the concept of public policy by reference to the rules of natural justice in Australia.

Grounds concerning the application of the rules of natural justice to the facts here

  1. Grounds 4 to 7 took up five pages of the notice of appeal.  In effect, these paragraphs were a comprehensive re-agitation of the arguments made before the primary judge as to the inadequacies of the factual findings of the arbitrators.  Grounds 4, 5 and 6 concerned the asserted lack of evidence for the three critical findings:  the 14% Starting Point Finding, the Uplift Finding and the Lost Sales Finding, respectively.  Ground 7 dealt with the hearing rule ground, that, in the light of Mr Acton’s conceded lack of expertise, it could not reasonably be anticipated that the arbitrators would make findings as to loss other than ones based on, or in accordance with, Mr Williams’ evidence.
  2. All of grounds 4 to 7 were without merit. They involved the dressing up of complaints about the factual findings into a claim concerning asserted procedural unfairness. The primary judge (as he himself recognised) went more deeply into the facts than was necessary for the proper and efficient resolution of the matter. That is not said by way of criticism of the primary judge, who undertook a careful, and correct, analysis of the facts. Rather, it is said to make clear that nothing in the IAA is likely to permit a party to an arbitration award to spend three days before a judge arguing about the factual findings made by experienced arbitrators after a ten-day hearing, when the substance of the complaint is the evidential foundation for, and reasoning process towards, facts as found.

The proper approach to ss 8(7A) and 19 in relation to natural justice and public policy

  1. It is convenient to state our conclusions immediately in order that the following discussion of the statutory and jurisprudential background be given some greater focus.  If the rules of natural justice encompass requirements such as the requirement of probative evidence for the finding of facts or the need for logical reasoning to factual conclusions, there is a grave danger that the international commercial arbitral system will be undermined by judicial review in which the factual findings of a tribunal are re-agitated and gone over in the name of natural justice, in circumstances where the hearing or reference has been conducted regularly and fairly.  That danger is acute if natural justice is reduced in its application to black-letter rules, if a mindset appears that these rules can be “broken” in a minor and technical way and if the distinction between factual evaluation of available evidence and a complete absence of supporting material is blurred.  All these things occurred in the argument in this case.  Their presence persuaded or required the judge to spend three days reviewing the award that was the product of a ten-day reference.  That should not be how such a review takes place.  We are not being critical of the primary judge.  His reasons are careful, thorough and substantially correct.  The application was a disguised attack on the factual findings of the arbitrators dressed up as a complaint about natural justice.
  2. An international commercial arbitration award will not be set aside or denied recognition or enforcement under Arts 34 and 36 of the Model Law (or 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.  The demonstration of real unfairness or real practical injustice will generally be able to be expressed, and demonstrated, with tolerable clarity and expedition.  It does not involve the contested evaluation of a fact finding process or “fact interpretation process” or the factual analysis of asserted “reasoning failure”, as was argued here.
  3. The illumination and explanation of this approach requires something to be said about the statutory framework, the history of the relevant international instruments, the key notion of “public policy”, the essential characterisation of natural justice, and the legal regimes and jurisprudence in other countries, particularly those in this region.

The IAA and public policy

  1. The IAA gives effect to Australia’s international obligations as a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration (“the New York Convention”) and also adopts as Australian law the Model Law.   The IAA also reflects Australia’s acceptance of the United Nations General Assembly’s recommendation to give “due consideration” to the Model Law in the interests of international uniformity.  Though the Model Law is not a treaty, it was the product of detailed international discussion born of a recognition of the lack of harmony and of consistent modern form of national laws on arbitration: see generally the explanatory note by the UNCITRAL secretariat on the 1985 Model Law at 24-25.
  2. The Model Law dealt with many aspects of arbitration and arbitral procedure not touched upon by the New York Convention, which was broadly limited to protecting, recognising and enforcing awards in the field of international commercial arbitration.  Thus, the Model Law deals with such topics as the composition of the arbitral tribunal, the jurisdiction of the arbitral tribunal and its competence, interim measures and preliminary orders, the conduct of arbitral proceedings, the making of the award, the termination of proceedings, and, most importantly for present purposes, the grounds for setting aside the award.  The Model Law also deals with subjects covered by the New York Convention: the arbitration agreement, and the recognition and enforcement of awards.
  3. It is important to recognise that, while the New York Convention dealt with the subject of recognition and enforcement of the foreign award utilising the limited grounds in Art V for refusal of such, it did not purport to regulate the grounds on which an award could be set aside, though the possibility of such an action was recognised by Art V(1)(e).  Article V is in the following terms:

ARTICLE V

  1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:

(a)       The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(b)       The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or

(c)       The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or

(d)       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

(e)       The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

  1. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:

(a)       The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or

(b)       The recognition or enforcement of the award would be contrary to the public policy of that country.

  1. The Model Law was designed and drafted to be available to be taken up as a form of national law (as has been done in Australia) to govern international commercial arbitration carried on in the country in question, and in other countries.
  2. As appears from the travaux préparatoires to the Model Law discussed in H M Holtzmann and J E Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Kluwer Law and Taxation Publishers) at p 911ff, the difficult problem of agreeing upon the grounds to set aside an award took up considerable discussion.  The debates were substantially concerned with how far the grounds in Art V of the New York Convention (for recognition and enforcement) should be departed from.
  3. It is appropriate to say something of the notion of “public policy” as it came to be used in Arts 34 and 36 as finally agreed upon.  Those articles are in the following terms:

Article 34.     Application for setting aside as exclusive recourse against arbitral award

(1)          Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article.

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

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

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

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

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

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

(b)       the court finds that:

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

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

(3)          An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the award or, if a request had been made under article 33, from the date on which that request had been disposed of by the arbitral tribunal.

(4)          The court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.

Article 36.       Grounds for refusing recognition or enforcement

(1)          Recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be refused only:

(a)       at the request of the party against whom it is invoked, if that party furnishes to the competent court where recognition or enforcement is sought proof that:

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

(ii)         the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

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

(iv)         the composition of the arbitral tribunal 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

(v)          the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, or under the law of which, that award was made; or

(b)       if the court finds that:

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

(ii)         the recognition or enforcement of the award would be contrary to the public policy of this State.

(2)          If an application for setting aside or suspension of an award has been made to a court referred to in paragraph (1)(a)(v) of this article, the court where recognition or enforcement is sought may, if it considers it proper, adjourn its decision and may also, on the application of the party claiming recognition or enforcement of the award, order the other party to provide appropriate security.

Segment #3

Segment #4

  1. In Ferguson v Cole [2002] FCA 1411; 121 FCR 402 at 416 [38], Branson J, after referring to BondMahonand Rajamanikkam considered that it may be that in 2002 the law of Australia was reflected in Mahon, though it was unnecessary to decide the question.
  2. In Re Minister for Immigration and Multicultural Affairs; Ex parte Applicant S20/2002 [2003] HCA 30; 198 ALR 59, Gleeson CJ at 62 [9] again endorsed the views of Deane J in Bondconcerning the content of the duty to act judicially.
  3. In Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations [2011] FCAFC 88; 195 FCR 318 the Full Court (Keane CJ, Lander and Foster JJ) cited Mahonat 820-821. This, however, was in the specific context of the requirement that persons at risk of adverse findings be given an opportunity to be heard on the finding – an aspect of the hearing rule. The Full Court said at 365 [78]:

… the appellant’s entitlement to procedural fairness is measured by the need to ensure that it has an opportunity to place such material before the second respondent as might deter him from making a decision to place the appellant under special administration. [The Court then, in this regard, referred to Mahon.]

  1. A number of matters can be said arising out of the above cases and discussion.  First, the above cases deal with the exercise of public or state power.  The context of international commercial arbitration is the exercise of private power through an arrangement and a tribunal to which the parties have consented under a regime wherein errors of fact or law are not legitimate bases for curial intervention: TCL [2013] HCA 5; 295 ALR 596 at 617 [81].
  2. Secondly, until the High Court decides otherwise, this Court should respect the binding character of what was said by Mason CJ in Bond.  To the extent that cases such as Minister for Immigration and Citizenship v Li[2013] HCA 18; 249 CLR 332 may be seen to encompass in the conception of legal unreasonableness notions referred to by Deane J in Bond, that does not require the conclusion that the characterisation of Diplock LJ in Moore or Deane J in Pochi be adopted.  As Gageler J said in Li at 371 [92], procedural fairness is closely linked with reasonableness.
  3. Thirdly, Deane J in Pochisaw what Diplock LJ said in Moore as necessary to avoid the procedural aspects of natural justice being reduced to a charade.  There was, in everything Deane J said, the necessary presence of unfairness in the impugned decision.
  4. Fourthly, the essence of natural justice is fairness – it is its root as a legal conception and it lies at the heart of its operation.  Unless there is unfairness, true practical injustice, there can be no breach of any rule of natural justice.  That recognition is vital in the distinction made by Gleeson CJ in Rajamanikkam210 CLR at 232-233 [26] between a conclusion that a decision was not made on evidence and a contest about the proper view of the evidence and the facts; and in the distinction made by Bray CJ in Glenelg at 260. That recognition is also central to an appreciation of what Deane J said in Pochi and Bond, and indeed what Bray CJ said in Glenelg:  that in some circumstances the absence of any evidential or material foundation for a decision will betray a decision that had a “futile illusion of fairness” (Deane J in Pochi at 689) or a decision come to without bona fides or with bias or by reference to a test foreign to that proscribed by law (Bray CJ in Glenelg at 260).
  5. Fifthly, the relevant context of the placement of the rules of natural justice is international commercial arbitration. The Model Law and the IAA embody a framework of law for the regulation of arbitration. The avowed intent of both is to facilitate the use and efficacy of international commercial arbitration: see Resolution 40/72 of the United Nations General Assembly (11 December 1985), Art 5 of the Model Law and s 2D of the IAA. Basal to the working of the New York Convention, Art V and the Model Law, Arts 34 and 36 was the absence of any ground for the review or setting aside or denial of recognition or enforcement of awards because of errors by the arbitrator in factual findings or in the application of legal principle (as viewed by national courts). The system enshrined in the Model Law was designed to place independence, autonomy and authority into the hands of arbitrators, through a recognition of the autonomy, independence and free will of the contracting parties. The a-national independence of the international arbitral legal order thus created required at least two things from national court systems for its efficacy: first, a recognition that interference by national courts, beyond the matters identified in the Model Law as grounds for setting aside or non-enforcement would undermine the system; and secondly, the swift and efficient judicial enforcement and recognition of contracts and awards. The appropriate balance between swift enforcement and legitimate testing of grounds under Arts 34 and 36 is critical to maintain; essential to it is courts acting prudently, sparingly and responsibly, but decisively when grounds under Arts 34 and 36 are revealed. An important part of that balance is the protection by the courts of the fundamental norms of fairness and equality embodied in the rules of natural justice within the concept of public policy.
  6. This balance reflected in international and Australian policy does not carry with it any necessary implied criticism of national courts.  Parties in international commerce may choose arbitral dispute resolution for many reasons: Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192: 157 FCR 45 at 95-96 [192]-[193]; that chosen international legal order depends crucially upon reliable curial enforcement and a respect by the courts for the choice and autonomy of the parties and for the delicate balance of the system. A demand for fairness and equality is at the heart of the supervisory balance, as is a recognition that this is not reflected in mechanical technical local rules. The real question is whether an international commercial party has been treated unfairly or has suffered real practical injustice in the dispute and litigation context in which it finds itself. Formalism in the application of the so-called rules is not the essence of the matter: fairness and equality are. How unfairness is revealed or demonstrated in any particular case will depend on the circumstances. The requirement of a fair hearing in an international commercial arbitration has been discussed in many cases. Reference need only be made to the cases cited by the primary judge and referred to at [42] above. As Goff LJ said in The Vimeira [1984] 2 Lloyd’s Rep at 74-75, the question is whether the hearing was fair. For a recent example of the relationship between fairness and expedition, see Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd [2013] FCAFC 109; 304 ALR 468.
  7. The above leads one to the conclusion that Arts 34 and 36 should be seen as requiring the demonstration of real practical injustice or real unfairness in the conduct of the reference or in the making of the award.  The rules of natural justice are part of Australian public policy.  The assessment as to whether those rules have been breached by reference to established principle is not a matter of formal application of rules disembodied from context, or taken from another statutory or human context.  The relevant context is international commercial arbitration.  No international arbitration award should be set aside for being contrary to Australian public policy unless fundamental norms of justice and fairness are breached.  Each of Art 34 and 36 contains a form of discretion or evaluative decision: “may be set aside” (Art 34), “may be refused only” (Art 36).  It is not profitable to seek to differentiate between the engagement of public policy under the Articles and a supposedly separate and a later question whether to exercise the discretion; nor is it profitable, but only likely productive of difficulty or error, to read into Arts 34 and 36 any precise notions of required prejudice or other preconditions to the exercise of any discretion.  The provisions (ss 8(7A), 19 and Arts 34 and 36) deal with fundamental conceptions of fairness and justice.  It suffices to say that no international award should be set aside unless, by reference to accepted principles of natural justice, real unfairness and real practical injustice has been shown to have been suffered by an international commercial party in the conduct and disposition of a dispute in an award.  It is likely that real prejudice, actual or potential, would be a consideration in the evaluation of any unfairness or practical injustice.
  8. It is unnecessary for present purposes to answer the question whether making a finding of fact without probative evidence should ever be characterised as a breach of the rules of natural justice.  It is sufficient to accept without the benefit of argument that it may be; but in this statutory context, such will form the basis of effective review or non-recognition or non-enforcement for breach of the rules of natural justice only if real unfairness or real practical injustice is suffered thereby.  Were such question to be addressed, regard would need to be had to the history of the development of natural justice or procedural fairness; to the question whether it is a safeguard of fairness in process or something more directed to fairness of the outcome; to the question whether natural justice is a defining or informing basis for legal unreasonableness; to the works and approaches of scholars and law reformers such as HWR Wade, Administrative Law (2nded at pp 194-195, 3rd ed at p 213, 5th ed at p 485, 10th ed at p 435); the Kerr Committee Report in 1973 (Prerogative Writ Procedures: Report of Committee of Review (Cth Parliament 1973)) at [43] where the “no evidence ground” was identified as separate from natural justice, as is now reflected in the Administrative Decisions (Judicial Review) Act 1977 (Cth), ss 5(1)(a),(h) and 5(3); and M Aronson and M Groves, Judicial Review of Administrative Action (5th ed) at pp 398-405 [7.20]-[7.30]; and, critically, to the influence of context (here, international commercial arbitration) on the fashioning of the proper content and reach of generally expressed rules designed to secure fairness.  In this context, it can be readily accepted that, under various legal regimes, courts have been concerned with reviewing arbitral awards made in the absence of probative evidence, especially by reference to the distinction between a trade arbitration before a commercial person chosen for his or her factual experience and an arbitration conducted by someone not chosen with that experience: Wright v Howson (1888) 4 TLR 386 at 387; Mediterranean & Eastern Export Co Ltd v Fortress Fabrics (Manchester) Ltd [1948] 2 All ER 186 at 187-188; Fox v PG Wellfair Ltd [1981] 2 Lloyds Rep 514 at 521-522; Motrix Supplies Pty Ltd v Bonds and Kirby (Victoria Avenue) Pty Ltd (Sup Ct of NSW Commercial Division, 12 September 1990, Giles J, BC9002025) at 21.
  9. In most, if not all, cases a party who says that it has suffered such unfairness or practical injustice should be able to demonstrate that without the kind of detailed re-examination of the facts that occurred in this case.  Applications involving review, enforcement and recognition under Arts 34, 35 and Art 36 (or Art V of the New York Convention) should not be permitted to be used (or hijacked) to undertake, in substance, a rehearing of factual or legal reasoning under the guise of a complaint about a breach of the rules of natural justice based on the “no evidence rule”.  Unfairness or practical injustice in the conduct of international commercial arbitration should, if it exists, be able to be expressed shortly and, likewise, demonstrated tolerably shortly.  It will not be demonstrated as a result of a detailed factual analysis of evidence regularly and fairly brought forward involving asserted conclusions of facts different to those reached by the arbitrator.  If a party can demonstrate that it has been, in essence, denied the opportunity to be heard on an important and material issue as revealed by such a finding made without material, real unfairness or real practical injustice may be shown.  That was not the case here.

The law in the region

  1. Before turning to the immediate reasons for the dismissal of the appeals here, it is appropriate to say something of the learned and helpful decisions of courts in the region to assist in the recognition of the relevant principle.
  2. Before dealing with cases in New Zealand and Singapore, it is necessary to say something of the relevant legislation in the region, and its development.  New Zealand, Singapore and Hong Kong have based their legislation on the Model Law.

New Zealand legislation

  1. In New Zealand, the Model Law was modified and made the law of New Zealand as a Schedule to the Arbitration Act 1996 (NZ).  Article 34 was amended by adding paras (5) and (6).  Paragraph (5) is presently irrelevant; para (6) is in the following terms:

(6)       For the avoidance of doubt, and without limiting the generality of paragraph (2)(b)(ii), it is hereby declared that an award is in conflict with the public policy of New Zealand if –

(a)       the making of the award was induced or affected by fraud or corruption; or

(b)       a breach of the rules of natural justice occurred –

(i)        during the arbitral proceedings; or

(ii)       in connection with the making of the award.

  1. The only relevant difference between Art 34(6) in the New Zealand Act and s 8(7A) or s 19 is the clarification contained in paras (6)(b)(i) and (ii), which calls to mind the argument of Castel below, rejected by the primary judge, and (perfectly correctly) not agitated on appeal (see [13(f)] above).
  2. The origin of the New Zealand legislation was a report of that country’s Law Commission, which in October 1991 recommended a new legislative framework for both domestic and international arbitration in New Zealand (Law Commission (NZ), Arbitration (Report No 20, 1991), ix). The report recommended the insertion of a new paragraph (6) similar to that set out above, except that the words of subparagraph (6)(b)(i) were not present in the Commission’s draft. The Commission’s explanation of its proposal was as follows:

[403] Paragraph (6) elaborates the meaning of “public policy” for the purposes of setting aside an award under article 34, and follows closely the wording of s 19 of the [International Arbitration Act 1974 (Cth)]. Although the [International Arbitration Act 1974 (Cth)] includes this provision as a section of the Act, rather than in the Model Law, a somewhat similar provision was added to article 34(2)(a) of the Model Law as applied in Scotland. We believe that the provision is appropriately placed in that article (and also in article 36 where there is also a reference to “public policy”).

[404]  We have hesitated before including the reference to “the rules of natural justice” in article 34(6)(b) for two reasons.  First, the principal rules of natural justice, an impartial decision-maker, and a proper opportunity to be heard, are clearly embodied in articles 12, 18, and 24.  Second, the thrust of the Model Law, and of the draft Act, involves a reduction in judicial involvement in arbitral proceedings, and an expansive approach to judicial review by New Zealand courts would contradict that thrust.  Nevertheless, we have concluded that the Australian provision should be followed:  the significance of natural justice in arbitral proceedings can be emphasised; and many recent decisions of New Zealand courts show that our judges are sensitive to their relatively limited role in arbitrations.

  1. The mention of the Model Law as applied in Scotland in the first paragraph above appears to refer to the insertion of a new subparagraph 34(2)(a)(v) in the version of the Model Law given the force of law in Scotland by s 66(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 (UK).  That new paragraph, which appeared in Schedule 7 of that Act, read as follows:

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

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

(v)       the award was procured by fraud, bribery or corruption  …

  1. The provision (enacted for a jurisdiction with a civilian tradition) made no mention of natural justice.
  2. After a bill to implement the recommendations of the Law Commission was introduced in the New Zealand Parliament in 1995, it was referred to the Government Administration Committee.  That committee received a submission that the “natural justice” provision, as it was then drafted (referring only to breaches of natural justice “in connection with the making of the award”), was too narrow, “as breaches can occur during the course of the arbitration as well.”  The Committee agreed with this submission, recommending that Art 34 of Schedule 1 of the bill (which contained the Model Law) “be extended to cover the entire course of the arbitration”. The Parliament accepted the recommendation, and Art 34 passed into law in its present form when the bill was enacted in 1996.

Singapore legislation

  1. In Singapore, the Model Law has the force of law by virtue of s 3(1) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (Sing). Section 24 of the same Act deals with the setting aside of arbitral awards on the ground of a breach of the rules of natural justice:

Notwithstanding Article 34(1) of the Model Law, the High Court may, in addition to the grounds set out in Article 34(2) of the Model Law, set aside the award of the arbitral tribunal if –

(a)       the making of the award was induced or affected by fraud or corruption; or

(b)          a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced.

  1. The Singapore Act is the result of recommendations contained in an August 1993 report of the Singapore Law Reform Committee’s Sub-Committee on Review of Arbitration Laws (Law Reform Committee (Singapore), Sub-Committee on Review of Arbitration Laws: Report (1993)).  The wording proposed by the sub-committee was slightly different to that which was ultimately enacted.  The sub-committee expressed its draft clause 24 as follows:

Without prejudice to Article 34(2) of the Model Law, the High Court may on the application of any party to an arbitration set aside the award of the arbitral tribunal if –
(a)       the making of the award was induced or affected by fraud or corruption; or

(b)          a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced.

  1. The only difference is in the clarification of the provision’s relationship to paragraphs 34(1) and 34(2) of the Model Law.
  2. Section 24, as enacted, states that the grounds for setting aside an award enumerated in the provision are “in addition” to those contained in Art 34(2). This suggests the Singapore Parliament did not see a breach of the rules of natural justice as necessarily contrary to public policy.
  3. The sub-committee’s report included a section outlining its consideration of the question “whether ‘public policy’ should be defined, and if so to what extent” (at [26]).  The conclusion in the sub-committee’s report at [28] was as follows:

The Committee is of the view that it may be neither wise nor possible to define the scope and extent of “public policy”.  In the New Zealand draft, a new s 34(6)(b) [sic: Art 34(6)(b)] was proposed to explain “public policy” but the Committee does not think that this definition would be helpful, as it is expansive in nature.  The use of the term “rules of natural justice”, especially, provides a wide discretionary basis for curial intervention in arbitration.  Instead, an attempt should be made to prevent certain situations, such as the power of arbitrators to grant civil reliefs based on certain statutes, from being characterised as contrary to “public policy”.

  1. The sub-committee, after setting out the avenues for curial intervention in the arbitral process under the Model Law (including Art 34), also recommended the express inclusion of references to corruption, fraud and “partiality” (the latter in its commentary, but not in its proposed draft) (at [23]).
  2. Whilst it is apparent that the sub-committee and legislature in Singapore did not have the same view as the Parliaments in Australia and New Zealand that the insertion of the rules of natural justice into the concept of public policy was for the avoidance of doubt, it is clear that the Singapore sub-committee report (as did the New Zealand Law Commission report) identified s 19 of the IAA as a source of law for what became s 24 of the Singapore Act. (See Annex VI to the report.)

Hong Kong legislation

  1. Implementation of the Model Law in Hong Kong was first recommended in a report of the Law Reform Commission of Hong Kong in September 1987.  The proposal made its way into law via the Arbitration (Amendment) (No 2) Ordinance(No 64 of 1989) of November 1989, which amended the pre-existing legislative regime.
  2. The Commission recommended wholesale adoption of Art 34 of the Model Law without amendment.  There was no attempt to clarify the meaning of “public policy” or to specify that an award could be set aside where there had been a breach of natural justice.  The Commission’s stated approach to adoption of the Model Law was to “give primacy to the international recognisability and acceptability of the law and to leave it as little changed as possible” (Law Reform Commission of Hong Kong, Report on the Adoption of the UNCITRAL Model Law of Arbitration (September 1987), 13).  Observing that a number of provisions of the Model Law were not, in its opinion, entirely satisfactory, the Commission nonetheless thought it “far better to leave them as they stand, rather than tinker with them in an attempt to improve them, thereby causing only confusion to those foreign parties who wish to be sure they know what Hong Kong’s law for international commercial arbitration is”: Law Reform Commission Report at 13.
  3. In any event, when it came to natural justice and its role in the setting aside of awards on public policy grounds, it appears the Commission viewed any clarification along the lines of s 19 of the IAA as unnecessary. The Commission’s commentary on Art 34 appears in a section of the report dealing with provisions that were recommended to be adopted unchanged: Law Reform Commission Report at 13. As to Art 34(2)(b)(ii), the Commission observed that the phrase “public policy” may appear nebulous to a common lawyer (Law Reform Commission Report at 17). This reflects the view of the Mustill report that common law jurisdictions “had not developed any general doctrine of ordre publicin relation to arbitration procedures”: [1989] 4 Arbitration Materials 5 at 70.  However, the Commission reassured readers that the expression was already familiar to courts in this context, since it appeared in Art V(2)(b) of the New York Convention.  The Commission elaborated in the report at 17:

The civil law concept of “order publique” (translated in the English language version of the Model Law as “public policy”) covers fundamental principles of law and justice in procedural as well as substantive respects.  These include corruption, bribery, fraud and other serious cases, as well as the elements of the common law concept of natural justice.  They would also include a violation of Article 18 (equal treatment of parties).

(Emphasis added.)

  1. Importantly, in light of that last sentence, the Commission’s commentary on Art 18 (also recommended to be adopted unchanged) at 16, read as follows:

This is a particularly significant Article, guaranteeing the rights of the parties to equal treatment.  We think it will allow the courts to intervene under Article 34 in cases where for example there has been a failure to abide by the rules of natural justice.

(Emphasis added.)

  1. In other words, any addition of words of the kind made in the Australian, New Zealand and Singapore Acts would, on the Commission’s view, have been otiose. Indeed, even in the section of the Commission’s report at 26 dealing with “additional provisions considered but rejected”, there is no mention of anything resembling s 19 of the IAA or later analogues in New Zealand and Singapore legislation.
  2. Subsequent to the 1989 enactment of the Model Law in respect of international commercial arbitrations, the Committee on Arbitration Law of the Hong Kong International Arbitration Centre issued a report in 1996 recommending, inter alia, that Hong Kong arbitration legislation be completely redrawn in order to apply the Model Law to both domestic and international arbitrations: Report of the Hong Kong International Arbitration Centre Committee on Arbitration Law(1996).  That recommendation was examined and endorsed by the Committee on Hong Kong Arbitration Law, which was established in 1998 by the Hong Kong Institute of Arbitrators in co-operation with the Hong Kong International Arbitration Centre.  The Committee reported in April 2003: Hong Kong Institute of Arbitrators, Report of Committee on Hong Kong Arbitration Law (30 April 2003).
  3. In its commentary on provisions of the Model Law, the Committee made the following observation in connection with Art 30 (dealing with settlement of disputes) at 171:

We recommend that Article 30 is to be adopted unchanged and applies in all cases.  We are of the view that, in case an award on agreed terms had been procured by fraud, it should be capable of being set aside under Article 34(2)(b)(ii) in that it is in conflict with the public policy.

  1. Again, then, “public policy” was considered as evidently encompassing subject matter that other jurisdictions had seen fit explicitly to enumerate in their legislation.
  2. The recommendations of the Committee were put into the form of a draft bill in a consultation paper of the Hong Kong Department of Justice in 2007: Department of Justice (Hong Kong), Consultation Paper: Reform of the Law of Arbitration in Hong Kong and Draft Arbitration Bill(December 2007).  Submissions on that draft were then received.  One such submission suggested clarification or specification of the grounds for setting aside an award under draft clause 82(1) (which sought to give the force of law to Art 34 of the Model Law).  It was suggested that the provision of the Arbitration Act 1996 (Eng) dealing with setting aside for “serious irregularity” should be emulated (see Arbitration Act 1996 (Eng) s 68).  The Department of Justice rejected the submission, explaining that it did not want to cause confusion as to whether or not Hong Kong was a Model Law jurisdiction: Department of Justice (Hong Kong), Summary of Submissions and Comments on the Consultation Paper on Reform of the Law of Arbitration in Hong Kong and Draft Arbitration Bill (2009), 21.
  3. The bill to revise Hong Kong’s arbitration regime was introduced in the Legislative Council in June 2009.  Having been the subject of report by the Bills Committee, it was enacted as the Arbitration Ordinance(Cap 609) (HK) in November 2010, and it came into force on 1 June 2011.  Section 81 of the ordinance enacts Art 34 of the Model Law without amendment.

