Mitchell Water Australia Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd  VSC 753 (14 December 2018)
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IN THE SUPREME COURT OF VICTORIA
MELBOURNE COMMERCIAL COURT
MITCHELL WATER AUSTRALIA PTY LTD (ACN 097 612 149)
MCCONNELL DOWELL CONSTRUCTORS (AUST) PTY LTD (ACN 002 929 017)
JUDGE: Croft J
DATE OF HEARING: 7 December 2018
DATE OF JUDGMENT: 14 December 2018
CATCHWORDS: ARBITRATION – Application for adjournment of application to enforce arbitral award pending resolution of applications in the court of the “arbitral seat” (Supreme Court of Queensland) – Commercial Arbitration Act 2011 (Vic), ss 35 and 36 – Commercial Arbitration Act 2013 (Qld), ss 16(9), (11) and 34.
1 The Applicant (“Mitchell Water”) applies pursuant to s 35 of the Commercial Arbitration Act 2011 (“the Act”) for the enforcement of the arbitral award titled “VO#300: Outstanding Matters” dated 29 October 2018 (“the Award”) made by Mr Paul Santamaria QC as arbitrator (“the Arbitrator”). The Respondent (“McConnell Dowell”) seeks an adjournment of this application pursuant to s 36(2) of the Act, and alternatively, pursuant to the Court’s inherent or general power to control its own proceedings, on the basis that it has issued an application to set aside the Award in the Supreme Court of Queensland. Mitchell Water contends that, contrary to that contention, McConnell Dowell has done no such thing.
Brief history of the arbitration
2 Mitchell Water and McConnell Dowell are parties to a subcontract dated 1 May 2012 (“the Subcontract”) containing the agreement of the parties to submit disputes to arbitration. Pursuant to the subcontract, McConnell Dowell initiated the arbitration on 15 December 2014.
3 The arbitration was conducted pursuant to the Commercial Arbitration Act 2013 (Qld) (“the Queensland Act”). The arbitral hearings took place before the Arbitrator in the County Court building in Melbourne between May and December 2016. Both parties were represented by solicitors and counsel, and both parties called lay and expert evidence. It is uncontroversial between the parties that the “arbitral seat” is Queensland and that the supervising court is the Supreme Court of Queensland; and that this position was not affected merely because the arbitration hearings took place in Melbourne.
4 On 14 December 2017, the Arbitrator delivered an initial award dated 6 December 2017, which was subsequently amended by a supplementary award, dated 24 December 2017 (together referred to as “the December Award”). On 27 December 2017, Mitchell Water paid McConnell Dowell the amounts found to be payable to it in the December Award, less an amount of $4,010,893.20. This unpaid amount reflected the value of Mitchell Water’s security that McConnell Dowell continues to hold; despite, Mitchell Water says, its requests for return of this security.
5 On 12 January 2018, Mitchell Water issued a request pursuant to s 33(5) of the Queensland Act (“the Request”). The Request concerned Mitchell Water’s alternative claim for its direct costs of delay because it was delayed in achieving substantial completion of the Branch “B” and, or alternatively, the Branch “A” Gathering Systems by the applicable Date(s) for Substantial Completion under the Subcontract (“Alternative VO#300 delay costs claim”). The basis of the Request was that the December Award did not address the Alternative VO#300 delay costs claim, but made all the requisite legal and factual findings to make out that claim.
6 The parties filed written submissions in relation to the Request and, on 16 March 2018, the Arbitrator issued his determination (“the Determination”). The Determination refused the Request on the basis that s 33(5) of the Queensland Act did not apply. The Arbitrator did not determine the residual question of whether his mandate subsisted in respect of the Alternative VO#300 delay costs claim (“the Mandate Issue”).
7 Between 23 March 2018 and 12 April 2018, the parties exchanged letters regarding the Mandate Issue. Whilst Mitchell Water insisted the Arbitrator’s mandate subsisted, McConnell Dowell denied that it did then subsist. On 12 April 2018, the Arbitrator requested further submissions from the parties on the Mandate Issue. On 20 April 2018, the parties exchanged their further written submissions on the Mandate Issue pursuant to the Arbitrator’s request. McConnell Dowell submitted, inter alia, that the Arbitrator was functus officio and had no jurisdiction to determine the Alternative VO#300 delay costs claim (“the Jurisdiction Submission”). McConnell Dowell did not make any submission on the grounds of procedural fairness (being an issue that it now seeks to agitate in this Court and the Supreme Court of Queensland); but it is not clear why it might be thought that this would be a live issue if the Arbitrator were simply functus officio.
8 While these issues were in play, McConnell Dowell sought to enforce the December Award by an application dated 4 April 2018 to this Court. That application was, however, rendered redundant after 10 April 2018, when Mitchell Water paid to McConnell Dowell the remaining amount due under the December Award of $4,010,893.20, together with interest. That proceeding was, consequently, dismissed by consent.
9 The Arbitrator published his ruling—subject to some minor corrections, on about 7 June 2018—concluding that the arbitral mandate subsisted in respect of Mitchell Water’s Alternative VO#300 delay costs claim, and rejecting the Jurisdiction Submission (“the Mandate Determination”). Thus, as Mitchell Water contends, McConnell Dowell was expressly on notice that the Arbitrator considered that his mandate continued in respect of the Alternative VO#300 delay costs claim, and that he would proceed to determine that claim. Indeed, the Mandate Determination invited McConnell Dowell to make submissions on any potential procedural fairness issues that arose. It appears, however, that McConnell Dowell never did so.