The relevant international case law

  1. As already referred to, the influence of Moore and Mahon in New Zealand is the foundation for the proposition that making findings of fact in the absence of probative evidence is a breach of the rules of natural justice in an arbitral context.
  2. The New Zealand decisions of Trustees of Rotoaira Forest Trust v Attorney-General [1999] 2 NZLR 452 (Fisher J); Methanex Motunui Ltd v Spellman [2004] 1 NZLR 95 (Fisher J); Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd [2004] 2 NZLR 614 (Court of Appeal); Downer-Hill Joint Venture v Government of Fiji [2005] 1 NZLR 554 (Wild and Durie JJ); Gallaway Cook Allan v Carr [2013] 1 NZLR 826 (Court of Appeal) are not in any way inconsistent with the above expression of principle and approach. The following matters of concordance or agreement should be noted.
  3. First, the helpful (if we may respectfully say so) but not determinative, expression of approach by Fisher J in Trustees of Rotoaira Forest Trust at 463 in paras (a) – (j) accords with the need for real unfairness or real practical injustice in the litigation context of international commercial arbitration: see, in particular, paras (b), (e), (f), (g), (i) and (j).
  4. Secondly, the balance between party autonomy and finality on the one hand, and fairness through natural justice and the fundamental norm of equality on the other, was discussed by Fisher J in Methanex at 110-113 [37]-[53]. That was not in aid of the introduction of review by reference to technical rules, but by reference to basal standards of fairness and equality that are internationally recognised.
  5. Thirdly, the scope of “public policy” is to be narrowly confined: Amaltalat 625-626 [41]-[46], and Downer-Hill at 568-571 [76]-[84].
  6. Fourthly, the Court in Downer-Hill recognised the need for the display of unfairness in a real sense.  The judgment of Wild and Durie JJ concerned a successful application  to strike out, summarily, an application to set aside an award of the International Court of Arbitration at Paris.  The application to set aside the award contained a number of grounds but relevantly for the present appeal included grounds that resonate with TCL’s arguments here (which are dealt with later): the findings of numerous facts asserted to have been unsupported by evidence and/or unreasonably found or against the weight of probative evidence; the finding of facts and dealing with issues in an unforeseen way and in a way not conformable with the underlying contract (see Downer-Hill at 559 [23]). The Court accepted the Mahonformulation of the “no evidence rule”; the Court required that there be demonstrated a substantial miscarriage of justice: 570 [84], their Honours saying:

Even assuming that Downer could establish a breach of the [Mahon] ground of natural justice, the “public policy” requirement in art 34 imposes a high threshold on Downer.  The phrases “compelling reasons” and “a very strong case” are employed in the judgments of the Hong Kong Court of Appeal in Hebei Import and Export Corporation v Polytek Engineering Co Ltd [1999] 2 HKC 205 at pp 211 and 215. Hebei involved an application to set aside a foreign award.  To warrant interference there must be the likelihood that the identified procedural irregularity resulted in a “substantial miscarriage of justice”: Honeybun v Harris [1995] 1 NZLR 64 at p 76. That entails the impugned finding being fundamental to the reasoning or outcome of the award. The Court of Appeal suggested in Amaltal (at para [47]) that the arbitrator’s findings of fact should not be reopened unless it was “obvious” that what had occurred was contrary to public policy.

  1. The Court in Downer-Hill then dealt with the matter at a summary strike-out level.  After that review, the Court at 575 [105]-[106] by way of emphasis of approach referred to what Lord Mustill said in the Privy Council in a New Zealand appeal in Pupuke Service Station Ltd v Caltex Oil (NZ) Ltd[2000] 3 NZLR 338n at 338-339, as follows:

[105]    We accept Fiji’s argument that the Court’s role where evidentiary inadequacy is alleged is to ensure that there was evidence to support the impugned finding.  Or, conversely, that the burden on the party alleging inadequacy is to establish that there was no evidence.  Downer has not discharged that onus.  Mr Johnston concluded his oral submissions by referring us to the following part of Lord Mustill’s opinion in Pupuke Service Station Ltd v Caltex Oil (NZ) Ltd [2000] 3 NZLR 338 (PC) at pp 338-339:

LORD MUSTILL.   [1] Arbitration is a contractual method of resolving disputes.  By their contract the parties agree to entrust the differences between them to the decision of an arbitrator or panel of arbitrators, to the exclusion of the Courts, and they bind themselves to accept that decision, once made, whether or not they think it right.  In prospect, this method often seems attractive.  In retrospect, this is not always so.  Having agreed at the outset to take his disputes away from the Court the losing party may afterwards be tempted to think better of it, and ask the Court to interfere because the arbitrator has misunderstood the issues, believed an unconvincing witness, decided against the weight of the evidence, or otherwise arrived at a wrong conclusion.  All developed systems of arbitration law have in principle set their face against accommodating such a change of mind.  The parties have made a choice, and must abide by it.  This general principle is, however, applied in different ways under different systems, according to the nature of the complainant.

[2]       Where the criticism is that the arbitrator has made an error of fact, it is an almost invariable rule that the Court will not interfere.  Subject to the most limited exceptions, not relevant here, the findings of fact by the arbitrator are impregnable, however flawed they may appear.  On occasion, losing parties find this hard to accept, or even understand.  The present case is an example.

[3]       At the other extreme are complaints that the decision has been reached by methods which are unfair, contrary to natural justice, in breach of due process, or whatever other term is preferred.  With very few exceptions all systems of law permit the injured party some means of recourse.  They need not be explored, since there are no such allegations here.

[106]    Mr Johnston suggested that Downer’s application to set aside the award represented exactly the sort of “change of mind” Lord Mustill refers to.  We suspect that submission is not far wide of the mark.  Having agreed to arbitrate its very substantial claims, and having had them largely rejected by the arbitral tribunal following a lengthy hearing, Downer is essentially seeking to have the Court upset the result, so that it can rerun its claims.  As Lord Mustill observes, the Courts have set their face against accommodating that.

  1. Fifthly, the Court of Appeal in Gallaway Cook Allan [2013] 1 NZLR 826 discussed the nature of the discretion in Art 34. The Court’s expression of view is, with respect, a helpful expression of the balance between finality and curial review, to the effect that the circumstances of a case such as Downer-Hill demand, for asserted breaches of the rules of natural justice to be made out, demonstrated unfairness or practical injustice in the context of the litigation between the parties before an award will be set aside or not enforced. The Court said at 846 [66]:

The discretion vested by art 34 is of a wide and apparently unfettered nature.  We are satisfied it must be exercised in accordance with the purposes and policy of the Arbitration Act.  Two specific purposes are to encourage the use of arbitration as an agreed method of resolving commercial and other disputes; and to facilitate the recognition and enforcement of arbitration agreements and arbitral awards.  The principles and philosophy behind the statute are party autonomy within its framework, equal treatment, reduced court intervention and increased powers for the arbitral tribunal.  Parliament has clearly stated its intention that parties should be bound to accept the arbitral decision where they have chosen that method of resolution.  The recognised benefits of arbitration include speed, economy, choice of forum, anonymity and finality, the last by allowing the parties to limit their rights of appeal even though they cannot contract out of art 34.

(Citations omitted.)

  1. The Singapore decisions, likewise, are not, subject to the comments below, inconsistent with the above expression of principle and approach: see John Holland Pty Ltd (fka John Holland Construction & Engineering Pty Ltd) v Toyo Engineering Corp (Japan) [2001] 2 SLR 262 at 271 [18] (Choo Han Teck JC); PT Asuransi Jasa [2007] 1 SLR at 619-622 [52]-[60]; Soh Beng Tee & Co Pte Ltd v Fairmont Development Pte Ltd [2007] SGCA 28; [2007] 3 SLR(R) 86 at 102-120 [28]-[65] (Singapore Court of Appeal); Pacific Recreation Pte Ltd v SY Technology Inc [2008] SGCA 1; [2008] 2 SLR(R) 491 at 508-510 [30]-[34] (Singapore Court of Appeal); CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33; [2011] 4 SLR 305 at 317-318 [25]-[27] (Singapore Court of Appeal); Kempinski Hotels SA v PT Prima International Development [2011] SGHC 171; [2011] 4 SLR 633 at 656 [65], 664-665 [101]-[102] (Judith Prakash J); LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2012] SGCA 57; [2013] 1 SLR 125 at 139-142 [47]-[54] (Singapore Court of Appeal); PT First Media TBK v Astro Nusantara International BV [2013] SGCA 57 at [52] (Singapore Court of Appeal); TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] SGHC 186 (Chan Seng Onn J).
  2. The following matters should be noted.
  3. First, there has been no authoritative recognition of the “no evidence rule” as part of the rules of natural justice.  In Kempinski Hotelsat 656 [65], Judith Prakash J said the following:

As is well known, the concept of natural justice comprises two rules.  The first is that the adjudicator must be disinterested and unbiased and the second is that the parties must be given adequate notice and opportunity to be heard (see Soh Beng Tee & Co Pte Ltd v Fairmont Development Pte Ltd [2007] 3 SLR(R) 86 at [43] …

  1. In Soh Beng Teeat 109 [43], the Court of Appeal, in its discussion of the hearing rule at 108-115 [42]-[58], cited Marks J in Gas & Fuel Corporation [1978] VR 365 (referred to at [84] above), where his Honour expressed the rules of natural justice as comprising the bias rule and the hearing rule.
  2. The emphasis of the Court of Appeal in Pacific Recreation (see 509 [32] especially) was on the fairness of the hearing, not on the legitimacy of the foundation of the factual findings.
  3. In TMM Division Maritimaat [119]-[120], Chan Seng Onn J noted the primary judge’s decision here and remarked that the “no evidence” rule had not yet been accepted in Singapore as part of the rules of natural justice, and referred to a decision of Judith Prakash J that could be seen to be to the contrary: Sui Southern Gas Co Ltd v Habibullah Coastal Power Co (Pte) Ltd [2010] SGHC 62; [2010] 3 SLR 1.
  4. Secondly, in CRW Joint Operation VK Rajah JA, delivering the judgment of the Court at 317-318 [25]-[27], expressed the balance between finality and interference in a helpful way, emphasising that whilst courts should not interfere lightly in the arbitral process, due process (and fairness accordingly) was fundamental, and the Court should not hesitate to interfere if a ground under Art 34 were clearly established. Later in the reasons, the Court expressed the view at 342-343 [97] that if the existence of a ground under Art 34 were made out the exercise of discretion would be “virtually automatic”. With respect, care needs to be taken when one is dealing with the rules of natural justice. As long as one recognises and emphasises that there is likely to be no breach of such rules unless real unfairness or real practical injustice be demonstrated, the expression of the matter thus will not mislead. There is sometimes, however, a tendency of some to speak of a technical or minor breach of the rules of natural justice: see for instance the primary judge here at J[30]. To the extent that such expression may be acceptable in some contexts, it will be important to recognise that for the discretion under Arts 34 and 36 to be exercised, real unfairness or real practical injustice will need to be demonstrated. Whilst the IAA does not use phraseology of “prejudice” as does the Singapore Act, such a notion inheres in the conceptions of fairness, unfairness, practical justice and practical injustice. Thus, the expression of view by the Court in Soh Beng Tee at 120 [65] that “only meaningful breaches of the rules of natural justice that have actually caused prejudice are ultimately remedied” can be seen to be concordant with a notion that real unfairness or real practical injustice must be demonstrated.
  5. Thirdly, the notion of prejudice or unfairness does not involve re-running the arbitration and quantifying the causal effect of the breach of some rule.  The task of the Court in assessing prejudice or unfairness or practical injustice is not to require proof of a different result: see generally the discussion in LW Infrastructure at 140-142 [50]-[54]. If a party has been denied a hearing on an issue, for instance, it is relevant to enquire whether, in a real and not fanciful way, that could reasonably have made a difference. It should be recalled that the proper framework of analysis for the IAA is the setting aside or non-recognition or enforcement of an international commercial arbitration. In that context, it is essential to demonstrate real unfairness or real practical injustice.

The disposition of these appeals

The asserted breach of the rules of natural justice

  1. Grounds 4 to 7 were a disguised factual challenge to the conclusions of the arbitrators. The contents of the argument on appeal illustrate this.  The written submissions simply annex a schedule and invite the Court to examine the record of the arbitration.  The oral submissions did likewise.
  2. The submissions were first directed to the suggestion that there was a higher impact than the 7.4% suggested by Mr Williams.  The submissions criticised the “fact interpretation and reasoning functions” of the arbitrators and quarrelled with their interpretation of the contents of Mr Williams’ report.  The submissions challenged the weight and value of the evidence of Mr Francis about what he had been told by former customers.  This evidence was said not to have “probative value” and placement of weight on it was a failure of “the tribunal’s fact finding and fact interpretation”, thus leading to “its reasoning failure”.  Arguments about the evidence sometimes identified some of its hearsay character, going to its weight.  Such expressions and such analysis cannot demonstrate a breach of any rule of natural justice, nor even an error of law.  They reflect complaints about findings of fact and no more.
  3. Mr Kwong’s evidence was also criticised as limited in its effect and overstated.  It was said also to lack probative value.  There are judgments and evaluative assessments of the weight of evidence that was directed to the subject matter in question.  Again, the submission referred to the “failure of the tribunal’s fact finding and fact interpretation function” leading to “its reasoning failure”.
  4. The same kinds of arguments were directed to 14% being a better starting point.  The conclusion of the arbitrators was that the factors in A[233] were not sufficiently mentioned in Mr Williams’ report was challenged.  This was a debate about the proper evidential evaluation of Mr Williams’ report.  Once again, the arbitrators’ evaluation of Mr Williams’ report was said to constitute a failure of “fact interpretation and reasoning function”.  There were submissions about the weight given to admissions made by Mr Williams in cross-examination.  The proposition drawn by the arbitrators from Mr Williams’ admissions was said to be inconsistent with other evidence.
  5. The criticism of the arbitrators concerning the need for an uplift from 14% was likewise concerned with the evaluation of the evidence.  It was submitted that there was no “clear” evidence; it was submitted that the evidence did not warrant a conclusion of an uplift and that the “fact finding and interpretation functions” led to “reasoning failure”.
  6. The 22.5% finding was criticised at a number of levels.  First, too much weight was said to have been given to an unimportant piece of evidence, being the perceived commercial importance to Castel of the non-competition clause.  This was an argument about the weight of a commercial consideration in a context where the people who sought to rely on it, especially Mr Kwong, were cross-examined on the provision and on its importance.
  7. It was submitted that 22.5% was “pulled from the air”.  In a case where the parties called expert evidence, the rejection of Mr Acton’s evidence required the arbitrators, it was submitted, to determine the case on Mr Williams’ evidence. Further, this was said to be reinforced by the lack of available material to permit the arbitrators to “do their best” on sufficient material.  Further, it was submitted that there could be no reasonable anticipation by TCL that the arbitrators would approach the matter in this way – that it had been denied a hearing.
  8. If the reference had been conducted in such a way that the central approach of the arbitrators did not reflect how the case was conducted and could be reasonably seen as a surprise, it might be open to conclude that the parties (and most particularly, of course, the losing party) had been denied the opportunity of a hearing.
  9. That was plainly not the case here.  In a contest such as this about the effect of wrongful conduct on a business, expert evidence was obviously relevant and of assistance.  The fact that one expert was discounted as unhelpful did not drive the arbitrators to the necessary acceptance of the other.  No commercial litigator would have assumed that unless the reference had been run in a way to demand that conclusion.  It was not so run.  Here there was full cross-examination of Mr Williams.  There cannot have been the slightest doubt that his evidence was challenged and that the arbitrators were free to assess all the evidence and reach a result not precisely reflected by either expert.  The arena of dispute was between 7.4% and 100%.  The approach of Holmes JA in Thurston v Todd (1966) 84 WN (Pt 1) (NSW) at 246 (cited by the primary judge) is a sound reflection of that approach.
  10. Further, it was plain that the arbitrators were entitled to take all of the evidence and make their own assessment of it. The primary judge referred to the relevant authorities at J[139]-[144]. The principal criticism of this approach was that the facts here required real speculation and a guess about quantification. Emphasis was placed by TCL on JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237 and on Schindler Lifts Australia Pty Ltd v Debelak(1989) 89 ALR 275. The criticism of the primary judge was truly one of the evaluation of the evidence, not one of principle. At one level there is a tension between Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167 and cases such as Schindler.  As Pincus J said in Schindler 89 ALR at 319, the evidence brought by someone with an onus may be so inadequate in its totality, when the whole context is examined, that there can be said to be no rational foundation for any proper estimate. In other cases, the court is required to make its best estimate on the materials provided. The proper approach will, in any given case, be an evaluative one influenced by such considerations as the nature of the question, including its amenability to precise proof or assessment, the availability and control of evidence, and the onus of proof. Considerations such as the assessment of evidence according to the power of the party to adduce it will be important to such an evaluation: cf Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970; Cullen v Welsbach Light Co [1907] HCA 3; 4 CLR 990 at 1013-1014; Hampton Court Ltd v Crooks [1957] HCA 28; 97 CLR 367 at 371-372; Parker v Paton (1941) 41 SR (NSW) 237 at 243; Re Alexander; Ex parte Ferguson (1944) 45 SR (NSW) 64 at 67; Vetter v Lake Macquarie City Council [2001] HCA 12; 202 CLR 439 at 454 [36];
  11. The primary judge’s review of the evidence demonstrated that the arbitrators did not engage in guesswork or speculation.  Further, the criticism of the arbitrators and of the primary judge’s conclusion reduced to a contest about the evaluation of that evidence.  This was particularly clear when it was obvious (and common ground) that Castel’s lost sales were not capable of precise calculation and were not a subject peculiarly within Castel’s power to prove from its own records or knowledge.  The subject depended upon how third parties responded or might respond to conduct which was a breach of contract by TCL.
  12. It is unnecessary to embark on any restatement or reconsideration of the proper approach to the assessment of damages in circumstances where precise evidence of loss cannot be exacted.  No criticism was made on appeal of the approach of Brooking J in JLW (Vic) that, to a degree, guided the primary judge at J[142]-[144] in his statement of principle.  It can be accepted that if the Court has before it a question about which the Court could reasonably expect a party to bring evidence of some precision and no such evidence is brought, and no explanation is given, the Court may be entitled to say the burden of proof has not been discharged: Ted Brown Quarries 16 ALR at 37 (Gibbs J); or the Court might say that in the circumstances sufficient evidence has been brought to require the Court to do its best: Ted Brown Quarries at 26 (Barwick CJ). The difference will reflect (as it did in Ted Brown Quarries) differences of opinion from the evaluation of the evidence and the circumstances of the litigation.  That was the task that the arbitrators undertook.  TCL’s complaint is about that evidential evaluation.
  13. The evidence revealed that TCL received a scrupulously fair hearing in a hard fought commercial dispute.  Its complaints are about the evaluation of factual material.  No rule of natural justice was breached.

Residual aspects of the submissions of the appellant on the appeal

  1. The above discussion deals in substance with the arguments put by the appellant.  We should, however, finish with a response to one particular submission of the appellant.
  2. The appellant argued that even so-called minor or technical breaches of the rules of natural justice would suffice for the setting aside or non-recognition or non-enforcement of an international commercial arbitration award, unless the Court could exclude any possibility of a different result being reached. This was said to flow from the lack of any reference to prejudice in the IAA and the unqualified statement of Parliament in effect that any breach of the rules of natural justice was contrary to Australian public policy. This should be rejected for the reasons that we have given. It confuses and misstates the relevant conception of natural justice as one divorced from unfairness or practical injustice, it disembodies the words of Parliament from their statutory context, and it would impute to Parliament an intention to interfere with arbitral awards in a manner that would undermine fatally the facilitation and encouragement of international commercial arbitration in Australia.
I certify that the preceding one hundred and sixty-nine (169) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop and the Honourable Justices Middleton and Foster.

 

Associate:
Dated:        16 July 2014

 

Rowland v. Sandy Morris Financial & Estate Planning Services, LLC., No. 20-1187 (4th Cir. 2021)

 

United States Court of Appeals, Fourth Circuit

 

Rowland v. Sandy Morris Financial & Estate Planning Services, LLC., No. 20-1187 (4th Cir. 2021)

FILE NUMBER: No. 20-1187.
JUDGE(S): Before WILKINSON, NIEMEYER, and QUATTLEBAUM, Circuit Judges.
REGISTRY:
DATE OF HEARING: March 12, 2021
DATE OF JUDGMENT: April 7, 2021
CASE MAY BE CITED AS: Rowland v. Sandy Morris Financial & Estate Planning Services, LLC., No. 20-1187 (4th Cir. 2021)
MEDIUM NEUTRAL CITATION: Rowland v. Sandy Morris Financial & Estate Planning Services, LLC., No. 20-1187 (4th Cir. 2021)
DIVISION: United States Court of Appeals, Fourth Circuit
LIST
PARTIES: BARRY ROWLAND; DONNA ROWLAND, Plaintiffs-Appellees,

v.

SANDY MORRIS FINANCIAL & ESTATE PLANNING SERVICES, LLC; SANDEVA O’BRYAN MORRIS, Defendants-Appellants,

and

GLOBAL FINANCIAL PRIVATE CAPITAL, LLC; GF INVESTMENT SERVICES, LLC; MINNESOTA LIFE INSURANCE COMPANY, Defendants.

REPRESENTATION: Donald R. Pocock, NELSON MULLINS RILEY & SCARBOROUGH LLP, Winston-Salem, North Carolina, for Appellant.

Brooke A. Howard, HOWARD LAW, PLLC, Raleigh, North Carolina; James A. Roberts, III, Matthew D. Quinn, LEWIS & ROBERTS, PLLC, Raleigh, North Carolina, for Appellees.

Appeal: Appeal from the United States District Court for the Western District of North Carolina, at Statesville. Kenneth D. Bell,

District Judge. (5:19-cv-00069-KDB-DCK).

 

 

JUDGMENT
 

 

Judge Wilkinson wrote the opinion, in which Judge Niemeyer and Judge Quattlebaum joined.

 

WILKINSON, Circuit Judge.

 

In this appeal, defendants Sandeva “Sandy” Morris and Sandy Morris Financial LLC (SMF) challenge the district court’s denial of their motion to compel arbitration of plaintiffs Barry and Donna Rowland’s North Carolina contract and tort claims. Because we agree with the district court that the parties did not form an agreement to arbitrate, we affirm the order below.

 

I.

In 2014, the Rowlands first met with Morris in Tampa, Florida, for financial planning advice. Later that year, they moved to North Carolina but continued to use Morris and her firm for their financial affairs. From 2015 to 2018, Morris served as the Rowlands’ financial advisor. In 2015, Morris sold them two annuity contracts and the next year recommended a particular universal life insurance policy, which the Rowlands purchased.

 

The Rowlands expanded the scope of their professional relationship with Morris and her firm in 2017 by hiring her to manage their investment accounts. To do this, plaintiffs filled out SMF’s Asset Management Agreement (AMA) and new account forms from TD Ameritrade. The AMA and TD Ameritrade forms were bundled together in a single pdf. The brokerage forms rolled money from Mr. Rowland’s Charles Schwab IRA over to a TD Ameritrade IRA managed by Morris and her firm.

 

The AMA included an addendum and a Risk Profile Questionnaire (RPQ) that documented what accounts SMF was to manage and how the firm was to manage them. The AMA also included an arbitration section. It required the parties to use arbitration to settle “any controversy or dispute which may arise between Client and Sandy Morris Financial concerning any transaction or the construction, performance or breach of this Agreement.” J.A. 121. The AMA dictated that the rules of the American Arbitration Association would govern any arbitration. J.A. 121. Right above the signature block, the contract included this disclaimer, bolded and in all capital letters: “This Agreement contains a pre-dispute arbitration clause.” J.A. 122.

 

On October 2, 2017, Mr. Rowland received a fifty-four-page pdf from SMF, which included the AMA and the TD Ameritrade documents. He signed and returned the document via Docusign, a well-recognized online platform for signing and transmitting documents. When SMF received the signed agreement, Steve Zanolli, the Chief Compliance Officer, signed it on behalf of SMF.

 

Unfortunately the Rowlands’ investments did not work out as they had hoped. After the Rowlands commenced this suit in the Western District of North Carolina for state law contract and fraud claims, the parties submitted different versions of the AMA to the district court for its decision on Morris and SMF’s motion to compel arbitration. The Rowlands’ version (Rowland AMA) included on page fourteen of the AMA one account (ending in 8519) for management by SMF and Mr. Rowland’s Docusign signature. And on page fifteen, the RPQ did not have a box marked for Risk Tolerance or Investment Objective, nor did it denote how many years of experience Mr. Rowland had with stocks— the only investment vehicle for which he indicated having any background. This page also had Mr. Rowland’s Docusign signature.

 

The version submitted by SMF (SMF AMA) with Zanolli’s signature was not the same. The SMF AMA included a second account (ending in 8521) and Sandy Morris’s signature. And the RPQ on page fifteen of the AMA had several boxes left blank by Mr. Rowland checked in a different color ink. It had his risk tolerance marked as “Moderate,” his investment objectives marked as both “Balanced” and “Growth & Income,” and his investment experience expanded to “Mutual Funds” with thirty years of experience denoted for both mutual funds and stocks. J.A. 125. Finally, the document had marked that the Rowlands would need “$6” of their assets in less than three years. J.A. 125.

 

Defendants filed motions to compel arbitration, to dismiss for lack of personal jurisdiction, to transfer venue, and to dismiss for failure to state a claim. The district court denied all of them. On the arbitration motion, the court found that the parties had not formed an agreement to arbitrate. On February 18, 2020, Morris and SMF timely filed a notice of appeal. Though noting that the defendants’ “appeal could be considered frivolous,” the district court nonetheless granted them a stay during the pendency of this appeal. J.A. 396. We have jurisdiction pursuant to 9 U.S.C. § 16(a)(1).

 

II.

 

We review “the decision to deny [a] motion for stay and to compel arbitration” de novo. Noohi v. Toll Bros., Inc., 708 F.3d 599, 602 (4th Cir. 2013) (quoting Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc., 380 F.3d 200, 204 (4th Cir. 2004)). Whether an agreement to arbitrate was formed is a question of “ordinary state-law principles that govern the formation of contracts.” Hill v. Peoplesoft USA, Inc., 412 F.3d 540, 543 (4th Cir. 2005) (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). We review these questions of state contract law de novo as well. Muriithi v. Shuttle Exp., Inc., 712 F.3d 173, 178 (4th Cir. 2013).

 

Furthermore, in reviewing the district court’s denial of a motion to compel arbitration, “we accept as true the allegations of the . . . Complaint that relate to the `underlying dispute between the parties.'” Berkeley Cty. Sch. Dist. v. Hub Int’l Ltd., 944 F.3d 225, 233 (4th Cir. 2019) (quoting Schnabel v. Trilegiant Corp., 697 F.3d 110, 113 (2d Cir. 2012)).

 

A.

 

In the modern American legal system, arbitration is an important means of dispute resolution. When state and federal courts require time-consuming, complex, and expensive procedures, arbitration offers a means of dispute resolution that is faster, easier, and cheaper for parties to utilize. And it has been given the imprimatur of the Supreme Court over the last decade. See, e.g., Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019); Am. Express Co. v. Italian Colors Rest., 570 U.S. 228 (2013); AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).

 

It was not always so. When Congress passed the Federal Arbitration Act (FAA), Pub. L. No. 68-401, 43 Stat. 883 (1925), it did so in response to extreme judicial hostility to arbitration. The FAA “sought to `overcome the rule of equity, that equity will not specifically enforce any arbitration agreement'” because first the English—and then the American—courts jealously guarded their own jurisdiction. Southland Corp. v. Keating, 465 U.S. 1, 13 (1984) (quoting Hearing on S. 4214 Before a Subcomm. of the S. Comm. on the Judiciary, 67th Cong. 6 (1923) (remarks of Sen. Walsh)).

 

Since the FAA established “a national policy favoring arbitration,” id. at 10, the Supreme Court has been quick to halt the lower courts’ creation of exceptions to the FAA that have no basis in the statute’s text. In Italian Colors, the Court rejected the “judgemade exception to the FAA” that declared arbitration “agreements that prevent the `effective vindication’ of a federal statutory right” to be unenforceable. 570 U.S. at 235. More recently, the Supreme Court unanimously rejected the “wholly groundless” exception adopted by four circuits. Henry Schein, 139 S. Ct. at 528. Under this exception, district judges had denied motions to compel arbitration when they found the movant’s “argument that the arbitration agreement applie[d] to the particular dispute [to be] `wholly groundless.'” Id. at 527-28.

 

This is not to say that district courts are to grant blindly all motions to compel arbitration. The FAA balances the goals of facilitating arbitration with the aims of contract law by recognizing a limited role for federal courts to play. The statute mandates that “[i]f the making of the arbitration agreement . . . be in issue, the court shall proceed summarily to the trial thereof.” 9 U.S.C. § 4. The Supreme Court has also held that when the parties disagree as to whether an agreement to arbitrate has been formed, “the dispute is generally for courts to decide.” Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, 296 (2010).