10 On 15 June 2018, after receiving the respective positions of the parties on what further directions should be made, the Arbitrator issued directions regarding Mitchell Water’s Alternative VO#300 delay costs claim. In June 2018, the parties each filed with the arbitral tribunal, as directed, memoranda regarding their respective positions on that claim. Mitchell Water’s memorandum was, as ordered, limited to identifying the evidence already filed in the arbitration, and the findings in the December Award, on which it relied to substantiate the Alternative VO#300 delay costs claim. McConnell Dowell’s memorandum did not identify any procedural fairness concerns; a position which Mitchell Water contends is contrary to the position McConnell Dowell now adopts.
11 On 2 July 2018, McConnell Dowell filed an application under s 16(9) of the Queensland Act (“the s 16(9) application”), challenging the Mandate Determination and seeking an order from the Supreme Court of Queensland that the arbitral tribunal does not have jurisdiction to make any additional award. McConnell Dowell says that the s 16(9) application was filed in the Supreme Court of Queensland, as the place of arbitration was specified as Brisbane, Queensland. Moreover, it says that the project in respect of which the dispute arose was located in Queensland and the subcontract pursuant to which the subject works were undertaken and which contained the arbitration agreement was required to be construed in accordance with the laws of the State of Queensland.
12 However, as submitted by Mitchell Water, McConnell Dowell did not prosecute the s 16(9) application. It says that its solicitors had been provided with a copy of the application by email on 2 July 2018 under cover of an email asking whether they had instructions to accept service. Mitchell Water says that despite those instructions being confirmed, McConnell Dowell took no step to serve the application until 29 October 2018 and that there was no affidavit filed in support and no hearing of any kind, even of a procedural nature, being called. McConnell Dowell, on the other hand, says that it did not serve the s 16(9) application at the time as, depending on the outcome of any further “purported” award, the hearing and determination of the application may have proved to be unnecessary. However, McConnell Dowell did write to the Arbitrator on 12 June 2018, challenging the Mandate Ruling and foreshadowing the application to the Supreme Court of Queensland. This letter stated, among other things, that:
(a) the tribunal was functus officio and that it had no further authority to make any further award;
(b) McConnell Dowell would apply to the Supreme Court of Queensland under s 16(9) of the Queensland Act and ask that Court to decide the matter of the Arbitrator’s jurisdiction;
(c) the arbitral tribunal should, nevertheless, continue with the arbitration process (which it had power to do in any event, under s 16(11) of the Queensland Act); and
(d) it reserved all its rights, including without limitation in relation to the tribunal’s continuing jurisdiction.
An order pursuant to section 16(9) of the Commercial Arbitration Act 2013 (Qld) that Mr Paul Santamaria QC, Arbitrator, does not have jurisdiction to hear and determine the Respondent’s [Mitchell Water’s] “alternative delay claim” as described in the Arbitrator’s Award or ruling entitled “VO#300 and Separable Portions: does the arbitral mandate subsist?”, dated 3 June 2018.
As observed previously, McConnell Dowell says that it did not serve the s 16(9) application at the time because it may have proved to be unnecessary. More particularly, it says that if the Arbitrator went on to consider the purported alternative claim—a step that McConnell Dowell says it was powerless to prevent—and rejected Mitchell Water’s purported alternative claim, the matter would have fallen away and there would have been no need to occupy the time of the Supreme Court of Queensland or to incur the costs of the hearing and determination of the s 16(9) application. This is, in my view, a reasonable position to take and not a circumstance at odds with s 24B of the Act—rather, it is consistent with the obligations under the Civil Procedure Act 2010 (to the extent this legislation may be relevant with respect to a Queensland-seated arbitration).
14 In any event, the arbitral tribunal, on 29 October 2018, made a further award (“the Additional Award”) in favour of the claim made by Mitchell Water. Consequently, McConnell Dowell now seeks to prosecute, among other things, the s 16(9) application in the Supreme Court of Queensland. That application has now been served and a directions hearing took place before the Honourable Justice Martin on 13 November 2018. Additionally, McConnell Dowell has also applied to amend the s 16(9) application to also seek orders setting aside the Additional Award under s 34(2)(a)(iii)—on the ground that the tribunal had no jurisdiction to make the Additional Award—and also under s 34(2)(a)(ii) and (b)(ii)—on the ground that McConnell Dowell was unable to present its case and, or alternatively, that the Additional Award was contrary to public policy. Mitchell Water submits that a challenge to an arbitrator’s jurisdiction can be one of two types: either an active challenge (under s 16, or alternatively, under s 34 of the Queensland Act) or a challenge on a passive basis (under s 36 on grounds that mirror s 34 of the Act). The Act, and its equivalents in other jurisdictions, give, it says, a choice of remedies. Thus it is submitted that an arbitrating party’s choice to pursue one remedy may have implications for the availability of others. This is, Mitchell Water contends, such a case: so, as McConnell Dowell elected to challenge the Arbitrator’s jurisdiction under s 16, it cannot bring an application under s 34. These are, however, matters which, as I have indicated in these reasons, are properly resolved by the Supreme Court of Queensland—and matters which, in my view, only strengthen the position that an adjournment as sought by McConnell Dowell is the appropriate course.
15 Similarly, the argument by Mitchell Water that there is no basis upon which s 36(2) of the Act is presently enlivened because there is no extant application in the Supreme Court of Queensland for “setting aside” should, in my view be rejected for two reasons in this instance. First McConnell Dowell has applied to amend the s 16(9) application in the Queensland Supreme Court; the relevant court under the provisions of s 36(1)(a)(v). Secondly, I am of the view that the provisions of s 36(2) which are drafted broadly, descriptively, and without express reference to other provisions of the Act do comprehend an application under s 16(9) of the Act in addition, of course, to an application under s 34. In my opinion both a consideration of the language used in s 36(2), its purpose and the substance and effect of an application under s 16(9) or s 34 of the Act support this position.
16 As previously observed, the provenance of the Act is international, closely based as it is on the provisions of the Model Law and with reference to the New York Convention. It is, nevertheless, legislation operating with respect to domestic commercial arbitration within Australia and in circumstances where the other Australian states and territories have enacted uniform legislation in the same terms; though with some local variations, which are not relevant in the present context. This is, in my view, reflected in the provisions of s 36(1)(a)(v) of the Act which, unlike the corresponding provisions of Art 36(1)(a)(v) of the Model Law, makes specific reference to the “court of the State or Territory in which, or under the law of which, that award was made…”. So s 36(2) of the Act is clearly intended to operate with respect to an application to which its provisions apply in an Australian state or territory court. Thus a mechanism is provided to avoid a multiplicity of proceedings in various state and territory courts and the risk of inconsistent findings and any compromising or erosion of the effective exercise of jurisdiction under their particular state or territory arbitration legislation; viewed in the context of the Australian national scheme of uniform commercial arbitration legislation. It follows that, in addition to a consideration of the provisions of s 36(2) in its own particular legislative context, regard must also be had to this national picture. This position does, in my view, tend to suggest that the cases in relation to international arbitration under the New York Convention or the Model Law supporting the possibility of a divergence between the approach of the court of the arbitral seat—the supervising court—and an enforcing court, on the other hand, should not be applied in an Australian domestic arbitration context between courts of the Australian states and territories—certainly not without careful regard to the provisions of the uniform domestic arbitration legislation.
17 Looking at s 36(2) in its own particular legislative context and having regard to the language used I am of the opinion that the expression “setting aside” must be read as indicating both an application under s 16(9) and s 34. True it is that this expression leaps out at a reader of the Act in the heading to s 34 but that cannot be decisive when matters of substance are considered. Clearly if an arbitral award is set aside under s 34 by the court of the arbitral seat there would be no basis for its enforcement by that court under s 35(1). The same is true if that court were to find on an application under s 16(9) that the arbitral tribunal had no jurisdiction. It would be absurd in these circumstances if the legislation operated otherwise in these circumstances. The question then arises whether the position would be different if the court hearing an application under s 36(2) is not the court of the arbitral seat—the supervising court. In my view the position under s 36(2) does not change in these circumstances.
18 Where the court hearing an application under s 36(2) is not the supervising court it is not a court which could hear an application under s 16(9) or, for that matter, s 34. Thus there is no basis for supposing that the breadth of the expression “setting aside” should be viewed narrowly in these circumstances as only extending to s 34 applications. Moreover, having regard to the specific reference in s 36(1)(a)(v) to state and territory courts and in the context of the Australian uniform legislative scheme for commercial arbitration it seems quite clear, in my view, that the legislative intention is—subject to a proper basis for adjournment otherwise being established under s 36(2)—to protect the exercise by other state and territory courts of their jurisdiction with respect to s 16(9) or s 34 applications.
19 A point made against an interpretation of the expression “setting aside” in s 36(2) as including both s 16(9) and s 34 applications is that the former are intended in the legislative scheme to be brought promptly with a view to efficiency and expedition in arbitral proceedings—a legislative intent also evident in the duties imposed on parties under s 24B of the Act. This consideration is not, however, a matter going to the proper interpretation of s 36(2). Clearly the provisions of both s 16(9) and s 34 are intended to cover a significant variety of circumstances. It is a matter for the court which hears applications of either type to determine whether grounds for their success are made out. Failure to act promptly in bringing or prosecuting a s 16(9) application may militate against its success—but this is not a matter which impinges on the proper interpretation of s 36(2)—though it may well be a matter going to the success or failure of an application under those provisions.
20 Finally the parties made submissions with respect to the inherent jurisdiction of the Court to adjourn an application under s 35(1) in any event—a jurisdiction going beyond that conferred by s 36(2). It is common ground between the parties that the Court does have inherent jurisdiction to adjourn such an application to prevent an abuse of its processes and, I take it, the abuse of the processes of other courts which have a relevant connection with such an application. In my view this is the correct position but I do readily accept the caveat advanced that such a jurisdiction must be exercised cautiously having regard to the provisions of the Act and the clear legislative intention to cover the field of commercial arbitration law domestically and to strike a balance in favour of court support for arbitral processes—rather than intervention in those processes. Thus any inherent jurisdiction in this respect must be exercised with this balance in mind and in support of the operation of the legislation. It follows in the present circumstances that were I not of the view that, properly interpreted, s 36(2) extends to include an application under s 16(9) I would be of the view that the inherent jurisdiction should be exercised in favour of an adjournment to allow a s 16(9) application to proceed in the court of the arbitral seat—in this case the Supreme Court of Queensland. Some concern was expressed that the exercise of inherent jurisdiction of this nature would open the floodgates, so to speak, and encourage applications at odds with the balance against court interference. In my view this is not an argument against the existence and exercise of this inherent jurisdiction—rather than that Courts must be mindful of the matters to which I have referred. In any event the facts and circumstances of each application or applications are considered case by case—and there are unusual features in the present circumstance which are unlikely to occur frequently.
21 On 8 November 2018, Pinsent Masons, the solicitors for McConnell Dowell, wrote to HWL Ebsworth Lawyers, the solicitors for Mitchell Water, and proposed a timetable for the hearing of McConnell Dowell’s amended s 16(9) application. The proposed directions anticipated a one day hearing to be held on 22 February 2019 in the Supreme Court of Queensland. That date was, McConnell Dowell says, suggested because, among other things, it is a date on which the Supreme Court of Queensland could hear and determine the dispute. Mitchell Water did not, however, agree to the proposed consent orders and opposed McConnell Dowell’s application to amend its s 16(9) application to include the s 34 setting aside grounds (s 34(2)(a)(ii) and (iii), and s 34(2)(b)(ii)). McConnell Dowell contends, implicitly, that this is unhelpful, as it is at liberty, in any event, to issue a fresh setting aside application.