 

There is a difference between disputes over arbitrability and disputes over contract formation. See Hub Int’l, 944 F.3d at 234 n.9. While “`parties may agree to have an arbitrator decide . . . gateway questions of arbitrability,'” such an agreement does not “preclude a court from deciding that a party never made an agreement to arbitrate any issue.” Id. (quoting Henry Schein, 139 S. Ct. at 529). That is, it does not erase the court’s obligation to determine whether a contract was formed under 9 U.S.C. § 4. Thus the incorporation of the rules of the American Arbitration Association, which allow the arbitrator to rule on questions of arbitrability, see Am. Arbitration Ass’n, Consumer Arbitration Rules, R-14 (amended Sept. 1, 2014), does not obviate the need for courts to decide the threshold issue of contract formation.

 

This pre-arbitration process accomplishes an important function. It must be remembered that mandatory arbitration is not the default form of dispute resolution but rather is permitted only when the parties agree to it. “Arbitration is,” after all, “a matter of contract.” Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010). A party cannot be forced into arbitration. Rather, parties must actually contract to arbitrate disputes between them. Section 4 of the FAA has made clear that it is up to courts to determine whether a contract has been formed, and the district court properly heeded that call. This respects party autonomy and the general principles of contract law.

 

B.

 

Having found that the district court was the proper one to resolve the parties’ dispute over whether they agreed to arbitrate, we now turn to how that disagreement ought to be resolved.

 

Section 4 of the FAA requires the court to conduct a trial of the issue if there are “`sufficient facts’ support[ing] a party’s denial of an agreement to arbitrate.” Hub Int’l, 944 F.3d at 234. However, the right to a jury trial “is not automatic.” Chorley Enters., Inc. v. Dickey’s Barbecue Rests., Inc., 807 F.3d 553, 564 (4th Cir. 2015). Just as in traditional litigation, the district court must employ the summary judgment standard as a gatekeeper, so a trial occurs only if there are “genuine issues of material fact.” Id.; see also Hub Int’l, 944 F.3d at 234. In applying that standard, the burden is on the defendant to “establish[] the existence of a binding contract to arbitrate the dispute.” Minnieland Private Day Sch., Inc. v. Applied Underwriters Captive Risk Assurance Co., Inc., 867 F.3d 449, 456 (4th Cir. 2017). Here the district court in effect granted summary judgment to the plaintiffs by finding that, as a matter of law, the parties did not form an agreement. We have long held that appropriate. See, e.g., Stedor Enters., Ltd. v. Armtex, Inc., 947 F.2d 727, 732-33 (4th Cir. 1991).

 

Whether an agreement to arbitrate was formed is, as we have noted, a question of ordinary state contract law principles. See Chorley Enters., 807 F.3d at 563. Here, as both parties agree, the dispute is governed by North Carolina law. For a valid contract to be formed, the two parties must “assent to the same thing in the same sense, and their minds meet as to all terms.” Normile v. Miller, 326 S.E.2d 11, 15 (N.C. 1985) (quoting Goeckel v. Stokely, 73 S.E.2d 618, 620 (N.C. 1952)). There must be “an offer and acceptance in the exact terms.” Id. If the original terms are changed or new ones added, “there is no meeting of the minds.” Id. (quoting 8A G. Thompson, Commentaries on the Modern Law of Real Property § 4452 (1963)). “When there has been no meeting of the minds on the essentials of an agreement, no contract results.” Creech v. Melnik, 495 S.E.2d 907, 912 (N.C. 1998). This is nothing more than the standard black-letter law taught in every first year Contracts course.

 

Based on the undisputed evidence submitted by both parties, there was no such meeting of the minds—and thus no contract—because both parties did not agree to the same terms. The parties make a fuss about Docusign, the other files in the pdf with the AMA, whether there was a counteroffer, and how the differences in the AMAs submitted by each party came about. But at its core, this is a very simple contract dispute.

 

To wit, Mr. Rowland signed the AMA, which he submitted into evidence. Morris and SMF did not dispute that the Rowland AMA was in fact the version that Mr. Rowland signed. Morris and SMF also submitted into evidence the AMA that their agent signed. Mr. Rowland never received a copy of the SMF AMA and did not dispute that the version SMF submitted was the version that they signed. Those two AMAs differed as to a number of terms. In particular, an unknown employee at SMF added an extra account to be managed and filled in Mr. Rowland’s investment objectives and risk preferences, which according to the contract, were to govern how SMF managed his money. There was no evidence in the record that Mr. Rowland ordered them to do so or was even informed that they made such changes. There was no evidence that he reviewed or initialed those changes.

 

These discrepancies are not minor—they are material differences in the agreement between the parties. An investment advisor cannot unilaterally add another account for it to manage. The investment objectives and risk tolerance of the client are not insignificant preferences; rather, they set the ground rules for how SMF was to manage the plaintiffs’ money. The designation of which accounts were to be managed and how they were to be managed would be of paramount importance for any couple turning over its hard-earned savings to a financial firm for management. SMF did not bother to solicit from Mr. Rowland this information after he submitted the signed form, when it easily could have done so. Either one of the above omissions was sufficient to make for a material difference defeating the formation of the contract. Together they undoubtedly did so. Because the difference in material terms in the AMA prevented a meeting of the minds on the essential elements of the contract, we find that no contract between the parties was formed.

 

Although not dispositive, it is important to note the difference in sophistication of the parties. The Rowlands are individuals without extensive personal experience in finance or investing. Morris is a certified financial professional and her firm is in the business of managing money. The documents were so technical and voluminous as to daunt, and perhaps overwhelm, persons with the plaintiffs’ level of experience. We are not saying that volume or difference in sophistication is sufficient to defeat the formation of a contract, but the firm changing terms of an agreement after the customer signs it certainly does not add to the impression of fairness that one hopes to get from a financial institution managing an individual investor’s portfolio.

 

C.

 

There is no question that the digital age has changed the nature of contract formation. See, e.g., Robin Bradley Kar & Margaret Jane Radin, Pseudo-Contract and Shared Meaning Analysis, 132 Harv. L. Rev. 1135, 1141-42 (2019) (discussing how the Internet allowed a rise in boilerplate language that changed contracting and stretched traditional legal concepts); Ian Ayres & Alan Schwartz, The No-Reading Problem in Consumer Contract Law, 66 Stan. L. Rev. 545 (2014) (discussing the difficulty of translating the duty to read to the Internet era). Long gone are the days when two parties might sit down across a wooden table and sign with their own pens the same sheet of paper. With the advent of email, what is the significance of the Mailbox Rule? See generally Restatement (Second) of Contracts § 63 (Am. Law Inst. 1981). One can now send drafts, modifications, edits, and revisions with such speed and alacrity that it becomes easy to get sloppy. A casual Internet browser might enter a contract with a company merely by using its website. See, e.g., Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171, 1175-76 (9th Cir. 2014) (discussing “clickwrap” and “browsewrap” agreements online). In some cases, an “electronic `click’ can suffice to signify the acceptance of a contract.” Sgouros v. TransUnion Corp., 817 F.3d 1029, 1033 (7th Cir. 2016). For the unwary, this can be treacherous.

 

Although “new commerce on the Internet has exposed courts to many new situations”—and opened up useful new tools through which contracting parties can communicate—”it has not fundamentally changed the principles of contract.” Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir. 2004). Courts are not licensed to ignore the old chestnuts— cases that remind us that (1) certain formalities are required for a contract to be formed, see Bailey v. West, 249 A.2d 414 (R.I. 1969), and (2) when the formalities are met, a contract it does make, see Lucy v. Zehmer, 84 S.E.2d 516 (Va. 1954) (finding an impromptu land contract on a napkin agreed to over drinks to be an enforceable contract).

 

“About suffering, they were never wrong, / The old Masters.” W.H. Auden, Musee des Beaux Arts (1938). Perhaps the same can be said about formalities. Justice Holmes once declared “that all contracts are formal, that the making of a contract depends not on the agreement of two minds in one intention, but on the agreement of two sets of external signs—not on the parties’ having meant the same thing but on their having said the same thing.” Oliver Wendell Holmes, The Path of the Law, 110 Harv. L. Rev. 991, 996 (1997) (reprint of address given at Boston University School of Law on January 8, 1897). The electronic age has not made the formalities of contract less crucial, but more so—it is imperative that parties turn square corners and ensure that the documents on which signatures are affixed are as identical as possible and certainly identical as to all material terms. In the past, parties meeting face-to-face might have interacted with other people who could testify as to disputed facts over contract formation. When personal contact (and perhaps extrinsic evidence) is reduced, and documents are swapped back and forth via email or Docusign, there may be fewer such people. All we are left to rest on are the formalities.

 

III.

 

What happened here was at best sloppy on the part of Morris and SMF and at worst duplicitous—changes effected by sleight of hand. We need not decide which because, either way, no contract was formed. Unilateral unratified material changes on the part of Morris and her firm prevented the formation of a contract. Thus we readily affirm the order of the district court declining to compel arbitration.

 

AFFIRMED

PBO v DONPRO [2021] EWHC 1951 (Comm) (16 June 2021)

 

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

COMMERCIAL COURT (QBD)

 

PBO v DONPRO [2021] EWHC 1951 (Comm) (16 June 2021)

FILE NUMBER: CL-2020-000383
JUDGE: The Honourable Mr Justice Bryan
REGISTRY: Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL

DATE OF HEARING:
DATE OF JUDGMENT: 16 June 2021
CASE MAY BE CITED AS: PBO v DONPRO [2021] EWHC 1951 (Comm) (16 June 2021)
MEDIUM NEUTRAL CITATION: [2021] EWHC 1951 (Comm)
DIVISION: BUSINESS AND PROPERTY COURTS

OF ENGLAND AND WALES

LIST ARBITRATION CLAIM
PARTIES: (AS ANONYMISED)

Claimant:

PBO 

AND

 

Respondents:

(1) DONPRO
(2) 2DON
(3) CODON

REPRESENTATION: Liisa Lahti (instructed by Teacher Stern LLP) for the Claimant

 

And

 

Fiona Whiteside (instructed by Walker Morris LLP) for the Respondents

 

 

JUDGMENT
 

MR JUSTICE BRYAN:

  1. INTRODUCTION
  2. The parties appear before me today on the hearing of the Arbitration Claims of PBO whereby PBO advances challenges under sections 67 and 68 (and if necessary under section 69 of the Arbitration Act 1996 (the “Act”) in respect of appeal proceedings brought before the Federation of Cocoa Commerce (“FCC”) Board of Appeal (the “Board”) which were determined on the basis of the parties’ written submissions and without an oral hearing. More specifically five challenges are brought before me three pursuant to section 68 of the Arbitration Act 1996 and two pursuant to section 67 of the Act, as follows:-

(1) Pursuant to section 68, and in relation to the Respondents’ claim (the “Claim”), a refusal of the Board to allow PBO to amend its statement of case on appeal which it is said amounted to serious irregularity that has caused PBO substantial injustice. It is said that such refusal prevented PBO from advancing its full defence to the Claim including arguments that were potentially determinative of the Claim and in circumstances where it is said that (a) there would have been no (or minimal) prejudice to the Defendants and (b) the Tribunal gave no consideration to the balance of prejudice between the parties and misunderstood the requirement of “necessity” in section 33(1)(b) of the Act.

(2) Pursuant to section 68, and in relation to PBO’s counterclaim, that there was a serious irregularity that has caused PBO substantial injustice because the Board of Appeal departed from the way in which the case was presented by the parties and did so without warning such that PBO was not afforded a reasonable (or any) opportunity of putting its case in circumstances where the Board found that PBO had displayed an intention not to perform 11 contracts between PBO and CODON within the meaning of Rule 19.5 of the FCC Rules such that CODON was justified in “cancelling” them, in circumstances where the Respondents had not relied upon Rule 19.5, and the parties had not been given any opportunity to address the Board in relation thereto.

(3) Pursuant to section 68, and in relation to PBO’s counterclaim, that there was a serious irregularity that has caused PBO substantial injustice because the Board departed from the way in which the case was presented by the parties and did so without warning such that PBO was not afforded a reasonable (or any) opportunity of putting its case in circumstances where the Board found that it did not have jurisdiction to deal with PBO’s claim for “Jute Bag Losses” where there had been no jurisdictional challenge, and the parties had not been given any opportunity to address the Board in relation thereto.

(4) Pursuant to section 67, that the Tribunal did not have jurisdiction over the Second Defendant (“2DON”).

(5) Pursuant to section 67, that the Tribunal did have jurisdiction to consider the Jute Bag Losses.

  1. PBO seeks an order that the entire Appeal Award be set aside and the dispute between PBO and the Defendants be heard by a new tribunal (alternatively that the Appeal Award be remitted to the Board of Appeal for reconsideration). PBO submits that this is appropriate even if the Court accepts PBO’s section 68 arguments in relation to the Counterclaim but not the Claim.
  2. The orders sought under sections 67 and 69 of the Act are only required if the Tribunal does not make the aforesaid orders under section 68. There is also a pending application for permission to appeal against the relevant award under section 69 of the Act. However, as contemplated in the order of Mr Justice Waksman dated 23 December 2020, whether or not it will ever be necessary for the Court to rule upon the section 69 application hereafter depends on the outcome of the current applications.
  3. The dispute between the parties arose out of a series of agreements for the sale and purchase of cocoa beans. Arbitration proceedings were commenced by the First and Second Defendants (“DONPRO” and “2DON”) pursuant to three contracts that DONPRO had with PBO (the “Claim”). A counterclaim was brought by PBO against the Third Defendant (“CODON”) pursuant to eleven contracts that it had entered into with CODON) (the “Counterclaim”).
  4. A feature of the arbitration proceedings is that PBO argued that the losses suffered by each party under the claim and the counterclaim should be compared and the difference awarded to the party showing the greater loss. CODON was joined to the arbitration proceedings. There was an initial arbitration (the “Arbitration”, the “Tribunal” and the “Award”) and a second tier or “appeal” arbitration (that permitted new submissions to be made) (the “Appeal Arbitration”, the Board and the “Appeal Award”). Both arbitrations were conducted on written submission and documents alone, as I have already noted. All PBO’s applications relate to the Appeal Award. I am told the amount in dispute is approximately €500k on the Claim, and it is said £2.7m on the Counterclaim. I do not know whether or not that is so, and I have not been addressed in relation to such matters.
  5. CODON was not in fact represented in the arbitration proceedings. However it was joined to the arbitration and the submissions filed by the lawyers representing DONPRO and 2DON contained arguments that it was apparent were made on behalf of CODON.

B: BACKGROUND AND THE DISPUTES BETWEEN THE PARTIES

  1. PBO, a company engaged in the business of trading cocoa beans, purchased cocoa beans from DONPRO, a company engaged in the business of selling cocoa beans. A number of contracts were entered into between PBO and DONPRO in 2017 (the “2017 DONPRO Contracts”). The claim related to three of those contracts (the “Three DONPRO Contracts” and/or the “Three DONPRO Invoices”). 2DON is an entity to which DONPRO said it had assigned these debts to. There were also, certainly as per PBO, eleven contracts entered into between PBO and the Third Defendant (CODON) in 2018 (the “2018 CODON Contracts”). PBO’s case is that the eleven 2018 CODON Contracts were replacement contracts entered into to replace the remaining 2017 DONPRO Contracts after DONPRO became unable to contract with PBO due to a tax investigation into DONPRO and frozen bank accounts.
  2. Each of these aforesaid contracts were governed by English law and incorporated the Federation of Cocoa Commerce Contract Rules for Cocoa Beans (the “FCC Contract Rules”). The FCC Contract Rules in turn provide (at Rule 20) that any dispute arising out of the Contract Rules for Cocoa Beans must be referred to FCC Arbitration to be settled in accordance with the FCC Arbitration and Appeal Rules (“FCC Arbitration Rules”) applicable on the date of the contract in question. The FCC Contract Rules are standard form contract terms used in the cocoa bean trade.
  3. As I have noted, DONPRO and 2DON claimed against PBO pursuant to the Three DONPRO Invoices. PBO successfully applied to have CODON joined as a party to the arbitration and counterclaimed against CODON arguing that CODON was in breach of the eleven 2018 CODON Contracts by wrongfully seeking to cancel those contracts and in failing to perform the contracts. PBO claimed that as a result of these breaches it had suffered pecuniary loss that exceeded the amounts claimed by DONPRO and 2DON. PBO further claimed that there had been a “wash-out” between the DONPRO Contracts and the eleven 2018 CODON Contracts. Per paragraph 18 of Mr Rabinowicz’s first statement in support of the applications a “wash-out” means “a situation where an old contract (or contracts) are replaced with a new contract (or contracts) between the same or other entities“. PBO argued that there had been a wash-out and that therefore the losses suffered by each party under the claim and the counterclaim should be compared and the difference awarded to the party showing the greater loss. In the event – and for reasons which will become apparent – the Board did not at that stage have to rule upon that point
  4. Turning first to the Award, the Award is dated 12 December 2019. The Tribunal found (in summary) that sums were due under the Three DONPRO Invoices. PBO was ordered to pay two amounts to DONPRO and one amount to 2DON, The Tribunal accepted the validity of the assignment between DONPRO and 2DON, and PBO says it is accordingly unclear why some payments were said to be due to DONPRO and others to 2DON. As to the Counterclaim PBO’s request to join CODON to the proceedings was accepted. The Tribunal found that the eleven 2018 CODON Contracts were a replacement of the relevant 2017 DONPRO Contracts.
  5. The Tribunal also found that PBO had “never declared the Claimants in default” and therefore pursuant to FCC Rule 19.1.1 the shipment periods of the 2018 CODON Contracts were implicitly extended beyond the original shipment periods such that all of the 2018 CODON Contracts “remain in force”, and PBO’s counterclaim was rejected. Given that finding, following receipt of the Award and in order to comply with the provisions of FCC Rule 19.1.1 referred to in the Award, PBO sent CODON two notices of default, one dated 31 December 2019 and another dated 17 January 2020.
  6. In the Appeal Arbitration PBO argued that as CODON had not attempted to make any deliveries since receiving the December 2019 notice of default CODON was officially in default of the 2018 CODON Contracts on 15 January 2020 and the Board should ascertain the relevant compensation for non-performance. PBO relied on Rules 19.2 and 19.2.1 of the FCC Arbitration Rules which set out a procedure for “closing out” a contract in the event of a default and for calculating loss (by reference to the difference between the contract price and the market price). PBO argued that (i) the losses calculated by reference to FCC Rule 19.2.1 totalled GBP 2,652,793, (ii) which far exceeded the amounts payable pursuant to the Three DONPRO Invoices (plus interest) and (iii) therefore the Tribunal should “declare a ‘wash’ of the Invoice amounts plus interest” and order DONPRO, 2DON and CODON to pay (on a joint and several basis) the balance to PBO. PBO also identified further losses of €77,802.30 for jute bags and dry bags. PBO alleged that these losses were recoverable pursuant to Rule 19.2.3 of the FCC Contract Rules (“Additional Loss”). As explained further below, there is a dispute between the parties about the nature of the claim for Jute Bag Losses which is relevant to one of the section 68 challenges.
  7. The Defendants responded by arguing (in summary) that they had not received the 31 December 2019 Notice of Default, that the Tribunal should have relied on Rule 19.1.2 of the FCC Rules rather than rule 19.1.1 but that in any event the eleven 2018 CODON Contracts had been “cancelled” and therefore no damages were due to PBO. The precise nature of the last of these arguments is at the heart of one of PBO’s section 68 challenges, namely that relating to Rule 19.5.
  8. Prior to the close of the Appeal Arbitration proceedings PBO changed legal representatives and its new lawyers submitted an application to amend PBO’s statement of case because they had identified what they considered to be a number of new grounds of appeal, including an argument that the Claim was time barred and that the assignment from DONPRO to 2DON did not bind PBO because (in relation to both arguments) the relevant FCC Rules had not been followed by the Defendants. The Tribunal refused the amendments, and that refusal is the subject of another challenge under section 68 of the Act.
  9. The Appeal Award (dated 25 May 2020) found that the CODON Contracts were “rightfully cancelled” by the Respondent/Seller because PBO had displayed an intention not to perform within the meaning of Rule 19.5 of the FCC Rules. In relation to the Jute Bag Losses the Board of Appeal did not consider itself to have jurisdiction over these losses. The Board of Appeal therefore ordered PBO (1) to pay DONPRO €214,059 plus interest in relation to two of the Three DONPRO Invoices, and (2) to pay 2DON €283,085 plus interest in relation to the third DONPRO Invoice.
  10. APPLICABLE LEGAL PRINCIPLES

C.1 SECTION 68

  1. Section 68 of the Arbitration Act 1996 provides in relevant part:

“(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award.

A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).

(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant—

(a) failure by the tribunal to comply with section 33 (general duty of tribunal); …”

  1. It follows from the wording of section 68(2) that a successful appellant under section 68 must show not only that there has been a serious irregularity falling within one of the categories listed at section 62(2), but also that the irregularity has caused or will cause substantial injustice to the appellant.
  2. Substantial injustice is not defined in the Act, but the Defendants refer to what is said in paragraph 280 of the DAC Report:

“…The test of substantial injustice is intended to be applied by way of support for the arbitral process, not by way of interference with that process. Thus it is only in those cases where it can be said that what happened is so far removed from what could reasonably be expected of the arbitral process that we would expect the court to take action. The test is not what would have happened had the matter been litigated. To apply such a test would be to ignore the fact that the parties have agreed to arbitrate, not litigate. Having chosen arbitration, the parties cannot validly complain of substantial injustice unless what has happened simply cannot on any view be defended as an acceptable consequence of that choice. In short, [section] 68 is really designed to be a long stop, only available in extreme cases when the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected.”

(emphasis from the Judicial Committee of the Privy Council in RAV Bahamas Ltd v Therapy Beach Club Inc [2021] UKPC 8 (“RAV Bahamas“), per Lord Hamblen and Lord Burrows at paragraphs [30] to [34] as to the statutory purpose of section 68).

  1. The words “what happened is so far removed from what could reasonably be expected of the arbitral process that we would expect the Court to take action”and “Section 68 being really designed as a long stop only available in extreme cases where the Tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected”was emphasised by the Judicial Committee of the Privy Council in RAV Bahamas, supra, per Lord Hamblen and Lord Burrows at [30-34], where they set out the statutory purpose of Section 68, in particular Lord Hamblen at [30]
  2. The Respondents also refer to what was said by the editors of Russell on Arbitration(24th 2015) at 8-085 to 8-087, that the “high threshold” of section 68 means that many challenges brought under section 68 fail.
  3. In reference to what was said by the DAC, PBO also draws my attention to the decision of Bandwidth Shipping v Intaari[2006] EWHC 2532 (Comm), a decision of Christopher Clarke J who at paragraph 61 says this by reference to DAC paragraph 280:

“Valuable though that paragraph is as an indication of the draftsman’s envisaged purpose, I remind myself that Parliament has enacted what appears in Section 68 of the Act and not what appears in paragraph 280 of the Report. The power to intervene arises if there has been a failure to comply with Section 33 that causes substantial injustice. Some of the phraseology of paragraph 280 (“so far removed from what could reasonably be expected’, “cannot on any view be defended as an acceptable consequence’, “only available in extreme cases’) seems to add something of a gloss on the words of the statute. I do not intend by these observations to imply that the Courts should readily intervene in cases of asserted irregularity (the reverse is true); only to sound a note of caution on treating paragraph 280 of the Report as if it was the statute itself”.

  1. For her part, Ms Whiteside, on behalf of the Respondents, accepts that what has to be construed is Section 68, but she prays in aid the statutory purpose as identified by Lord Hamblen in the RAV Bahamascase, which I bear well in mind.
  2. Each of the section 68 challenges in this case is brought under section 68(2)(a), i.e. a breach of the general duty of fairness (partiality is not in issue).
  3. Section 33 (general duty of the tribunal) provides:

“(1) The tribunal shall—

(a) act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and

(b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.

(2) The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it.”

  1. Section 33(1) is replicated in the FCC Arbitration and Appeal Rules at rule 1.7. The duty at subsection 33(1)(b) to adopt procedures which avoid unnecessary delay or expense reflects the general principle at section 1(a) of the Act:

“The provisions of this Part are founded on the following principles, and shall be construed accordingly—

(a) the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;”

  1. In deciding what procedure to adopt in accordance with its general duty under section 33, a tribunal must have regard to cost-efficiency and the need to avoid unnecessary delay. The Respondents rely upon what was said by Colman J in Kalmneft JSC v Glencore International AG[2002] 1 All E.R. 7 per Colman J. at [83]:

“…In deciding what procedure is suitable so as to provide for a fair resolution of the dispute [the arbitrator] must have regard to cost-efficiency and the need to avoid unnecessary delay.”

  1. Section 33 obliges a tribunal to give each party a reasonable opportunity of putting his case and dealing with that of his opponent. Whether that opportunity was afforded to a party will be a question of fact and degree.
  2. The applicable legal principles in relation to section 68 are not controversial and were largely common ground before me. For its part PBO refer to the recent decision of Sir William Blair in Grindrod Shipping Pte Ltd v Hyundai Merchant Marine Co Ltd[2018] 2 Lloyd’s Rep. 121 referring also to previous decisions of Popplewell J (as he then was), at paragraphs [35]-[40]. I am satisfied that these paragraphs provide a convenient summary of the applicable principles, supplemented by other authorities to which I was referred by the Respondents, and to which I will also refer.
  3. At [35]-[40] Sir William Blair stated as follows:

“The applicable legal principles

  1. There is no dispute as to the applicable legal principles, which I can take largely from the submissions of counsel for IVS.
  2. Under s. 68(2)(a) of the Arbitration Act 1996, a failure by the tribunal to comply with s. 33 (the “general duty of the tribunal”) may constitute a serious irregularity.
  3. Section 33(1) imposes obligations on the tribunal to “act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent”, and to “adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined”.
  4. An important element of these duties is that the parties have the right to be given a reasonable opportunity to deal with any issue that will be relied on by the tribunal when writing its award.As it is put by the editors of Russell on Arbitration (24th edition, 2015), at para. 5-050:

“To comply with its duty to act fairly under s. 33(1) of the Arbitration Act 1996 , the tribunal should give the parties an opportunity to deal with any issue which will be relied on by it as the basis for its findings. The parties are entitled to assume that the tribunal will base its decision solely on the evidence and argument presented by them prior to the making of the award. If the tribunal is minded to decide the dispute on some other basis, the tribunal must give notice of it to the parties to enable them to address the point. Particular care is needed where the arbitration is proceeding on a documents-only basis or where the opportunity for oral submissions is limited. That said, a tribunal does not have to refer back to the parties its analysis or findings based on the evidence or argument before it, so long as the parties have had an opportunity to address all [of the] essential building blocks in the tribunal’s conclusion. Indeed, the tribunal is entitled to derive an alternative case from the parties’ submissions as the basis for its award, so long as an opportunity is given to address the essential issues which led the tribunal to those conclusions…”

  1. In Zermalt Holdings SA v. Nu-Life Upto/srey Repairs J/d [1985] 2 EGLR 14 at 15, Bingham J put this principle as follows:

If an arbitrator is impressed by a point that has never been raised by either side, then it is his duty to put it to them so that they have an opportunity to comment. If he feels that the proper approach is one that has not been explored or advanced in evidence or submission, then again it is his duty to give the parties a chance to comment…It is not right that his decision should be based on specific matters which the parties have never had the chance to deal with. Nor is it right that a party should first learn of adverse points in a decision against him. That is contrary both to the substance of justice and to its appearance.”

That was a decision under the previous arbitration legislation but it remains good law for the purposes of sections 33 and 68(2)(a) of the 1996 Act.

  1. An analysis of the leading authorities and the legal principles to be derived from them is to be found in the recent judgments of Popplewell J in Terna Bahrain Holding Co. YJJ v. Bin Kamel Al Shamzi [2013] 1 Lloyd’s Rep 86 , at [85] and Reliance Industries Ltd and another v. The Union of India[2018] EWHC 822 (Comm) , at [12]—[15]):

“(1) In order to make out a case for the Court’s intervention under section 68(2)(a) , the applicant must show:

(a) a breach of s. 33 of the Act; i.e. that the tribunal has failed to act fairly and impartially between the parties, giving each a reasonable opportunity of putting his case and dealing with that of his opponent, adopting procedures so as to provide a fair means for the resolution of the matters falling to be determined;

(b) amounting to a serious irregularity;

(c) giving rise to substantial injustice.

(2) The test of a serious irregularity giving rise to substantial injustice involves a high threshold. The threshold is deliberately high because a major purpose of the 1996 Act was to reduce drastically the extent of intervention by the courts in the arbitral process.

(3) A balance has to be drawn between the need for finality of the award and the need to protect parties against the unfair conduct of the arbitration. m striking tins balance, only an extreme case will justify the Court’s intervention. Relief under section 68 will only be appropriate where the tribunal has gone so wrong in its conduct of the arbitration, and where its conduct is so far removed from what could be reasonably be expected from the arbitral process, that justice calls out for it to be corrected.

(4) There will generally be a breach of section 33 where a tribunal decides the case on the basis of a point which one party has not had a fair opportunity to deal with. If the tribunal thinks that the parties have missed the real point, which has not been raised as an issue, it must warn the parties and give them an opportunity to address the point.