22 Orders were made by the Supreme Court in Queensland on 13 November 2018 in relation to the application by McConnell Dowell to amend the s 16(9) application. McConnell Dowell says that, to its knowledge, there are dates available in February 2019 in the Supreme Court of Queensland for the hearing of McDonnell Dowell’s s 16(9) application—but if that date or dates does not suit Mitchell Water, then McConnell Dowell is content to agree a mutually convenient date and to prosecute the application as swiftly as possible. Consequently I am satisfied that granting the adjournment as sought by McConnell Dowell will not result in any significant delay in resolving outstanding matters between the parties. Also, in relation to delay I am satisfied on the basis of these particular matters and more generally, as indicated in these reasons, that McConnell Dowell is not seeking and has not been seeking to delay the arbitral process or the resolution of matters with respect to that process as between the parties.
The Mandate Determination and the Additional Award
23 As contended by McConnell Dowell, a clear distinction does need to be drawn between the Mandate Determination on the one hand, and the Additional Award on the other. The position put by McConnell Dowell in relation to this determination and this award is as follows:
- A clear distinction needs to be drawn between the Mandate Determination on the one hand, and the Additional Award on the other. As is explained below:
(a) McConnell Dowell challenges the jurisdiction of the arbitral tribunal to make the Mandate Determination by way of its section 16(9) application in the Supreme Court of Queensland, which application will be heard and determined de novo; and(b) McConnell Dowell intends to set aside the Additional Award in Queensland (and to resist enforcement of the Additional Award in this court if the Enforcement Application proceeds) on the basis that:
(i) McConnell Dowell was otherwise unable to present its case: s. 34(2)(a)(ii), or the award was contrary to the public policy of this State: s. 34(2)(b)(ii); or
(ii) the Additional Award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration: s 34(2)(a)(iii).
24 McConnell Dowell submits that there are two separate issues that spring from the fact that both the Mandate Determination and the Additional Award are in contest. First, it says, the Mandate Determination was a discrete and separate determination and, arguably, it is not an award and so it is not “caught by” s 36 of the Act. Moreover, it says that given the place of arbitration was Brisbane, only the Supreme Court of Queensland has jurisdiction with respect to McConnell Dowell’s s 16(9) application to challenge the Mandate Determination and the Arbitrator’s jurisdiction. This, it is said, has important consequences if the Enforcement Application proceeds first in time; a matter which is discussed further in the reasons which follow. Secondly, McConnell Dowell says that the s 16(9) application will be by way of de novo hearing, while it is not clear whether any challenge to the Additional Award, on jurisdictional grounds, will necessarily proceed by way of de novo review. It is to these issues that I now turn.
If Mandate Determination is not an arbitral award — recourse only pursuant to s 16(9) of the Queensland Act
25 As McConnell Dowell submits, the term “award” is not defined in the Act; and nor is it defined in the Queensland Act. Having regard to the international provenance of the provisions of the Act and also the Queensland Act (both being based on the UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006) (“the Model Law”)) it is appropriate and helpful to look to some international authorities. Consistently with this position, reference is made by Holmes and Brown to a decision of the Ontario Court of Appeal as to the definition of “award”, as follows:
The Act does not define ‘award’, but the term generally connotes the judgment, decision or order of an arbitral tribunal that disposes of part, or all of, the dispute between the parties. Decisions, determining the substantive issues are awards. Matters relating to the conduct of the arbitration are not awards but, rather, are procedural orders and directions (Inforica Inc v CGI Information Systems and Management Consultants Inc 2009 ONCA 642 (CanLII) at  Sharpe JA).
Consistent with this position is the commentary in Williams & Kawharu on Arbitration:
14.2.1 Definition of “award”The United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration 1985 (the Model Law) does not contain a definition of an award, but s 2(1) of the NZ Act defines an award as “a decision of the arbitral tribunal on the substance of the dispute and includes any interim, interlocutory or partial award”.
The reference to a decision on the substance of the dispute connotes a final determination of the rights and obligations of the parties which gave rise to the dispute. The phrase “the substance of the dispute” generally precludes procedural rulings, orders or directions from qualifying as awards, and there are many cases to this effect. The distinction between an award and a procedural decision of the arbitrators may be a fine one in practice. The intituling of a decision as an order is not decisive if the decision comes within the definition of an award. It has been suggested persuasively by Rix J that there are three relevant principles:
(a) A decision which finally determines a claim can be made the subject matter of an award; if it is determinative of all issues, it is a final award, but if part of the reference only is resolved it is a partial award only.
(b) The arbitrators probably have the discretion to render any decision in the form of an award, even a procedural decision. This is not to be encouraged, given that procedural decisions cannot be attacked during the course of an arbitration whereas an appeal to the courts can be lodged against an award as soon as the award is made. However, in appropriate circumstances, for example decisions involving important points of principle, a procedural decision may be made in the form of an award.
(c) It is doubtful whether all interlocutory decisions can be treated as awards even though they are so expressed.
A negative decision on the preliminary question of jurisdiction does not amount to an award, even if by virtue of that ruling the arbitration comes to an end. This is because, by its very nature, such a ruling leaves undetermined all the substantive claims of the parties.
26 The Mandate Determination proceeded by way of consideration of a preliminary question which was, in essence, whether the tribunal had jurisdiction to make the Additional Award. The arbitral tribunal ruled that it did. This was, as McConnell Dowell contends, the determination of a “preliminary question” and, on one view which is, in my opinion, correct, it did not result in the handing down of an award on the merits. The provisions of ss 16(9) and 16(11) also indicate by their terms, strongly, in my view, that a ruling on jurisdiction is not an award for the purposes of either the Act or the Queensland Act. This point is, in my opinion, made clear by a consideration of the provisions of these subsections—particularly the language of s 16(11)—which are cast in the following terms (the provisions of the Act and the Queensland Act being identical):
- Competence of arbitral tribunal to rule on its jurisdiction (cf Model Law Art 16)
…(9) If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within 30 days after having received notice of that ruling, the Court to decide the matter.
(11) While a request under subsection (9) is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.
27 Accordingly, in my view, in the Enforcement Proceeding in this Court, McConnell Dowell may not be able to challenge the Mandate Determination if it is found not to be an “award”. In this respect, it is pertinent to keep in mind that as both s 16(9) and s 36(1)(a)(iii) of the Act and the Queensland Act are concerned with the jurisdiction of the arbitral tribunal, if this Court makes a determination based on s 36(1)(a)(iii) in relation to the arbitral tribunal’s jurisdiction, McConnell Dowell may face conflicting findings and be issue estopped from seeking orders contrary to those findings, based on s 16(9).
28 Moreover, given that the Mandate Determination may not be an “award” to which s 36(1)(a)(iii) applies, McConnell Dowell may not be able to submit to this Court, for example, that it contained decisions on matters beyond the scope of submission to arbitration. Put differently, McConnell Dowell contends, the Enforcement Application concerns the Additional Award and not the Mandate Determination. So, to the extent that the jurisdictional issue was determined in the Mandate Determination (which it was), McConnell Dowell may be shut out from impugning the arbitrator’s lack of jurisdiction in the Enforcement Proceeding. If this were found to be the position, it would, as McConnell Dowell contends, severely prejudice its ability to exercise various statutory rights under the Act and the Queensland Act.
29 The possibility of severe prejudice to McConnell Dowell’s ability to exercise statutory rights is because, in resisting enforcement of the Additional Award in this Court, it will rely, as it says, on s 36(1)(a)(iii) of the Act. In so doing, issues of jurisdiction will be agitated in this Court in relation to the Additional Award. I accept that it is likely that, as submitted, this Court, though not considering directly, the Mandate Determination, is likely to make findings about the jurisdiction of the arbitral tribunal to make the Additional Award. Those findings may well, as McConnell Dowell contends, prevent it from prosecuting, at a later time, its s 16(9) application in the Supreme Court of Queensland, on the basis of issue estoppel. That is because both s 16(9) and s 36(1)(a)(iii) of the Act are concerned with the jurisdiction of the arbitral tribunal and, if this Court makes a determination on s 36(1)(a)(iii) in relation to the arbitral tribunal’s jurisdiction, McConnell Dowell may well face conflicting findings and be subject to an issue estoppel from seeking orders contrary to those findings, based on s 16(9). I also accept that, even though this Court may not rule on whether the arbitral tribunal was correct in making its Mandate Determination, its findings on the Additional Award may well impinge upon McConnell Dowell’s ability to challenge the Mandate Determination in the Supreme Court of Queensland.
30 In Hebei Jikai Industrial Group Co Ltd v Martin (“Hebei Jikai”), Wigney J considered the operation of Article 16(3) of the Model Law. Article 16(3) of the Model Law is cast in similar terms to ss 16(9) and 16(11) of the Act and the Queensland Act. Article 16(3) of the Model Law provides:
The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article [i.e. rule on the tribunal’s jurisdiction] either as a preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specified in article 6 to decide the matter, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.
In this context, Justice Wigney said:
Article 16(3) provides that where one of the parties pleads that the arbitrator does not have jurisdiction, the arbitrator may rule on the plea in one of two ways. First, it may rule on the plea as a “preliminary question”. If decided as a preliminary question, the parties have no recourse to the court unless the decision is that the arbitrator has jurisdiction. Recourse to the court in that circumstance is not recourse under article 34. Rather, it is recourse under article 16(3).
31 The Mandate Determination was, in this case, decided as a preliminary question, rather than as part of an award on the merits. Accordingly, for the preceding reasons, it may well be that McConnell Dowell cannot challenge the Mandate Determination in the Enforcement Proceedings in this Court because, as a separate determination as a preliminary question, the argument is stronger that it is not an “award” and hence not subject to the provisions of s 36 of the Act. It is for these reasons, and because McConnell Dowell contends that it may be shut out from prosecuting its s 16(9) application in the Supreme Court of Queensland if the Enforcement Application proceeds before the hearing and determination of the s 16(9) application; hence, the Enforcement Application in this Court should be adjourned.
Standard of review applicable on jurisdiction review under s 36 of the Act
32 In hearing the s 16(9) application, the Supreme Court of Queensland will determine the matter de novo. In relation to these provisions and in a recent judgment of this Court in Lin Tiger Plastering Pty Ltd v Platinum Construction (Vic) Pty Ltd, it was said:
On the basis of these authorities and commentaries, the position is, in my view, that a hearing de novo is the correct standard of review to be applied under s 16(9) of the CAA. Deference should duly be given to the cogent reasoning of the arbitral tribunal but the Court is the final “arbiter” on the question of jurisdiction. As has been observed, this is an aspect of court assistance and support of arbitral processes and is not at odds with the policy of minimal court intervention or “interference”.
- However, the standard of review (de novo or merits review) on an application to resist enforcement under section 36(1)(a)(iii) has not been authoritatively determined in Australia. While it is probable that the standard of review is de novo, the same as under section 16(9), there does not appear to be Australian authority on point. Therefore, if McConnell Dowell is not permitted to agitate its s 16(9) application in the Supreme Court of Queensland, and is left to argue the jurisdiction point (on the Additional Award; not the Mandate Determination) under section 36(1)(a)(iii) instead, then it may not have the advantage of a de novo review (and will thereby be prejudiced by the hearing of the enforcement proceeding first).
[emphasis in original]
34 I accept that, as submitted by McConnell Dowell, these are further reasons, in addition to those previously discussed and those discussed further below, why the Court should exercise its discretion and adjourn the Enforcement Application.