(5) There is, however, an important distinction between, on the one hand, a party having no opportunity to address a point, or his opponent’s case, and, on the other hand, a party failing to recognise or take the opportunity which exists. The latter will not involve a breach of section 33 or a serious irregularity.

(6) The requirement of substantial injustice is additional to that of a serious irregularity, and the applicant must establish both.

(7) In determining whether there has been substantial injustice, the court is not required to decide for itself what would have happened in the arbitration had there been no irregularity. The applicant does not need to show that the result would necessarily or even probably have been different. What the applicant is required to show is that had he had an opportunity to address the point, the tribunal might well have reached a different view and produced a significantly different outcome.”

(emphasis added)

  1. PBO also refer to what was said by Ackner LJ in Interbulk Ltd v Aiden Shipping Co Ltd (The Vimeira) (No 1)[1984] 2 Lloyd’s Rep 66 at [76]:

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

  1. For their part the Respondents also refer me to what was said at paragraphs [44], [45], [83] and [87] in Grindrod, which I bear well in mind. In particular what was said at paragraph [87] that “An issue as to prejudice is not a technical one, and standing back, the question is whether fairness required the tribunal to indicate to the parties that it wished to be addressed on the matters”before an award was issued.
  2. The Respondents also place reliance upon what was said by Popplewell J in Reliance Industries Ltd, supra, in particular at paragraphs [14] and [32]:

“14. Both sides accepted that the principles governing the application of Section 68(2)(a) included those which I endeavoured to summarise in Terna Bahrain Holding Co WLL v Bin Kamel Al Shamzi & Others [2013] 2 CLC 1 at [85] as follows:

(1) “In order to make out a case for the Court’s intervention under Section 68(2)(a), the applicant must show:

(a) a breach of Section 33 of the Act; i.e. that the Tribunal has failed to act fairly and impartially between the parties, giving each a reasonable opportunity of putting his case and dealing with that of his opponent, adopting procedures so as to provide a fair means for the resolution of the matters falling to be determined;

(b) amounting to a serious irregularity;

(c) giving rise to substantial injustice.

(2) The test of a serious irregularity giving rise to substantial injustice involves a high threshold. The threshold is deliberately high because a major purpose of the 1996 Act was to reduce drastically the extent of intervention by the Courts in the arbitral process.

(3) A balance has to be drawn between the need for finality of the award and the need to protect parties against the unfair conduct of the arbitration. In striking this balance, only an extreme case will justify the Court’s intervention. Relief under Section 68 will only be appropriate where the Tribunal has gone so wrong in its conduct of the arbitration, and where its conduct is so far removed from what could be reasonably be expected from the arbitral process, that justice calls out for it to be corrected.

(4) There will generally be a breach of Section 33 where a tribunal decides the case on the basis of a point which one party has not had a fair opportunity to deal with. If the Tribunal thinks that the parties have missed the real point, which has not been raised as an issue, it must warn the parties and give them an opportunity to address the point.

(5) There is, however, an important distinction between, on the one hand, a party having no opportunity to address a point, or his opponent’s case, and, on the other hand, a party failing to recognise or take the opportunity which exists. The latter will not involve a breach of Section 33 or a serious irregularity.

(6) The requirement of substantial injustice is additional to that of a serious irregularity, and the applicant must establish both.

(7) In determining whether there has been substantial injustice, the court is not required to decide for itself what would have happened in the arbitration had there been no irregularity. The applicant does not need to show that the result would necessarily or even probably have been different. What the applicant is required to show is that had he had an opportunity to address the point, the tribunal might well have reached a different view and produced a significantly different outcome”.

  1. However where a point of construction is squarely in play and addressed by both parties, the Tribunal is not obliged to put to the parties all aspects of the analysis in support of its conclusion in order to fulfil the Section 33 duty of fairness. As is well known, construction is an iterative process involving consideration of the particular wording in question, the other provisions of the contract taken as a whole, and the commercial consequences which follow from the rival constructions. The relevant provisions may be lengthy and admit of many nuances in the analytical argument. If provisions are relevant, and have been adverted to and addressed in argument, it is not necessarily unfair for the tribunal to use them to support its reasoning, even where the other party has not done so in the same way as the tribunal. It is always important to keep in mind the distinction between a lack of opportunity to deal with a case and a failure to recognise or take such opportunity. It is commonplace in judicial decisions on points of construction that a judge may fashion his or her reasoning and analysis from the material upon which argument has been addressed without it necessarily being in terms which reflect those fully expressed by the winning party. There is not perceived to be, and is not, anything which is unfair in taking such a course. It is enough if the point is “in play” or “in the arena” in the proceedings, even if it is not precisely articulated. To use the language of Tomlinson J, as he then was, in ABB AG v Hochtief Airport[2006] 2 Lloyd’s Rep 1 at [72], a party will usually have had a sufficient opportunity if the “essential building blocks” of the tribunal’s analysis and reasoning were in play in relation to an issue, even where the argument was not articulated in the way adopted by the tribunal. Ultimately the question which arises under s. 33(a), whether there has been a reasonable opportunity to present or meet a case, is one of fairness and will always be one of fact and degree which is sensitive to the specific circumstances of each individual case. That applies to points of construction as much as to other points in dispute.”
  2. This test of whether a point was “in play” or “in the arena” in the proceedings, was recently cited with approval by Lord Hamblen and Lord Burrows in RAV Bahamas, supra, at [49], and applied at [82].
  3. Examples of cases where the tribunal has been found to have decided an issue without giving the parties (or one of them) a reasonable opportunity of putting its case include Vee Networks Ltd v Econet Wireless International Ltd[2005] 1 All ER (Comm) 303 (where an arbitrator decided a point of construction by reference to certain amendments to the Bermudian Companies Act which were not addressed in the proceedings and the Court held that this constituted a serious irregularity such that the award was remitted to the tribunal); Cameroon Airlines v Transnet Ltd[2004] EWHC 1829 (where the tribunal decided an issue of quantum in a way other than the way in which it was put by either party and the Court held that doing so amounted to a serious irregularity) and K v A [2020] 1 Lloyd’s Rep. 28 (where, in relation to a GAFTA Award the serious irregularity arose because the tribunal had relied on a clause in the relevant contract which the parties had not relied on in their arguments).
  4. Ms Whiteside reminds me that each case turns on its own facts, and it is a rare and extreme case where Section 68 challenges have succeeded in this Court.
  5. In the context of the challenging of a procedural decision of a tribunal, the Respondents also refer to what was said by Colman J in Kalmneft(which was a case in which an arbitrator’s discretion to deal with jurisdiction by way of a preliminary award was challenged under section 62(2)(a) as a breach of the general duty of fairness) at [84] and [85]:

“Further, intervention under s 68 should be invoked only in a clear case of serious irregularity. The court’s powers to interfere with an arbitrator’s discretionary decision…should not be engaged unless it is clear that in exercising his discretion he has failed to have regard to the relevant facts and to his duty under s 33. Unless he has arrived at a conclusion which no reasonable arbitrator could have arrived at in the case in question having regard to his duties under s 33, it cannot be said that his decision is capable of being characterised as a serious irregularity. This threshold for intervention by the court has long been recognised as appropriately preserving the finality of awards and party autonomy…Where the matter in issue is the exercise of an arbitrator’s discretion as to how to exercise his jurisdiction under section 30(1) there is obviously an even stronger case for the irrationality test.”

See also what is said at [50]-[51] of that judgment.

  1. The Respondents also refer to what is said by the editors of Russell on Arbitrationat 8-096:

“Subject to agreements between the parties, the tribunal is the master of its own procedure. It is highly unlikely that a challenge would be sustained under this ground [section 67(2)(a)] on the basis of the tribunal’s procedural decisions, including for example relating to the decision of a tribunal to refuse a disclosure application… In relation to a complaint about the tribunal’s decision on costs, the Court of Appeal when considering an application for an extension of time to bring a s.68 application said that unless the tribunal’s reasons were “silly or illegal” there would not be a breach of the duty under s.33.” (referring to Peel v Coln Park LLP [2010] EWCA Civ 1062, per Longmore L.J. at [18]).”

C.2 SECTION 67

  1. Section 67(1) of the Arbitration Act 1996 provides:

“(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court—

(a) challenging any award of the arbitral tribunal as to its substantive jurisdiction; or

(b) for an order declaring an award made by the tribunal on the merits to be of no effect, in whole or in part, because the tribunal did not have substantive jurisdiction.

A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).”

  1. Section 67(1) is expressly subject to section 73 (Loss of right to object), which provides in part:

“(1) If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part, any objection—

(a) that the tribunal lacks substantive jurisdiction,

(b) that the proceedings have been improperly conducted,

(c) that there has been a failure to comply with the arbitration agreement or with any provision of this Part, or

(d) that there has been any other irregularity affecting the tribunal or the proceedings,

he may not raise that objection later, before the tribunal or the court, unless he shows that, at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection.

(2) Where the arbitral tribunal rules that it has substantive jurisdiction and a party to arbitral proceedings who could have questioned that ruling—

(a) by any available arbitral process of appeal or review, or

(b) by challenging the award,

does not do so, or does not do so within the time allowed by the arbitration agreement or any provision of this Part, he may not object later to the tribunal’s substantive jurisdiction on any ground which was the subject of that ruling.”

  1. It is well established that an application under section 67 of the Act is by way of a re-hearing rather than a review – see, for example, Azov Shipping Co v Baltic Shipping Co (No. 1)[1999] 1 All ER 476. In relation to the operation of section 67 in the context of a “trade arbitration” PBO refer to the case of Black Sea Commodities Ltd v Lemarc Agromond PTE Ltd[2021] EWHC 287 (Comm) (a GAFTA arbitration).
  2. THE S.68 APPLICATIONS

D.1 BOARD OF APPEAL’S DECISION UNDER FCC CONTRACT RULE 19.5

  1. It is convenient to address first the three section 68 applications, starting with the two substantive section 68 challenges in relation to the counterclaim, before addressing the section 68 challenge in relation to the Board’s refusal to allow PBO’s amended case to be advanced on the claim.
  2. Rule 19.5 of the FCC Contract Rules (“Rule 19.5“) allows a party to a contract governed by the FCC Rules to close out that contract if its contractual counterparty “displays an intention not to perform or an inability to perform“. A notice is required and a specific procedure for the close out is set out at Rule 19.5, including a formula for calculating the sum due (if any) to the innocent party. In certain scenarios, an arbitration is also contemplated.
  3. The Board found that CODON was entitled to (and had) cancelled the eleven 2018 CODON Contracts because PBO had displayed an intention not to perform them within the meaning of Rule 19.5.
  4. After setting out the history matter on the preceding page and at the top of the next page, which I bear well in mind, the relevant conclusions of the Board in the Appeal Award are as follows:-

“The Board of Appeal finds it sufficiently proven that the Respondent [presumably a reference to CODON as CODON is the contractual counter-party to PBO] has shipped 150MT against one of the CODON Contracts, M200A, and that it has presented documents representing this shipment and those documents have not been taken up by the Appellant, nor did the Appellant pay the invoice in relation to this shipment.

According to the FCC Rules for Cocoa Beans, Rule 19.5, the tribunal then set out the rule as follows:
“Rule 19.5 Intention of non-performance: Notwithstanding any other provision in these Contract Rules for Cocoa Beans, if before the fulfilment of their respective contractual obligations either party displays an intention not to perform or an inability to perform, the counterparty may, by notice in writing to the party, declare the party to be in default and call for the contract to be closed out.

“If the party receiving the notice disputes its validity or if the parties cannot agree upon the terms at which to settle the close out then the dispute shall be referred to arbitration subject to the FCC Arbitration and Appeal Rules. If the Arbitrators decide that a default has occurred they shall declare the contract to be closed out and determine the market price at the date of default. The following procedure shall be adopted-“” and then at (a) to (d) that procedure is set out.

The Board then continues as follows: As a consequence of this non-payment, combined with the previous experience of non-payments by the Appellant to the Respondent’s associated companies DONPRO and 2DON (all considered to be one and the same by the Appellant), as well as the lengthy history of the conflict without resolution, the Board of Appeal finds that there was an intention not to perform on the part of the Appellant.

Consequently the Board of Appeal validates the fact that the Respondent declared the Appellant in default and subsequently cancelled the contracts.”

(emphasis added)

  1. I am satisfied that the ordinary and natural reading of the highlighted passage is that (contrary to the Defendants submission before me) the Board of Appeal relied on a “combination” of three matters, namely

(a) a failure to pay one invoice issued under one of the eleven 2018 CODON Contracts, (b) a failure to pay the Three DONPRO Invoices and

(c) the “lengthy history of conflict”.

to reach the conclusion it did relying upon Rule 19.5.

  1. This was the only basis on which the Board found against PBO (save for in relation to the Jute Bag Losses which is the subject of the second section 68 challenge).
  2. PBO says, rightly I am satisfied, that in doing so the Board departed from the way in which the case had been presented by both parties and did so without warning. None of the “central issues”, “essential issues” or “essential building blocks” in the Board’s conclusion were in issue or “in play” before the Board.
  3. Firstly, whether PBO evidenced an intention not to perform (each of) the 2018 CODON Contracts within the meaning of rule 19.5 of the FCC Ruleswas not in issue before the Board for the simple reason that the Defendants did not rely on Rule 19.5 of the FCC Rules in their arguments before the Board .
  4. The only reference to Rule 19.5 was in fact made by PBO not before the Appeal Board but in the underlying arbitration and in a different context. This did not result in Rule 19.5 being in play before the Appeal Board in a different context. On the contrary – before the Appeal Board PBO had no need to rely upon Rule 19.5, and Rule 19.5 was not in play, because it had served notices of default.
  5. I am satisfied PBO’s deployment in the arbitration below did not put anything “in play” before the Board. In any event it plainly did not put “in play” whether PBO displayed an intention not to perform the eleven 2018 CODON Contractswithin the meaning of Rule 19.5 (or otherwise).
  6. PBO did not know that it was facing an argument relying on Rule 19.5. Therefore PBO was not given the opportunity to make submissions in relation to the meaning and effect of rule 19.5. I am satisfied that the construction of rule 19.5 is itself an “essential issue” or “building block” and informs what the other “essential issues” or “building blocks” in the Tribunal’s conclusion are.
  7. This can be illustrated by reference to the Board’s reliance on PBO’s failure to pay one invoice issued under one of the eleven 2018 CODON Contracts. This inevitably raises a question as to the proper construction of rule 19.5.
  8. In this context, PBO argues before me (as can be seen by reference to PBO’s application under s. 69 of the Act) that on a true construction of Rule 19.5 it is impermissible when analysing whether a party to a contract (governed by the FCC Contract Rules) has “displayed an intention not to perform” to take into account whether that party has displayed an intention not to perform a contract other than the one which is being closed out. Indeed, it appears to be accepted by the Respondents that that is correct. (See paragraph five of the Respondents’ section 69 skeleton argument).
  9. However, whether that is so or not – and the Respondents do not accept that that is the case – does not seem to me to be in point. The point is that PBO says that on the true construction of Rule 19.5 it is impermissible when analysing whether a party to a contract governed by the FCC Contract Rules has “displayed an intention not to perform” to take into account whether that party has displayed an intention not to perform a contract other than the one which is being closed out.
  10. Thus, certainly says PBO, prima facie, a failure to pay one of the eleven 2018 CODON Contracts is only relevant to whether a party has displayed an intention not to perform that contract. The Respondents submit that the Tribunal treated the eleven 2018 CODON Contracts as “a single transaction” and that for this reason the Tribunal found that a failure to pay one invoice issued pursuant to one of these contracts justified cancelling all eleven (see what is said by Mr McQueen at paragraphs 52.4 & 52.5 of his statement) which leads on to Mr McQueen’s submission that this is permitted by Rule 19.5 which “does not limit the termination right to a single contract and does appear capable of applying to a single transaction comprising multiple contracts“.
  11. But the difficulty with all of this is that if the Respondents are right as to the Tribunal’s reasoning then it follows, I am satisfied, that there were two findings made by the Tribunal which were “essential building blocks” in its conclusion namely (1) that the 2018 CODON Contracts were to be treated as one “transaction” for the purposes of Rule 19.5, such that (2) as a matter of fact and/or on the true construction of Rule 19.5 a failure to pay pursuant to one of the contracts within the “transaction” justifies cancelling all of the contracts within that transaction.
  12. The vice, however, is that neither of these issues were relied on by the Respondents or “in play” before the Board and PBO had no opportunity to address the Tribunal on such points (each of which, says, PBO, is wrong, as they would have submitted to the Board had they been given the opportunity to address the Board).
  13. In this regard, I was taken to a number of pages of the bundle by Ms Whiteside, including in particular pages 319, 321, 325 and 327. I am not satisfied that in any of those passages Rule 19.5 was put in issue or, indeed, that any of those paragraphs put in play the points which are now under consideration.
  14. In this regard, and secondly,though the Defendants relied on PBO’s failure to pay “invoices” issued (it is now accepted by the Respondents, and the Board in any event that only oneinvoice was issued) under the 2018 CODON Contracts, they did not, I am satisfied, do so in aid of an argument that by failing to pay that one invoice PBO had displayed an intention not to perform any/all of the eleven 2018 CODON Contracts which justified a cancellation (or termination) of those contracts (i.e. repudiatory breach). Instead the Defendants simply relied on an alleged failure by PBO to perform those contracts.
  15. See, for example, the Response to the Statement of Case on Appeal: “following the conclusion of the contracts with CODON in October 2018, the goods were loaded onto the ships and the documentspresented to the bank for collection. PBO however did not pay the invoices…” and that “The contracts concluded with CODON were finally cancelled as PBO did not settle its debts, nor pay the invoicesthat CODON had instructed its bank to bring PBO’s bank in Geneva” (emphasis added). The legal relevance of the failure to pay the (alleged) “invoices” issued in relation to the 2018 CODON Contracts is set out at Part III of the Response to Statement of Case on Appeal at Part C “non-payment of its debts by PBO” and is as follows:

“CODON prepared the documents and brought them to the “National Financial Credit Bank” in Douala; these documents included the necessary invoices. However PBO did not pay the invoices as provided for in the contract; therefore obliging CODON to make the decision to cancel these contracts, applying the principle of ordinary law “exception non adimpleti contractus”.

As PBO clearly did not respect its obligations, CODON could not have expected to deliver the goods for the benefit of PBO’s (sic) and then, as DONPRO and 2DON, have to pursue the appellant to enforce its debt obligation.

Since PBO did not respect the contract entered into with CODON, the latter is perfectly entitled to cancel”

  1. The principle of “exception non adimpleti contractus” (i.e. no performance is due to one who has not performed) is a civil law principle (derived from Roman law) which allows a party to a bilateral contract to suspend performance where its counterparty fails to perform. Therefore the Respondents’ argument and the alleged relevance of PBO’s (alleged) failure to pay “the invoices” despite CODON’s preparation of “the documents” was based on an (alleged) failure by PBO to performits contractual obligations. The Defendants were not advancing an argument that CODON was entitled to terminate the eleven 2018 CODON Contracts because PBO had displayed an intention not to performany of the eleven contracts by not paying the “invoices”.
  2. Thirdly, I am satisfied as PBO submitted before me, that even if it was part of the Respondents’ case that PBO’s failure to pay “the invoices” (plural) evidenced an intention not to perform eleven 2018 CODON Contracts (which PBO denies), the Respondents’ submissions referred to an (alleged) failure to pay the “invoices” (plural) despite the “documents” (plural) being presented to the relevant bank. It was therefore not part of the Respondents’ argument that the failure to pay one invoice evidenced an intention by PBO not to perform all eleven 2018 CODON Contracts.
  3. Fourthly, I am satisfied that though the Respondents relied on PBO’s failure to pay the three DONPRO Invoices, they did not do so in aid of an argument that PBO had by doing so displayed an intention not to perform any of the eleven 2018 CODON Contracts which justified a cancellation of those contracts. Instead the Respondents argued that payment of the Three DONPRO Invoices was a pre-condition to the eleven 2018 CODON Contracts coming into force (or possibly a pre-condition to performance).
  4. The non-payment of the Three DONPRO Invoices is referred to in the Respondents’ Response to the Statement of Case on Appeal in the Introduction “… the contracts concluded with the company CODON were cancelled due to the fact that PBO had not settled its debts vis-à-vis the respondents…”. This is relied on as part of an argument (denied by PBO and which was not addressed or accepted by the Tribunal) that the 2018 CODON Contracts were executed under the condition that PBO pay the entirety of the debts to DONPRO and 2DON (see paragraph 35 and 38 of the Response to the Statement of Case on Appeal). See also Defence to Counterclaim at pages 22-23 and Mr Poux’s statement “theconclusionof contracts between PBO and CODON was subject to the condition that PBO had previously discharged all of its debts vis-à-vis the companies … DONPRO and… 2DON” (emphasis added) and the Response to Statement of Case on Appeal at [35].
  5. Therefore, the argument being advanced concerned an alleged contractual pre-condition to the eleven 2018 CODON Contracts coming into force (or possibly a condition to performance). It was not an argument about whether PBO’s failure to pay the Three DONPRO Invoices evidenced an intention by PBO not to perform the eleven 2018 CODON Contracts which justified “cancelling” all eleven contracts.
  6. PBO points out that even on the Respondents’ own case, payment under the 2017 DONPRO Contracts fell due many months before the eleven 2018 CODON Contracts were entered into (see Appeal Award at internal pages 1 and 4). PBO says that as such (and even if one ignores the fact that DONPRO and CODON are separate legal entities) the non-payment of the Three DONPRO Invoices cannot (on a true construction of Rule 19.5) amount to or evidence an intention not to perform the eleven 2018 CODON Contracts which were entered into in the knowledge that PBO had failed to pay the Three DONPRO Invoices. PBO’s stance seems perfectly arguable, and in any event PBO was not provided with the opportunity to advance such argument.
  7. Fifthly, the third matter relied on by the Board, namely the “lengthy history of conflict” was not relied on by the Respondents.
  8. I am satisfied that in the above circumstances, and taking into full account the matters raised by Ms Whiteside by reference to pages 319, 321, 325 and 327 of the bundle and what she characterised as the “building blocks” that she identified both in relation to conduct, intention not to perform, declaration of cancellation and all 11 contracts being terminated, the “essential issues”or “essential building blocks”leading to the Board’s conclusion were not in issue or “in play” or “in the arena” before the Board, and as such PBO was not given a reasonable opportunity of putting its case on these points. I consider that this was, indeed, a classic example of the situation envisaged in Zermalt Holdings and The Vimeira (referred to above), namely where the Board appears to have considered that the parties have “missed the real point”.
  9. This was one of those occasions where, as Sir William Blair expressed it in Grindrod at [87], standing back, fairness required the tribunal to indicate to the parties that it wished to be addressed on the matters before an award was issued. It was therefore incumbent on the Board to “warn the parties and give them an opportunity to address the point“. It failed to do so.
  10. As set out above, in determining whether there has been substantial injustice, “[w]hat the applicant is required to show is that had he had an opportunity to address the point, the tribunal might well have reached a different view and produced a significantly different outcome” (Grindrod at [40]). See also Vee Networksat [90] which refers to showing that “the opposite conclusion was at least reasonably arguable.”
  11. The Respondents submit that there is no injustice to PBO by the Board’s reliance on Rule 19.5 (and associated reasoning of the Board) since such reasoning was correct based on the matters set out by Mr McQueen at paragraph 41 of his first statement. However these assume that the Board’s reasoning was correct. I am also invited to bear in mind the high hurdle that section 68 imposes on an appellant, and it is submitted that this is not one of those “extreme cases” in which it would be appropriate to set aside the Board’s decision.
  12. It would not be appropriate for me to express any concluded view on the merits as to any of the following arguments that are advanced by LIT. Indeed, I am not concerned with the merits, but with due process. It suffices for me to conclude, as I do, that each of the following arguments is “at least reasonably arguable” and any one of them “might well have” resulted in the Board reaching a different conclusion and produced a significantly different outcome. This approach was also recognised by Popplewell J in K v A , supra at [37].
  13. The arguments are as follows:-

(1) Failure to pay the (one) invoice issued pursuant to the eleven 2018 CODON Contracts did not in fact evidence an intention not to perform that contract still less all eleven 2018 CODON Contracts. PBO says that it was refusing to take up the documents representing the shipment (and therefore not paying the invoice) because CODON was setting the price incorrectly (by reference to the terms of the 2017 DONPRO Contracts and not the 2018 CODON Contracts) and were therefore demanding payment of a price that was not the contractually agreed price (see Rabinowicz 1 at [42(g)] and email dated 26 November 2018). PBO therefore says that its failure to take up the documents and pay the invoice was therefore justified.

(2) Failure to pay the one invoice did not, in any event, evidence an intention not to perform all eleven (individual) contracts.

(3) Non-payment of the three DONPRO Invoices does not amount to or evidence an intention not to perform the eleven 2018 CODON Contracts because those contracts were entered into in the knowledge that PBO had failed to pay the Three DONPRO Invoices.

(4) The non-payment of the Three DONPRO Invoices does not amount to or evidence an intention not to perform the eleven 2018 CODON Contracts because those contracts were entered into between CODON and PBO rather than DONPRO and PBO.

(5) The points raised in PBO’s Skeleton Arguments in the section 69 Appeal (which PBO say would have been raised before the Board had they been given the opportunity). and the arguments contained therein.

  1. I would only add that if, as I consider the Board should have done, it had raised with the parties the question of Rule 19.5, it is an unreal submission to suggest that PBO would have remained supine and would not have made the points that I have just identified in circumstances where a Tribunal draws the parties’ intention to a point which it considers important. I infer that the inevitable consequence is that such matters would have been aired and would have seen the light of day.
  2. There is, therefore, substantial injustice in circumstances where PBO did not have an opportunity to raise those points before the Tribunal in response to an express invitation by the Tribunal to address them upon Clause 19.5.
  3. In the above circumstances, I am satisfied that there has been a serious irregularity by reason of the Board’s failure to comply with section 33 of the Act as PBO was not provided with a fair opportunity to address Rule 19.5 and the other points relied upon by the Board in order to reach the conclusion it did, and I am satisfied that such serious irregularity has caused substantial injustice to PBO in the circumstances also identified above. LIT’s application under section 68 in this regard accordingly succeeds. I address the question of appropriate relief in due course below.