Discretionary factors in deciding whether to adjourn the Enforcement Proceeding
Factors to be considered
35 The provisions of Article VI of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (“the New York Convention”) make provision for adjournment of an enforcement application in the following terms (terms which are now also reflected in s 36 of the Act):
If an application for the setting aside or suspension of the award has been made to a competent authority referred to in Article V(1)(e), the authority before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.
In IPCO (Nigeria) Ltd v Nigerian National Petroleum Corp, Gross J, sitting in the Commercial Court of the English High Court, said:
… Ordinarily, a number of considerations are likely to be relevant: (i) whether the application before the court in the country of origin is brought bona fide and not simply by way of delaying tactics; (ii) whether the application before the court in the country of origin has at least a real (i.e. realistic) prospect of success…; (iii) the extent of the delay occasioned by an adjournment and any resulting prejudice. Beyond such matters, it is probably unwise to generalise; all must depend on the circumstances of the individual case.
It is to these criteria that I now turn.
McConnell Dowell’s jurisdictional argument – is it bona fide and does it have real prospects of success?
36 In the context of jurisdiction and the s 16(9) application, the real controversy is whether the purported alternative claim was pleaded by Mitchell Water at all and, secondly, having regard to the position that the arbitral tribunal found that the claim was not pressed by Mitchell Water in the arbitral hearing at all—even if pleaded—what are the consequences of that finding. Moreover, it should be observed that in the Final Award, the arbitral tribunal made no mention of the VO#300 Alternative Direct Costs claim at all, and the arbitrator did not reserve to himself jurisdiction to deal with that claim subsequently.
37 The VO#300 Alternative Delay Claim, also known as the “separable portions claim” or the “alternative delay claim”—given it referred to separable portions of the work known as “Branch B”, “Branch A” and “Branch G”—is the alternative claim in issue in the s 16(9) application and is a claim for direct costs. The primary claim of Mitchell Water was that it was entitled to both direct and indirect costs resulting from delay if the project in its entirety was completed later than its own scheduled completion date, even if completion occurred prior to the contractual date for completion. This primary claim was rejected by the arbitral tribunal in the Final Award. The alternative delay claim was brought by Mitchell Water after the arbitral hearing had commenced and it was to the effect that even if no delay costs were available if the project in its entirety was completed before the contractual completion date, delay costs were available if one or more of the separable portions were delayed beyond the contractual completion date for that or those particular portion or portions. Potentially, the alternative claim had two limbs: a claim for direct costs on the one hand (the VO#300 claim), and indirect costs on the other hand (the VO#98 claim). The alternative indirect costs claim was agitated at the arbitral hearing and the tribunal dismissed the claim, but the alternative direct costs claim was not agitated in the arbitral hearing at all.
38 Against this background with respect to the pleadings and the conduct of the arbitral hearing, McConnell Dowell contends that its s 16(9) application is both bona fide and that it has real prospects of success. This, it is said, is evident by the fact that the arbitral tribunal itself, in the s 33(5) Determination—which preceded the Mandate Determination, and which is extensively quoted from and relied on by the arbitral tribunal in the Mandate Determination—made the following comments and findings:
- Mitchell Water submits that on a plain reading of paragraph 89 [of its pleading] (which cross-references paragraphs 84A to 87D), the pleading claims both indirect and direct costs arising from the delays in question. This is true to an extent – in as much as the plea does not expressly confine itself to indirect costs. …
[emphasis in original]
- The mischief caused by pleading the particulars in this way was that the ambit of the paragraph 89 claim became hostage to the content of Mr Andrews’ [Mitchell Water’s expert] subsequent report, which had not been served by that date and, in all likelihood, was still in the course of preparation by him. But because Mr Andrews report was confined to indirect costs, Mr Blunden’s [McConnell Dowell’s expert] responding report was similarly confined to indirect costs. For reasons which remain something of a curiosity, Mitchell Water did not request Mr Andrews to revisit his 17 June 2016 report to include his opinion on direct costs…
- Mitchell Water did not alert McConnell Dowell (in particular Mr Blunden) that paragraph 89 was intended to comprehend both indirect and direct costs. I do not give weight to Mitchell Water’s submission that it was incumbent on McConnell Dowell to “complain about a lack of particulars of the direct cost component of the claim”. It was for Mitchell Water to recognise, and address, any lacuna in its proofs, not the other way around.
[Emphasis in original]
- The mischief that might fairly be said to have arisen would, one expects, to have been recognised and addressed in final submissions in the arbitration. So that although there would be no question that the amended plea in paragraph 89 would be secondary to Mitchell Water’s primary claim based on the reference point of the Rev 2 Program, nevertheless the secondary claim would be pressed with sufficient vigour as the alternative claim for recovery of its reasonable costs pursuant to clause 7.2.
- That did not occur, as I have indicated in paragraphs 100 to 106 above. Mitchell Water’s VO#300 case was pressed in the context of the Rev 2 Program, not the Date or Dates for Substantial Completion in the Subcontract [i.e. not in relation to the alternative direct costs claim]. Mitchell Water’s submissions in respect of the present Request identify the pleadings, the evidence, findings made by the tribunal – but there is no mention of submissions on the VO#300 separable portions claim which the tribunal might, apparently, have ignored.
- … I concluded on the materials and submissions that the tribunal was required to determine the Paragraph 89 Claim only in respect of VO#98, the indirect costs claim. …
- … The tribunal did not address the Paragraph 89 Claim in the context of direct costs because it was not developed by reference to the separable portions; it was confined to indirect costs. Mr Andrews’ expert evidence on the separable portions concerned only indirect costs. …
39 McConnell Dowell submits that these findings which were made by the Arbitrator show that the jurisdiction issue is a genuine issue and that it has real prospects of success in succeeding on the point. This, it is said, is because McConnell Dowell says it will say that the alternative claim was not pleaded or pressed and that the consequence of that is that it was not within the arbitrator’s jurisdiction to decide the claim.
A highly-important issue in determining whether to stay recognition proceedings concerns the nature of the issues presented in the annulment proceeding and the recognition proceeding. In cases where the annulment court has particular expertise in issues pending before both the annulment and recognition courts, there is a particularly strong case for staying recognition. As discussed above, this can involve questions whether there is a valid arbitration agreement (where the law applicable to the arbitration agreement may be that of the arbitral seat), falling within Article V(1)(a), or whether the arbitral procedures complied with the law of the arbitral seat, falling within Article V(1)(d).
41 McConnell Dowell submits that Professor Born’s commentary in this respect applies, analogously, to the issues presently before this Court. That is, it is said, the Queensland Supreme Court is the only court that can hear and determine the s 16(9) application. That application involves consideration of the Mandate Determination; a challenge which McConnell Dowell says it made clear to Mitchell Water in a letter dated 12 July 2018. Thus it is McConnell Dowell would be prejudiced if now denied the opportunity to make this application before the Queensland Supreme Court.
42 In Toyo Engineering Corp v John Holland Pty Ltd (“Toyo”), Byrne J considered an application to adjourn an enforcement application pending the hearing of a setting aside application. Though the application in Toyo was made under the International Arbitration Act 1974 (Cth), the reasoning does, in my view, apply equally in the present statutory context having regard to the common international provenance.
43 In Toyo, which was heard and determined on 19 December 2000, and after listing the various matters submitted by counsel as relevant to the exercise of the Court’s discretion, Byrne J concluded that “it could not be stated with confidence that the impeachment application is unarguable”, and went on to say that the “determinative factor is that the adjournment will be only for a relatively short time”. His Honour then said:
… [I]t seems likely that the impeachment application will be heard on 16 February 2001. I consider that this period of stay upon enforcement is so short that I should not, by any order on my part, put an obstacle in the way of the effective disposition of that application or in any way pre-empt it. It must be remembered that the parties themselves, including [Toyo Engineering Corp (Japan)], have selected the Singapore High Court as the appropriate forum to deal with matters affecting the arbitration. It seems not unreasonable that a challenge to the award should be permitted to proceed in that court.
44 Thus, McConnell Dowell submits that it cannot be said that its s 16(9) application, as amended, is “unarguable”, and that a similar, short, time frame applies here. Moreover, it is said that it is likely that the setting aside application in Queensland can be heard and determined in February 2019, and that a short delay until February 2019 is not unreasonable in all the circumstances. McConnell Dowell also undertakes to diligently prosecute its s 16(9) application and that it is also ready, willing and able to provide security for the full amount of the Additional Award; including ongoing interest.
45 For these reasons, but subject to those which follow with respect to procedural fairness/natural justice issues, I accept McConnell Dowell’s submission that the Court should, for the reasons identified by Byrne J in Toyo, exercise its discretion and grant an adjournment.
McConnell Dowell’s procedural fairness/natural justice argument – is it bona fide and does it have real prospects of success?
46 As already observed, McConnell Dowell has applied to amend its s 16(9) application in the Supreme Court of Queensland to include reliance on ss 34(2)(a)(ii) and 34(2)(b)(ii), both of which deal with the procedural fairness or natural justice ground for setting aside the Additional Award (and the same provisions are available in opposing recognition and enforcement under ss 36(1)(a)(ii) and 36(1)(b)(ii)). With respect to the procedural fairness and natural justice ground, there are three important issues which, McConnell Dowell submit, illustrate that the claim is bona fide and that it has a real prospect of success—or is, at least, not unarguable.
47 The first of such grounds is that the purported alternative claim was not agitated in the arbitral hearing at all. So much is evident from the arbitral tribunal’s s 33(5) Determination and the extracts therefrom at paragraph 38, above. Neither the arbitrator nor McConnell Dowell addressed the VO#300 alternative claim (McConnell Dowell led no evidence about it) at the arbitral hearing simply because it was not pleaded (on McConnell Dowell’s case) and it was not pressed (as determined by the arbitral tribunal). It was addressed post-hearing, by limited submissions, only. Where a claim is pleaded, but not pressed, there is authority that it is res judicata on delivery of the arbitral award.
48 Secondly, McConnell Dowell had no opportunity to lead evidence about the purported alternative claim at the arbitral hearing, nor to cross-examine witnesses on the claim at the hearing, because the claim was—as found by the arbitrator—not pressed at the hearing. It is contended by McConnell Dowell that it was simply not a “live” claim. McConnell Dowell says it had no reasonable opportunity (or any opportunity at the hearing) to address the claim nor to lead evidence on the claim because it did not know the claim was actually being made. While McConnell Dowell had no opportunity to oppose the alternative claim at the hearing, to cross-examine witnesses and the like (with the alternative claim being considered “on the papers” post hearing); Mitchell Water, on the other hand, had full opportunity to test all of McConnell Dowell’s claims by putting on evidence and by way of cross-examination at the hearing. Thus, McConnell Dowell contends that the claims as treated by the Arbitrator were “unequal”; that is, the process was unfair.