D.2 BOARD OF APPEAL’S DECISION IN RELATION TO THE JUTE BAG LOSSES

  1. In the Appeal Arbitration PBO alleged that it was entitled to claim €77,802 for breach, wrongful termination and failure to deliver the shipments, of the 2018 CODON Contracts as “Additional Loss” at Rule 19.2.3 in addition to the amounts awarded under Rule 19.2.1. Rule 19.2.3 (“Additional Losses”) provides that “In addition to the amounts awarded under 19.2.1 and 19.2., arbitrators may, at their discretion, award such amount(s) as they see fit in respect of any proven further loss and/or expenses incurred by a Party.”
  2. PBO argued that it was entitled to recover this amount as losses arising out of the provision of jute bags by PBO and intended for use in relation to the delivery of cocoa beans to it (the “Jute Bag Losses”).
  3. In the Appeal Award the Board concluded as follows : “The Board of Appeal finds that the agreement to supply and receive any form of services other than those as specified in the FCC Contracts cannot be considered by the Board of Appeal” – i.e. the Jute Bag Losses fell outside of the scope of the disputes within the jurisdiction of the Board.
  4. PBO contends that in reaching the above conclusion on the Jute Bag Losses the Board departed from the way in which the case had been presented by both parties without warning and that this constituted a serious irregularity causing PBO substantial injustice because PBO was not given a reasonable (or any) opportunity of putting its case on the point.
  5. Whilst the decision concerned the Board’s jurisdiction, I am satisfied that it is open to argue that the manner in which that decision was reached was in breach of section 33 of the Act: see by analogy Alfred Uwe Maass v Musion Events Limited and Others[2016] 1 All E.R. (Comm) 292 at [39]. In that case the arbitrator had decided a jurisdictional challenge without giving notice to the parties – the court found that it was not in dispute, “and it could not be disputed” that doing so was in breach of s.33 as it denied the parties an opportunity to present their case on the challenge.
  6. The Respondents address this application at paragraphs 42 to 49 of the statement of Mr McQueen. In those paragraphs it is not suggested that the Tribunal decided in their favour on the Jute Bag Losses on the basis of an argument advanced by the Respondents.
  7. It is right that the Respondents did challenge the Board of Appeal’s ability to consider the Jute Bag Losses, but this was on a different basis, namely that the point had not been raised before the first instance Tribunal and had not been raised within the time period said to apply to such claims pursuant to rule 2.1 of the FCC Rules: see the Respondents’ Reply Submissions at paragraph 44 (middle of page).
  8. I do not accept the submission that it was implicit within those submissions that it was being said that there had been no reference of such matters, nor do I consider that what was there set out were the building blocks for the Tribunal’s conclusion. Nowhere in that material that was referred to me by Ms Whiteside was there any language of, or express reference to, jurisdiction.
  9. Nevertheless, the Respondents argue that by doing so they put “in play” “whether or not the alleged jute bag losses could be considered by the Board of Appeal at all” (see McQueen [46]-[47]). It is conceded in the Respondents’ Skeleton argument put before me that they “did not elaborate”but the Respondents submit that “the Board’s jurisdiction to determine the Jute Bags Claim [was put] squarely in play”.However, as I have noted, there was in that material no reference to jurisdiction, or a lack of jurisdiction.
  10. Equally, I am satisfied that if the Tribunal had gone so far as to say, as I consider they should have said, that they were considering of their own motion that they had no jurisdiction, I am satisfied that PBO would again not have remained supine, but would have responded given the important nature of a matter relating to jurisdiction to say what it considered were the reasons why there was jurisdiction.
  11. I do not consider that the Respondents have made good their argument that, by what they said, they put in play whether or not the alleged jute bag losses could be considered by the Board of Appeal at all, essentially for the reasons that are given by PBO.
  12. First, section 33 of the Act requires the “essential building blocks in the tribunal’s conclusion”to be in issue or in play. Arguing that the Jute Bag Losses should have been referred to earlier plainly does not put “in play”whether the Board was right to conclude that arguments about the Jute Bag Losses fell outside of the scope of the matters which the Board was entitled to decide.
  13. Secondly, I consider that there is force in what Mr Rabinowicz states at paragraph [35] of his third statement that “If [the Respondents’ argument was] correct, it would mean that as long as a party raises an argument (however bad) relating to the board of appeal’s lack of jurisdiction over a particular matter, it is then incumbent on the other party to point out other possible arguments which may have been (but were not) raised as to the board’s lack of jurisdiction and then explain why each of those arguments (which were not in fact raised by the other side) is not correct.
  14. I do not consider (as alleged by the Respondents) that the Board’s jurisdiction was squarely in issue. Rather it was (if anything) a situation where the Board, of its own motion, considered that it might not have jurisdiction. Mr McQueen submits as follows at paragraph 49 of his statement in this regard, “In any event, it must be correct as a matter of principle that, if an arbitral tribunal considers it may not have jurisdiction to decide a matter but that the parties have not raised that point, it must be determined by the Board on its own motion”.Certainly a tribunal should raise the matter with the parties in such a situation, but what a tribunal cannot do, consistent with its duty under section 33, is to proceed to determine jurisdiction (a fortiori in an arbitration based on written submissions alone) without giving the parties any opportunity, still less a fair opportunity, to address the tribunal on the bases on which the tribunal is considering that it may not have jurisdiction.
  15. It again appears that the Board, as with its decision on Rule 19.5, considered that the parties had “missed the real point”.It was therefore incumbent on the Board to “warn the parties and give them an opportunity to address the point”. It failed to do so, and I am satisfied that there was, in such circumstances, a serious irregularity.
  16. The next question is whether such irregularity gave rise to substantial injustice. The Respondents argue that there was no substantial injustice because PBO’s claim for the Jute Bag Losses claim was time barred and/or PBO was precluded from raising it before the Board because the point had not been raised before the (first instance) Tribunal (see McQueen at [49]). This argument, I am satisfied, is interlinked with a further argument that the claim for Jute Bag Losses was a claim for damages for breaches of the DONPRO In summary the Respondents’ case appears to be that because no claim for losses caused by the DONPRO Contracts (as opposed to the eleven 2018 CODON Contracts) was before the (first instance) Tribunal PBO was precluded from claiming the Jute Bag Losses at the appeal stage of the arbitration and/or had waived its entitlement to do so (Rules 2.3 and 5.7 of the FCC Arbitration Rules are relied on by the Respondents in this regard).
  17. Whilst it would not be appropriate for me to express any concluded view I consider there is substance in the three reasons given by PBO as to why the Respondents’ argument is incorrect.
  18. First, it appears that the Jute Bag Losses were being claimed as losses for breach of the eleven 2018 CODON Contracts for the reasons given by Mr Rabinowicz at paragraphs 33 and 34 of his third statement. The relevant plea can be found at paragraphs 24, 29, 30, 32 and 34(c) of the Statement of Case on Appeal. Jute bags were provided in anticipation of the deliveries to be made under the DONPRO Contracts. These deliveries were never made. PBO was the buyer under these contracts and therefore had the deliveries been made PBO say that it would have received the jute bags / the jute bags would have been returned to PBO when the cocoa beans were delivered to it – whilst this is not expressly pleaded PBO says that this would have been obvious to the parties. The 2018 CODON Contracts were on materially similar terms as the remaining 2017 DONPRO Contracts (subject to differences in price), the reason being that the 2018 CODON Contracts were replacement contracts entered into to replace the remaining 2017 DONPRO Contracts after DONPRO became unable to contract with PBO due to a tax investigation and frozen bank accounts. The fact that the 2018 CODON Contracts were replacement contracts was accepted by the Board which stated that “The Board of Appeal… agrees that the CODON Contracts were a replacement of the DONPRO Contracts“. Therefore, had the 2018 CODON Contracts been performed PBO, as the buyer, would have received the jute bags on delivery. However, as the 2018 CODON Contracts were (PBO says wrongfully) terminated by CODON, the deliveries were never made and the jute bags were never delivered to PBO. PBO says this resulted in a loss to it.
  19. At paragraph 24 of the Statement of Case on Appeal PBO expressly states that it is claiming “damages as a result of CODON’s failure to deliver the shipments“. The losses claimed are set out at paragraphs 28 and 29 of PBO’s Statement of Case on Appeal. Paragraph 29 expressly states that, in addition to the losses calculated by reference to FCC Rule 19.2.1, PBO is claiming “Additional Losses” pursuant to FCC Rule 19.2.3. The fact that the Jute Bag Losses are claimed as “Additional Losses” on top of the losses calculated by reference to FCC Rule 19.2.1 is expressly stated at paragraph 34(c).
  20. Secondly, PBO says that it clearly counterclaimed for losses arising out of breaches of the eleven 2018 CODON Contracts at “first instance”, and at the Appeal stage of the arbitration. PBO acknowledges that it did not specifically raise the Jute Bag Losses until the Appeal Award stage, but PBO submits that this does not matter because whether loss had been suffered as a result of the breaches of the 2018 CODON Contracts alleged (by PBO) was clearly in issue before the Tribunal and the Board of Appeal – the manner in which PBO quantified its loss changed following, and responsive to, the findings made in the Award – which was something it was entitled to do.
  21. In this regard, and thirdly, PBO is entitled to raise new issues at the appeal stage because the FCC Arbitration Rules provide that “appeal proceedings are new proceedings in which fresh submissions and evidence may be submitted” (FCC Arbitration Rule 3.15).
  22. As for the merits of the claim itself, and whilst again it would be inappropriate for me to express a concluded view on the merits, I am satisfied that each of the following arguments raised by FIT is “at least reasonably arguable” and any one of them “might well have” resulted in the Board reaching a different conclusion and producing a significantly different outcome.
  23. PBO claimed the Jute Bag Losses as “Additional Loss” under Rule 19.2.3. PBO submits that the dispute about whether the Jute Bag Losses are recoverable as “Additional Losses” is clearly within the scope of the Board of Appeal’s jurisdiction.
  24. Rules 19.2.1 and 19.2.2 provide for payment to the Buyer or Seller (as appropriate, depending on who is in default) on a “close out for non-fulfilment” of a contract for the sale and purchase of cocoa beans governed by the FCC Contract Rules. The quantum of that payment is calculated by reference to a comparison between the contract price and the market value of the cocoa beans at the date of default. The difference is paid to the buyer or seller (as appropriate).
  25. Rule 19.2.3 then states“[i]n addition to any amounts awarded under 19.2.1 or 19.2.2, arbitrators may, at their discretion, award such amount(s) as they see fit in respect of any proven further loss and/or expense incurred by a Party.” Rule 19.2.3 is widely drafted. PBO submits that by its terms, when read in the context of Rule 19.2 as a whole, it is intended to allow the tribunal to compensate the innocent party for any losses it has in fact suffered beyond (“additional to”) the difference between the market price and the contract price.
  26. PBO submits that obvious examples of such potential additional losses include loss of profits suffered by an innocent buyer as a result of a lucrative contract for the on-sale of cocoa beans to a third party, wasted expenses incurred by an innocent seller in organising for cocoa beans to be delivered to the buyer and wasted expenses incurred by an innocent buyer in organising for the purchase and receipt of cocoa beans from the Seller. PBO points out that all of these examples require (or potentially require) the tribunal to consider contracts between one of the parties to the arbitration (the buyer and/or seller) and the other party or third parties regardless of whether those other contracts are also covered by the FCC Contract Rules.
  27. Finally, PBO submits that the Board of Appeal was in any event not being asked to consider a dispute arising out of “an agreement to supply and receive a service other than those specified in the FCC Contracts” divorced from the FCC Contract in question. It was being asked to consider and quantify the loss suffered by a party to the relevant FCC Contract but doing so may (quite often) require the tribunal to evaluate a contract not governed by the FCC Contract Rule.
  28. Again, I am satisfied that if PBO had been given an opportunity to address the Tribunal in relation to the Tribunal’s concerns about jurisdiction, it would not have been supine and not responded or addressed the points, rather it would have raised, on such an important issue, the points which it now identifies.
  29. In the above circumstances, I am satisfied that there has been a serious irregularity by reason of the Board’s failure to comply with section 33 of the Act as PBO was not provided with a fair opportunity to address the Board’s view on jurisdiction on the Jute Bag Losses (and all the associated points that PBO would have wished to advance as addressed above), and I am satisfied that such serious irregularity has caused substantial injustice to PBO in the circumstances also identified above because I consider it would not have remained supine and would have taken up the opportunity to raise the points it now wishes to raise. PBO’s application under section 68 in this regard accordingly succeeds. I address the question of appropriate relief in due course below.

D.3 THE BOARD OF APPEAL’S DECISION IN REFUSING PERMISSION FOR AN AMENDED STATEMENT OF CASE

  1. PBO contends that the Board of Appeal failed to comply with its duty under section 33 of the Act (also set out at Rule 1.7 of the FCC Arbitration Rules), as required by section 68(2)(a) of the Act, and this has and/or will cause substantial injustice to PBO by refusing permission for PBO to put in an amended Statement of Case on Appeal.
  2. This is, therefore, a section 68 challenge to a discretionary procedural decision of the Board. Section 33 imposes a general duty on the tribunal to act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent; and to adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined. The tribunal is required to comply with that general duty in conducting the arbitration proceedings, in its decisions on matters of procedure and evidence.
  3. In Brake v Patley Wood Farm LLP[2014] EWHC 1439 (Ch) it was recognised that a case management decision can be so unfair as to amount to a serious irregularity causing substantial injustice (see at [141]: “[a] case management decision could, in principle, be so unfair as to amount to a serious irregularity causing substantial injustice to a party in an arbitration…”).
  4. PBO rightly acknowledges that it is rare for a case management decision to have that quality and effect, and the Respondents also highlight what was said in Klamneft, supra at [85] and Russell on Arbitrationat para 8-096, which I bear well in mind.
  5. It is to be borne in mind, however, that there is a wide range of case management decisions that a tribunal can make ranging from matters such as timetabling directions to a hearing, or discrete points such as costs, through to matters that may well be determinative of the outcome of the arbitration itself (which may be the effect of a successful or unsuccessful amendment application). In the case of the former, and general case management decisions, it is highly unlikely that a challenge will be sustained whilst in relation to the latter the duty in section 33 is in sharp focus. It is easier to conceive of a situation where section 68 could apply in the latter case if a tribunal made a decision which was so unfair as to amount to a serious irregularity causing substantial injustice to a party in the arbitration – that would be so if they reached a conclusion that no reasonable arbitrator could have reached again by reference to the authorities that I have already quoted.
  6. PBO submits that this is just such a case in that in deciding to refuse permission to make the Amendments the Board failed to take into account relevant considerations, took into account irrelevant considerations and failed to carry out any (or any real) analysis of the balance of prejudice. In consequence, it is said, not only was the Tribunals’ conclusion unfair but the Board approached the question in entirely the wrong way and reached a decision that no reasonable arbitrator could have reached.
  7. In particular PBO make the following points:-

(1) PBO submits that the Amendments were limited in scope and primarily of a legal nature, namely (a) that the Claim was time barred due to Rule 20.2.1 of the FCC Contract Rules, which required a claim to have been brought within one year of the “Final Day of Landing” and (b) that the alleged assignment of debts arising out of the Three DONPRO Invoices did not bind PBO because (among other things) Rule 4 of the FCC Contract Rules required written consent from PBO which had not been requested or obtained from PBO (which PBO refers to as the “Time Bar Amendment” and the “Assignment Amendment”).

(2) Secondly, PBO submits that the balance of prejudice was clearly in favour of allowing the Amendments. PBO submits that the Arguments had (at least) a real prospect of success and were potentially determinative of the Claim. The Amendments would have primarily required legal argument and would have required only minimal (if any) further factual evidence. Given the limited nature of the Amendments the delay caused to the proceedings would have been a matter of a few weeks and as such insignificant. Further, they rely on the fact that interest would continue to run on the Award, and the Board of Appeal could have ameliorated any additional expense with an award of costs. Therefore there would have been no (or very limited) prejudice to 2DON and DONPRO if the Amendments had been allowed.

(3) Thirdly, no consideration was given to the substance of the Arguments, whether they had a reasonable prospect of success, what the likely length of delay caused by the Amendments would be or whether any delay and further expense could be ameliorated by an award of interest or costs or otherwise.

(4) Fourthly, in refusing permission to make the Amendments, the Board of Appeal concluded that the delay and expense caused by the Amendments was unnecessary because it could have been avoided if PBO had changed its lawyers earlier stating “That delay and expenses would be unnecessary since it could have been avoided if the Appellant had changed its lawyers at a much earlier stage“. PBO submits that the fact that the Amendments were being suggested by PBO’s new legal representatives is irrelevant. The Board’s reasons for refusing the Amendments should apply regardless of whether the Amendments are being proposed by PBO’s old or new legal representatives. It is said that this reasoning also shows that the Board of Appeal misunderstood what “necessary” means in the context of section 33 of the Act. Whether delay is “necessary” falls to be construed within the context of section 33(1)(b) of the Act which imposes an obligation on the Tribunal to provide a fair means for the resolution of the matters falling to be determined. When amendments to a statement of case are being considered fairness must involve consideration of the balance of prejudice. However instead of doing so the Tribunal appears to have applied a blanket rule whereby amendments to statements of case are not to be permitted if they relate to matters that could have been argued earlier (at least where they are being proposed by a party’s new legal representatives). PBO submits that such a blanket rule is clearly unfair.

  1. There is no substitute for considering the reasons given by the Board when assessing the validity and weight to be attached to each of these points and when considering whether no reasonable arbitrator could have reached the conclusion which was reached.
  2. After setting out the background to the appellant’s application, and noting the fact that on 1 April 2020 the appellant requested permission to submit an amended statement of case (a draft of which the Board had received before it made its decision on 9 April), the Board noted that it appeared that that draft contained substantial amendments to the original version. This means that the Tribunal must have considered that draft, and it noted that the respondent had objected to the application on grounds set out in a letter on 2 April.
  3. After setting out the background to the application, the Tribunal said the following:

“The timetable for the presentation of written submissions is laid down in Arbitration Appeal Rules 3.8, 3.8.2. The last paragraph of Rule 3.8 provides that the timetable may be varied by the Board of Appeal in accordance with its general duty under Rule 1.7 and the first sentence of Rule 3.9 makes it clear that we may allow the exchange of additional submissions pursuant to Rule 3.8. The question which we have to determine therefore is whether we should allow the appellant to submit an amended statement of case in accordance with our duty under Rule 1.7. That rule requires the Board of Appeal to act fairly and impartially as between the parties, giving each a reasonable opportunity of putting its case and dealing with that of its opponent, and also to adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined. The appellant has not suggested that it has not had a reasonable opportunity of putting its case or dealing with that of the respondent and we consider that it has had such an opportunity.

The appellant’s application has arisen because it has changed its legal representatives at a very late stage, and its new representatives take a different view from its original lawyers as to how its appeal should be presented. It is obviously open to the appellant to change its lawyers, but we do not consider that that should be allowed to interfere with the progress of the appeal, having regard to the requirement that disputes be resolved without unnecessary delay or expense. If we were to allow the appellant’s application, then this would no doubt require consequential amendments to the other submissions, all of which would involve additional delay and expense. That delay and expense would be unnecessary since it could have been avoided if the appellant had changed its lawyers at a much earlier stage. In all the circumstances, given that the appellant has already had a reasonable opportunity of presenting its case, we do not consider that it would be right to allow it a second opportunity at this very late stage given the unnecessary expense and delay which would arise as a result. The appellant’s application is therefore refused”.

  1. For their part the Respondents submit that after expressly reminding itself of the general duty of fairness, the requirement to give each party a reasonable opportunity of putting its case and dealing with that of its opponent, and the need to avoid unnecessary delay or expense, the Board concluded that PBO had been afforded such an opportunity. The Respondents submit that in circumstances where the Claimant had submitted two statements of case on appeal, that reasoning is unimpeachable.
  2. Regrettably I cannot agree, and I consider that the reasons given do demonstrate the very failings that PBO identify, and that the Board has not complied with its duty to act fairly under section 33 of the Act in relation to the amendment application:-

(1) First, the Board makes no attempt whatsoever to identify the amendments themselves still less grapple with their perceived merits (or the relatively low requirement of reasonable prospect of success) – the content and substance of the proposed amendments are clearly material facts which have to be considered as part of the requirement to act fairly.

(2) Secondly, there is no attempt whatsoever to address the applicable principles in relation to whether amendments should be allowed – which involve a consideration of the points raised and their merits, why they are raised now, and whether the Respondents would be prejudiced by the amendments (and if so whether such prejudice could be ameliorated).

(3) Thirdly, there is no attempt to consider, still less grapple with, the potential prejudice to PBO if the amendments are not allowed.

(4) Fourthly, there does appear to be substance in the criticism that the Board seems to have focussed unduly, upon whether any delay could have avoided if the change of representation had occurred earlier, and failed to identify that the change of representation could itself be a good reason why the amendments were only being made at this stage and, it appears from Mr Rabinowicz’s latest statement, certainly in terms of the final version of the amended statement very soon after new solicitors had been instructed, albeit it appears that there may have been some form of draft in play before the new solicitors were formally instructed.

(5) Fifthly, the Tribunal failed to focus on the fact that little if any delay would result, that disputes are best determined on their true merits, and that there would be little if any prejudice to the Respondents (in a relevant sense) other than a very short delay, that interest would be running in the meantime, and that if necessary any prejudice to the Respondents could ameliorated by an appropriate costs order, whereas if the amendment was refused there was the potential for very great prejudice to PBO if it was shut out from making the proposed amendments.

  1. I consider that this is one of those rare cases where the tribunal has failed to apply the applicable principles, failed to grapple with the merits of the application, and reached a decision that no reasonable tribunal would have reached. In reaching this conclusion I should make clear that I do not consider that the Board would not have been capable of acting fairly had it applied the applicable principles to the facts before it. I have no doubt that had the Board applied the applicable principles to the facts, the Board, like any tribunal applying the applicable principles to such facts, would have granted the amendment.
  2. In such circumstances I am satisfied that the refusal to grant the amendment was so unfair as to amount to a serious irregularity in the arbitration. So far as substantial injustice is concerned, and as was said in Brake, supra, at [96] “The injustice is substantial if a party is “unfairly deprived of an opportunity to present its case or make a case which had that not occurred might realistically have led to a significantly different outcome”
  3. I am satisfied that if the Amendments had been allowed they could clearly “realistically have led to a significantly different outcome“. I do not understand the Respondents to be submitting that the Arguments would not have had real prospects of success. If they are suggesting that, I do not agree. Furthermore I am satisfied that the Arguments could realistically have led to a “significantly different” outcome. PBO’s time bar argument (if successful) would have been a complete answer to the Claim. The argument that the alleged assignment between DONPRO and 2DON did not bind PBO is also an important one. As matters stand PBO has been ordered to pay significant sums to DONPRO though the Board of Appeal found that DONPRO has assigned the relevant debts to 2DON.
  4. Again, it would not be appropriate to express any concluded views on the merits of the Amendments given that the points raised in the Amendments will have to be considered by the Board on their merits in due course. It suffices to say not only that the amendments stand a real prospect of success (the low threshold that is required for the purpose of an amendment) but also those amendments could “realistically have led to a significantly different outcome“. Out of courtesy to the parties, I will briefly refer to the respective arguments.
  5. The Respondents’ arguments relate to procedural matters (which were not raised by or relied on by the Board of Appeal in their reasons for refusing the Amendments). As to the Time Bar Amendments, the Defendants contend that this was no longer open to PBO at the time when the permission for the Amendments was sought because even though the Respondents accept that limitation / time bar was a live issue before the first instance Tribunal, the point was not raised in the Appeal Arbitration until the Amendment Application was made and it is said this was precluded by the FCC Rules. The Defendants rely on the Rule 3.1(b) of the FCC Arbitration Rules which sets out time limits for when a notification of appeal is to be lodged.
  6. PBO’s risposte, as recounted at paragraph 10 of Mr Rabinowicz’s third statement is as follows:

“Rule 3.1(b) provides that “The Appellant’s Notice of Appeal shall reach the Secretary not later than 12 noon on the 21st consecutive day after the date of the Arbitration Award”. The document sent by PBO in this case is attached… It simply states that PBO had decided to appeal the Award. It did not contain (nor was it required to contain) reasons or grounds for appealing the Award. Thereafter Rule 3.8 sets out “time limits for submitting evidence” which includes submissions. Rule 3.8 provides for a standard timetable which “may be varied by the Board of Appeal in accordance with its general duty under Rule 1.7” [Rule 1.7 requires the Board of Appeal to act fairly, impartially etc]. The possibility of further statements and evidence is referred to again at Rule 3.9 of the FCC Arbitration Rules. The Tribunal was therefore not precluded or prevented from allowing the Amendments (including the amendment pleading a time bar defence to the claim) by Rule 3.1(b) or otherwise, nor did the Tribunal (in this respect rightly) suggest that it was so prevented in its letter dated 9 April 2020.”

  1. At one point, it was thought that the Respondents were arguing that PBO had made a relevant admission. I do not think this is pursued in the light of the oral submissions before me today but, if that point had been pursued, it is well established that even if admissions have been made they can be withdrawn.
  2. I am satisfied that the balance of prejudice would clearly be in favour of allowing the Time Bar Amendments. As to the Assignment Amendment, there are two aspects to this: the first is whether PBO had submitted to the Tribunal’s jurisdiction in relation to Section 73(2) of the Act. Section 73(2) of the Act requires an objection to Tribunal’s jurisdiction to be made “within such time as is allowed by the arbitration agreement or the Tribunal…”and that, pursuant to the FCC Arbitration Rules, the Tribunal is entitled to allow late objections to its jurisdiction (see FCC Arbitration Rules 4.2 and 4.1.12 in particular).
  3. I say no more about that jurisdictional point, as it may end up being canvassed before the Board and I consider that this Court should not opine upon such point when it is arguably still a live issue before the Board.
  4. However, for present purposes, even if PBO is no longer able to challenge the Board of Appeal’s jurisdiction over 2DON – and that will be a matter for the Board – it can still argue, as PBO did in the amended statement of case, that 2DON cannot claim against PBO because no notice of the (purported) assignment was given to PBO pursuant to requirements to do so at Rule 4 of the FCC Rules.

D.3 RELIEF UNDER SECTION 68

  1. The three applications under section 68 have succeeded. PBO urges me to set aside the entire Appeal Award and direct that the dispute between PBO and the Respondents be heard by a new tribunal alternatively that the Appeal Award should be remitted to the Board for reconsideration. For their part the Respondents urge upon me that the appropriate relief is to remit the points in relation to which PBO has been successful to the Board for reconsideration.
  2. There has been no challenge to the impartiality of the Board, and I am satisfied that it is unnecessary, and inappropriate, to set aside the Appeal Award in its entirety. Quite apart from the fact that to set aside the Appeal Award in its entirety would be inconsistent with the policy of striving to uphold arbitration awards, to set aside the Award would also lead to unnecessary costs, and the rearguing of matters afresh which have already been determined. I make clear, however, that in remitting the Appeal Award to the Board such reconsideration should include reconsideration by the Board after receiving submissions from both parties on all the matters raised in relation to each section 68 challenge, including on the basis that the defences the subject matter of the amendments are live before the Board for determination
  3. One matter that was canvassed before me was whether or not it was appropriate for me to leave the question of whether the amendments should be allowed to the Tribunal. In circumstances where I have found that no reasonable Tribunal could have refused the amendments, I do not consider that to be the right approach. The right approach, I am satisfied, is that the defences which were the subject matter of the amendments are live before the Board for determination, and therefore all available points that could arise in relation to those alleged defences are available to PBO and to the Respondents by way of rebuttal.
  4. I have chosen remission in order to save unnecessary costs being incurred. I anticipate that the Board (and this Court if called upon hereafter) would not look favourably upon any attempt by the Respondents to construe narrowly such remission for reconsideration.
  5. I accordingly order that the Appeal Award be remitted to the Board for reconsideration of the points raised in each section 68 challenge which has succeeded. For the avoidance of doubt, I make clear that may involve the Board considering matters which it did not have to consider previously in the light of its previous findings. One example – but it is only an example – was given by the appellants, which would be in relation to the washout point, a point which it was not necessary for the Board to consider but – depending on the outcome of the points which arise for reconsideration – could arise for consideration.
  6. The appellants were understandably keen to ensure it was apparent from the face of the judgment, which I trust it is, that such points would still be available and would still need to be determined by the Board if they arose.
  7. THE JURISDICTIONAL APPLICATIONS UNDER SECTION 67 OF THE ACT
  8. There were also two applications under section 67, the first to the effect that the Board does not have jurisdiction over 2DON, the second that the Board does have jurisdiction over the Jute Bag Loses. Those applications now have to be viewed in the light of the success of the applications under section 68 of the Act and the relief that I have granted in that regard. In such circumstances, it was accepted before me that it was inappropriate to rule upon the Section 67 applications at this time.
  9. That applies to both of those jurisdictional challenges, not least in the case of the Section 68 relief that was granted in relation to the Jute Bag Losses because that does relate to jurisdiction and will, no doubt, be considered before the Board.
  10. It would be inappropriate to express any views at this stage on jurisdiction when there will be, no doubt, an award from the Tribunal in relation to jurisdiction matters. It would be, I consider, inappropriate to rule upon section 67 applications at this stage when the outcome of that award from the Tribunal could resolve the disputes between the parties and either party may not wish to pursue jurisdiction any further.
  11. Of course, if either party wish to pursue jurisdiction further, then there would be the right – as there always is – to make an application under Section 67 and have the matter reheard afresh in front of the Court.
  12. In the light of the outcome of the Section 68 challenges, the Section 69 application for permission to appeal falls away addressing, as it does, the Appeal Award which has now been remitted and, accordingly, no order is made on that Section 69 application.
  13. The further award or awards of the Board hereafter will, of course, carry their own time limits for any application to seek permission to appeal by any party.

 

CC/DEVAS (Mauritius) Ltd v Republic of India [2021] FCA 975

CC/DEVAS (Mauritius) Ltd v Republic of India [2021] FCA 975  

FEDERAL COURT OF AUSTRALIA
FILE NUMBER: NSD 347 of 2021
JUDGE: STEWART J
REGISTRY: New South Wales
DATE OF HEARING: 13 August 2021
DATE OF JUDGMENT: 13 August 2021
CASE MAY BE CITED AS: CC/DEVAS (Mauritius) Ltd v Republic of India [2021] FCA 975
MEDIUM NEUTRAL CITATION: [2021] FCA 975
DIVISION: General
NATIONAL PRACTICE AREA: Commercial and Corporations
SUB PRACTICE AREA: International Commercial Arbitration
CATCHWORDS ARBITRATION – international arbitration – where applicants seek to enforce an award under s 8(3) of the International Arbitration Act 1974 (Cth) – where respondent is a foreign State – where respondent appeared conditionally to require service and claim immunity under the Foreign States Immunities Act 1985 (Cth) – where applicants now apply for leave to serve outside of Australia – consideration of requirements
LEGISLATION CITED: Federal Court of Australia Act 1976 (Cth) s 19(1)

Foreign States Immunities Act 1985 (Cth) ss 10(7), 23, 24, 25

International Arbitration Act 1974 (Cth) ss 3(1), 8(3)

Judiciary Act 1903 (Cth) s 39B(1A)

Federal Court Rules 2011 (Cth) rr 10.42, 10.43, 13.01, 28.44(3)

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: Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157; 142 ACSR 616

Republic of Ecuador v Occidental Exploration and Production Co [2005] EWCA Civ 1116; [2006] QB 432

PARTIES: CC/DEVAS (MAURITIUS) LTD

First Applicant

 

DEVAS EMPLOYEES MAURITIUS PRIVATE LTD

Second Applicant

 

TELECOM DEVAS MAURITIUS LTD

Third Applicant

 

AND:

 

THE REPUBLIC OF INDIA

Respondent

SOLICITORS: For the Applicants

Norton Rose Fulbright

COUNSEL: For the Applicants

J Hogan-Doran SC

 

 

JUDGMENT
 

THE COURT ORDERS THAT:

 

  1. The applicants have leave to amend the originating application filed on 21 April 2021 in the form annexed to their interlocutory application filed on 6 August 2021 save that the return day shall be two months and seven days after the date of service.
  2. Pursuant to r 10.43 of the Federal Court Rules 2011(Cth) and s 24(5) of the Foreign States Immunities Act 1985 (Cth) (FSIA), the applicants have leave to serve the amended originating application on the respondent in India by means of diplomatic service, in accordance with s 24 of the FSIA.
  3. The proceedings be returnable on the earlier of:

(a)          9:15 am Australian Eastern Standard Time or Australian Eastern Daylight Time (as applicable) on the date being two months and seven days after the date that service of the amended originating application is effected on the respondent by delivery by the Department of Foreign Affairs and Trade to the department or organ of the Republic of India that is equivalent to that department, or to some other person on behalf of and with the authority of the Republic of India (not including that day of service). If the date two months and seven days after such service is a day on which the registry of this Court is not open for business, that date shall be next the day on which the registry is open for business; or

(b)          9:15 am on Wednesday, 27 April 2022.

  1. The applicants shall notify the Court of the actual return date in accordance with order 3(a) upon being notified of the date of service for the purpose of listing the proceeding before the docket judge or a duty judge or registrar.
  2. The applicants shall have liberty to apply ex parte by arrangement in writing with the Court.
  3. Costs of this application be reserved.

 

 

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

 

 

REASONS FOR JUDGMENT

STEWART J:

  1. Introduction and background
  2. These are my reasons for granting the applicants leave to serve the respondent, the Republic of India, outside Australia in accordance with s 24 of the Foreign States Immunities Act1985 (Cth). The applicants sought such leave in circumstances where the respondent has already filed a conditional notice of address for service in the proceeding. Why the applicant takes that course requires some explanation.
  3. The proceeding was commenced by originating application in April 2021. The originating application sought an order pursuant to s 8(3) of the International Arbitration Act 1974(Cth) (IAA) that the award on quantum of the Permanent Court of Arbitration in Case No. 2013-09 dated 13 October 2020 against India (the Award) be enforced as if it were a judgment of the Court. Further orders for payment of, or judgment for, the following sums were sought:

(1)          US$50,497,600 plus interest thereon in favour of the first applicant, CC/Devas (Mauritius) Ltd;

(2)          US$10,300,800 plus interest thereon in favour of the second applicant, Devas Employees Mauritius Pte Ltd;

(3)          US$50,497,600 plus interest thereon in favour of the third applicant, Telecom Devas Mauritius Ltd; and

(4)          US$10 million plus interest thereon in favour of the applicants.

  1. In short, the applicants seek enforcement of an arbitral award and judgment in sums that together exceed US$120 million.
  2. The originating application indicated that it was not intended to serve the application on the respondent. That was in reliance on r 28.44(3) of the Federal Court Rules2011 (Cth) which provides that an application to enforce a foreign award under s 8(3) of the IAA may be made without notice to any person. Nevertheless, the applicants gave informal notice of the application to the respondent by hand delivering a copy of the originating application and supporting affidavit to the High Commission of India in Canberra on 6 May 2021. Further notice was given on 7 May 2021 by sending the originating application and supporting affidavit by email to legal counsel for the respondent in the arbitration conducted under the auspices of the Permanent Court of Arbitration in the arbitration proceeding that led to the Award that the applicants seek to enforce.
  3. The matter came before me for case management in the arbitration list for the first case management hearing on 19 May 2021. The respondent appeared, “subject to jurisdiction”, by counsel who explained that his appearance was a limited appearance pursuant to s 10(7) of the Immunities Act. That subsection provides that a foreign State shall not be taken to have submitted to the jurisdiction in a proceeding by reason only that it has intervened, or has taken a step, in the proceeding for the purpose or in the course of asserting immunity. It was thus clearly a conditional appearance.
  4. Expressly without prejudice to any claim the respondent may make to foreign state immunity, or any objection to the Court’s jurisdiction, or any conditional appearance, orders were made by consent that:

(1)          the respondent file and serve any notice of appearance on or before 3 June 2021; and

(2)          the respondent notify the applicants in writing on or before 15 June 2021 (subsequently extended to 21 June 2021) as to the issues which it would propose to contend against the relief sought in the originating application, including any claim for immunity under the Immunities Act and any stay of the application.

  1. The stated purpose of the respondent producing the document referred to in the second subparagraph above, as it was explained by senior counsel for the applicants, was for case management purposes so that the Court and the parties would be informed “as to the lay of the land on what issues are likely to arise in these proceedings.” It was said to be “purely an informative document for case management purposes.” Those characterisations were accepted by counsel for the respondent.
  2. On the designated day of 3 June 2021, the respondent filed a notice of address for service under the Rules which states the following:

The Republic of India, the Respondent, asserts its immunity as a foreign State to the jurisdiction of the courts of Australia in respect of these proceedings and does not submit to the jurisdiction.

Pursuant to r 13.01 of the Federal Court Rules 2011 (Cth), this Notice is accompanied by an application and affidavit seeking (1) an order that the originating application of CC/Devas (Mauritius) Ltd & Ors be set aside, (2) a declaration that the originating application has not been duly served on the Respondent and (3) a stay of the proceedings. The application also seeks, (3) in the alternative to order (2), and to the extent service has been validly effected (which is denied), an order setting aside that service.

Subject to the above, the Respondent gives notice of its address for service for the limited purpose of appearing conditionally to assert its immunity and have the originating application set aside and, as part of that assertion, to seek a declaration that the Applicants have failed to serve the initiating process on the Respondent in accordance with Part III of the Foreign States Immunities Act 1985 (Cth):

[Place]: [Australian solicitors’ address and email address]

  1. At the same time, the respondent filed an interlocutory application in which it sought the orders referred to in the notice of address for service. It also filed an affidavit which attached inter-solicitor correspondence in which the following contentions were put on behalf of the respondent:

(1)          The effect of s 25 of the Immunities Act is that the applicants are required to effect service of any application in a manner contemplated by ss 23 and 24 of the Immunities Act.

(2)          The requirements as to service under the Immunities Act have not been met.

  1. The respondent subsequently furnished a document purportedly in compliance with the order at [6(2)] above, which it titled “Statement of Issues”. I say “purportedly” because the document goes way beyond the case management purposes expressly identified at the hearing and is more in the nature of a detailed pleading. The document is more than five pages and raises the following matters:

(1)          Reservation of rights: The respondent “formerly protests and objects” to any requirement that, prior to determination of issues of service, it be required to indicate any other issues which it would propose to contend against the relief sought in the originating application, and that insofar as the document sets out issues other than in relation to service it is made under protest.

(2)          Service: The respondent contends that the Immunities Act requires that a foreign State be served with an application pursuant to s 8 of the IAA in order that it can effectively assert its claim to immunity. Service of the originating process was required to be effected pursuant to s 24 of the Immunities Act through the diplomatic channel, and absent such service, and by reason of s 25 of the Immunities Act, the applicants have failed to serve the initiating process as required.

(3)          Stay: The proceeding should be stayed pending determination of (a) a proceeding pending before the Supreme Court of the Netherlands concerning the respondent’s application to set aside an award on jurisdiction and merits issued in the arbitration proceeding on 25 July 2016, and (b) a proceeding before pending before the District Court of The Hague concerning the respondent’s application to set aside the Award issued in the arbitration proceeding on 13 October 2020.

(4)          Foreign State Immunity: The respondent “protests and objects” to any requirement that it state the issues relating to immunity which it would propose to contend against the relief sought in the originating application in advance of the applicants identifying their contentions as to the bases upon which they contend that the respondent is not immune.

(5)          If service and immunity determined adverse to the respondent: Under protest and as a matter of courtesy only, the respondent indicates that if service and immunity are determined adversely to it and the proceeding is not stayed, the issues that might arise include a list of matters impugning the Award or the applicants’ ability to enforce the Award.

  1. The applicants’ response to the respondent’s contention that there had been no proper service on the respondent, and that the proceeding could not proceed without such service, was to file an interlocutory application for leave to serve the originating application outside Australia.
  2. There was debate thereafter between the parties in correspondence, and at one stage also with me in a case management hearing, as to the proper course for the proceeding. The most obvious course would have been to first decide the respondent’s contention that service was required. If that contention was upheld, then the applicants’ application for leave to serve out of the jurisdiction would be dealt with next. If the result on service was the other way, then the proceeding could progress to deal with the other matters and the need for the application for leave to serve outside Australia would fall away. The respondent pressed its application with respect to service even though it had entered an appearance and was before me, albeit conditionally.
  3. Ultimately the parties agreed that there should be an order by consent setting aside all previous orders in the proceeding. Such an order was made by me on 29 July 2021. The applicants then filed an interlocutory application for ex parte relief to amend their originating application and for leave to serve the amended originating application out of the jurisdiction.
  4. In short, as the applicants explained by senior counsel at the case management hearing on 15 July 2021, the applicants wished to avoid the risk that they were successful on the service issue at first instance with the result that the proceeding then progressed to determination on the other issues and for their success on the service issue to be later reversed at one or other level of appeal. That would result in them having to start again. The safe course was therefore for them to start again now.
  5. The application for service outside Australia
  6. Rule 10.43(4) of the Rules provides that a party applying for leave to serve an originating application on a person outside Australia must satisfy the court that:

(1)          the court has jurisdiction in the proceeding; and

(2)          the proceeding is of a kind mentioned in r 10.42; and

(3)          the party has a prima facie case for all or any of the relief claimed in the proceeding.

  1. I am satisfied that the Court has jurisdiction in the proceeding, as it is an application for relief under s 8(3) of the IAA; it is a matter arising under a law made by the Parliament and is thus a matter in respect of which jurisdiction is conferred on this Court: Judiciary Act 1903(Cth), s 39B(1A); Federal Court of Australia Act 1976 (Cth), s 19(1).
  2. I am satisfied that the application is for relief contemplated by item 10 of r 10.42 of the Rules, namely a proceeding for an order under Div 28.5 of the Rules in relation to an arbitration under the IAA.
  3. Insofar as the applicants having a prima facie case is concerned, as indicated, the application is for orders under s 8(3) of the IAA that the Award be enforced as if it were a judgment or order of the Court. The Award was apparently rendered by the Tribunal pursuant to Art 8 of the Agreement between the Government of the Republic of India and The Government of the Republic of Mauritius for the Promotion and Protection of Investments, signed on 4 September 1998 and entered into force on 20 June 2000. That agreement is in the nature of a bilateral investment treaty, or BIT.
  4. Article 8 of the BIT provides that if a dispute between an investor of one Contracting Party and the other Contracting Party in relation to an investment of the former under the BIT cannot be settled amicably through negotiations between the parties to the dispute within six months from the date of request for settlement, the investor may, amongst other options, submit the dispute to an ad hoc arbitral tribunal set up in accordance with the Arbitration Rules of the United Nation’s Commission on International Trade Law, 1976. Such a provision has been characterised as an open offer to investors to arbitrate in accordance with its terms: Republic of Ecuador v Occidental Exploration and Production Co[2005] EWCA Civ 1116; [2006] QB 432 at [32]; Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157; 142 ACSR 616 at [179].
  5. In addition to the Award, the applicants tendered the terms of the appointment of the Tribunal and an earlier award on jurisdiction and merits. In the circumstances, at least at a prima facie level, the applicants have established that they have an award in their favour pursuant to the agreement between the parties to arbitrate.
  6. In terms of s 3(1) of the IAA, a “foreign award” is 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 on the Recognition and Enforcement of Foreign Arbitral Awards. Opened for signature 10 June 1958. 330 UNTS 3 (entered into force 7 June 1959) (commonly referred to as the New York Convention) applies. The Award is a foreign award.
  7. As a foreign award, the Award is entitled to recognition and enforcement under s 8(3), subject to Pt II of the IAA.
  8. The method of service proposed by the applicants is by the diplomatic channel as provided for in s 24 of the Immunities Act.
  9. The applicants brought to my attention a number of matters which they described as being in accordance with their obligations of full and frank disclosure in an ex parte application. Each of those matters is something that might be raised by the respondent in due course, but none is such as to cause me to doubt that the applicants have established a prima facie case at this stage.
  10. Conclusion
  11. For the above reasons, I was satisfied to grant the applicants the leave that they sought. I also granted the applicants leave to amend the originating application in respects that do not call for reasons or explanation.
I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.

 

 

Associate:

Dated:       17 August 2021

 

 

ACN 112 594 902 Pty Ltd (ACN 112 594 902) formerly L & M Traffic Signals Pty Ltd v Decmil Southern Pty Ltd (ACN 005 412 466) [2021] VCC 1074

ACN 112 594 902 Pty Ltd (ACN 112 594 902) formerly L & M Traffic Signals Pty Ltd v Decmil Southern Pty Ltd (ACN 005 412 466) [2021] VCC 1074

Court: IN THE COUNTY COURT OF VICTORIA
Case No: CI-21-01087
Parties ACN 112 594 902 Pty Ltd (ACN 112 594 902)

formerly L & M Traffic Signals Pty Ltd      Plaintiff

 

v

 

Decmil Southern Pty Ltd (ACN 005 412 466)          Defendant

DIVISION: Commercial Division
List: Arbitration List
JUDGE: Her Honour Judge Brimer
WHERE HELD: Melbourne
DATE OF HEARING: 21 July 2021
DATE OF JUDGMENT: 6 August 2021
CASE MAY BE CITED AS: ACN 112 594 902 Pty Ltd v Decmil Southern Pty Ltd
MEDIUM NEUTRAL CITATION: [2021] VCC 1074
Catchwords: Commercial arbitration – Application for stay of proceeding – Application to refer the parties to arbitration – Arbitration agreement – Whether proceedings brought in ‘a matter which is the subject of an arbitration agreement’ – Where arbitration clause ‘does not prevent either party from instituting proceedings to enforce payment due’ –Whether proceedings brought fall within carve out clause – Whether proceedings brought are capable of summary judgment
Judgment: Stay granted and parties referred to arbitration
Legislation Cited: Commercial Arbitration Act 2011 (Vic) ss 7, 8
Cases Cited: Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (No 3) [2013] VSC 435; Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547; Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 3; Rinehart v Rinehart (No 3) (2016) 257 FCR 310; Tianqi Lithium Kwinana Pty Ltd v MSP Engineering Pty Ltd (No 2) [2020] WASCA 201
Representation: Counsel

Mr M Black

For the Plaintiff

&

Mr B Mason

For the Defendant

Solicitors

Willerby’s Solicitors & Conveyancers

For the Plaintiff

 

&

Logie-Smith Lanyon Lawyers / Tottle Partners Lawyers For the Defendant

 

 

 

JUDGMENT

 

1

This is an application by Decmil Southern Pty Ltd (Decmil)[1] for an order under

 

s 8(1) of the Commercial Arbitration Act 2011 (Vic) (the Act) that the proceeding instituted by L & M Traffic Signals Pty Ltd (L&M)[2] be stayed and the parties referred to arbitration (Decmil’s application).[3]

[1]        By Summons dated 15 April 2021.

[2]        Now known as ACN 112 594 902 Pty Ltd.

[3]        Summons dated 15 April 2021.

Background

2            Decmil was the principal contractor for the Plenty Road Upgrade. On 13 June 2018, Decmil entered into Subcontract Number 9458 with L&M (the Subcontract). The Subcontract governed traffic signal and associated works to be performed by L&M and permitted L&M to engage its own subcontractors.

3            Pursuant to the Subcontract, Decmil was to pay L&M the sum of $778,081 plus GST for the works, subject to agreed variations.[4] By Statement of Claim filed 19 March 2021, L&M claims that Decmil has “wrongfully and in breach of the Subcontract… withheld and refused to pay… the sum of $320,312 being part of the price due to [L&M] under the Subcontract”.[5] It claims that as a result of the breach of the Subcontract, L&M has suffered loss and damage in the sum of the amount wrongfully withheld.

[4]        Statement of Claim dated 19 March 2021, [4].

[5] Ibid [5].

4            Decmil submits that the sum of $320,312 “represents the losses Decmil suffered by reason of [L&M]’s failure to comply with its obligations under the Subcontract”,[6] including its obligations under the Subcontract in relation to occupational health and safety.[7]

[6]        Defendant’s Outline of Submissions dated 1 July 2021, [4] (Defendant’s Submissions). No defence in

the proceeding has been filed.

[7]        The Affidavit of Paul Visvardis dated 15 April 2021 identifies cls 10 (Protection of people, property

and environment) and 29 (Occupational Health and Safety) of the Subcontract as relevant to its position.

5            On 15 March 2019, an excavator operated by L&M’s subcontractor contacted overhead powerlines and triggered a suppression protection system, causing electricity supply to the local area to be disconnected.[8] Decmil alleges this resulted in its own works being wholly suspended from 15 March to 19 March 2019, and partially suspended from 21 March to 3 April 2019, causing it to suffer loss and damage (the set-off dispute).[9]

[8]        Defendant’s Submissions, [3]. Plaintiff’s Outline of Submissions dated 7 July 2021, [3] (Plaintiff’s

Submissions).

[9]        Defendant’s Submissions, [3].

The Act

6            The following provisions of the Act are relevant to this application:

(a) section 7(1):

“An arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.”

(b) section 7(2):

“An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.”

(c) section 8(1):

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

The Subcontract

7           Clause 33 of the Subcontract reads:

33     Dispute resolution

33.1         Differences or disputes between the parties arising out of or related to the Subcontract or its subject matter (a Dispute) shall be resolved as follows.

(1)          A party claiming that a Dispute has arisen must give written notice to the other party specifying the issue or issues said to be in Dispute.

(2)          Within 10 Business Days of receipt of the notice specified in clause 33.1(1), the parties to a Dispute shall seek to resolve the Dispute by referring the matter to the people specified in Schedule 1 to attend the dispute resolution meeting.

33.2         If the matter is not resolved within 15 Business Days of referral under clause 33.1(2), the parties shall refer the Dispute to mediation …

33.3         If the Dispute is not resolved within 20 Business Days after the appointment of the mediator, the dispute is by this clause referred to arbitration. The arbitration must be conducted in the capital city of the State or Territory specified in Schedule 1 by a single arbitrator, and the following applies:

(1)          If the parties have not agreed upon the arbitrator within 5 Business Days after the expiry of the period referred to in clause 33.3, the arbitrator is the person appointed by the person specified in Schedule 1 or their nominee, acting on the request of any party to the dispute.

(2)          After accepting the appointment and during the arbitration the arbitrator may:

(a)          require the parties to lodge security or further security towards the arbitrator’s fees and expenses; and

(b)          apply any security towards those fees and expenses;

but the arbitrator may not direct a party to the dispute to provide security for the costs of the arbitration to be incurred by any other party.

(3)          The arbitration must be conducted in accordance with the Commercial Arbitration Act of the governing law specified in Schedule 1 except that:

(a)          the arbitrator must only accept evidence which would be accepted in a court of law;

(b)          a party may be represented by a qualified legal practitioner or other representative;

(c)          the arbitrator must include in the arbitration award the findings on material questions of law and of fact, including references to the evidence on which the findings of fact were based; and

(d)          the parties consent to an appeal to the Supreme Court of the governing law on any question of law arising in the course of the arbitration or out of an arbitration award

 

33.4         Clause 33.1 does not prevent either party from instituting proceedings to enforce payment due under clause 25 or to seek urgent injunctive or declaratory relief in respect of a dispute or difference arising under this Subcontract …”[10] (the carve out)

[10]        Emphasis added.

8            Clause 25 of the Subcontract provides:

25    Payment

25.1         At the times for payment stated in Schedule 1, the Subcontractor shall submit to the Contractor a payment claim in a form acceptable to the Contractor. The payment claim must include details and evidence, to the Contractor’s Representative’s satisfaction, of:

(1)          all work done to the date of the payment claim and the corresponding amount of the Subcontract Price which the Subcontractor considers is payable by the Contractor;

(2)          evidence, including a completed statutory declaration in the form contained in Schedule 5 executed by a director of the Subcontractor, the Subcontractors Representative or some other authorised representative as approved in writing by the Contractor;

(3)          in the case of the final payment claims following achievement of Practical Completion and the expiry of the Defects Liability Period only, all Claims the Subcontractor then has against the Contractor and all monies which the Subcontractor considers to be due to it from the Contractor in connection with this Subcontract and the Works; and

(4)          any other requirements for payment claims specified in Schedule 1.

25.2         An early payment claim will be deemed to have been made on the date for submission of the payment claim under clause 25.1. A late payment claim will be deemed to have been made on the date in the following month for making a payment claim.

25.3         The Subcontractor is not entitled to payment for any item of unfixed plant or materials not incorporated into the Works.

25.4         Within 10 Business Days of receiving the Subcontractor’s payment claim, the Contractor will issue to the Subcontractor a payment schedule setting out the amount payable to the Subcontractor including details of any adjustments to the amount set out in the Subcontractor’s payment claim to take into account the Contractor’s determination of the value of Works completed, the value of Works included in previous progress payments and any other additions or deductions.

 

 

25.5         Subject to clause 25.7, the Contractor shall pay to the Subcontractor or vice versa (as applicable), the amount set out in the payment schedule issued to the Subcontractor or if no payment schedule is issued the amount of the Contractor’s assessment of the value of the Works completed, by the later of: (1) the expiry of the time period specified in Schedule 1 ; and (2) the date when the Subcontractor has complied with all pre-conditions to payment set out in this Subcontract, including compliance with clauses 5.1, 11.1, 11.2, 11.3 and 25.6, and has provided an original executed copy of the Subcontract to the Contractor.

25.6         The party entitled to receive payment must issue the other party with a valid tax invoice before the due date for payment.

25.7        Despite any other provision of this Subcontract and without limiting the Contractor’s other rights and remedies, the Contractor may, at any time, and from time to time, deduct or set-off from either or both of any money payable by the Contractor to the Subcontractor under this Subcontract or otherwise any money due or claimed to be due from the Subcontractor to the Contractor whether under or in connection with this Subcontract or otherwise, including the amount of any claims or liens that the Contractor has reasonable grounds for believing may be made against the Subcontractor …”

The issue to be determined

9            The issue to be determined is whether the proceeding instituted by L&M is a proceeding “to enforce payment due under clause 25” and therefore falls within the cl 33.4 carve out from the requirement that disputes be resolved in accordance with cls 33.1-33.3 of the Subcontract.

10          At the hearing of Decmil’s application, L&M:

(a)   conceded that if the Court finds the proceeding does not fall within the carve out, the set-off dispute is a dispute between the parties arising out of or related to the Subcontract and the parties must be referred to arbitration in accordance with cl 33.3; and

(b)   took no issue with any failure to comply with cls 33.1 and 33.2 of the Subcontract.[11]

[11]        Mr Black submitted that L&M could not rely on any failure to comply with cls 33.1 and 33.2 to say

that the arbitration agreement was not enlivened and relied on: Lysyght Building Solutions Pty Ltd v Blanalko Pty Ltd (No 3) [2013] VSC 435, [154]–[156] (Vickery J) (Lysaght).

Submissions

11          Decmil submitted that cl 33.3 of the Subcontract constitutes an ‘arbitration agreement’ for the purpose of s 7 of the Act. L&M’s pleaded case is not captured by the carve out at cl 33.4. The Statement of Claim makes no reference to enforcing payment due under cl 25 of the Subcontract, instead L&M alleges that Decmil breached the Subcontract by withholding / refusing to pay the amount claimed. There is no evidence before the Court from which it could be said that the underlying facts bring the proceeding within the carve out. As such, the Court must refer the parties to arbitration pursuant to s 8(1) of the Act.

12          L&M submitted that the proceeding falls within the carve out. Although the Statement of Claim does not reference cl 25 of the Subcontract, L&M’s claim is for non-payment of invoices rendered to Decmil pursuant to the provisions of cl 25.[12] There is no evidence that any payment schedule was provided by Decmil under cl 25; it is open to the Court to infer that a payment schedule was provided and deem no deductions leading to an amount payable under cl 25.4.

[12]        Thirteen invoices were rendered by L&M between 31 December 2019 and 5 September 2019 and are

set out in a table in paragraph 23 of the Affidavit of Paul Visvardis dated 15 April 2021. The first seven invoices were paid, whilst payment of L&M’s last six invoices has been withheld by Decmil.

13          Decmil withheld payment of the sum of $320,312[13] in reliance upon cl 25.7 of the Subcontract, which provides that Decmil may deduct or set-off sums it is owed from payment to L&M. Mr Black contended the set-off dispute is a separate claim from L&M’s claim for payment. The proceeding is not the subject of an arbitration agreement, no stay should be granted, and the parties ought not be referred to arbitration under s 8(1) of the Act.

[13]        Affidavit of Paul Visvardis dated 15 April 2021, exhibit 52–53.

14          Mr Black sought leave to amend the Statement of Claim, if necessary, to make it clear that the proceeding falls within the carve out.

 

Material to be considered

15          Both parties agreed that in construing cl 33 for the purpose of considering whether the action is brought in a matter the subject of an arbitration agreement under s 8(1) of the Act or falls within the scope of the carve out, the Court ought have regard to the material before it, including the Statement of Claim.[14]

[14]        “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.”: Tianqi Lithium Kwinana Pty Ltd v MSP Engineering Pty Ltd (No 2) [2020] WASCA 201, [78] (Tianqi) citing Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 3, [146] (Reinhart v Hancock).

16          Decmil has the burden to show that the action is brought in a matter which is the subject of an arbitration agreement

“… the correct approach is to decide on the balance of probabilities whether, on the proper interpretation of the relevant arbitration agreement, a matter arising in the proceeding falls within the scope of the agreement.”[15]

[15]        Rinehart v Rinehart (No 3) (2016) 257 FCR 310, [115].

Legal principles and analysis

17          The usual principles regarding the interpretation of commercial contracts apply to the construction of arbitration agreements.[16] These principles require that contracts are interpreted objectively by reference to the contract’s text, context and purpose.[17] However, the courts have taken a ‘liberal approach’ to the construction of arbitration clauses by “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.”[18]

[16]        Rinehart v Hancock, [44] (Kiefel CJ, Gageler, Nettle and Gordon JJ).

[17]        Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, [35] (French CJ, Hayne,

Crennan and Kiefel JJ), which was cited in this context in Rinehart v Hancock, footnote 25 (Kiefel CJ, Gageler, Nettle and Gordon JJ).

[18]        Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45, [164] (Allsop J, with

whom Finn and Finkelstein JJ agreed).

18          For the following reasons, I do not consider the proceeding is “to enforce payment due under clause 25” and accordingly, it does not fall within the carve out.

19          The following, almost identical ‘carve out’ clause was considered in the Western Australian Supreme Court of Appeal case of Tianqi Lithium Kwinana Pty Ltd v MSP Engineering Pty Ltd (No 2) (Tianqi):[19]

42.4 Summary relief

Nothing herein shall prejudice the right of a party to institute proceedings to enforce payment due under the Contract or to seek injunctive or urgent declaratory relief.”

[19] [2020] WASCA 201.

20          The Court considered three constructional choices in respect of the carve out clause:

“(a)         A party may institute proceedings to enforce payment due under cl 37.2 only so long as the obligation to make the payment is undisputed, irrespective of the merits (or lack thereof) on which the obligation to make the payment is disputed. On this construction, proceedings may not be instituted where the defendant disputes the obligation to make the payment, even if the defendant does not raise an objectively triable issue by way of defence…

(b)          A party may institute proceedings to enforce payment due under cl 37.2 irrespective of whether the obligation to make the payment is disputed or the grounds on which the existence of the payment obligation is disputed. On this construction, proceedings may be instituted even where the defendant does raise an objectively triable issue by way of defence.

(c)          The reference to ‘proceedings to enforce payment due’ under the contract is to proceedings which are capable of summary determination: ie, proceedings in which there is no objectively triable issue which would form a proper basis for defending a summary judgment application.”

21          The Court found that the third constructional option is to be preferred:

“In other words, it is a remedy which does not require the forum to undertake an assessment (often time-consuming and complex, particularly in construction disputes) of the consequences of the relevant breach in terms of damages. These considerations tend to indicate that cl 42.4 is not designed to refer the resolution of complex money claims and damages to the court.”[20]

[20]        Tianqi, [100].