(a) found that McConnell Dowell would, in all likelihood, have led evidence and made submissions on the issue of whether Mitchell Water had suffered a loss of direct costs for each of Branch B, Branch A and Branch G Gathering Systems, if Mitchell Water had itself put on evidence and made submissions about those costs;
(b) stated that he was cognisant of McConnell Dowell’s submission on the Section 33(5) Determination, which he noted was equally pertinent to the Mandate Determination, that if Mitchell Water had made a claim for direct costs for VO#300 for each of Branch B, Branch A and Branch G Gathering Systems, McConnell Dowell would have had the opportunity to respond to that claim, including the opportunity to deliver evidence responding to that claim;
(c) noted McConnell Dowell’s submission that no such opportunity arose because the claim was not made and that to permit the claim to be made now would deny McConnell Dowell natural justice;
(d) stated that “without having formed a final view on this issue without availing the parties an opportunity to be heard, it seems to me that it might be argued that McConnell Dowell is entitled to submit that” as a result of Mitchell Water’s failure to press the alternative claim, its evidence did not address the alternative claim and it did not include the topic in its written, or oral, closing submissions; and
(e) stated that it would be unhelpful to say more on the above matters at that stage, but that, while he did not wish to prolong matters “it is trite that, ‘win, lose or draw’, both parties will have been afforded procedural fairness …”.
50 In the VO#300 Alternative Delay Claim Determination, the Arbitrator quoted from his own observations in the Section 33(5) Determination about the fact that McConnell Dowell would have put on evidence and submissions on the alternative direct costs claim if Mitchell Water had done so. The Arbitrator, however, took the matter no further and proceeded to analyse the evidence and arguments in relation to the issue. No further mention is made of his finding that McConnell Dowell would have, but due to the conduct of Mitchell Water did not, put on evidence or makes submissions on the alternative claim. Nevertheless, the Arbitrator referred to the fact that McConnell Dowell had failed to prove a matter of evidence in relation to a response that it now raised to Mitchell Water’s alternative claim:
McConnell Dowell’s case appears to be premised on the assumption that whenever the one crew was delayed in work on Branch “B”, then it was possible for the crew to move to Branch “A” or “G”, and perform work which it would necessarily have to undertake en route to completing the works at the conclusion of Branch “G”, by 20 October 2012. So that, although there may have been delays within Branch “B”, in net terms there would be no loss provided that work was made up by the one crew prior to the completion of Branch “G”. However, it is not sufficient to state that assumption without more: the feasibility of alternative, or substitute, work would need to be proved – by McConnell Dowell, who raise the issue as a defence.[emphasis in original]
Thus McConnell Dowell contends that the Arbitrator appears to have overlooked that, in order to prove this issue, it would have needed to know that the claim was pleaded and pressed against it. If it had been pleaded and pressed, McConnell Dowell says that it may have led evidence from its own witnesses, may have sought to extract concessions from Mitchell Water’s witnesses and may have sought to tender documents which tended to prove the matters referred to by the Arbitrator.
51 Thus, for the purposes of the adjournment application, the fact that McConnell Dowell was not able to lead evidence and to test the evidence of Mitchell Water’s witnesses on the alternative claim does, in my view, for the purposes of this application, meet the threshold of a relevantly arguable denial of natural justice.
52 Thirdly, the post-hearing consideration of the purported alternative claim that took place was undertaken by the arbitral tribunal after the Arbitrator had considered McConnell Dowell’s three without prejudice Calderbank offers, all of which were rejected by Mitchell Water, and all of which were made well before the Final Award. The Arbitrator’s discussion of McConnell Dowell’s Calderbank offers is set out in the Final Award from pages 1698 to 1701. In particular, the Arbitrator said in the Final Award:
41.51 I do not propose to set out in any detail the contents of the three McConnell Dowell offers, other than to summarize them as follows:(a) by letter dated 7 May 2015, that Mitchell Water pay McConnell Dowell $7,747,644.30 in full and final settlement inclusive of interest and costs (“May 2015 Offer”);
(b) by letter dated 30 July 2015, that Mitchell Water pay McConnell Dowell $7 million plus costs in full and final settlement; (“July 2015 Offer”)
(c) by letter dated 26 April 2016, (“April 2016 Offer”) that Mitchell Water pay McConnell Dowell $5 million plus costs (of $1.8M or to be taxed in default of agreement) in full and final settlement.
41.53 I have read the Calderbank letters exchanged by the parties.
41.60 That the April 2016 Offer was open for (only) a week was not unreasonably short in all of the circumstances. I reject Mitchell Water’s submission on that point. I also reject Mitchell Water’s submission that the Offer was vague, unclear or lacked necessary explanation as to how the offer was framed.
41.62 I find that McConnell Dowell’s April 2016 Offer was effective for the purposes of its costs of the arbitration incurred after the period of, the one week in which Mitchell Water had to evaluate it. Subject to the operation of the cap, McConnell Dowell is entitled to its costs from 3 May 2016 on a legal practitioner and client basis.
[emphasis in original; citations omitted]
53 McConnell Dowell contends that it is procedurally unfair and a denial of natural justice for the Arbitrator to have made the Additional Award—in an amount which happens to be in the range of the Calderbank offers made by McConnell Dowell—afterconsidering McConnell Dowell’s without prejudice Calderbank offers. Against this position, Mitchell Water submits that McConnell Dowell has failed to identify any part of the Additional Award which suggests that the consideration by the Arbitrator of the Calderbank offers resulted in him not treating the parties “with equality”. Moreover, it is suggested by Mitchell Water that the arbitral regime established by the Model Law and implemented in the Act contemplates that additional awards, whether under s 33(5) of the Act or otherwise, may be delivered by an arbitrator who has considered correspondence which is “without prejudice save as to costs”. This issue is, in my view, sufficiently arguable for the purposes of the adjournment application.
Conclusions and orders
54 For the preceding reasons, the application for adjournment of the Enforcement Proceeding is granted. I will hear the parties further on the appropriate formulation of orders in this respect. Also, the question of costs is reserved and I will hear the parties further in relation to this issue.
55 Having reached this position, it follows that it is neither appropriate nor desirable to deal with the enforcement application at this stage. Moreover, it should be made clear that nothing in these reasons should be taken to indicate any view with respect to either the enforcement application or any application which may be made in the Supreme Court of Queensland.