22          This interpretation fits with the commercial purpose, which is to enable the party expeditiously to obtain judgment on the sum due, at least typically by summary judgment.

23          The Court found that the relevant clause operated to preserve rights to curial relief in the circumstances addressed in the ‘carve out’ notwithstanding the width of the disputes otherwise referable to arbitration. The parties had not ‘submitted to arbitration’ within the meaning of s 7(1) of the Act the three matters in cl 42.4 to which they had reserved their rights of recourse to the Court.[21]

[21]        Ibid [107].

24          In Tianqi, the effect of the payment process provided for in cl 37.2 was, in summary:

“… that a net payment in favour of one party, derived from the operation of the certification process under cl 37.2 and any exercise by the principal of its contractual right of set-off thereunder, is a payment on account which is due and payable without recourse by the other party to equitable set-off. That net payment (which for convenience may be referred to as a ‘certified progress payment’) is, at least in the ordinary course, amenable to enforcement by summary judgment.”

25          Any counterclaim sought to be raised by the other party was taken into account when the Superintendent issued a final certificate pursuant to cl 37.4, evidencing the moneys finally due and payable between the contractor and the principal.

26          In that case, the amount certified by the Superintendent was a net payment which was due and payable:[22]

“The payment for which it provides is not only due and payable, but it is due and payable without set-off or deduction.”[23]

 

 

[22] Ibid [91].

[23] Ibid [105].

27          The Court in Tianqi held that “the word ‘due’ in this context meant ‘due and payable’. There could be no institution of proceedings to ‘enforce’ a payment which was due, but not payable.”[24] In those circumstances, the payment that was due and payable without set-off or deduction was readily amenable to curial enforcement.

[24] Ibid [103].

28          Clause 25 of the Subcontract sets out the process involved in L&M submitting payment claims to Decmil for work performed, including the paperwork required and what Decmil must be satisfied of before payment is made.

29          Under cl 25.4, within 10 days of receiving the Subcontractor’s claim, “the Contractor will issue to the Subcontractor a payment schedule setting out the amount payable to the Subcontractor…”. There is no evidence before the Court as to whether any payment schedule was provided.[25]

[25]        Mr Black contended that in Tianqi, there was an ‘independent supervisor’ who issued the certificate.

Here, Decmil issues that payment schedule. Insofar as the defendant has failed to do what it should have done, equity deems that which ought to have been done as having been done. The Court ought infer that the payment schedule “had been effectively provided by the defendant”. For the reasons set out below, I reject that submission.

30          Clause 25.5 is the provision which requires the Contractor to pay the amount set out in the payment schedule[26]. It is subject to cl 25.7, a broad clause which provides for deduction or set-off by the Contractor from any money payable to the Subcontractor under the Subcontract or otherwise “…any money due or claimed to be due from the Subcontractor to the Contractor whether under or in connection with this Subcontract or otherwise, including the amount of any claims or liens that the Contractor has reasonable grounds for believing may be made against the Subcontractor.”

 

[26]        Or if no payment schedule is issued the amount of the Contractor’s assessment of the value of the

Works completed.

31          In a letter from Decmil to L&M dated 19 August 2020,[27] Decmil stated “… in accordance with Clause 25.7 of the Subcontract, Decmil will be deducting and setting-off the amount of $320,312.00 (excluding GST) from any money which is or may be due to L&M.”[28] Consistent with that position, Mr Black submitted that “The Defendant has withheld payment of the sum of $320,312 in reliance upon clause 25.7…”[29]

[27]        Affidavit of Paul Visvardis dated 15 April 2021, exhibit 52–53.

[28]        Emphasis added.

[29]        Plaintiff’s Submissions, [12].

32          L&M’s lawyers, Willerby’s, in a letter to Decmil dated 7 October 2020,[30] stated in respect of the set-off dispute: “Decmil have withheld a sum of $320,312 from payments due to L&M under its contract with Decmil claiming that L&M is responsible for the incident and claiming that the sum of $320,312 represents losses incurred by Decmil from the incident… L&M disputes the quantum of Decmil’s claim on two grounds… L&M denies liability to Decmil for the losses Decmil claims to have incurred.”[31]

[30]        Affidavit of Jason Coppard dated 23 April 2021, exhibit JC1.

[31]        Affidavit of Paul Visvardis dated 15 April 2021, exhibit 56–57.

33          The material before the Court, including the Statement of Claim, does not provide a basis for a finding that the proceeding is to enforce a payment due and payable without set-off or deduction that is readily amendable to summary judgment. Mr Black asserted that Decmil failed to comply with cl 25 and submitted that in the absence of evidence one way or the other, I ought to infer a failure to comply with cl 25.4, order that a payment schedule has effectively been provided by Decmil, deem no deductions under cl 25.4[32] leading to an amount payable under cl 25.5.  I do not accept that submission. There is no factual basis for that inference in the material before the court.[33]

[32]        Due to an asserted failure to identify deductions in accordance with cl 25.4.

[33]        For example, in his Affidavit of 23 April 2021, Jason Coppard deposed to the circumstances of the

outage incident  and the parties likely to be joined to the proceedings, the quantum of the set-off dispute,

the inappropriateness of arbitration due to the complexity of the dispute, the terms of the subcontract and the defendant’s summons. No factual basis for the contention that it is a proceeding to enforce a payment due under cl 25 is deposed to.

34          Mr Black contended that the set-off dispute is a separate and distinct claim.  I do not agree. Clause 25.5 is, as Mr Black submitted ‘where the money becomes payable.’ It is subject to cl 25.7 which provides for the Contractor to deduct or set-off from any money payable to the Subcontractor, any money due or claimed in accordance with the clause.

35          Mr Black submitted that “we don’t appear to have any deduction under cl 25.4, we seem to have a set-off under 25.7.” Even if the amount of the deduction or set-off claimed under cl 25.7 is picked up by the words “… any other additions or deductions” in cl 25.4 to arrive at an ‘amount payable’, L&M’s claim is for the sum of $320,312.00 being part of the price due to the plaintiff under the Subcontract  which, wrongfully and in breach of the Subcontract, the defendant withheld and has refused to pay. It is an amount before deduction or set-off, not a ‘certified’ net position. The dispute raised by this proceeding is the wrongfulness or otherwise of the deduction or set-off under cl 25.7.

36          Mr Black submitted that “The live issue is determining what is due, or which amount can be offset.”[34] That requires resolution of the set-off dispute which Mr Black accepted is amenable to arbitration.

[34]        “…look at what is the dispute between the parties. You can look at the background circumstances, look

at the contract. We say, what that leads to, the real dispute is whether or not the defendant has this offsetting claim. That is the aspect that is the only portion which could be referred off to arbitration, because that is the matter.”

37          This circumstance is distinguishable from that in Tianqi where the only permissible set-off against the amount of the progress claim was the amount certified by the Superintendent under the relevant clause.[35] In that case, there was no dispute as to the validity of certification and no available set-off for any damages claim.[36] The net amount due and payable to the subcontractor was ascertained.

[35]        Tianqi, [134]. The claim for equitable set-off could not deprive the progress certificate of having

crystallised the amount due and payable.

[36]        Tianqi, [145].

38          Mr Black relied on Vickery J in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (No 3) (Lysaght)[37] in support of his submission that the plaintiff’s claim ought be considered a proceeding “to enforce payment due” and remain in the Court. He contended that the dispute can be split into that part capable of being heard by the Court, and that which must be referred to arbitration, as occurred in Lysaght. Decmil would be free to initiate arbitration proceedings in respect of the set-off dispute.

[37] [2013] VSC 435.

39          In Lysaght, the contractor sought summary judgment in respect of three progress payments.[38] The principal filed a defence denying liability and a counterclaim which, amongst other things, sought summary judgment on an alleged certified payment sum due to it.[39] The principal “sought payment of a debt in the sum of $1,984,880.71 relying on a certificate purportedly issue by the Superintendent on 2 January 2013.”[40] The principal also alleged waiver by and an estoppel against the contractor in relation to the principal’s claimed entitlement to payment under the alleged payment certificate.[41] The contractor sought to stay the principal’s claims on the basis that they were required to go to arbitration.[42] The relevant arbitration agreement was subject to the following carve out clause:

“Nothing herein shall prejudice the right of a party to institute proceedings to enforce payment due under the Contract or to seek injunctive or urgent declaratory relief in respect of a dispute under clause 47 of any matter arising under the Contract.”[43]

 

 

[38]        Lysaght, [5].

[39]        Ibid [6].

[40]        Ibid [6(c)].

[41] Ibid [169]. The principal also had claims involving damages for breach of contract which Vickery J held

were required to be referred to arbitration.

[42] Ibid [8].

[43] Ibid [121].

40          Vickery J held that the payment sought by the principal fell within the carve out clause because it was a proceeding to enforce payment due under the contract.[44] His Honour appears to have found that once the court was seized of a progress payment claim in accordance with the relevant ‘carve out’ provision, the parties objectively intended that any triable issue in relation to certification would be determined by the court and was not a matter required to be submitted to arbitration.[45]

[44] Ibid [113]. Paragraph 67 of the Counterclaim was identified as “a debt in respect of the January

Certificate.”

[45]        As discussed in Tianqi, [125].

41          Lysaght is distinguishable from the present case.  In Lysaght, the relevant question was the validity of the payment certificate that was issued; whether the Superintendent was entitled to issue the payment certificate.[46] The relevant payment clause provided for calculations to be done and allowances to be made for amounts including amounts due from the contractor to the principal or the principal to the contractor. The process resulted in the balance that was ‘due’ to the contractor or to the principal, as the case may be, as stated in the certificate.[47]

[46]        And whether it failed to set out the matters it was required to in the certificate.

[47]        Clause 42.1 of the relevant contract set out in Lysaght, [21].

42          For the reasons set out above, on the material before the Court, there is no pleading or evidence of a payment ‘due and payable’ under cl 25 capable of summary determination. Accordingly, the plaintiff’s proceeding is not a proceeding “to enforce payment due under clause 25” within the relevant ‘carve out’ provision.

43          Mr Black contended that if Decmil’s argument takes the dispute outside the exclusion in cl 33.4, then all Decmil would have to do to circumvent cl 33.4 would be to deduct a single dollar from any amount claimed by L&M and assert that, but for that one dollar deduction, L&M could have taken the dispute to Court. Having regard to the interpretation of the equivalent clause in Tianqi; that the words such as those found in clause 33.4 refer to “proceedings which are capable of summary determination: ie, proceedings in which there is no triable issue which would form a proper basis for defending a summary judgment application”, should such a spurious attempt to circumvent the payment provision be made, the Court would likely conclude that the postulated defence raises no objectively triable issue. Such an attempt would not prevent the matter from being amenable to summary judgment.

44          Mr Black sought leave to amend the pleading if the Statement of Claim, as drafted, does not capture “the essence of the dispute”, so that it is “brought within the auspices of clause 25.” Mr Mason opposed leave to amend and submitted that no amendment would assist as the substance of the dispute lies outside cl 25.  It would be a triumph of procedure over substance.

45          I consider that the Statement of Claim reflects the substance of the dispute being the wrongfulness or otherwise of Decmil withholding and refusing to pay part of the price L&M claims is due. No draft amended statement of claim was provided to show how the claim would be pleaded to ‘fit’ within the carve out.

46          Given the proper construction of the Subcontract, and the issues raised by Decmil in support of its application, I find that the proceeding is not captured by the carve out in cl 33.4.

47          As set out above, there is no issue that the set-off dispute is a dispute between the parties arising out of or related to the Subcontract and is captured by the arbitration agreement. The material before the Court establishes that the action is brought in a matter which ‘is the subject of an arbitration agreement’ for the purposes of s 8 of the Arbitration Act.[48]

 

[48]        In Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547, Merkel J referred (at [18])

to authorities, regarding Tanning Research as “authority for the view that, for the purposes of s 7(2), the ‘matter’ to be determined in a proceeding is to be ascertained by reference to the subject matter of the dispute in the proceeding and the substantive, although not necessarily the ultimate, questions for determination in the proceeding.”

Conclusion

48          I find for the applicant.

49          The proceeding is transferred to the Arbitration List of the Commercial Division.

50          Pursuant to s 8(1) of the Commercial Arbitration Act 2011 (Vic), the parties are referred to arbitration and the proceeding in this Court is stayed on the basis that the matter is the subject of a valid and binding arbitration agreement.

51          Subject to any matters the parties seek to draw to my attention, I propose to order the respondent pay the applicant’s costs of and incidental to the application under s 8(1) of the Commercial Arbitration Act 2011 (Vic) on a standard basis, to be taxed in default of agreement.

52          Costs of the proceeding be reserved for determination by the arbitrator or if no such arbitration is commenced within a reasonable period, upon application to the County Court.

53          In the event that the arbitrator is unable to, or refuses to, determine the costs of the proceeding in the County Court, the County Court will determine those costs on application.

54          I invite the parties to prepare draft orders to give effect to these reasons.

55          If the parties are unable to agree upon the form of order, those minutes of order should be accompanied by short submissions directed to the matters remaining in issue.

 

 

– – –

Certificate

I certify that these 55 paragraphs are a true copy of the judgment of Her Honour Judge Brimer delivered on 6 August 2021.

Dated: 6 August 2021

Taylah Stretton
Associate to Her Honour Judge Brimer

 

Feldman v Tayar [2021] VSCA 185

MATTER Feldman v Tayar [2021] VSCA 185
PARTIES PINCHUS FELDMAN          First Applicant

 

and

 

YOSEF FELDMAN   Second Applicant

 

v

 

COREY STEPHEN TAYAR Respondent

MATTER NUMBER S EAPCI 2020 0030
COURT IN THE SUPREME COURT OF VICTORIA
DIVISION ARBITRATION LIST
JUDGES: MCLEISH, SIFRIS and KENNEDY JJA
WHERE HELD: Melbourne
DATES OF HEARING: 19 March 2021
DATE OF JUDGMENT: 24 June 2021
MEDIUM NEUTRAL CITATION: [2021] VSCA 185
APPEALED FROM: [2020] VSC 66 (Lyons J)
CATCHWORDS ARBITRATION – Clause in arbitration agreement submitting ‘Disputed Matters’ to arbitration – Disputed Matters defined by reference to pleadings – Pleadings not filed – Agreement for oral articulation of claims on first day of arbitration – Whether arbitration agreement complied with writing requirements under s 7(3) of Commercial Arbitration Act 2011 – Whether ‘certain disputes’ submitted to arbitration – Arbitration agreement provided in writing clear mechanism for precise identification of disputes – Agreement to dispense with pleadings did not affect validity of arbitration agreement – Leave to appeal granted but appeal dismissed – Commercial Arbitration Act 2011 s 7.

 

 

 

ARBITRATION – Whether judge erred in not finding arbitrators failed to give reasons as required by s 31 of Commercial Arbitration Act 2011 – No requirement for arbitral reasons to be of judicial standard – Adequacy depends on evidence, nature and complexity of issues and relevant findings – Claim straightforward – Reasons disjointed and not easy to understand but adequately set out arguments, principles and conclusions – Reasons conveyed applicants lacked documentation and arbitral panel accepted respondent’s documentation calculating amount owing – Application dismissed – Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239 applied – Commercial Arbitration Act 2011 s 31.

REPRESENTATION For the Applicants:

Solicitors –      Philip Henenberg

Council –    Mr J Korman

 

For the Respondent

Solicitors –      Dov Silberman

Counsel –     Mr D Silberman (solicitor)

 

McLEISH JA

SIFRIS JA
KENNEDY JA:

Introduction

  1. On 4 March 2013, the applicants and the respondent entered into a written arbitration agreement (‘Arbitration Agreement’) appointing three arbitrators (‘Arbitral Panel’)[1] ‘to determine the Disputed Matters’.  The Disputed Matters were to be identified and determined by pleadings to be filed in the arbitration as directed by the arbitrators.  However, the arbitration commenced on the day of execution of the Arbitration Agreement and, in place of pleadings, the parties and the arbitrators agreed that the claims would be identified orally at the commencement of the arbitration, which they were.

[1]          The Arbitrators were parties to the Arbitration Agreement and executed it on 4 March 2013.

  1. Recital A to the Arbitration Agreement recorded that the parties were in dispute about ‘certain loans, rents, salary payments, the ownership of properties and other matters’.
  1. The parties agreed that the Disputed Matters would be determined by reference to principles of Orthodox Jewish Law (‘Halacha’) and that the Arbitration Agreement would be governed by the laws of the State of Victoria.
  1. The award, titled ‘Court Decision’ (‘Award’), was published with reasons (‘Reasons for the Award’) on 9 May 2013.  The Award recorded the Arbitral Panel’s decision in respect of five claims by the respondent:
  • Claim 1 — Claim on whole or part of certain properties[2](‘Properties’)
  • Claim 2 — Claim under rental agreement
  • Claim 3 — Claim for rent
  • Claim 4 — Claim for salary
  • Claim 5 — Claim for redundancy payments

[2]          67 and 69 Penkivil Street, 7 Park Street, Office within the Adler Building, Dormitory Building.

  1. Claim 1 was partially successful in that a monetary sum ($1,635,802) was ordered, in lieu of the claim to the Properties.[3]  Claims 2 to 4 were successful.  Claim 5 was unsuccessful.

[3]          The Award provided for a lien over the Properties as security for payment of the monetary sum.

  1. The respondent only sought to enforce the monetary component of the Award in respect of Claim 1 ($1,635,802), Claim 2 ($320,168.02) and Claim 4 ($14,000).  The respondent did not seek to enforce the Award in respect of Claim 3.  Allowing for an amount of $120,400 already paid, the total amount sought was $1,849,570.02.
  1. The application to enforce the Award (in respect of Claims 1, 2 and 4) was heard by a judge of the Trial Division of the Court on 2 December 2019.  In his reasons for judgment,[4] the judge held that the monetary component of Claim 1 should be enforced in the sum of $1,515,402.02 after taking into account the repayment of $120,400. The judge refused enforcement of the parts of the Award dealing with Claims 2 and 4. On 2 March 2020, the judge made an enforcement order under s 35 of the Commercial Arbitration Act 2011 (‘Act’).  Further orders were made for the payment of interest and costs.

[4]          Tayar v Feldman [2020] VSC 66 (‘Reasons’).

  1. The applicants seek leave to appeal from the judge’s orders on two grounds. The first is that the Arbitration Agreement does not comply with ss 7(1) and 7(3) of the Act. By this ground, the applicants contend that there was no arbitration agreement under the Act, because there was no agreement in writing as to which disputes were to be submitted to arbitration. Secondly, it is contended that the arbitrators failed to give adequate reasons for the Award in respect of the monetary component of Claim 1 as required by s 31(3) of the Act.

Background

  1. The respondent worked at the Yeshivah Centre in Sydney, a Jewish institution operated by the applicants.  From time to time between 2008 and 2013, the respondent lent various amounts of money to the applicants for the purpose of meeting the ongoing expenses of the centre, which he claimed had not been repaid.  Neither the respondent nor the applicants produced a copy of any loan agreement.
  1. The respondent lent the money to the applicants pursuant to the Jewish legal principle known as ‘Heter Isko’ where the person who advances funds is categorised as an investor seeking to derive a profit from investing capital rather than a lender seeking to derive interest from a loan.  It appeared that as part of the arrangement to advance funds, the Properties comprising various parcels of land owned by the applicants and others were pledged to the respondent but were to be returned if the loans were repaid.
  1. Further disputes arose between the parties including in relation to the non-payment of the rent of the respondent’s home by the applicants and non-payment of salary for work done by the respondent.

The Arbitration Agreement

  1. On 4 March 2013, the parties and the arbitrators entered into the Arbitration Agreement.
  1. The recitals to the Arbitration Agreement provide that:
  1. Disputes have arisen between the Parties concerning certain transactions between them during the period from 2007 to date, including certain loans, rents, salary payments, the ownership of properties and other matters.
  2. Pursuant to this Agreement, an Arbitral Panel will be appointed to determine the Disputed Matters in accordance the processes set out in this Agreement.
  1. ‘Disputed Matters’ is defined as ‘the matters described in Schedule 1 to be determined by the Arbitral Panel and made subject of an Award’.  Schedule 1 states:

The Disputed Matters

The matters to be determined by the Arbitral Panel are to be determined by the Statement of Claim, Statement of Defense [sic] and Cross Claim (if any) and the Reply and Deference [sic] to Cross Claim (if any) to be filed in the arbitration as directed by the Arbitral Panel.

  1. Clause 2 of the Arbitration Agreement relevantly provides:
  1. a)           The Parties appoint the Arbitral Panel to determine the Disputed Matters in the manner and within the times set out in this Agreement and the Arbitral Panel accepts the appointment on the basis set out in the Agreement.
  2. b)        The Parties agree that:
  3. i) the Arbitral Panel will act as an arbitral tribunal under the Act;
  4. ii)          the Arbitral Panel must conduct the determination of the Disputed Matters in accordance with the Arbitration Rules.
  1. Schedule 2 of the Arbitration Agreement provides for ‘Arbitration Rules’, amongst other things:
  1. Reference to Arbitration

Arbitration pursuant to this Agreement shall be conducted under and in accordance with the Act and as otherwise set out in these Arbitration Rules (Rules).

  1. Principles Relating to Arbitration

Subject to section 28 of the Act, the Parties agree that the Arbitral Panel may determine any question that arises for determination in the course of the arbitration in relation to the substance of the Disputed Matters by reference to principles of Orthodox Jewish Law (known as Halacha) including its references to local law (Dinah d’malchushah) and local custom (minhag hamakon).

Conduct of the Arbitration

  1. The arbitration commenced on 4 March 2013.  None of the documents referred to in Schedule 1 were ever created.  The respondent made his claims orally and the second applicant on behalf of himself and the first applicant responded orally.  All parties agreed to this course.  During the course of at least two days of hearings, the parties orally identified the disputes the subject of the arbitration.  There was no evidence to the effect that the applicants opposed this course at the time, or at any time thereafter, or sought an adjournment to ensure that the claims for determination by the Arbitral Panel were further identified.  All of the claims fell within the ‘Disputed Matters’ identified in Recital A of the Arbitration Agreement.
  1. The respondent claimed around $6,000,000 in relation to loans and other transactions that were made between the parties, in respect of which he had only been repaid an insignificant amount.  The respondent relied on at least one document relating to the amount of the outstanding advances, which was presented to the Arbitral Panel.  That document was not before the trial judge or this Court.  The applicants in defence submitted to the Arbitral Panel that only around $1,000,000 had actually been lent by the respondent and that all or nearly all of that had been repaid.  The applicants did not produce any documents in support of their claim.
  1. There was little evidence as to how the hearing was conducted or as to the documents that were relied upon.  However, it is not in dispute that the respondent’s claims were the subject of evidence and submissions before the Arbitral Panel and that the applicants were afforded procedural fairness in relation to those claims.

The Award and the Reasons for the Award

  1. On 9 May 2013, the Arbitral Panel published the Award, together with the Reasons for the Award.  The Award relevantly provides:

Parts of the decision mainly based on claims frankly made by the Parties on a court hearing and on the claims expressed orally on the second hearing of the Court (as the Court was unable to approve the claims sent and written via email).[5]

[5]          The second applicant deposed that the first part of this sentence should properly be translated as: ‘The contents of the decision are mainly based on the claims which were frankly stated by the Parties at the sitting of the Rabbinical Court’: Reasons [32].

Claim 1 – the claim on the whole property or a part thereof located at 67&69 Penkivil Street, 7 Park Street, Office within the Adler Building, Dormitory Building.

Court decision:  The mentioned properties remain in possession of the defendants and nevertheless the defendants are obliged to pay the amount of $1,635,802 to the plaintiff.  However, the lender retains a lien on the properties up to the value of the aforementioned amount.

Claim 2 – the claim regarding $17,815.47 pcm rental agreement

Court decision:  The defendants must pay the entire amount of the rental agreement $17,815.47 pcm, as agreed between the parties initially (including all outstanding payments, which have not been paid completely yet).  This obligation continues until the defendants pay the entire above mentioned amount mentioned in claim 1.  Regarding the monthly payments from that time till [sic] September 2013, it depends on the details of initially made agreement and needs further clarification by the Court.

Claim 3 – the claim of apartment rental payment of $850 per week

Court decision:  Mr Joseph Feldman must pay the entire amount of the claim related to the rent that has not yet been paid.

Claim 4 – the claim regarding salary

Court decision:  The defendants must pay the entire amount of the salary (that has not yet been paid) to the plaintiff for all the time of his service at the office etc., but not for the time after he resigned from work.

Claim 5 – the claim regarding redundancy payments

Court decision:  At the moment, the defendants are exempt from compensating the plaintiff.

  1. The Reasons for the Award are short (three pages) and not easy to understand.  The language is often disjointed.  They are very much based upon the Halacha.
  1. The introductory paragraph of the Reasons for the Award provides:

Our intention here is to quote in brief the primary perspectives that led to the above mentioned decision of the Court, after seriously considering all parts of the Halacha, and after consulting great Torah scholars who sit in judgement around the globe, and it is understood that it is the way of Torah that every matter has perspectives, this one builds and the other demolishes, nevertheless the decision was made according to the opinion of the Court.

  1. The body of the Reasons for the Award relate almost entirely to Claim 1, namely the loans or advances, the agreement to transfer property in relation to the advances, the advances outstanding at the time of the hearing, and the interest (or profits) thereon.

Enforcement

  1. The respondent issued enforcement proceedings pursuant to s 35 of the Act on 6 May 2019, nearly six years after the Arbitral Panel made the Award. The applicants issued an application for refusal of enforcement under s 36 of the Act on 11 September 2019.
  1. The matter was heard by a judge of the Trial Division on 2 December 2019. On 2 March 2020, the judge handed down judgment and made an enforcement order pursuant to s 35 of the Act that the applicants pay the respondent the sum of $1,515,402.02.

Relevant provisions of the Act

  1. Section 1 of the Act defines the scope of the Act:

1        Scope of application

(1)       This Act applies to domestic commercial arbitrations.

(3)       An arbitration is domestic if—

(a)          the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in Australia;  and

(b)          the parties have (whether in the arbitration agreement or in any other document in writing) agreed that any dispute that has arisen or may arise between them is to be settled by arbitration;  and

(c)          it is not an arbitration to which the Model Law (as given effect by the International Arbitration Act 1974 of the Commonwealth) applies.

  1. Section 4 of the Act provides a statutory waiver of a right to object in certain circumstances:

4        Waiver of right to object

A party who knows that any provision of this Act from which the parties may derogate or any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating the party’s objection to such non-compliance without undue delay or, if a time-limit is provided for stating the party’s objection, within such period of time, is taken to have waived the party’s right to object.

  1. Section 7 provides for the definition and form of arbitration agreement:

7           Definition and form of arbitration agreement

(1)          An arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2)          An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3)          The arbitration agreement must be in writing.

(4)          An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means.

(7)          Furthermore, an arbitration agreement is in writing if it is contained in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other.

  1. Section 31 provides for the form and contents of an award:

31          Form and contents of award

(1)          The award must be made in writing and must be signed by the arbitrator or arbitrators.

(3)          The award must state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or the award is an award on agreed terms under section 30.

  1. Section 35 provides for the recognition and enforcement of an award:

35          Recognition and enforcement

(1)          An arbitral award, irrespective of the State or Territory in which it was made, is to be recognised in this State as binding and, on application in writing to the Court, is to be enforced subject to the provisions of this section and section 36.

(2)          The party relying on an award or applying for its enforcement must supply the original award or a copy of the original award.

(3)          If the award is not made in English, the Court may request the party to supply a translation of it into English.

  1. Section 36 provides the grounds for refusing recognition or enforcement of an award:

36          Grounds for refusing recognition or enforcement

(1)          Recognition or enforcement of an arbitral award, irrespective of the State or Territory in which it was made, may be refused only—

(a)          at the request of the party against whom it is invoked, if that party furnishes to the Court proof that—

(i)          a party to the arbitration agreement was under some incapacity, or the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication in it, under the law of the State or Territory where the award was made;  or

(ii)         the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present the party’s case;  or

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

(iv)         the composition of the arbitral tribunal 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 State or Territory where the arbitration took place;  or

(v)          the award has not yet become binding on the parties or has been set aside or suspended by a court of the State or Territory in which, or under the law of which, that award was made;  or

(b)       if the Court finds that–

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

(ii)         the recognition or enforcement of the award would be contrary to the public policy of this State.

  1. In respect of ss 35 and 36, the judge made the following comments:

In the context of enforcement proceedings, a prima facie right to recognition and enforcement of the award has been described as ‘consonant with the common law view that the issuing of an arbitral award gives rise to an implied promise that the award will be honoured’.[6]  As French CJ and Gageler J said in TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (a case involving an application to enforce an award under s 8 of the [International Arbitration Act 1974 (Cth)]):

Enforcement of an arbitral award is enforcement of the binding result of the agreement of the parties to submit their dispute to arbitration, not enforcement of any disputed right submitted to arbitration.[7]

The role of the Court under ss 35 and 36 of the [Act] is understood to be limited to the enforcement of contractual obligations arising from the arbitration agreement: it is not to determine substantive disputes between the parties as to fact and law, those being the realm of the arbitral tribunal.[8]  The Court is concerned with the ‘structural integrity of the arbitration proceedings’.[9] As a result, the arbitral award should be enforced unless any of the grounds contemplated by s 36 apply.[10]

[6]          Andent Pty Ltd v Thornhill Machine Tools Australia Pty Ltd [2014] VSC 647, [17] (Croft J).

[7]          TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (2013) 251 CLR 533, 555–6 [34] (French CJ and Gageler J).

[8]          Indian Farmers Fertiliser Cooperative Ltd v Gutnick (2015) 304 FLR 199, 207 [18] (Croft J).

[9]          Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) [No 1] [2012] 4 HKLRD 1, 7 [7] (Tang V-P, Kwan JA and Fok JA agreeing at 38 [109] and [110]).

[10]         Reasons [58]–[59].

Judge’s reasons

  1. At trial, the applicants principally contended that there was no ‘domestic commercial arbitration’ and no enforceable or valid arbitration agreement, because the Disputed Matters were not identified in writing. They also contended that s 36(1) applied so that the Court should refuse to enforce the Award.
  1. First, the judge held that the Arbitration Agreement was valid and enforceable.  In particular, the disputes submitted to arbitration were sufficiently identified.  He referred to Austra Tanks Pty Ltd v Running[11] and continued:

In the present case, the Agreement contains details of the parties, the Arbitral Panel and how the arbitration was to be conducted.  Having recorded in Recital A that disputes had arisen between the parties ‘concerning certain transactions between them during the period from 2007 to date [4 March 2013], including certain loans, rents, salary payments, the ownership of properties and other matters’, the Agreement provided that the Disputed Matters were to be referred to arbitration.  Schedule 1 contains the means by which the Disputed Matters were to be identified, namely by the subsequent filing of a statement of claim by the Applicants and a defence by the Respondents.  In these circumstances, at the time the Agreement was made, I conclude that there was a binding, valid and enforceable agreement between the parties.

I can see no issue of validity or enforceability in the parties agreeing to identify the particular disputes to be referred to arbitration subsequent to the Agreement being entered into.  Indeed, many arbitration agreements provide a mechanism for defining disputes which ‘may arise’ between the parties to be referred to arbitration.  Such an arbitration agreement does not itself set out the particular disputes which are to be referred.  That can only take place at a later point in time.  However, it is clear that these kinds of arbitration agreements are valid and binding arbitration agreements under the [Act] notwithstanding the precise nature of the dispute is yet to be identified.

In my view, the real complaint of the Respondents, at the level of validity and enforceability, is that the Applicant failed to file a statement of claim in accordance with the terms of the Agreement.  On its face, that non-compliance may amount to a contractual breach.  But in my view, that does not mean that there was not a valid and binding agreement.  Rather, it means that the Respondent had the right to complain about that breach: i.e. to seek enforcement of that term of Agreement or to terminate the Agreement for breach.  However, that issue is not relevant to the question of whether the Agreement on its face was void for incompleteness or uncertainty.[12]

[11]         [1982] 2 NSWLR 840, 843 (Wootten J).

[12]         Reasons [82]–[84].

  1. The judge then addressed whether the Arbitration Agreement complied with ss 1(3)(b) and 7 of the Act. In relation to s 1(3)(b), he said:

Section 1(3)(b) first requires that the parties have agreed that ‘any dispute’ that ‘has arisen or may arise between them’ is to be settled by arbitration. It also requires that agreement is in ‘the arbitration agreement or in any other document in writing’.

In my view, the Agreement satisfies the first requirement of s 1(3)(b). As set out above, it provides that the Disputed Matters are to be settled at arbitration by the Arbitral Panel and sets out the mechanism or procedure for how the Disputed Matters are to be identified, namely by the Applicants filing a statement of claim pursuant to Schedule 1. In this case, as the Agreement is in writing, it satisfies the second requirement in s 1(3)(b).[13]

[13]         Ibid [90]–[91].

  1. In relation to s 7, the judge said:

Section 7(1) of the [Act] first requires an agreement by the parties to submit to arbitration ‘all or certain disputes’ which ‘have arisen or which may arise between them’ in respect of a defined legal relationship. Section 7(3) requires that agreement ‘must’ be in writing. Section 7(4) provides that it is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means.

In my view, the Agreement satisfies the first requirement of s 7(1). As set out above, it provides that ‘certain disputes’ are to be settled at arbitration by the Arbitral Panel, namely the Disputed Matters. It sets out the mechanism or procedure for how the Disputed Matters are to be identified, namely by the Applicants filing a statement of claim pursuant to Schedule 1. As that Agreement is in writing, it satisfies the requirement in s 7(3).

In my view, the real complaint of the Respondents, at the level of the [Act], is that either s 1(3)(b) and/or s 7 requires the actual matters to be referred for determination by the Arbitral Panel to be in the writing. I am unable to discern any such requirement on the proper construction of these sections. This is in the context, noted above, that many arbitration agreements relate to disputes which ‘may arise in the future’: those disputes can only be identified at a later point in time. In my view, such agreements clearly fall within s 1(3) and s 7, each of which refer to agreements relating to disputes that ‘may arise between’ the parties.[14]

[14]         Ibid [92]–[94].

  1. The judge found that the parties were aware of how the ‘Disputed Matters’ were to be defined in the absence of a statement of claim and precisely what matters were to be heard and determined by the Arbitral Panel.  The judge accepted that there was no complaint by the applicants and that they were not prejudiced or denied procedural fairness by the failure to provide a statement of claim.[15]  In conclusion the judge said:

As a result, I consider that the Agreement does comply with s 1(3)(b) and s 7 of the [Act] as there is no requirement under those provisions for the particular matters referred to an arbitrator to be in writing. Further, and as a consequence, I do not consider that the arbitration was beyond the scope of the [Act].[16]

[15]         Ibid [96]–[98].

[16]         Ibid [106].

  1. The judge then found that in any event, in the circumstances, by executing the Arbitration Agreement and embarking on the arbitration on the very same day without any statement of claim, the applicants ‘waived their right to object to the [respondent’s] failure to do so’.[17] He referred in that context to s 4 of the Act.

[17]         Ibid.

  1. The judge then held that, as the Arbitration Agreement satisfied the requirements of s 1(3)(b), the arbitration was a ‘domestic’ arbitration.[18] Further, save for Claim 4, the arbitration was a ‘commercial’ arbitration within s 1(1) of the Act.[19]  This issue was not in dispute in the case of Claim 1.

[18]         Ibid [114].

[19]         Ibid [119]–[123].

  1. Accordingly, the judge was satisfied that the Court was able to enforce Claims 1 and 2. The arbitration of Claims 1 and 2 was a domestic commercial arbitration under the Act and the other necessary procedural matters under the Act and the Arbitration Rules had been complied with.[20]

[20]         Ibid [124].

  1. The judge rejected, for the same reasons, the applicants’ contention that the Court should refuse to enforce the Award pursuant to s 36 of the Act on the grounds that:

(a)               there was no valid arbitration agreement under Victorian law;

(b)              the Award dealt with disputes not falling within or beyond the scope of the submissions to arbitration;  and

(c)               the arbitral procedure was not in accordance with the agreement of the parties.[21]

[21]         Ibid [128]–[131].

  1. The judge went on to say that, even if the applicants had established grounds under s 36, he would not have refused to enforce the Award.[22]  He said that refusal to enforce is a matter of discretion.[23]  The judge said:

Third, for the reasons set out above, in this case I am not satisfied that the failure to reduce to writing the Disputed Matters caused any practical unfairness or prejudice in any way to the Respondents.  None was asserted by the Respondents at the arbitral hearings, before the Award and the Reasons were finalised, or in this proceeding.

As a result, I would enforce the Award in respect of Claim 1.[24]

[22]         Ibid [131]–[132].

[23]         Ibid [132]–[137].

[24]         Ibid [138]–[139].

  1. The judge then dealt with the failure to provide reasons as required pursuant to s 31(3) of the Act. In relation to Claims 2 and 4, the judge said:

In these circumstances, the Reasons do not on their face satisfy the requirements to give reasons as required by s 31(3) of the [Act] in respect of Claims 2 and 4. As a result, in the exercise of my discretion, I would refuse to enforce the Award in respect of Claims 2 and 4 under s 36(1)(a)(iv) of the [Act].[25]

[25]         Ibid [159].

  1. In relation to Claim 1, the judge, after referring to the relevant authorities,[26] which were not in dispute, said:[27]

Taking these matters into account, there must still be some reasoning process setting out how the tribunal came to its decision.  When considering the adequacy of reasons the Court is not concerned with assessing the merits of the reasons given for an award beyond determining whether they adequately indicate how the arbitral tribunal came to its decision.  In the context of enforcement proceedings, Croft J in Giedo noted that:

In this respect the court does nevertheless stress that this enforcement application does not involve anything in the nature of a merits appeal from the award.  Indeed, it is not the function of the court to investigate this issue, save to indicate that on the basis of the material, including the submission to arbitration, it was clearly open to the arbitrator to make the relevant findings as set out in the award.[28]

[26]         Ibid [148], [150]; Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239, 269–70 [51]; [2011] HCA 37 (French CJ, Gummow, Crennan and Bell JJ); Bremer Handelsgesellschaft mbH v Westzucker GmbH [No 2] [1981] 2 Lloyd’s Rep 130 (‘Bremer’);  R v F [2012] 5 HKLRD 278.

[27]         Reasons [152].

[28]         Giedo van der Garde BV v Sauber Motorsport AG [2015] VSC 80, [12].

  1. The judge concluded that the reasons were adequate and said:

The Reasons are not easy to understand.  The language is often disjointed.  These issues may be the result of the translation or the way in which the original Reasons were written.

The Reasons focus predominantly on the dispute over the advances that were the subject of Claim 1:  nearly all of the three pages of the Reasons deal with Claim 1.  That is understandable given that it was the largest claim before the Arbitral Panel.  Without assessing the merits of the Reasons, I note that the Reasons on Claim 1 set out the relevant arguments, the Halachic principles upon which they rely, and the conclusions arrived at consequential to those facts.  As such, in my view, they are adequate.[29]

[29]         Reasons [154]–[155].

Proposed grounds of appeal

  1. The applicants’ proposed grounds of appeal are as follows:
  1. The primary judge:

(a)          erred in finding that the parties had entered into an arbitration agreement for purposes of sections 7(1) and 7(3) of the [Act]; and

(b)       ought to have found that:

(i)        there was no arbitration agreement;

(ii)         the parties did not agree in any other document in writing that any dispute that had arisen or may arise between them would be settled by arbitration;

(iii)        in consequence, under section 1(3)(b) of the [Act], the arbitration was not domestic; and

(iv)         pursuant to section 1(1) of the [Act], the arbitral award could not be enforced under the [Act].

  1. The primary judge:

(a)          erred in not finding that the arbitrators failed to give reasons as required by section 31(3) of the [Act] for their finding that the Applicants were liable to repay the Respondent the borrowed principal;

(b)          ought, in the exercise of his discretion under section 36(1)(a)(iv) of the [Act], to have refused to enforce the arbitral award in respect of the borrowed principal, being $1 million; and

(c)          ought to have found that the portion of the arbitral award determining the applicants’ liability for interest was not clearly separate and divisible from the portion of the award dealing with the applicants’ liability to repay the borrowed principal, so that the entirety of Claim 1 could not be enforced.

Proposed ground 1 —Arbitration Agreement

  1. As noted above, the judge held that:

(d)              the Arbitration Agreement was not void for uncertainty or incompleteness as the disputes were ascertainable;

(e) the Arbitration Agreement satisfied the requirements of ss 1(3)(b) and 7(1) and 7(3) of the Act for the reasons given;

(f)               the parties were aware how the Disputed Matters were to be defined and determined in the absence of a statement of claim and neither party was prejudiced or complained;[30]

(g) the arbitration of Claims 1 and 2 constituted a domestic commercial arbitration under the Act and as all procedural requirements had been complied with, Claim 1 should in the exercise of the Court’s discretion be enforced under s 35 of the Act;[31]  and

(h) in the exercise of his discretion, he would not refuse to enforce Claim 1 under s 36 of the Act even if, contrary to his view, that discretion were enlivened.

[30]         The judge found that this was sufficient to constitute a waiver of the right to object to the absence of a statement of claim.

[31]         Claim 2 was not enforced because the reasons were not adequate.

Applicants’ submissions

  1. The applicants submitted that the Arbitration Agreement did not comply with s 7 of the Act because, unless and until pleadings were filed there was no agreement to submit ‘all or certain disputes which have arisen or which may arise’ between the parties to arbitration. Some further process and articulation, in writing, was required, in this case the agreed pleadings.
  1. In the written case, the applicants submitted that the Arbitration Agreement ‘can be characterised in two ways’ and that ‘[b]oth lead to the conclusion that it was not an arbitration agreement for purposes of section 7 of the [Act]’. The first way was by incorporation by reference, that is the pleadings, which did not take place.
  1. The second way was that the parties contemplated a further step or agreement as explained in Masters v Cameron[32] (category two) which never took place with the consequence that ‘an arbitration agreement never came into existence’.

[32]         (1954) 91 CLR 353.

  1. The applicants contended that the consequence was as follows:

In circumstances where there was no arbitration agreement, and no other document in writing in which the parties agreed to submit any dispute to arbitration, there was no domestic arbitration, the [Act] did not apply, and the Court had no jurisdiction to enforce the arbitral award.

  1. During oral submissions, counsel for the applicants placed much emphasis on the construction of ss 7(1) and (3), contending that it was fundamental to identify, in writing, which disputes are to be submitted to arbitration because of the finality and legal consequences of an award. Reference was made to Aughton Limited (formerly Aughton Group Ltd) v MF Kent Services Ltd,[33] in which Sir John Megaw said:

it has been laid down by statute … that an arbitration agreement has to be ‘a written agreement’ … The object, or the effect, of that statutory requirement must be to emphasise, and seek to ensure, that one is not to be deprived of his right to have a dispute decided by a court of law, unless he has consciously and deliberately agreed that this should be so.[34]

[33]         (1991) 57 BLR 1.

[34]         Ibid 31.

  1. The gravamen of the applicants’ oral submission was that the disputes to be submitted to arbitration were not identified in writing. The disputes were to be identified and determined by pleadings that did not come into existence. Any oral agreement as to the disputes to be determined was not sufficient. In short, cl 2(a) of the Arbitration Agreement submitted Disputed Matters to the Arbitral Panel. There were no Disputed Matters because the matters were to be defined by the pleadings. The applicants submitted that Recital A and the oral agreement between the parties as to which disputes were to be determined was not sufficient compliance with ss 7(1) and (3). As a consequence, it was submitted that the judge fell into error.

Respondent’s submissions

  1. The respondent submitted that there was no error in the approach and findings of the judge.  The Arbitration Agreement was in writing, appointed the Arbitral Panel and identified the general nature of the disputes between the parties and procedural aspects as to how the arbitration was to be conducted.
  1. The respondent submitted that the pleadings were not incorporated into the Arbitration Agreement and the Arbitration Agreement was not a ‘Masters v Cameron type of agreement’.
  1. The respondent submitted further that the failure to file a statement of claim had no effect on and did not determine the validity of the Arbitration Agreement and compliance with s 7. According to the respondent:

Such a view is supported by a number of factors.  Firstly the Schedule 1 requirement is clearly procedural as it requires the Parties to file certain types of documents ‘in the arbitration as directed by the Arbitral Panel’.  It is clear from this passage that at the moment when any Statement of Claim (written or oral) would need to be presented there would have to have been an Arbitral Panel in existence.  It follows that the Arbitral Panel would then have the jurisdiction and power to direct the Parties as to how and what documents and evidence were to be produced in accordance with the Agreement.  It follows that the Agreement created an Arbitral Panel with a valid jurisdiction before the creation of any Statement of Claim or defence.

To conclude otherwise would lead to a situation where the Agreement has both created and not created the Arbitral Panel.  The Agreement created the Arbitral Panel and has given that tribunal a jurisdiction to direct parties as to the presentation of, [sic] including a Statement of Claim and Defence.  At the same time, it has not created any Arbitral Panel and has not given it a jurisdiction because ‘Pleadings were not filed, and an arbitration agreement never came into existence’.  Such an interpretation of the nature of the Schedule 1 will lead to uncertainty.  It will be contrary to the principles of interpretation highlighted by the primary judge.  It will also be contrary to a principle set out in the case mentioned in Applicants’ Written Case … ‘if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense’.[35]

The general nature of the disputes and claims between the parties are specifically named in the Recital A and most relevantly and importantly correspond precisely with the Claims specifically covered in the Award.

[35]         Romero v Farstad Pacific Shipping (Indian Pacific) Pty Ltd (2014) 231 FCR 403, 414–5 [38] (Allsop CJ, Rares and McKerracher JJ) citing McCormick v Riverwood International (Australia) Pty Ltd [1999] FCA 1640, [74]–[77] (Weinberg J).

Analysis

  1. Arbitration has been a method and feature of dispute resolution under the common law well before the various Arbitration Acts. However, the various Acts and in particular the Act, provide numerous advantages particularly in relation to enforcement. Arbitration may be conducted according to the common law. The Act however applies to ‘domestic commercial arbitrations’.
  1. To qualify as a ‘domestic commercial arbitration’ the parties must agree that ‘any dispute that has arisen or may arise between them is to be settled by arbitration’. The agreement may be in the arbitration agreement or in any other document in writing (s 1(3)(b) of the Act).
  1. Under s 7(1) of the Act ‘arbitration agreement’ is defined as ‘an agreement by the parties to submit to arbitration all or certain disputes, which have arisen and which may arise between them’. Although the agreement must be in writing (s 7(3)), it is sufficient if it is recorded ‘in any form’ if the agreement is otherwise concluded orally or by conduct (s 7(4)).
  1. The requirements contained in ss 1(3)(b) and 7(1) are addressed to establishing that ‘all or certain disputes’ have been submitted in writing to arbitration. If the submission embraces ‘all’ disputes, it is plain that the provisions are met, even though the disputes in question have not, in the agreement itself, been identified with any particularity. More precise identification must then await the arbitral process itself. There is no reason why a submission of ‘certain’ disputes should demand any greater specificity. Therefore, although the word ‘certain’ is capable of connoting precise identification, as used in s 7(1) it means simply ‘some’, standing in contrast to ‘all’. This is usually satisfied by submitting any dispute under a particular agreement, as noted by the judge. Equally, the parties may agree in writing to a mechanism or process for determining which disputes that have arisen or which may arise between them are to be submitted to arbitration. As long as there is a process to determine with certainty which disputes are to be submitted, there is a valid and binding arbitration agreement. The particular disputes need not be identified in the arbitration agreement.
  1. Turning to the facts of the present case, the matter may be tested by considering the position at the time the Arbitration Agreement was signed. At that point, prior to the giving of any direction by the Arbitral Panel and therefore prior to the filing of any pleadings, there can be no issue as to the validity of the Arbitration Agreement, which was immediately binding on the parties. It provides in writing for the submission of disputes between the parties to arbitration. The disputes are identified, both in the definition of ‘Disputed Matters’, which presupposes a direction by the Arbitral Panel, and in Recital A. The Act requires no more, and no Masters v Cameron[36] issue arises.

[36]         (1954) 91 CLR 353; [1954] HCA 72.

  1. In our opinion, the fact that the Arbitral Panel gave no direction, and no pleadings were exchanged, does not alter that position.  The Arbitration Agreement identifies the general nature of the disputes submitted to arbitration in Recital A, leaving the precise articulation and quantification of the specific claims to be determined by pleadings as directed by the Arbitral Panel.  In this case, the parties instead agreed orally that this need not occur.  While that gave the defined term ‘Disputed Matters’ no work to do, the description of the disputes in Recital A was plainly thought sufficient to identify the subject matter of the arbitration.  That was not inconsistent with the Arbitration Agreement, because the Arbitral Panel did not direct pleadings at all.  Nothing in the Arbitration Agreement dictated that such directions were mandatory.  In their absence, the Arbitration Agreement still appointed arbitrators for the purpose of deciding the disputes identified in Recital A.
  1. It follows that it is not correct to say that, because there were no ‘Disputed Matters’ (as defined), nothing was submitted to arbitration, or that the Arbitration Agreement did not provide for ‘certain disputes’ to be submitted to arbitration.  The first proposed ground is not made out.
  1. Given the nature and extent of the argument we will grant leave to appeal on this proposed ground but dismiss the appeal.

Proposed ground 2 — Reasons

  1. To understand proposed ground 2, it is necessary to say a little more about the Reasons for the Award.
  1. The Reasons are not easy to understand.  This may partly be due to the fact that they have been translated.  In any event, however, some things are clear enough.  Having decided that the sale of the Properties was void for ‘overreaching’, the Reasons state that ‘there remains at most the debt of $1,831,360’, as to which there was no proof of overreaching.
  1. As to that amount, the Reasons state that approximately $1,000,000 was principal which the applicants were ‘certainly … liable to pay’, and the remainder profits or interest.  There being doubt as to the position regarding interest, one third would be awarded.  The respondent was also entitled to $126,000 by way of principal under separate loans and ‘5% of the profits as a compromise amount’, together with amounts referable to ‘damage and toil aggravation etc’.  This produced the figure of $1,635,802.
  1. The source of these figures is not further explained.  However, the Reasons state earlier that the applicants ‘completely relied on all of the calculations’ of the respondent, except for disputing the claimed debt of $1,831,360.

Judge’s reasons

  1. As noted at paragraph 45 above, the judge held that in relation to Claim 1 the reasons were adequate.

Applicants’ submissions

  1. The applicants submitted that having identified the relevant contested dispute between the parties in relation to the monetary component of Claim 1 — whether the principal has been repaid — the finding in favour of the respondent ‘contains nothing which can be described as constituting “some reasoning process setting out how the tribunal came to its decision”’.
  1. The applicants submitted further that the claim in respect of interest is not severable and the failure to give reasons in relation to repayment of the principal means that the interest component cannot be enforced.

Respondent’s submissions

  1. The respondent submitted that there was no error in the finding and reasons of the judge.  The reasons were adequate in circumstances where the evidence established, as sufficiently identified in the Award, that the respondent provided the Arbitral Panel with a document that consolidated all of the financial dealings between the parties, being a document relied on by the applicants, who tendered no documentary evidence and simply made bald unsubstantiated assertions about repayment.

Analysis

  1. The authorities are not in dispute.  Both parties relied on the decision of the High Court in Westport Insurance Corporation v Gordian Runoff Ltd (‘Gordian Runoff’).[37]

[37]         (2011) 244 CLR 239; [2011] HCA 37.

  1. Prior to that decision, there was some difference of opinion between the Victorian and New South Wales Courts of Appeal.  In Oil Basins Ltd v BHP Billiton Ltd,[38] the Victorian Court of Appeal held that in certain circumstances the complexity of reasons could reach that of a superior court.  In Gordian Runoff Ltd v Westport Insurance Corporation,[39] the New South Wales Court of Appeal held that the arbitral reasons did not have to be of a judicial standard. The Court referred to the test formulated by Donaldson LJ in Bremer Handelsgesellschaft mbH v Westzucker GmbH [No 2] as follows:

All that is necessary is that the arbitrators should set out what, on their view of the evidence, did or did not happen and should explain succinctly why, in the light of what happened, they have reached their decision and what that decision is.  That is all that is meant by a ‘reasoned award’.[40]

[38]         (2007) 18 VR 346; [2007] VSCA 255.

[39]         [2010] NSWCA 57 (‘Gordian Runoff v Westport’).

[40]         Ibid [215] (Allsop P, Spigelman CJ agreeing at [1], Macfarlan JA agreeing at [305]) quoting Bremer [1981] 2 Lloyd’s Rep 130, 132–3 [25].

  1. The New South Wales Court of Appeal emphasised the differences between arbitration and litigation and said:

[I]t is wrong to equate the obligations of judges and arbitrators to give reasons as part of the ascription of meaning to the CA Act, s 29(1)(c). This is because of my view that so to equate the responsibilities of arbitrators and judges is not in accordance with the content of either s 29(1)(c) or the Model Law (being relevantly its source and inspiration) or with international arbitration practice as reflected by the cases.[41]

[41]         Ibid [224].

  1. The issue was clarified by the High Court in Gordian Runoff.[42]  Both the joint judgment (French CJ, Gummow, Crennan and Bell JJ)[43] and the separate concurring judgment of Kiefel J[44] endorsed Donaldson LJ’s test of the standard of reasons required in arbitral awards and referred to the passage set out above.  The joint judgement[45] and the separate concurring judgment of Kiefel J[46] make clear that there was nothing in the legislation to suggest that arbitral awards should display reasons of a judicial standard.

[42]         (2011) 244 CLR 239; [2011] HCA 37.

[43]         Ibid [53]–[54].

[44]         Ibid 270–1 [169]–[170].

[45]         Ibid 302–3 [53].

[46]         Ibid [169].

  1. The adequacy or sufficiency of reasons will depend on the evidence, the complexity and nature of the issue, and the relevant finding.  The reasons must address why the arbitrators have reached a particular decision.
  1. The first point to note is that the issue in respect of the monetary component of Claim 1 was relatively simple and straightforward.  The applicants claimed that they gave back about $1 million over the years.  The respondent claimed that he received only an insignificant amount.  The applicants produced no evidence to support their bald and general assertion of repayment.  The respondent provided the Arbitral Panel with a document that consolidated all the previous financial dealings between the parties.  The document contained information regarding monies advanced to, and repaid by, the applicants over time.  The applicants relied on these figures.  Presumably these figures formed the basis of the Award.[47]

[47]         As referred to above, the reconciliation document is not in evidence.

  1. As noted earlier, the judge held that, although the Reasons for the Award are ‘not easy to understand’ and ‘[t]he language is often disjointed’, ‘they are adequate’.[48]  In particular, the judge noted ‘that the Reasons on Claim 1 set out the relevant arguments, the Halachic principles upon which they rely, and the conclusions arrived at consequential to those facts’.[49]

[48]         Reasons [154]–[155].

[49]         Ibid [155].

  1. It must be recalled, and it is not without significance, that Claim 1 dealt with a wider issue than repayment of the loan or principal.  Claim 1 was essentially a claim to the Properties because of non-payment of the principal.  The Reasons for the Award deal with and provide reasons as to why the claim to the Properties failed.  There is no suggestion that in this respect the reasons were not adequate.  However, a necessary part of the reasoning required a consideration of the extent of disparity between the value of the Properties and the amount of the loan or principal.  The existence and extent of the loan and any unpaid balance were integral to the analysis, reasoning and findings.
  1. Having rejected the claim to the Properties, the amount owing became the primary focus, although as pointed out it also informed the dismissal of the claims to the Properties.
  1. The Reasons for the Award set out the relevant rival arguments, albeit rather inelegantly (which may to some extent be  a result of translation).  Nevertheless, the Reasons for the Award record the assertion by the applicants that they ‘gave back over those years approximately 1,000,000’ and the assertion by the respondent that ‘he received only an insignificant amount here and there’.
  1. In finding for the respondent, the reason stated in the Reasons for the Award was that ‘the [applicant] completely relied on all of the calculations of the [respondent] and now he disagrees with him regarding a “significant” amount’.  This sufficiently conveys that the applicants had no documentation and yet asserted a ‘significant’ disparity between the versions while simultaneously relying on the respondent’s detailed document, which was in evidence before the Arbitral Panel.  The Reasons for the Award then go on to deal with the issue of interest and, it may be inferred, rely on the same figures put forward by the respondent in undertaking the necessary calculations.  The applicants, on whom the onus lay to establish that the reasons were inadequate, led no evidence suggesting otherwise.  Good or bad, out of sequence, not fully or precisely stated, there is a sufficient process of reasoning in dealing with Claim 1.
  1. In light of our finding, the issue raised by proposed ground 2(c) as to whether the applicant’s liability for interest was separate and divisible from the portion of the Award dealing with their liability to repay the borrowed principal, does not arise.
  1. It is also not necessary to deal with a notice of contention, by which the respondent contended that, even if the Reasons for the Award were inadequate and capable of triggering the discretion of the Court under s 36 of the Act to refuse to enforce the Award, the Award should still be enforced as there was no serious breach of the rules of natural justice.
  1. We will grant leave on proposed ground 2 but dismiss the appeal.

Conclusion

  1. Accordingly, we grant leave to appeal and dismiss the appeal.